There is a new kid on the Pittsburgh entrepreneurial block, Nextburgh. New York City innovator Tim Marman is now promoting Pittsburgh. There is an impressive talent circulation between NYC and Pittsburgh. The reason is geographic arbitrage:For an early-stage startup, talent and office space make up the most significant portion of your burn rate by far. Our hosting and development costs were virtually zero by comparison. I recently worked with a company that had one of the most aggressive (and perhaps unrealistic) growth plans I’ve ever seen. Even with an estimated $6,000/mo in server hosting, $10,000/mo in employee benefits and $10,000/mo in travel, over 90% of their expenses were office space and salaries.
And here’s the thing – you have the ability to control these costs, because location plays a major role. San Francisco and New York City are the two most expensive places to live in the United States which directly translates to a higher burn rate. For example, we raised around $80,000 for Notches last year. Much of this funding was used to hire an engineer at $65,000 – less than market rate in a competitive job market at the time, though perhaps still a little higher than you’d pay in San Francisco. We spent another $1,575 per month for rent on three desks in a shared office space. Without myself or my my co-founder collecting a salary, we were spending nearly $7,000 a month.
If we had started the company in Pittsburgh instead, our monthly costs would have been 30-40% less. Right off the bat, talent is at least 15-20% cheaper. Given the city’s affordability, you’re also more likely to find people willing and able to work for less relative salary and a greater slice of equity. Office space is much cheaper as well – 200-300 sq ft turnkey offices are available for less than we were paying for a single desk.
The main point is that while starting up a company in Silicon Valley is surely easier, doing so in Pittsburgh is much cheaper. And people such as Mike Madison, Mike Woycheck and Audrey Russo are working hard to make entrepreneurial life in Pittsburgh as easy as it is in Silicon Valley. Nextburgh is aiming to do the same thing.Pittsburgh will have to be more than just cheaper. The Rust Belt is full of urban frontier opportunities and Texas boomtowns still have all that land. And second tier innovation regions such as Boston and Raleigh-Durham offer a viable alternative to pricey New York and San Francisco. Considering what Richard Florida terms as "means migration", the deck would appear stacked against the Burgh:The consequence is this: the means migration is dividing the world into two kinds of regions with very different economic prospects. A small number of means metros attract the lion’s share of the mobile and the skilled, who see their incomes and real-estate values climb, while the masses witness the exact opposite. Some of today’s means metros could eventually fall back as housing prices and living costs rise. But there are powerful reasons to believe that the economic disparity between some city-regions and others will continue to grow, and perhaps even accelerate, thanks to the snowball effect of talent attraction.
Shrinking Pittsburgh wouldn't seem to be on the good side of the creativity divide. The region is still talking about how to arrest the brain drain:That sentiment is common today, said Paul-James Cukanna, associate provost for enrollment management at Duquesne University.
"We have about 5,000 applications for graduate and professional schools this year compared with 3,300 at this time last year and most of those are from local applicants."
Mr. Cukanna said the applicants not only are students like Mr. Pugliese and Mr. Russo, who intend to stay in Western Pennsylvania, but students who in past years would have taken jobs out of state.
The bleak national economy has put a temporary halt to the Pittsburgh area brain drain.
What Mr. Cukanna and most other people don't know is that Pittsburgh was experiencing brain gain before the Great Recession started to stifle relocation. Almost like a stealth-mode startup, Pittsburgh has been quietly amassing a greater concentration of talent. Already, Pittsburgh is on the path to joining the elite group of means metros.
The news from New Hampshire is that there is no brain drain to report. It's a myth. The coverage in Nashua failed to mention that part of the conclusion:“Our young people are vital to the future of our state’s economy, and we must do everything we can to keep their creativity and talents in New Hampshire,’’ Gov. Lynch said at a news conference today.
