Where I am Blogging/Writing Now

Most of you have probably realized that I am no longer actively posting to this blog, which was started in late 2009 after I left BusinessWeek.   My writing/blogging is now mainly divided between two venues.  As chief economic strategist at the Progressive Policy Institute, a Washington think tank, I supervise PPI’s economic and tech policy work across a wide range of issues, including regulation, the data-driven economy, and innovation.  Our latest event was “Enabling the Internet: A Conversation with America’s Digital Policy Pioneers.”

As president of South Mountain Economics LLC, I run an economics analysis firm with a unique focus on emerging industries and emerging occupations.  Our latest report, “Building A Digital City,” documented in detail how the growing tech/information sector helped New York City outperform both the national economy and the surrounding suburbs.We are currently leading projects in California, Europe, and Asia.

I regularly speak around the country.  On February 13, 2014, I will be the keynote speaker at the annual meeting of the Mass Technology Leadership Council in Boston.  Please don’t hesitate to say hello if you are planning to be there.

White House broadband report highlights PPI research

I’m glad to see that the Progressive Policy Institute’s extensive research and policy program on the data-driven economy is getting some attention in the White House.

On June 14th the White House released a report entitled Four Years of Broadband Growth.  The WH report prominently highlighted PPI’s July 2012 policy brief on Investment Heroes:Who’s Betting on America’s Future, noting that

just two of the largest U.S. telecommunications companies account for greater combined
stateside investment than the top five oil/gas companies, and nearly four times more than the big three auto companies combined.

In addition, the WH report prominently featured our research on the number of jobs created by the App Economy. The White House noted that:

These devices have done more than connect Americans to one another more easily. The integration of mobile broadband, advanced operating systems and increasingly sophisticated hardware, along with low barriers to entry to an open network, have enabled an entire economy of mobile applications to develop in the United States. This “App Economy” is one of America’s most dynamic and growing sectors, and one that industry studies have cited as creating more than 500,000 U.S. jobs since 2007.

Truthfully, the White House could have cited other PPI research as well. Here’s a list of recent work that we’ve done on the data-driven economy within the last year:

The Rebalancing Of The California Economy: How Internet/Tech Jobs Are Spreading Across The State

Data, Trade, and Growth (working paper)

Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy

Investment Heroes:Who’s Betting on America’s Future

The Geography of the App Economy

We have a lot more in the pipeline!

State Broadband Index

Technet has just released its 2012 State Broadband Index. The new report, with principal author John Horrigan, “rates the states on  indicators of broadband adoption, network quality,  and economic structure as a way of taking stock of  where states stand.”

This index is important for understanding the economic and technological competitiveness of different states. The top state is Washington, followed by Massachusetts and Delaware. The worst state was Arkansas, alas.

And of course, I’d be remiss if I didn’t mention that our “App Intensity Index”  (from The Geography of the App Economy) was used as one of the inputs to the index.

 

 

 

Tech Investment Still Rising, Despite WSJ Story

This morning the WSJ ran a story entitled “Investment Falls Off a Cliff: U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.” The story argued that:

Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009.

It’s worth noting, however, that tech investment rose in the third quarter to its highest level on record. The chart below shows real investment in computers, software, and communications gear, in millions of 2005 dollars

The chart is based on BEA data. Please note that there was a pause in tech investment, but it came in the second quarter, not the third.

The way to interpret this chart is that we are in the middle of a data-driven boom. Companies view investment in data and data-related equipment as absolutely essential, and continue to spend, fiscal cliff or no.

NYT Article on App Economy Understates Jobs Impact

As most of you know, I spent years as chief economist and lead economics writer for BusinessWeek. And I have utmost respect for the difficult task that journalists face under deadline pressure.

Having said that, I feel that the NYT article As Boom Lures App Creators, Tough Part Is Making a Living understates the jobs impact of the App Economy in three ways.

First, the article notes that the App Economy “was responsible, directly and indirectly, for 466,000 jobs,” as of the end of 2011, based on a February 2012 study that I did for Technet. However, an October 2012 report entitled The Geography of the App Economy, done by myself and Judith Scherer, showed 519,000 jobs in the App Economy as of April 2012. It would have been much more accurate for the reporter to have cited the more recent–and larger–estimate of App Economy jobs.

