September 2012 – Looking Forward

September 27, 2012

30 Years Of Inc-500

The Kauffman Foundation sponsored a study of the companies in the Inc. 500 over the last thirty years.

State and local government have had way too much unwarranted belief in physical clusters, especially of high tech industries. In the next thirty years, these trends presumably will get stronger as Internet collaboration and video tools become more widespread.

In part, this study is significant because it has been widely distributed among American governors (see their summary at the end):

“Analysis of the Inc. 500 geographic and industrial information led to the following major findings:

So-called high-tech sectors constitute only about a quarter of fast-growing Inc. firms: IT (19.4 percent) and Health and Drugs (6.5 percent). Other major sectors include Business Services (10.2 percent), Advertising and Marketing (8.5 percent), and Government Services (7.3 percent). Thus, innovations and growth of firms come from a wide range of industries.

Among large metropolitan areas, Washington, D.C., has the highest concentration of Inc. firms in terms of the number and normalized score, with more than 46 percent of them in Government Services. This rise of D.C. high-growth companies is persistent in the last two decades, regardless of party administration, and demonstrates that, ironically, outsourcing federal government services plays a large role in the growth of private firms.

There are innovative, high-growth companies outside of the usual suspects of technology places, like Silicon Valley. Such surprise regions include Salt Lake City (second), Indianapolis (sixth), Buffalo, N.Y. (eleventh), Baltimore (fifteenth), Nashville (eighteenth), Philadelphia (nineteenth), and Louisville, Ky (twentieth). These clusters of Inc. firms, including those in the area’s so-called Rust Belt Region, suggest that population growth in the region is not necessarily a factor for growth of firms.

While regional development literature suggests the presence of venture capital investment, high quality research universities, federal R&D funding (such as SBIR), and patents are good sources for growth, Inc. firms had no correlations with these factors. In contrast, we find that the presence of a highly skilled labor force is important for concentration of Inc. firms.

We do not find a uniform trend of increasing or decreasing concentrations of Inc. firms across regions in the last thirty years. This geographic inequality comes in a cycle of twelve to thirteen years. Most states remained at their relatively similar Inc. score throughout the last thirty years, while a handful of states experienced radical moves: D.C. and Utah became the rising stars, New Hampshire declined steadily, and Delaware had ups and downs.”

From the National Association of Governors’ newsletter:

Fastest Growing Companies Not Always Part of Tech Industry

The Ewing Marion Kauffman Foundation released an analysis of the Inc. 500 list, an annual list of the 500 fastest growing companies in the United States, between 1982 and 2010. The report includes data visualization tools allowing readers to examine specific counties and states. The report’s authors found there was no correlation between the factors traditionally cited as drivers of growth (such as venture capital investment, high quality research universities, federal R&D funding, or patents) and the existence of Inc. 500 firms. The concentration of firms in states largely remained constant across regions and states in the last thirty years despite varied economic development programs. Only a handful of states made radical moves in concentrations of firms, with Washington D.C. representing the largest jump. Among large metropolitan areas, Washington D.C. has the highest concentration of Inc. 500 firms, with half of firms providing government services.

The authors also found that the fastest growing companies were located in a variety of regions and industries, rather than in the high-tech industries often targeted by state economic development programs. Although cities like Austin, TX that are traditionally associated with the high-tech industry were in the top 20 metropolitan areas according to number of Inc. 500 companies, rust belt cities like Buffalo, NY and Baltimore, MD also made the list. Outside of Washington D.C., the Inc. 500 firms were found in IT (19.4 percent), health and drugs (6.5 percent), business services (10.2 percent), advertising and marketing (8.5 percent), and government services (7.3 percent).

[http://njacknis.tumblr.com/post/32388695228/30-years-of-inc-500]

September 17, 2012

A Test Of Social Impact Bonds In NYC

Last month, there was a not widely noticed article, “Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply”.