What does New Hampshire plan to do to attract young, talented people?New Hampshire is in good company. The Southern Tier in New York continues to eat up public money in hopes of reducing the geographic mobility of labor:The initiative is funded by a $450,000 grant from the U.S. Commerce Department's Economic Development Administration - $150,000 a year for three years. The partners are looking to utilize Cornell's economic and community development research to create pilot programs in Elmira and Olean that will address the so-called brain drain.
That's $450,000 down the brain drain. Next Generation Consulting must be salivating. I guess I need to write a book. Rebecca Ryan or Richard Florida isn't going to help your community retain graduates.In Connecticut, we get the libertarian use of the brain drain red herring:Yet I am saddened to share with you that following my last year at UConn I will be forced to leave this great state and seek opportunity elsewhere. You may be asking yourself why does this matter to me and why is he being “forced” to leave Connecticut. On June 25, the Senate Democrats voted 19-16 on their idea of a state budget that raises taxes by $2.5 billion. The next day Democrats in the House unanimously approved their version of the budget with little to no changes.
Ah, so the Democrats are responsible for brain drain thanks to their tax-and-spend ways. How nauseating. The author doesn't stop there:When businesses either fail to start up or leave because of undue regulation, taxation, and rising health care costs, you must ask yourself where the workers go if quality jobs are no longer being created. The truth is they will migrate to more tax-friendly and opportunity-driven states. Connecticut continues to lose more 24- to 34-year-olds than any other state - 30.1 percent from 1990 to 2006 - according to the U.S. Census Bureau. This must stop.
The truth is a lot more complicated. Republicans in Connecticut might start with a better understanding of demography and migration. Invoking brain drain touches an emotional nerve. That's where policy mishaps begin.
Think jobs. Lots of jobs. That's if the cost of energy increases enough:Lou D'Amico of the Pennsylvania Oil and Gas Association talked about the economic impact of the gas drilling, and the Marcellus Shale Committee provided printed information on jobs to the crowd.
Mr. D'Amico said eventually there will be new jobs and opportunities for Pennsylvania including a full range of professions and skilled trades. In 2008 a committee was commissioned to conduct a study on the impact. Currently in the natural gas industry, $4.5 billion directly results from the industry with a total impact of $7.1 billion with more than 10,000 direct jobs.
To project the economic impact of the Marcellus Shale, the committee looked at the impact of the Barnett Shale in Texas, which covers only 5,000 square miles as opposed to the 95,000 square miles of the Marcellus Shale. In Texas, 55,000 direct jobs were created with a $10 billion economic output totaling 5 percent of the economic output.
There are about 1,000-1,500 permits out now for well drilling and about 500-600 are expected to be drilled. The reason for such a low number is simple: the economy. Right now, natural gas is less than $4 per gallon. The price has to be at least $5 or higher to justify the cost of multiple drilling sites. Much of the drilling taking place now is to test the area and see how well it will produce.
Keep an eye on the cost of natural gas in order to presage when the rush begins in earnest. But now would be a good time to get the requisite training. The article linked above has good information on that count.
As Mike Madison has said, "it's steel good in Pittsburgh." Bombadier Transportation lands a big contract for the new Phoenix airport:The $255 million US deal involves supplying and maintaining 18 driverless Innovia vehicles for the 3.5 kilometre transit system at Sky Harbor International Airport in Phoenix, Ariz.
Bombardier Transportation’s plant in Pittsburgh will design and build the vehicles.
I have one other item to share. Chris Briem talks about the declining vacancy rate in downtown Pittsburgh as a positive indicator of economic vitality. Despite the serious demographic liabilities and anemic in-migration, Pittsburgh is a relative picture of health. Downtown growth certainly defies expectations:Direct Energy Business has confirmed a final agreement to move to Liberty Center.
The company, which first came to Pittsburgh last June when it acquired Strategic Energy LLC for $300 million, announced that it has signed a five-year lease for 52,000 square feet at Liberty Center in Downtown Pittsburgh, which it will make its North American headquarters in November.