Second, it’s certainly true that App Economy entrepreneurs are not all successful, just like entrepreneurs in other fields. However, “The Geography of the App Economy” paper makes it clear that large companies are hiring droves of app developers in-house to create and maintain apps, listing quite a few by name. That paper identified 10 different categories of App Economy jobs, only one of which consisted of the stand-alone app developers that the NYT article focuses on.

Entrepreneurs know that startup businesses typically take at least 3-5 years to make a profit. How long were the entrepreneurs they interviewed in business? And the skills and experience these people develop in their own ventures make them more appealing to be hired at large salaries by more established companies. Indeed, the article notes in passing that one of the entrepreneurs was then able to get a job as a app developer working for a larger company.

In our research, we have found that one of the biggest problems facing App Economy entrepreneurs is that they are competing with large companies for the same talent pool of skilled computer software engineers, user interface designers, and others with app economy skills. In this industry, talent is the most important input, wages are high and rising, and there’s more demand for these skilled individuals than there is supply.

Finally, the NYT article ignores the positive impact of the App Economy on state and local economic development. In an upcoming paper, South Mountain Economics will look at the ways that some leading states and cities are trying to attract app developers and other innovative companies as the foundation for growing their economies. These innovation-minded economic development efforts will turn out to be crucial for economic success going forward.

Which States Are Winning the Business R&D Race?

The National Science Foundation collects and releases a veritable fire hose of science- and innovation-related statistics that never get the attention that they deserve.* For example, earlier this year the NSF published a study entitled “Businesses Concentrate Their R&D in a Small Number of Geographic Areas in the United States.”

This study should be required reading for anyone interested in how the Innovation Economy has developed geographically. I’ve taken the liberty of doing some calculations on just a small portion of the reported data (there is much much more):

Let’s start with the ordering. California’s rank as #1 is no surprise. But New Jersey’s ranking as #2 and strong growth is unanticipated (though it’s consistent with NJ’s relatively high ranking in our Geography of the App Economy study).  New Jersey R&D grew almost as fast as Massachusetts over the 1987-2008 period.

The R&D spending in NJ, PA, and CT came mainly from the pharma industry.  I’m going to look to see whether these states have tried to build on their advantages, or whether they have let them dissipate.

Also a surprise is Michigan’s continued high ranking. Auto industry R&D has not been growing very fast. Nevertheless, the industry has poured an enormous amount of money into Michigan over a long period of time, providing a potential base for future tech growth. Indeed, our upcoming study on tech and economic development identifies the Detroit area as having a very interesting cluster of tech-related companies.

More to come.

*Full disclosure–I serve on a National Academy of Sciences panel which is conducting “a study of the status of the science, technology, and innovation (STI) indicators that are currently developed and published by the National Science Foundation’s (NSF) National Center for Science and Engineering Statistics (NCSES).” This post uses only public information contained in the cited study.

Fast broadband enables tech job growth in Kansas City

The WSJ has a great article entitled “City’s Tech Pioneers See Strength in Numbers.”  The article discusses how the new ultrafast broadband being built by Google in Kansas City is already encouraging startups.

By the time Google began installing its Fiber service on Tuesday, nearly a dozen startups had moved into a six-block radius—about half packed into two houses—including companies building a search engine for social-network data and security software for smartphones that identifies users by vein patterns in their eyes.

“There was already a movement,” said Adam Arredondo, a shaggy-haired 28-year-old who runs a website for local events out of one of the house’s basements. Google Fiber “was the accelerant,” he said.

If the Kansas City project succeeds, that’s good news for many economically languishing areas across the countries. When we did our report on “The Geography of the App Economy,” we found that app economy jobs were being created in every state, even without the impetus of ultrafast broadband. With the right policies,  there could be a massive economic renaissance built around tech.

That’s also the message coming from a new book by Reed Hundt and Blair Levin entitled The Politics of Abundance–technology can help pull us out of the doldrums, if we follow the right policies. (longer review to follow).

AT&T’s Investment Challenge to Corporate America

The economy is improving, but the U.S. is still struggling with an investment drought. Capital spending by business is 26% below the long-term trend, and has not yet recovered to pre-recession levels. By comparison, personal consumption has topped its pre-recession levels, and is much closer to the long-term trend.

