Forging the Future Lessons from Pittsburgh, Pennsylvania

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FORGING THE FUTURE LESSONS FROM PITTSBURGH, PENNSYLVANIA

Introduction Transition

Pennsylvania’s second largest city, Pittsburgh is traditionally The groundwork for Pittsburgh’s transformation was laid known for its steel industry, NFL team the ‘Steelers’ and as during the 1980’s when economic hardship inspired the city the ‘City of Bridges’. Over the past two decades, Pittsburgh to emphasise its educational institutions as pillars of strength. has become an archetype for industrial transformation; from Pittsburgh’s universities worked together to establish new a declining and polluted industry powerhouse to an institutes that would raise the standard of education for the increasingly environmentally friendly tech hub. next generation and safeguard the region’s economy.

If there is one lesson that came out of the 1980’s in History Pittsburgh, it is that you need to diversify. Pittsburgh experienced its first boom as a commercial city Joel Tarr, Pittsburgh historian, Carnegie Mellon University3 after the American Revolution. A vibrant port developed at the intersection of Pittsburgh’s three major rivers and the In 1979, Carnegie Mellon University (CMU) was the first arrival of the Pennsylvania Railroad allowed industry to grow university to open a Robotics Institute. The institute was rapidly. Pittsburgh’s dominance in the crucible steel industry began in the mid 1800’s. At its peak, the region produced Employment EMPLOYMENT GROWTH nearly three quarters of the nation’s output.1 growth (%) Index = FY1990 40%

During the Great Depression, Pittsburgh’s industrial PITTSBURGH PENNSYLVANIA production fell by more than 50 per cent and the city’s 30% USA workforce took a severe hit.2 Pittsburgh’s role supplying materials during World War II revived the economy and, 20% although the city suffered from stifling air pollution, industrial production created jobs and supported a blue-collar middle 10% class. However, reliance upon a single industry ultimately led to vulnerability during the 1970’s, when newly industrialised 0% Asian countries became major players in metals supply and manufacturing.3 Pittsburgh’s steel industry collapsed under -10% the increased competition, leaving more than 200,000 1991 2011 1997 1993 2017 1990 1999 1998 2013 1995 1996 2010 2001 1992 2015 2016 2012 1994 2014 2007 2003 2000 2009 2008 2005 2006 2002 people unemployed. In 1983, the city faced a peak 2004 3 unemployment rate of 18 per cent. Its riverbanks were left CHART 1: EMPLOYMENT GROWTH 1990-2017, PITTSBURGH, PENNSYLVANIA, USA4 tarnished, a landscape of abandoned and rusting mills. Forging the Future – Lessons from Pittsburgh, Pennsylvania 1