The company said the move was needed “ to accommodate current operational requirements” and position the company for future expansion.
Also, check out all the wonderful publicity Netroots Nation is providing Pittsburgh. Watching the re-branding as it happens is a sight to behold. I'm confident that more robust in-migration is in the cards.
Take that, Allegheny Institute:Houston, recognized for its dynamic business environment, might be able to provide that. With high wages relative to cost of living and a fairly low unemployment rate of 6.3 percent, considering the financial turmoil over the last year, these factors make it the best city to get ahead. Other cities offering similar opportunities include Dallas, Minneapolis, Pittsburgh and Boston. ...
... But what about Pittsburgh? The city continues to decrease in population, despite the fact that the metro area has a $10.8 billion stake in the technology sector. People should reconsider the Steel City for its low cost of living; it lands at just 92.18 on the index. What's more, the area's biggest industries — health care, technology and education — are recession-resistant, necessary regardless of the economic outlook.
Pittsburgh ... where you can "get ahead" during the Great Recession. Just imagine.
Aaron Renn (The Urbanophile) spins an impressive yarn out of an Ed Morrison contribution to New Geography. The rub is "real estate interests" and Cleveland's stillborn comeback. Old ways of thinking are no match for today's economic globalization. But that doesn't stop Cleveland powerbrokers from trying another gambit that will, inevitably, fail. Aaron's excavation of the Kleptocracy Diaspora also reveals the thinking behind the failure of so many workforce development policies:Why is it that "real estate interests" dominate in a local economy like Cleveland? Because, to a great extent, they are among the only ones left. Consider the local industries that were not as subject to roll-ups. Principal among these are real estate development, construction, and law. This means the local leadership of a community is now made up of executives in those industries, and they bring a very different world view versus the previous generation.
I've written about the connection between real estate and brain drain boondoggles on a number of occasions. I think I do the best job of revealing the shadow play here. However, Aaron provides a rationale where I've only offered speculation.It isn't about condemning the corrupt behavior you can find in any Rust Belt city. It is about why such practices are so common. This localism, or parochialism, is the crux of brain drain hysteria. You'll have trouble selling a house if everyone is leaving town at the same time. And graduates from your schools should staff regional businesses. To quote Aaron one more time:When you look at the composition of this group, it should come as no surprise that the publicly subsidized real estate development is the preferred civic strategy. Politicians get to cut ribbons. Cranes always look good on the skyline. Local architects, engineers, developers, and construction companies love it. And there is plenty of legal work to go around.
In a nutshell, that's the "look good" (and feel good) part of the Pittsburgh Promise. You get the public to buy in by talking about the locals you keep from leaving. Before reading Aaron's post, I thought real estate developers invoking the brain drain plug was simply a convenient rhetorical ploy. But boondoggles and fear of geographic mobility are cut from the same cloth, a way of conducting civic business.
The perfect follow up to my "What Pittsburgh Can Promise" blog post, its urban public schools may be in line for a huge financial boost:Last year, the Gates Foundation announced its intention to invest $500 million over the next five years in a "handful of urban districts" for a groundbreaking program of finding and rewarding effective teachers -- and pulling ineffective teachers out of the classroom.
Ten school districts nationwide were tapped as finalists for the grants, expected to be announced in November. Media reports have also listed districts in Hillsborough County, Fla., Tulsa, Okla., and Pittsburgh, Pa., as being among the contenders.
A few months back, I think I remember reading a story concerning the Gates Foundation-Pittsburgh connection. I may have written about it. I would think that Pittsburgh represents a substantial public relations opportunity for Gates since the announcement of the award winners will come on the heels of the G-20 summit.
Nothing new to be unearthed, but you can read Voice of America's glowing review of Pittsburgh here. VOA juxtaposes the population decline with the upcoming G-20 summit, highlighting the city's hope for the global attention: Attracting newcomers to Pittsburgh. How does a region leverage such an event in order to catalyze more in-migration? That's at least a $500,000 question.
