By Steven Pearlstein
Monday, May 12, 2008
Back in May 2001, Manny Friedman, one of the founders of the investment firm Friedman, Billings, Ramsey Group, spoke for most of the Washington business community when he explained to The Post that the regional economy had reached a tipping point -- that it had so many hot tech companies, so many successful tech entrepreneurs and so much intellectual and financial capital that Washington had secured a place as one of the country's top technology centers, alongside Boston, Austin and Silicon Valley.
Those were the days when AOL and MicroStrategy loomed large in the dot-com space, when Celera and Human Genome Sciences were going to revolutionize medicine and when UUNet, Sprint, MCI and Ciena were going to turn Washington into the telecommunications capital of the world. And every month, Capital Investors, a group of 25 tech titans the likes of Steve Case, John Sidgmore and Mark Warner, would meet for dinner out in Tysons Corner and offer advice and seed money to the next generation of tech entrepreneurs.
Much has changed since then, of course -- fortunes lost, companies bought off or closed, products fizzled -- but the myth that Washington's future lies in technology has remained remarkably persistent. As the region's growth begins to slow, now may be a good time to redefine our aspirations and reconsider our strategies.
Don't get me wrong: The past decade has been one of unparalleled economic growth for the region, which remains the wealthiest and most stable metropolitan area in the country. But tech was hardly the driving force. A review of The Post's Top 200 lists over the period confirms that there aren't very many commercially oriented tech companies that have hit the big time. The region also lags behind in private-sector patent creation, company formation and venture capital funding. And as anyone who has spent time in places like Silicon Valley or Seattle will tell you, Washington just doesn't have the same kind of entrepreneurial business culture found in the most dynamic tech clusters.
"The tech boom was a bit of a mirage," said Stephen Fuller, a George Mason University professor who is the leading student of the Washington area economy. "The underpinnings of it were always the technology applications that government was buying, and that's pretty much what we have left."
Indeed, the past decade has been a boom time for government contracting and consulting -- and much of that involves technology in some form. But because this work is for the government, the emphasis is more on using and adapting technology to manage information than it is about creating and marketing new products. The premium is on reliability, not cutting-edge innovation.
Nor has this government work had the kind of commercial spinoff that had once been expected. In fact, the trends are in the opposite direction. If anything, the center of gravity has not been moving toward hot entrepreneurial start-ups but toward larger, established companies. And an increasing amount of the work is highly classified, making transfer to commercial application all that more difficult. Many of the companies that once boasted about straddling the government-commercial divide eventually found that the synergies did not materialize and that the cultures were incompatible, and have now decided to separate their operations or split up entirely.
Consider what has happened in biotech. Despite its proximity to the National Institutes of Health, the Food and Drug Administration, the Howard Hughes Medical Institute and Johns Hopkins hospital and medical school, the region has yet to realize its goal of becoming a global powerhouse in biotech. Celera and Human Genome Sciences have yet to capitalize on their early lead in human genome mapping. And three other leading local firms have been bought up by foreign pharmaceutical companies -- deals that bring needed capital and connections but also a loss of local autonomy and control.
Again, the problem is largely one of culture. While Washington has lots of researchers in labs and at universities, their focus tends to be on winning big grants and prestigious prizes more than getting rich by turning their insights into products and companies. That could change as the cadre of experienced entrepreneurs grows and a spirit of collaboration takes hold, but like all cultural change, the pace has been painfully slow.
Meanwhile, many of Washington's traditional non-tech sectors have taken off. There's been the long-established base of law, lobbying and industry associations, along with real estate development. And while telecom has floundered, Washington has gained stature as a media center. Because of the quality of life and good airports, the big corporate consulting and accounting firms have discovered that Washington is a good place to base their highly paid and itinerant employees. The region has also become a hub for private-equity investment, hotel management and health-care information.
There's been a distinctly global quality to our recent growth. International companies such as Volkswagen, BAE Systems and Airbus have located their U.S. headquarters here, partly out of desire to be near the center of political power. Students from the around the world want to study here, while ambitious global executives are concluding that it is important to have their tickets punched in Washington on their way up the corporate ladder. All this shows up in Census data, where foreign-born residents are a big factor in the region's population growth.
All of this suggests that Washington might do best if it continues to focus on and build off its current strengths as the nation's political capital rather than trying to remake itself into a tech capital. As Richard Florida pointed out in his new book, "Who's Your City?" one characteristic of successful industry or sectoral clusters is that they not only have to be big in relation to competing clusters elsewhere in the world -- but they also have to dominate the local economy. And in Washington, that distinction belongs not to tech but to those industries that orbit the national government.
The point here isn't that Washington has no tech success stories, or that we don't or can't have a robust tech sector, or that there's nothing the industry or local government can do to stimulate tech growth.
But it might mean that we're better off having the headquarters of CSC than AOL and that we have a better shot at luring the American Medical Association than the next Google.
It might suggest that we would get better results focusing on health research or eco-consulting than social networking, or redirecting university fundraising from engineering to create world-class graduate programs in business, law, economics or public policy.
It should suggest that we give top priority to completing a high-speed rail link to Dulles that would allow it to realize its potential as a world-class airport.
And surely it would mean avoiding local anti-immigrant initiatives that undermine Washington's reputation as an open, global city.
For the Washington economy, the tech sector offers an opportunity, not an imperative.