Against that backdrop, it is notable that  AT&T announced yesterday that it  expected  a capital spending budget of $22 billion per year for the next three years.  To put this in perspective, the *entire* motor vehicle industry invested less than $20 billion  in the United States in 2011.

In some ways, AT&T’s willingness to make a public announcement of a capital spending target three years out is a challenge to Corporate America (though the company certainly does not frame it this way).  By making this public statement,  AT&T is effectively saying that it believes in the communications revolution, data-driven growth,  and the strength of the U.S. economy.

Why can’t other companies make the same sort of public announcement of  long-term capital spending goals and offer additional certainty to the still recovering U.S. economy?  Truthfully, growth is suffering more from investment uncertainty than from regulatory uncertainty. If large companies pledged to maintain or increase domestic capital spending over the next three years, it would go a long way to boosting economic and job growth.

With the election now over, the Obama Administration should hold up AT&T–and other companies willing to invest in America–as examples of what to do right.  If Obama wants a high-growth economy with prosperity for all, he needs to encourage more companies to make the same kind of bet on America’s future.

The Real Meaning of Obamacare

Back in 1996, I wrote a book called The High-Risk Society. The book was based on the vision that Americans had to embrace risk and innovation in order to achieve faster growth and long-term prosperity.

An essential part of that vision, however, is the creation of a much stronger safety net.  If we are going to ask Americans to take risks for growth, to accept disruption in return for innovation, they have to be protected from the worst consequences of failure.

In particular, it becomes much harder to take a chance on growth if it means you might lose your healthcare. That’s why Obamacare, despite being ungainly and awkward, is an essential step towards a high-growth economy. People who want to start a new company or join an innovative new enterprise shouldn’t have to worry about whether they will be able to get healthcare. People who want to work halftime and go back to school shouldn’t have to worry about whether a sudden medical problem will throw them in the poorhouse.

Obamacare is a step towards unleashing the creative juices of Americans.  There are lots of problems, of course. We need to ensure that the new Obamacare bureaucracies don’t strangle innovative companies. But now that the basic mechanisms are in place, we can move onto the more important task of empowering innovative and hardworking Americans.

The next choice: A high-growth economy vs long-term stagnation.

As soon as the results of the election are known, President Obama or President Romney will be beset with a list of difficult decisions: What to do about the fiscal cliff, whether to cut the federal deficit, how to implement healthcare reform or how to get rid of it,  whether or how to create jobs.

But the biggest decision facing the next president—and Americans in general—goes far beyond the ‘fiscal cliff’, or any of the machinations which fascinate Washingtonians. Should the United States follow its current path of long-term stagnation, or should we choose a road that likely leads to rapid—but disruptive—growth?

This choice will have huge and resonating consequences. In a slow-growth economy, government leaders must focus on apportioning pain and austerity. The rich and the poor within each country or region struggle over scarce resources, with predictable consequences. We are seeing the face of the stagnant future in Europe now, where country after country are being forced to absorb massive cutbacks. Slow growth means that our children will be poorer than we are.

A high-growth economy is based on innovation and the willingness to strike out into new areas. Rapid growth makes it easier to deal with purely financial problems such as the budget deficit—remember that Bill Clinton was able to produce a budget surplus in the 1990s.  Moreover, innovation challenges the status quo and breaks down the rigid income inequalities.

As you might guess, I favor the high-growth economy and the optimism about the future that comes along with it. But we can’t fool ourselves–innovation is fundamentally disruptive and risky. We’re not just talking smartphones and tablets. The list of potential breakthroughs is long and growing—3D printing to reinvigorate manufacturing, biotech to transform healthcare, nanotech to create new materials. Each of these potential breakthrough technologies can destroy existing businesses and jobs even as they juice up growth.

The high-growth versus stagnation decision does not fit easily into party boxes. There are Republicans and Democrats who favor the status quo and stagnation, just as there are Democrats and Republicans who favor innovation and a high-growth economy.  This lack of ideological clarity explains why the debates barely mentioned the internet or mobile (See here http://www.theatlantic.com/business/archive/2012/10/the-astonishing-obama-tech-boom-that-he-doesnt-want-to-talk-about/263601/).

But now that the election is over, it’s time to press the new president to actually move into the 21st century, and deal with what will likely be the question that defines the next Administration–what kind of growth do we *really* want?

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