Tech Magnet? It Takes a Lot More than Tax Credits

An abridged version of this commentary appeared in The Pittsburgh Business Times.

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By Ron Rock

More than two decades since the tech industry became a primary driver of job creation and wealth in the United States, city and state governments continue to misallocate money, energy and tax credits to misguided efforts to add the word “Silicon” to their name.

Silicon Akron? I don’t see it. Newark? Little Rock? Reno? Fagetabouddiit.

As a tech entrepreneur based in Philadelphia, I’ve watch with a mixture of envy and annoyance as the state’s second city, Pittsburgh, has gotten a lot of things right. Indeed, there are plenty of cities that have shown that the right mix of government policies, natural attributes, local champions and intellectual prowess can incubate a tech corridor that begets startups, nurtures them into winners and creates jobs, buzz and ultimately prosperity for the wider metropolitan region.

Philadelphia, my home at birth and to this day, has some of what it takes. There are great universities, transportation links, a historic downtown area and smart, hardworking people. Unfortunately, though, that is not enough. As I watch other cities’ tech sectors grow and thrive, I’ve concluded that trying to recreate some of these attributes is not a realistic possibility for some cities, my City of Brotherly Love included. So it did not shock me to see Philadelphia on the losing end of a study released late last year by the Brookings Institution that ranks Philly very poorly in terms of attracting tech jobs.

It’s not enough, for instance, to have several great universities. Philly’s got the University of Pennsylvania, Temple, Drexel and Swarthmore and others. Unfortunately, few of those who get educated in these fantastic institutions choose to stay and start businesses in Philadelphia.

California’s Silicon Valley and the tech-heavy Route 138 Corridor outside Boston sprung up for reasons that will never be replicated in, say, St. Louis, Phoenix or Tampa. This is not just pessimism.  A Brookings Institution study late last year concluded that between 2005 and 2017, despite billions of dollars in tax incentives, business incubator programs and public-private initiatives aimed at breaking into the tech sector, the usual suspects—San Jose, San Francisco, Seattle, San Diego, and Boston— not only added lots of jobs, they were also becoming more dominant in those industries overall.

Maybe it helps if your name starts with an “S”? (Hope for Scranton and Spokane!) In reality, my two decades of nurturing tech startups to an exit in the brawny, rough-and-tumble of Philadelphia suggest that neither the first letter in a city’s name nor the city’s size matter much. As the five winners above demonstrate – and up and comers like Pittsburgh, too – some of what matters simply cannot be manufactured.

As Ajay Raju, a philanthropist and CEO of the storied Philly law firm Dilworth Paxton, put it this way: “We can’t seem to get out of our own way when it comes to retaining talent and attracting creative capital investment.” Known for not being afraid to speak his mind, Raju rails against “a sclerotic and unimaginative political class, given over to complacency, patronage and an archaic, unproductive approach to governance and civic development.”

We could examine a host of cities that are up and coming tech players, cities like Denver, Columbus, Kansas City, Portland, Salt Lake City (another tech-thriving “S”). But let’s focus on Pittsburgh. Even in its heyday as a thriving manufacturing town, the city was derided as a skinned-knuckle, smog choked nightmare. An old joke talked about its steel mill days talked about how windshield wipers only lasted a month or so in Pittsburgh because they eventually disintegrated in the coal dust. Only it wasn’t a joke.

But this image of an industrial wasteland always missed a lot of important attributes. After a demographic nosedive in the 1970s, Pittsburgh has come roaring back on the strength of smart municipal policy decisions and public-private partnerships that build on Steel City’s natural advantages. A 2018 report from the Internet Association notes: [Pittsburgh] has cleverly focused on areas complementary to its industrial history and innovation on like robotics and automation rather than trying to turn the city into something unrelated like a financial hub. This is perhaps best seen in its partnership with Carnegie Mellon University and Uber to test autonomous vehicles.”

As I said, some of these advantages simply cannot be transplanted. But we can learn from what Pittsburgh and other tech magnets are doing right. Here are four key attributes that have fired Pittsburgh’s rise into the

  • World Class Universities: The man whose steel mills turned the city’s skies black, Andrew Carnegie, also founded intellectual and cultural institutions that have come into their own as global leaders. Carnegie Mellon University can punch with the best when it comes to science and technology – Cal Tech, MIT, RIT ­– and its neighbor the University of Pittsburgh can say the same in the field of medical research. Between them, they pull in billions in federal research grants, in turn incubating startups and creating jobs that keep their graduates in the city.
  • Culture and Entertainment: Pittsburgh’s Symphony Orchestra, its Carnegie Arts Museum (not to mention the Warhol Museum, a paean to a famous son) also belie its blue-collar reputation. These are world recognized institutions. Not surprisingly, they’ve allowed Pittsburgh to punch above its weight elsewhere, and holding onto professional football, hockey and baseball teams in an era when similar sized cities lose such draws to the Sunbelt.
  • Authenticity and Diversity: Here’s where the city’s old blue collar past plays as a strength. Unlike the dilapidated, abandoned warehouses of many cities (including North Philadelphia), Pittsburgh’s industrial age giant have been reborn as commercial hubs. Its brick-and-mortar neighborhoods brim with the kind of life that attracts what urbanologist Richard Florida calls “the creative class:” racial diversity, a local music and arts scene, lots of boutiques, restaurants and bars that are not part of national chains. These “creatives” ­– including coders, designers, entrepreneurs and others – are primary drivers of job growth and a major lure for large employers, too. This keeps giants like Kraft Heinz, Alcoa, PNC Bank and others from decamping to lower tax, warmer climes. “Access to talented and creative people is to modern business what access to coal and iron ore was to steel-making,” says Florida, who spend much of his professional life at Carnegie Mellon.
  • Smart Municipal Initiatives: It’s not enough to encourage business accelerators and provide a few tax credits for a city to build a startup culture and a tech economy. Pittsburgh has all that, too, but it also takes risks. And the Internet Association study notes, “City leaders have embraced the integration of technology into policy and development, working to build and maintain balanced relationships with tech stakeholders as evidenced by the presence of offices for Google, General Motors, Uber, and numerous other leading tech firms as well as dozens more start-ups.”

To be fair, it’s not like Philadelphia hasn’t tried. The state and city offered Amazon a $5.7 billion in tax incentives during the obscene beauty contest the tech giant conducted for its H2 headquarters. There are quality incubator and accelerator programs run by our local universities. And the venture capital / angel investor ecosystem is coming along.

But more creative thinking is needed to tackle the city’s housing shortage, its high poverty rate, unfriendly tax policies and, of course, crime. As I look at that list above, there’s no reason, with the right leadership, my town can’t make big strides. But I can’t say I blame entrepreneurs who are not as rooted in Philadelphia as me to just drive right by.

Ron Rock is Founder and CEO of the Philadelphia-based data-as-a-service firm Microshare Inc.