Economic research validates region’s development efforts

Ross C. DeVol may not have roots in the Lowcountry, but he’s a firm believer in the steps the region has taken to step out from under the weight of the closure of the Charleston Naval Base 11 years ago.

During an interview with the Charleston Regional Business Journal in anticipation of his Nov. 9 speech at the Charleston Regional Development Alliance’s annual update luncheon, his recommendations for ways to recast a region into a high paying, knowledge-based economy sounded almost like a checklist of activities that have occurred and continue to develop across the state.

• Collaboration between research universities: Look no further than the recent collaboration between the Medical University of South Carolina, the University of South Carolina and Clemson University.

• Developing venture capital networks: Meetings among financial movers and shakers are taking place at the College of Charleston’s Tate Center for Entrepreneurship at least every six months.

• Developing a work force with the skills high technology companies need: Examples of this are Vought, BMW and many others. The Lowcountry and the state have been successful in leveraging the state’s technical college system.

• Government involvement in economic initiatives to keep the cost of business low relative to the competition: Look at the decisions of companies such as Vought and DaimlerChryslter to locate significant operations here to see that strategy in full effect.

Labor force skills investment

“Certainly, several business sectors in the Charleston region have been performing strongly not just in the past year, but over the past five years or so,” said DeVol, who is director of regional economics at the Milken Institute at Ohio State University. “Travel and tourism, for instance, has rebounded very strongly in the area, much faster than in the nation overall. There’s also been a significant growth in the area of professional and business services. And wages in association with that growth in jobs has been fairly strong.”

Little wonder, then, that the Charleston market recently ranked 22nd out of the nation’s 200 largest metropolitan areas in DeVol’s recent analysis, Best Performing Cities: Where America’s Jobs are Created. The study ranked the respective areas in terms of job growth, wage growth and technological concentration.

What’s more, over the past five years, Charleston and North Charleston combined ranked 18th out of the 200 largest metropolitan areas in the United States in terms of wage and salary growth.

But that doesn’t mean the region’s work is over, DeVol said.

“Charleston still needs to continue to diversify its economy by adding higher value industries to the mix,” he said.

Leverage homegrown research

DeVol oversees the Milken Institute’s research efforts on the dynamics of comparative regional growth performance. He established the institute’s national reputation with groundbreaking research on technology and its impact on regional and national economies.

He is an expert on the intangible economy and how regions can prepare themselves to compete in it. The bulk of his work examines the effects of technology, research and development activities, international trade, human capital and labor force skills training, entrepreneurship, early-stage financing and quality-of-place issues on the geographic distribution of economic activity.

“While Charleston has many, many positives going for it, I think where it
hasn’t been as successful is in leveraging its research and development attributes and growing in the more technologically intensive areas,” he said.

“I think many of the elements are in place, but you have to remember, it’s not enough to have vibrant research universities. You also have to encourage collaboration between the private sector, the universities and even the federal sector. That’s why I like things like small-business innovation awards and small-business technology research awards. It’s when you start to capitalize on your local research and development that you really start to move up the value chain.”

DeVol said another key element to keeping the region’s economy growing will be continued attention to the area of venture funding, particularly the kind of “angel” funding that startup companies need.

“When you look at the communities that are thriving and those that are not, the defining difference is always found in the percentage of small businesses that develop there,” he said. “After all, it’s estimated 75 percent of all the new jobs in the country come from new small business. So the bottom line is, if you’re not growing small companies, you can’t maintain job growth at a pace with the rest of the country.”

Global economic demands

Another indicator of whether a local economy is thriving is how well it does attracting existing businesses or new facilities of existing businesses from other states.

“Charleston, even now, is still considered a relatively low-cost place to do business, but you can’t compete on a global scale relying just on the low-cost formula. Just look at what’s happened to manufacturing in this country,” he said. “As a result, human capital investment has become much more important. Companies won’t establish operations in a state unless they believe the state provides the work force they need to prosper.”

While some companies are willing to take a chance on a state that is willing to train potential workers in the specific skills the company needs, it’s far better if those efforts are undertaken at the same time that the state is creating job opportunities for its new graduates, DeVol said.

“It’s great to train or retrain your existing work force, but you also have to be doing everything you can to retain your intellectual capital,” he explained. “Otherwise, your graduates, particularly those engaged in the sciences and technology, will pick up and go elsewhere, and companies in those industries will too.”

It’s not just major research universities that have a role to play in building a local knowledge-based economy, he added.

“Look at what happened in Austin, Texas,” DeVol said. “The foundation for its development into a high-tech hotspot was really laid at the community college level, where educators and others realized that two-year degree programs in very specified technology areas could provide tech companies with lots of the very kinds of workers these companies need and value.”

Long-term strategic thinking

Growing business clusters, particularly in the area of knowledge-based industries, takes time, DeVol said. Therefore, it is vitally important that regional economic planners think strategically and continually review their strategies to determine what’s working and what’s not, in terms of both short-term and long-term goals.

“This is a ‘step by step by step’ process, and it’s critical not to lose sight of that,” he said. “Basically, it’s a process of keeping things moving until you sort of have things meld together and reach critical mass. That’s what happened in places like Boston and Chicago and Silicon Valley. Over time, research competencies developed, (and) those competencies were leveraged to create companies and that kick-started employment growth.”

DeVol said that, while it’s important to have high-caliber research take place in the community if the goal is a piece of the knowledge-based economy, it’s even more important that these researchers have some experience with the commercialization of their work.

“If I was evaluating chairs of various research departments, I’d want to know that they were at least interested in commercialization and that they at least served as a consultant to a company or two in regard to that kind of effort,” he said.

Translate vision into plan

Fostering angel investment is far more difficult, in large part because the investments are risky and also because this type of investment often comes from informal networks of investors, not venture capital-like firms.

The first step is communication, reaching out to successful and wealthy individuals in the community and determining whether they’d be interested in participating in such an endeavor, DeVol said.

“You really do have to search them out, find them and then try to get them involved,” he said. “Generally, you don’t see strong venture capital involvement in an area until there’s a strong network of angel investment.”

Another strategy for growing a knowledge-based economy is targeting anchor firms, DeVol said.

In the mid-1990s, for instance, Albuquerque, N.M., got Intel to build a large computer chip plant on its outskirts. Over the ensuing decade a number of smaller, specialized chip manufacturers relocated there, in part to serve as Intel’s suppliers. As angel investors began to see the seeds of a cluster, small startups followed.

“The thing is, you have to be strategic in your incentives,” DeVol said. “Adding jobs is great, but to really prosper as a community, you need to tie incentives to an overall increase in wages, which increases the spillover effect of a business’ presence in your community.”

But, DeVol said, it all comes down to having a vision that’s translated into a working plan.

“Most of all, individuals within the economic development community should consistently strive to be network catalysts, trying to make sure that as time goes on, you’re constantly developing stronger ties between the university and business community,” he said. “It’s really like being an orchestra leader. You have all the instruments, but you’re trying to get them to work in unison.”