This Pittsburgh Promise is a good idea. But the program can't deliver talent retention. Plug the brain drain. Ramit Plushnick-Masti's article on the Promise makes the policy mismatch clear:The Promise, aimed at boosting academics and reversing the exodus from Pittsburgh and its public schools, is fashioned after similar efforts in Kalamazoo, Mich. and El Dorado, Ark. It's also hoped that the Promise students will return to Pittsburgh, as John Tokarski plans, when they graduate. ...
... A family moved from a suburb about 50 miles from Pittsburgh so their 2-year-old daughter can attend the public schools, beginning in kindergarten, making her eligible for the full scholarship.
Better city public schools can attract students from the suburbs. They can't, and won't, reverse the exodus. Again, another passage from the article:With the collapse of the steel industry 30 years ago, the population of Pittsburgh and its public schools plummeted as people fled in search of jobs. The city's population of 424,000 in 1980 plunged to just over 311,000 in 2007; the school district lost nearly one-third of its students from 1988 to 2008.
And enrollment is expected to keep dropping , from some 26,600 today to 22,000 by 2015. But that trend appears to be slowing, thanks to the Promise.
Who left? The affluent, the educated and the young, said Saleem Ghubril, executive director of the Pittsburgh Promise. Who stayed? Lower-income families, the elderly and the less-educated.
"The affluent, the educated and the young." The most geographically mobile. The most likely to leave. The Pittsburgh Promise will provide the means to get out for "lower-income families" and "the less-educated." The Promise will promote out-migration from the city among populations typically stuck in a neighborhood with few prospects for gainful employment. And that's great news.On the other side of the coin, the Promise will attract the affluent and the educated. The Promise will promote in-migration to the city among populations typically hopping from one neighborhood to the next in search of better opportunities for their children. And that's great news.If Pittsburgh wants its Promise graduates to stick around, then the offer should be only for local community colleges and trade schools. However, that won't bring folks in from the burbs. The ad hoc inclusion of PA private colleges is very telling. Graduates from private post-secondary institutions are the least likely to stay in-state. A better idea would be to open it up to any private school, regardless of location. Pittsburgh would draw in even more families, from all over the country.
Cross-posted with Greater Youngstown 2.0
(Blog reference Chris Briem at Null Space) Political boundaries, such as the one between Ohio and Pennsylvania, often starkly delineate economic fortunes. Geography matters. But strength on one side of the boarder can improve prospects on the other side: More regional collaboration is seen as one solution to help economies on both sides of the state line. It's relatively common for residents who live near the border to commute to the other state for work if needed.
Altmire and Ohio Democratic Rep. Tim Ryan, whose districts abut each other, have collaborated to promote a "Tech Belt'' in western Pennsylvania and northeastern Ohio that they hope creates jobs in advanced services and industries.
"We want to use all the resources that we have. Let's all work together,'' Altmire said in a phone interview. "When I say, 'Silicon Valley,' you know what that is. We want to develop that 'Tech Belt' in the same way."
The Sustainable Energy Forum represents the greatest opportunity for the Tech Belt to thrive. Yesterday's news demonstrates Ryan's ability to push this agenda forward: A pair of federal spending bills contain nearly $6 million for Trumbull and Mahoning county projects, including more than $2 million to continue development of a business incubator in downtown Warren.
The funding now allows Warren Redevelopment and Planning the freedom to begin determining a location for the incubator, which will be used to hatch and expand businesses focused on clean technology, alternative energy and green building materials, its director says.
The project already received nearly $500,000 in money from Ohio.
''Technology of some type was really the direction of most of the successful incubators, specializing, that's why the YBI (Youngstown Business Incubator) has been so successful,'' WRAP director Anthony Iannucci said. ''This is a real step that would move us forward.''
