Steven Pearlstein: Not exactly the nation’s entrepreneurial capital

Steven Pearlstein
Columnist January 28, 2012

A series of columns on the Washington regional economy is bound to generate a good deal of e-mail reaction, some of which I share with you today.

The request for big ideas brought lengthy, passionate briefs in favor of thorium reactors, nonstop flights to China, buried power lines, privatization of state and county liquor monopolies, agricultural clusters in the exurbs, more knowledgeable bank loan officers, more runways at Dulles, more bike paths and more trams in the inner cities. All worthy ideas, I’m sure, but not exactly the economic turbochargers I was seeking.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

More noteworthy is what I didn’t get, which was much disagreement with the basic premise — namely, our overreliance on federal spending that is certain to decline and the need to come up with a realistic strategy for dealing with it.

If you remember one number, let it be this one from my George Mason University colleague Stephen Fuller: Other than goods and services sold to government, only 12 percent of the region’s output is sold to people and businesses outside the region, a number that has fallen in recent years rather than risen.

In practical terms, that means we’re in for some lean years until we can diversify our “exports” outside the region. There was also little disagreement on what the most likely alternative might be: commercial technology, of both the digital and bio variety.

There was also consensus that the ability of our companies to compete in commercial markets is hampered by high costs, inadequate transportation infrastructure and the mismatch between the job skills required for such an economy and those possessed by our current workers.

Before he became a congressional candidate, John Delaney, a successful local banker and financier, put together two reports under the banner of Blueprint Maryland that give a concise and compelling account of the challenges facing not just Maryland but the wider region, as well (www.blueprint­ -
maryland.org
). Maryland, it turns out, is no less dependent on federal spending than Virginia and the District. The report does a good job of drawing the link between high costs and sprawl.

Delaney also makes a convincing case that the region has an opportunity to participate in the national manufacturing revival by better leveraging the Port of Baltimore, particularly now that a widened Panama Canal will change the economics of transporting goods from Asia to the East Coast.

Transportation, warehousing and manufacturing can provide jobs for lower-skilled workers not just in Baltimore but in Prince George’s County and the District, as well. This needs to be a regional priority — the Washington-Baltimore region, that is, which is the way we need to start thinking about things, putting aside rivalries.

What distinguishes the work of Blueprint Maryland, like that of the 2030 Group in Virginia, another “ad hoc” business group, is that it is candid and critical about our weaknesses in ways that the boosters of the Board of Trade and government officials are not.

There was pushback from those who thought I overlooked their work when making the sweeping generalization that Washington didn’t really have much of a commercial tech culture or ecosystem.

Jon Aberman wrote about his Founders Group, a network of serial entrepreneurs who mentor young ones, and the enthusiastic response to the state chapters of Startup America that AOL’s Steve Case is spearheading. Brent Solomon, of the Reznick Group, reported that he’s helping start a chapter of Keiretsu, a network of angel investors.

These efforts, however worthy, look to me to be more aspirational than real. No doubt there are plenty of people starting businesses in the region and investors putting money behind them, and God love them for it. But the evidence is that, outside the robust government contracting sector, these initiatives haven’t had much of an impact on the Washington economy.

There remains a strong belief in the entrepreneurial community that the only thing preventing a commercial tech cluster from taking off in this region is the lack of funding.

Gary Knott, a former National Institutes of Health researcher, tells of his frustration in getting venture backing to commercialize the mathematical-modeling software he and his colleagues created for the government. And entrepreneur Bob Nelson noted that the Washington region was only ninth in the nation in venture investing, down from third in the late ’90s during the dot-com boom. Aberman has documented that when Washington’s entrepreneurial companies are sold or go public, the proceeds are less likely to be recycled back into new ventures here.

While funding can be a problem, my hunch is that it is not the key problem. In today’s fast-moving financial world, money has a way of finding worthy projects. Rather, what Washington suffers from is the lack of an entrepreneurial culture.

Dennis Whittle is an old friend who left the World Bank more than a decade ago to start up a Web site linking global donors to worthy development projects. Dennis recalled how lonely it felt during the early years with nobody to talk to other than Case, Ted Leonsis and Mario Marino, the three horsemen of the region’s entrepreneurial community.

“In Palo Alto, even people who didn’t fund us always asked, ‘What if,’ whereas nearly everyone on the East Coast had a hundred reasons why [our idea] wouldn’t work,” Whittle wrote. “I would at times almost despair when I landed at Dulles.”

A similar sentiment comes from Shari Loessberg, who commutes from Washington to her job at Massachusetts Institute of Technology, where she teaches entrepreneurship and venture capital. Loessberg says New York, Istanbul and Sao Paolo have shown it is possible for cities to develop to an entrepreneurial business culture, but she doesn’t see it in Washington, where “the narcotic of getting one big government contract numbs and deadens the ambitions of promising startups.”

I got a bit of pushback to suggesting that Washington take a page from Mayor Michael Bloomberg’s playbook in New York and offer land and money to lure a world-class graduate research university in science and engineering. Some folks at the University of Maryland wrote to suggest we already had a world-class contender in College Park.

They may well be right. A belated review of the various rankings suggests that, indeed, Maryland’s campus is in the top 20 of all universities, and probably higher. If that’s not world class, it comes awfully close. Maryland has been inching up in the standings for 20 years, thanks in part to lots of federal grants and contracts and collaboration with federal labs. It competes for top faculty and graduate students with the likes of University of California at Berkeley and University of Michigan.

Even its top officials, however, acknowledge that where Maryland falls short is in turning world-class students and teachers and research into world-class companies. Like Johns Hopkins up the road in Baltimore, Maryland’s success in winning federal research funding, and winning jobs for its graduates with the government and contractors, has meant that it never developed the entrepreneurial, risk-taking culture of schools like MIT and Stanford.

Patrick O’Shea, the new vice president for research, is working to correct this, starting with new incentives for faculty and the development of a technology park.

So would it help or hurt Maryland’s efforts if the District could persuade Stanford or Carnegie Mellon to open a research campus and company incubator on Poplar Point? Tell me this: Does it help or hurt MIT that Harvard is located a mile up the river in Cambridge?

Steve Winnick took issue with my declaration that the enclosed shopping mall is dead. Too many mall owners are milking tenants for every dollar they canin the short run, forcing weaker stores to close and stronger retailers to find better landlords, as Winnick did by moving his clothing store to Tysons Corner from Montgomery Mall.

Winnick certainly has a point — the real estate business has done a bang-up job of sapping the creativity and vitality from the retail sector. If he checks, however, I think he’ll find that even the better mall operators are looking to convert to town centers and other formats that integrate better into the community.

Sharon Bulova, head of the board of supervisors in Fairfax County, took exception to my suggestion that she and her colleagues lend their support to a plan to relocate the FBI headquarters to a campus in Prince George’s County. Fairfax would be “remiss,” she wrote, if it did not pursue its own bid for a federal parcel in Springfield.

Remiss?

There’s little doubt that even without the FBI, the private markets will find a productive, tax-generating use for the land in Springfield. By contrast, the FBI site would serve as a much-needed catalyst in Prince George’s County, where land near the Metro and the Beltway has sat undeveloped for years.

What would be “remiss,” to my mind, would be for an affluent Fairfax County to be so piggy about winning every last job and every last dollar of tax revenue that it cannot see its own long-term interest in developing the economy of the entire region in a more fair and balanced manner.

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