The Latest in Economic Development – 3.22.2012

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This week’s blog explores New Orleans’ revitalized entrepreneurial culture, presents an alternative read on manufacturing jobs data, explains a couple policies meant to jump start startup creation, and highlights the use of contests to spark innovative solutions. Comment below or send to common@nlc.org.

Get the last edition of “The Latest in Economic Development” here.

With the perception that venture capital is drying up for startups, states in the DC area are filling the void to provide capital.  Maryland is definitely leading the way in size and scope; last week, the state announced an $84 million fund that will be dispersed among startups and venture capital firms as part of its InvestMaryland program. Virginia’s fund, managed by its Center for Innovative technology, is much smaller at $6 million, but is larger than in previous years. The District of Columbia is also doing its part, developing the Certified Capital Company Program, which raised $50 million which will be divided among venture capital firms. While these funds may fill a needed gap in startup investment, they are backed by the tax-payer, which brings in an element of pressurized risk that is not inherent in private investment. (Washington Post) – Continuing this theme, see also this 2011 article from Governing.com that points out common pitfalls of government VC funds: low capitalization and short-sighted dispersion of cash to jump start entrepreneurship.

The conventional wisdom among economists that US manufacturing job losses throughout the 2000s were due to productivity gains may have been flawed by selection bias. While no hypothetical economist would go out on a limb and claim that the job losses were solely due to productivity gains, presidential advisers such Robert Reich (Clinton) and Glenn Hubbard (Bush II) explained they were the main reason. But a new look at the numbers suggests that the “state of US manufacturing is not as bad as the employment numbers make it look. Instead… it’s significantly worse.” Apparently, some of the data used to defend the productivity argument did not account for globalization factors such as cost savings from moving operations overseas and the emerging technology industry, of which the majority of products are assembled in Asian countries. (Washington Post)

In the aftermath of the Hurricane Katrina disaster, there wasn’t much hope for New Orleans, but thanks to Greater New Orleans, Inc., the Idea Village, and the New Orleans Downtown Development District, the city’s entrepreneurial spirit has bounced back. Evidence of this is the NOLAbound program, which was held last week. The program invites a group of “social media influencers” from around the country to immerse themselves in the entrepreneurial culture of New Orleans. Focusing on four industries (the arts, bioscience, digital media, sustainability), the program showcases New Orleans as a hot spot for potential entrepreneurial opportunities. (Fast Company) – Also, check out the Idea Village-organized Entrepreneur Week, another entrepreneurial event that brings venture capitalists, investors, business people, MBA students, and policy leaders to New Orleans to support the local entrepreneur community.

With Congress unable to come together on anything lately, a bill that has garnered bipartisan support recently has been the JOBS Act, which would allow crowdfunding and eases IPO regulations. While the bill has broad support in Congress, what would be its actual effect on the investment and entrepreneur environment? Eric Schurenberg explains that the bill will “make it a lot easier for start-ups to raise money and will lower the cost of going public,” but “while the democratization of capital formation sounds good as a theory, it will likely be messy in practice.” (Inc.) via (Innovation Daily)

In a complex and unpredictable world, and with a government strapped for cash, can open innovation contests save the day?  Over the last year, the Obama administration has encouraged ordinary citizens to solve complex problems through contests that provide nominal amounts of cash for the winners (see challenge.gov). Tom Kalil, Deputy Director of the White House Office of Science and Technology Policy, states that one of the advantages is that “you only pay when (the solution) is successful… so it’s a way for agencies to get more with less.” In the article, David Bornstein also mentions the Aspen Prize for Community College Excellence, which is a contest that determined which American community colleges were the most successful based on educational and labor-market outcomes. (New York Times)

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