pioneered by Turing award-winning computer scientist, Raj PITTSBURGH INDUSTRY CLUSTERS Reddy and Red Whittaker, who together persuaded Job growth Job creation 2006-2016, Industry size 2016 2006-2016 (%) Westinghouse Electric to provide $3 million in funding. 20% Business & Westinghouse became actively involved in the institute’s Financial Services Healthcare & Life 15% Factory of the Future Project, providing factories for testing Sciences ideas that were based on Westinghouse’s key production 10% Arts, Entertainment & challenges.5 The institute’s leaders were also motivated by IT & Communications 5% Tourism world events such as the Space Shuttle Challenger disaster 0% and won numerous research grants by advocating for the Construction & Trade Retail Industry size -5% Government use of robots instead of live astronauts for space exploration. % of total jobs 2016 -10% Education Transportation The Ben Franklin Technology Partners (BFTP) program was -15% & Logistics Manufacturing created by the Pennsylvania Department of Community and -20% Economic Development as a state-funded economic 0% 5% 10% 15% 20% development initiative to provide companies with capital and CHART 2: PITTSBURGH INDUSTRY CLUSTERS, JOB CREATION AND GROWTH11,12 business expertise. The program was administered through Note: industry categorisation derived by Austrade from Statistics USA innovation clusters centres closely affiliated with Pennsylvania’s universities. With its initial allocation of funds, BFTP provided financial sites throughout the 1990’s. The city gained new retail and support to development projects within established residential districts, stadiums, a convention centre and areas companies, and later shifted to a private non-profit structure for innovation. The Allegheny Conference on Community with an emphasis on angel investment to foster startups.6 Development played a vital role in creating smog controls and clean water rules for the city, and contributed to the In 1985, the presidents of CMU and the University of revitalisation of a large downtown section into the Pittsburgh Pittsburgh partnered with public leaders to develop ‘Strategy Cultural District.9 The Conference had been established in 21’. The strategy planned to leverage the city’s strengths in 1944 as a post-war planning committee and continued to advanced manufacturing and technology, support university serve as a mechanism to coordinate the private and public research with high potential for commercialisation, reclaim sectors during Pittsburgh’s transformation. In 1993, the disused industrial sites, and revitalise the downtown and Conference commissioned a competitive analysis. The riverfront.7 Governor Dick Thornburgh provided a $17 million resulting ‘White Paper’ encouraged the region to consolidate down payment for several infrastructure projects, including its fragmented economic development efforts and create a highways and the Pittsburgh International Airport.8 Urged by shared vision. Describing the momentum that was already Thornburgh to attract investment from the private sector, the building, the report formalised five sectors for development: Strategy 21 partners formed a united coalition to lobby for manufacturing, IT, energy, finance and health care.10 project support that would diversity the economy. Several newly established university institutes were supported and Pittsburgh in the Twenty First Century funds were raised to launch the Supercomputing Center, a During the 2009 recession, Pittsburgh’s economic joint endeavour between the University of Pittsburgh and metamorphosis attracted the attention of the White House. CMU. The Governor set aside $5 million to purchase The city was selected to host the G20 conference and was equipment and materials to operate the Supercomputing portrayed as the strongest of the rust belt cities.13 Center, which is now a leading partner in the National Science Foundation cyberinfrastructure program. WESTINGHOUSE FACEBOOK APPLE CBS PURCHASE 2011 In line with Strategy 21 goals, Pittsburgh’s landscape was 2005 UBER 1995 GOOGLE transformed by the development of its riverfront brownfield 2014 2006 BOSCH ALLEGHENY & 2016 TELEDYNE MERGER AMAZON 1996 2017 COMPANIES

INSTITUTIONS PITTSBURGH TECHNOLOGY CENTER URA OF REGIONAL INDUSTRIAL CARNEGIE 1991 PITTSBURGH DEVELOPMENT CORP. MELLON 1946 1955 ROBOTICS WHITE PAPER 1979 1990 CARNEGIE MELLON CYLAB ALLEGHENY CONFERENCE ON BEN FRANKLIN TECH PARTNERS 2003 COMMUNITY DEVELOPMENT 1983 1944 CHART 3: KEY MOMENTS IN PITTSBURGH’S HISTORY Forging the Future – Lessons from Pittsburgh, Pennsylvania 2

Pittsburgh stands as a bold example of how to announced a $1 billion investment in Argo AI, a company that was founded by former employees of Uber, Google and create new jobs and industries while transitioning CMU.17 Other advancements in the field include Seegrid’s st to a 21 century economy. factory robots and self-flying aeroplanes developed by Near President Barak Obama, prior to the G20 summit.13 Earth Autonomy.18 In 2017, the city of Pittsburgh was selected by the Department of Transportation as one of ten In recent years, Pittsburgh’s young city leaders have autonomous technology proving grounds.19 embraced global trends in automation and encouraged the use of robotics, including artificial intelligence (AI) and big It’s not our role to throw up regulations or limit data, to power government and infrastructure. Smart city companies like Uber. If you want to be a 21st technologies are accelerated by a Memorandum of century lab for technology, put out the red carpet. Understanding between CMU and the city, allowing CMU to 16 test new tech around the city without undergoing a lengthy Bill Peduto, Mayor of Pittsburgh. approval process.14 Examples include smart sensors to Today, Ben Franklin Technology Partners is one of the US’ optimise traffic flow and provide adaptive street lighting.15 most active seed-stage investors. The four regional branches operate independently and offer a vehicle for institutional Under the leadership of Mayor Bill Peduto, the city adopted a investors to co-invest in participating companies. The hands-off approach to technology described as ‘greenlight program has boosted Pennsylvania’s economy by over $24 governing’, which follows a belief that the regulatory burden billion since inception.20 Innovation Works (the Pittsburgh should be minimised for innovative private companies.16 branch) boasts 52 exits and two of the most high profile Greenlight governing has encouraged private industry to companies include Vivisimo, which was acquired by IBM and work cooperatively with regulators. When planning to expand is now branded as IBM Watson Explorer, and ALung into Pittsburgh, Uber adopted a soft approach, developing a Technologies, which closed a $36 million series C financing relationship with Mayor Peduto and working alongside round in 2017. Pittsburgh’s venture capital community has regulators. In 2014, state regulators attempted to ban ride- seen promising growth, though the total value of investment sharing services; Peduto and the Governor intervened and is well below New York, Boston and cities in California.21 later encouraged Pittsburgh Airport to build a waiting area for Uber and Lyft passengers. Peduto also helped Uber lease Universities and public-private partnerships remain the major land for an autonomous vehicle testing track. Pennsylvania’s catalysts for innovation in Pittsburgh. CMU continues to drive transport laws do not explicitly ban driverless cars, thus the new initiatives. The Robotics Institute is now a $65 million transport agency interpreted the silence as a green light. facility and the world’s largest university-associated robotics These developments have seen Pittsburgh rapidly position research group.17 CyLab was established in 2003, a cyber itself as a testbed for autonomous vehicle technology and security research centre which has over 20 corporate attract skilled workers to research centers opened by Apple, partnerships.23 The Project Olympus incubator was launched Google, Intel and Uber. In addition to Uber’s activity, Ford in 2006 with a starting grant of $400,000 provided by Heinz