The incubator project has shifted focus from one that would develop retail enterprise to energy sustainability, which help secure the federal dollars for the project.
I propose that what we are doing for the YBI we can do for the Warren green technology incubator. We can connect Tech Belt industry with Cleveburgh Diaspora talent, particularly in the Front Range of Colorado. I've been mapping out a strategy that I think would be an excellent compliment to the green sector of the Tech Belt. The YBI is part of a larger economic development success story and connects Youngstown to my neck of the woods: Interest in business incubators has exploded in the United States as recession-hit communities from New York City to Youngstown, Ohio, search for ways to revive their moribund economies. Already, well over 1,000 of these typically nonprofit organizations (more than 7,000 globally) shepherd local entrepreneurs through the beginning stages of business development with resources and services in the hope they’ll one day create local jobs.
They may be onto something. A 2008 study by the Economic Development Administration (EDA) found that, per dollar invested, incubators created more jobs than any other economic-development efforts – more than industrial parks and 10 times more than highway and other transportation projects (see chart). But not all incubators are created equal. As cities rush to embrace this hot economic-development strategy, they run the risk, economic-development experts say, of wasting lots of money.
“An incubator is only as successful as the labor market around it,” says Amy Glasmeier of the urban studies and planning department at the Massachusetts Institute of Technology in Cambridge. “If it doesn’t have a connection to the local economy, it’s just cheap real estate.” ...
... Just as entrepreneurs have varied needs, incubators go about supporting them in different ways. They have flourished in unlikely places like Youngstown and Toledo, Ohio, by focusing very narrowly. (Youngstown, for example, only incubates business-to-business technology firms.) Other cities, like Boulder, Colo., have nurtured successful companies, only to see them leave town because of a lack of long-term strategy, says Dinah Adkins, president of the National Business Incubation Association (NBIA).
Read again the part I put in boldface. Over the last six-months, I've come to appreciate how green innovation is connected to the local economy. However, the local labor market is lacking. We at Greater Youngstown 2.0 can address that shortcoming.
Few economic migrants look at a map, crunch the numbers, and then pick the best place to find their next job. When times are bad, as they are now, you tap a trusted network:For some, the diaspora feels more like a homecoming. The close-knit quality of New York’s Irish neighborhoods makes the transition less trying, several recent immigrants said.
“It was very nice to come back to the Irish community,” said Conor, 27, who arrived in New York several weeks ago after finding no employment in Australia, where many out-of-work Irish have migrated in recent months. He, too, did not want his last name published because he feared detection by the immigration authorities.
Four years ago, Conor worked in New York on a special temporary visa given to recent college graduates. This time he arrived on a tourist visa, and through connections he made playing Gaelic football, he quickly found a construction job and an apartment in southeastern Yonkers, one of several Irish enclaves in the area, like Woodside, Sunnyside and Maspeth in Queens. ...
... After being mostly unemployed for a year, accumulating a tax debt of more than $100,000 and having his marriage end in divorce, Niall decided to try his luck in the United States. He settled on New York because he knew many people here and understood how to navigate the job market. And New York was a relatively short flight from home.
“You always go to where the Irish are,” he said, “because who else are you going to depend on to get your foot on the ladder?”
For cities struggling to attract any migrants (like Pittsburgh), relative prosperity doesn't seem to make much of difference. People tend to go where they know. Thus, the challenge is to get your region on the map and prospect among the relocation pioneers (blog reference George Nemeth at Brewed Fresh Daily).Pittsburgh is hoping that the upcoming G-20 will pave the way for the in-migration of talent:"Our economy is one that's being looked at worldwide, because of our ability to renew ourselves," said Joanna Doven, spokeswoman for Mayor Luke Ravenstahl. "The G20 coming to Pittsburgh makes it official -- Pittsburgh is back on top."
I hope you'll stop laughing long enough to read more. I'm wondering if other cities in the tri-state area are planning on taking advantage of the global summit in their backyard. Youngstown? Cleveland? Morgantown? Erie?
