Technology Life Cycles and State Economic Development Strategies

tates have become increasingly active in promoting industrial competitiveness and economic development in recent years. S Some of these efforts involve the reorientation of existing institutions and programs that provide training, small business assistance, and recruitment incentives. In addition, states have undertaken a variety of new initiatives with respect to technology transfer, venture capital, and the modernization of established firms. An extensive literature has emerged on state economic development efforts. The results, however, have not been of much help to states in terms of developing competitiveness strategies, for two major rea- sons. First, the materials are primarily descriptive, highlighting the actions of various communities, states, and regions. Little evidence is given on the success or failure of such experiences. Moreover, for many programs, not enough time has elapsed to evaluate effectiveness, at least over the long term. Second, state experiments and initiatives have not been viewed in a larger analytical framework that would permit generalization and an understanding of the dynamic processes underlying these changes. Lacking this larger context, information about the experiences of other states, no matter how detailed or successful, is of limited value to states operating under different industrial and technological conditions. Patricia M. Flynn This article adopts production life-cycle models as a framework in which to analyze systematically the interrelationships between industrial and technological change, human resource needs, and state eco- Dean, Graduate School of Business, nomic development policies. This framework--in which products, pro- and Professor of Econo~nics, Bentley duction processes, and technologies are seen as dynamic phenomena College. This article is based on re- whose locational, skill, and training requirements change as they search conducted for the National Cen- evolve--provides a conceptual model useful for evaluating and design- ter on the Educational Quality of the ing state economic development policies. Work Force at the University of Penn- The life-cycle framework suggests that states that incorporate the sylvania. dynamics of industrial and technological change into their competitiveness strategies will reap employment and productiv- ment packages, particularly those offered by south- ity benefits that technology can provide. In contrast, ern states. states that fail to address these issues increase their Historically, North Carolina has been noted for vulnerability to the negative impacts of technological its ability to attract manufacturing plants~a majority change, including widespread unemployment and of the Fortune 500 companies have at least one plant job loss. located in this southern, right-to-work state. More recently, Tennessee, Kentucky, South Carolina, and Alabama have been successful industrial recruiters. A L Trends in State Economic Nissan plant located in Tennessee in 1980, and in Development Efforts 1985 the state won its bid for the General Motors Saturn plant. Kentucky attracted a Toyota plant in State economic development efforts revolve 1985 and was first runner-up in the Saturn contest. around three major strategies: the recruitment of South Carolina was successful in recruiting a BMW firms to the state, the development of high-tech plant in 1992, and Alabama was the site selected in start-up firms, and the revitalization of established 1993 by Mercedes-Benz for its first North American businesses. All state economic development strate- plant. gies attempt to boost the local economy. States hope More generally, states throughout the country such steps will result in net increases in the private sought to recruit high-tech industries during the late 1970s and early 1980s. These efforts included various tax and financial concessions and promises of work forces trained to accommodate the needs of individ- ual employers. State economic development efforts Recruitment efforts continue to be an active com- revolve around the recruitment of ponent of many states’ economic development plans. The competition for the Saturn plant, for example, firms to the state, the included 38 states and 1,000 local communities. Fur- development of high-tech start-up ther, state recruitment packages have become more firms, and the revitalization of complex as well as more expensive. In its winning proposal for the Saturn plant, Tennessee provided a established businesses. significant property tax abatement and infrastructure improvements and promised to spend an extra $45 million on higher education, in order to offer a range of technical courses (such as robotics and automation) employment base (direct and indirect), in state and for upgrading General Motors employees. Michigan’s local tax revenues, and in long-term economic recruitment of a Mazda plant in 1986 included $19 growth. The number of jobs created or maintained is million to train new workers, and Illinois offered $64 not the only factor to consider. The quality and level million in 1988 in hiring and training assistance in its of income associated with the jobs and the potential successful bid for a Mitsubishi/Chrysler plant (U.S. for spin-offs and other positive externalities play key Congress, Office of Technology Assessment 1990b). roles in the long-term results. In the 1990s, the stakes escalated. South Carolina offered a $130 million incentive package in its successful bid in 1992 to lure a 2,000-job BMW assembly Recn~itment of Finns plant. South Carolina reportedly offered Mercedes In the 1960s and 1970s, state economic develop- Benz a similar package to that offered BMW but lost ment efforts focused on the recruitment of employers out to Alabama, which promised a record-setting and jobs, either luring existing plants to relocate or incentives package worth over $300 million. In addi- attracting new plants. Seeking to differentiate them- tion to the price, another unusual feature of the selves, states offered tax and financial incentives to package was Alabama’s agreement to pay the salaries encourage firms to relocate within their borders. A of the 1,500 workers (at an estimated $45 million) relatively low-wage work force and a good labor while they were being trained during the first year or climate--which generally meant accommodating la- so on the job (Applebome 1993; Browning and Coo- bor or no unions--were often highlighted in recruit- per 1993). 18 May/June 1994 New England Economic Review In recent years, recruitment efforts in many velop new firms have influenced private investment states have focused on attracting new plants of firms practices and filled gaps in capital markets. By the that are expanding, rather than trying to induce mid 1980s, most states had funded venture capital employers to relocate existing facilities. The trend has programs to finance new and emerging businesses. also been toward greater emphasis on international These programs, some of which require matching in~cestors, as states hope to lure plants of Japanese funds from the firms, are generally quite small. They and other foreign companies. often seek to expand or change existing lending practices in the private sector. They may support firms that might not have approached traditional High-Tech Job Creation sources of seed money, or encourage private invest- In the 1970s and early 1980s, many states began ments in potentially productive projects traditionally supplementing industrial recruiting strategies with bypassed because they were considered too risky. efforts to create jobs at home. The impetus behind These entrepreneurial venture capital programs this trend came partly from some states’ disappoint- have brought states into relatively unfamiliar territory ment with their lack of success in recruiting jobs from for public sector institutions. Traditionally, state in- outside. It was also in response to growing evidence dustrial development loan programs worked with nationally that the key to employment growth and existing firms that backed their loans with collateral. good jobs lay in "growing your own" (Grubb and In contrast, the new loan programs often focus on Stern 1988). start-up operations and new product development, The experiences of California’s Silicon Valley and for which collateral is often not reqttired (Eisinger 1988). Massachusetts’ Route 128 provided tempting exam- ples of the high-tech job creation approach. Seeking Revitalization of Established Businesses to replicate the success of these areas, many states adopted a range of high-tech development initiatives Recent years have also witnessed a shift in em- that focused on research, development, and technol- phasis in state economic development programs to- ogy transfer. ward assistance to established businesses (Ganzglass Efforts to stimulate technological innovation and Heidkamp 1987; Osborne 1987; Rose and Kotlow- have taken a variety of forms, including research itz 1991). Efforts to help established firms in the centers, industry-university partnerships, matching United States historically have focused on the pre- grants, and research parks. Research centers, often vention of job loss or on the reemployment of work- operated in conjunction with universities, conduct ers displaced from their firms. Measures to retain jobs applied research and allow firms to pool their re- in mature or declining industries, for example, have sources for facilities and equipment. Research parks, often included import quotas, domestic content

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