This experiment will be watched all over the US. I’ve worked with MDRC in the past and they are a reputable organization, with considerable expertise in programs to provide “transitional employment” to traditional private sector employment (including ex-offenders, juvenile delinquents, welfare recipients and drug addicts). They have been mostly known for running major social experiments. So this experiment may have a somewhat higher probability of success than an initial reading would imply.

However, the social bonds strategy raises a variety of fundamental issues about public services. These are only some of the questions (and I’m not even sure that this list is all that clear):

If such a program is so important, why isn’t the government paying for it? Is this just a short-sighted way around raising public funds for a necessary program?
If this strategy grows to be a major source of funding for social programs, what potential abuses might grow with it? (The Clinton-Bush program of expanding home ownership also seemed like a good idea before it got out of hand, ultimately leading to the largest financial bust in 80 years.)
If this strategy becomes the major source of funding for government programs, does the market decide what public goods/services can be funded?
It would seem that some of the risk is being shifted to private financial organizations, but the reality may different once these bets fail to pay off. Will this become another form of socializing risk, when that was not the original intention?

Clearly this is an interesting experiment in public finance. What’s less clear are the ways that the social programs are themselves experimenting with new ways of doing things, better use of technology, etc.

By the way, I’ve already heard people discuss using the social bonds approach as a way of financing broadband for economic development.

[http://njacknis.tumblr.com/post/31725325953/a-test-of-social-impact-bonds-in-nyc]

September 12, 2012

Five Books To Help Us Think About Our Times

I’ve been quiet on the blog for the last few weeks during the summer doldrums and vacations – a great time to catch up on reading books, including some that were published a while ago.

Here are quick highlights of some of my more interesting summer reading.

1. Now You See It: How Technology and Brain Science Will Transform Schools and Business for the 21st Century by Cathy N. Davidson (2011)

This book describes how we should be thinking about life in the 21st century. In many instances, Davidson completely upends well established patterns of the industrial era. She is well known in academic circles as a neuroscientist and former dean at Duke University, where she introduced the widespread use of technology among students. The book covers a variety of topics, including education, work and aging.

2. Thinking, Fast and Slow by Daniel Kahneman (2011)

Kahneman, Princeton Psychology Professor and winner of the Nobel Prize in Economics, has pulled together the basic knowledge in cognitive science and how people actually make decisions. If you want to catch up on what’s happened in behavioral science since you left college, this is the book for you. It draws out some of the implications in a variety of contexts. (Later, I’ll be posting a blog on the implications for public officials who want to gain acceptance for innovations.)

3. When Old Technologies Were New: Thinking About Electric Communication In The Late Nineteenth Century by Carolyn Marvin (1988)

If you believe what you read and watch on the news media, we live in an age unparalleled rapid change in which technology causes people to become detached from each other by technology among other awful new phenomena. Marvin takes us on a history of technologies, like the telegraph and telephone, which we now take for granted but once were new. The same kind of observations we get today about the Internet were foreshadowed long ago. (Later, I’ll post a separate blog with some wonderfully juicy quotes along these lines.)

4. Adapt: Why Success Always Starts with Failure by Tim Harford (2011)

With so many people saying they are innovative, Harford shows how those people will not succeed at innovation unless they develop some patience, even an appetite, for the failures that often precede success. He provides fascinating examples.

5. Original Meanings: Politics and Ideas in the Making of the Constitution by Jack Rakove (1997)

In this year’s unusual election of ideological contrasts, there has been an underlying (and often visible) debate about the views of the Founding Fathers when they wrote the constitution. Rakove’s book provides the details of their debates and their own ambiguous feelings about many of the decisions which we now treat as is handed down in stone by the supreme being.

These were politicians with great insight into political behavior and how it might be shaped. Their concerns were well-founded, since some of what they worried could happen has happened. But, in part, they were reacting to experiences in the 18th century that we do not share today.

It also revealed the Founding Fathers’ concerns about those who sought some clear original meaning in what they wrote – and when their short term political objectives encouraged them to make the same kind of arguments about original meaning that politicians today make.

[http://njacknis.tumblr.com/post/31399036091/five-books-to-help-us-think-about-our-times]