I'm telling you. Pittsburgh needs an energy blog. I've got a backlog of blog fodder from stories published just this morning. The Christian Science Monitor catches up with Pittsburgh-based GTECH:Talk about multitasking — sunflowers planted on previously blighted vacant lots are providing not just beauty, but it’s hoped that they will also be able to remove contaminants from the soil and provide green jobs, plus – as a bonus – the seeds can be harvested and turned into environmentally friendly biofuel.
That’s a pretty big order even for such a large plant. But projects planting sunflowers in vacant lots are already under way in New Orleans and Pittsburgh. And expansion to Cleveland may be next.
So far, the nonprofit group that’s behind all this, GTECH, has partnered with a number of organizations – including Carnegie Mellon University. Their goals: reclaim vacant land, empower communities, and translate ideas into action.
GTECH is helping Greater Pittsburgh garner national attention (as well as global) for green innovation. Whether its Braddock Mayor John Fetterman testifying before the Senate Environmental and Public Works committee or news about an alternative energy business incubator in Warren, Ohio; the region is benefiting from a public relations coup.A bit more about "Mr. Fetterman Goes To Washington":Four Cabinet secretaries and a governor testified before the Senate Environmental and Public Works committee on cap and trade environmental legislation Tuesday. The hearing room was packed with media and political spectators hoping to catch a glimpse and a quote from the political heavyweights. But to an average American, the most recognizable face in the room may have belonged to a small-town mayor.
While Energy Secretary Steven Chu and Environmental Protection Agency Administrator Lisa Jackson work on the new environmental law from offices in Washington, Mayor John Fetterman, of Braddock, Pa., has become the striking face for a national campaign in support of cap and trade.
I'm at a bar in Denver (Falling Rock, if you must know) chatting with an alumnus from Youngstown State University. I was wearing a Defend Youngstown t-shirt so we could find each other at our agreed upon rendezvous point. A stranger approaches me and starts talking about Fetterman, thinking the shirt is a reference to the mayor of Braddock. I'm not sure how the iconography on the shirt invoked Fetterman, but the point is that the "striking face", the face of the New Rust Belt, is making a huge impact and starting conversations across the country.Rust Belt Chic has arrived.
(Blog reference Brian Kelsey at Civic Analytics) Clicking through the links, I land on a positive assessment of Oklahoma's "Project Boomerang":The Chamber didn't want a job-search website, but more of a connecting point for employers and potential recruits. To prevent the former from happening, the Chamber set guidelines employers must follow before posting job opportunities. In doing so, the Chamber avoids becoming the middleman, and simply lets recruits know jobs are out there. Recruits then work directly with the appropriate employer.
As for locating its target audience, the Chamber went straight to family-friendly Oklahoma. As press releases were sent out within the State about the project, family members of the recruits rushed to make their loved ones aware of the program in an attempt to get them to move back home. ("Family and friends" is a top reason a person will move back to Oklahoma.)
To measure results, the Chamber uses a feedback loop from participating businesses. Some businesses have told the Chamber that their highest quality recruits have been discovered through the Boomerang project. According to the Chamber staff, at least 4 successful job hires have happened through Boomerang, and 450 people subscribe to the newsletter. Those are significant results since the program's launch just last Fall.
The target audience is appropriate and encouraging boomerang migration seems to be a hot topic in economic development circles (also, see yesterday's post). Given the stated metrics, I'm interested in a cost-benefit analysis. I'm working on my own talent prospecting project for the Youngstown Business Incubator and my numbers are encouraging (after only one month), but also similarly modest.The take-away is that this kind of migration is but a trickle. Engineering migration is notoriously difficult. At this point, I don't see how it could address a shrinking population. The focus must be on quality, not quantity. That said, there's a lot of room for improvement and I have a few good ideas I'm exploring.