CASE STUDY: UBER

$ INDUSTRY ANNUAL SALES HEADQUARTERS WORKFORCE

SFOTWARE, $1.2 BILLION SAN FRANCISCO, 500 PITTSBURGH METRO

TRANSPORTATION, COMPANY VALUE CALIFORNIA JOBS AT UBER AUTONOMOUS VEHICLES $68 BILLION RESEARCH OFFICE In 2014 Pittsburgh partnered with transportation firm Uber to open the Advanced Technologies Center. The public-private partnership, backed by state legislation, allows Uber to test autonomous vehicles in the city and develop technology through a partnership with Carnegie Mellon.22 Uber is based in Pittsburgh’s tech strip district and plans to start testing up to 100 vehicles on the streets. Uber’s investment will reach an estimated $1 billion over the next few years. By affirming Pittsburgh’s greenlight governing approach, Uber has also encouraged broader investment in the field.

Image credit: Autonomous vehicle, Uber and the PA Department of Community & Economic Development.

Forging the Future – Lessons from Pittsburgh, Pennsylvania 3 to connect researchers with funders. Notable software and apps arising from these innovation centres include the KEY PITTSBURGH METRICS language app Duolingo and Amazon’s AI platform Alexa. 31 2.3 POPULATION (2016) The University of Pittsburgh Medical Center (UPMC), which is million ranked among the country’s top health care providers, has POPULATION GROWTH catalysed innovation in ancillary industries including digital 31 -0.9% (2006-16) health technology and biotechnology. Early adoption of PER CAPITA PERSONAL INCOME electronic health records and interoperability solutions 32 $51,200 attracted partners such as Microsoft and GE Healthcare. (2016) These innovations have encouraged corporate investment in

29 life science companies, with investment lifting from $34 to MEDIAN HOUSE PRICE (2017) $130,000 $70 million in the year to 2016.25 UPMC has also been highly successful in winning National Institute of Health funding.24 KAUFFMAN STARTUP INDEX 33 #39 As Pittsburgh has attracted global technology companies RANK (2017) and financial institutions, its economy has transformed from 34 low-to-medium value production to high value technology- PATENTS GRANTED (2015) 895 driven services and advanced manufacturing.26 Software, life sciences, advanced materials and manufacturing, energy 35 $430 and environmental technology are major industry clusters. VC INVESTMENT (2017) million Around 10,000 technology firms account for 25 per cent of the city’s workforce, and a greater share of wages.25 A further EDUCATIONAL ATTAINMENT 36 32.5% 120,000 workers are employed in the health care sector, (2016) Bachelor’s or higher with the UPMC one of the region’s top employers.24 home in San Francisco is more than four-fold higher than While traditional manufacturing remains central to the Pittsburgh.29 Yet despite its skilled workforce and high inter- Pittsburgh economy, the enduring companies are those that generational mobility ranking (second highest of the largest diversified and embraced technology in the face of external commuting zones)30, Pittsburgh suffers from low population structural economic changes. Westinghouse Electric growth and struggles to attract immigrants. The population of reinvented its production with a new focus on nuclear Allegheny country is just 75 per cent of the 1970’s 13 engineering and energy. Allegheny Technologies merged population. Securing a place on the shortlist for Amazon’s with Teledyne and spun off several companies specialising in highly publicised HQ2 bid has cemented Pittsburgh as an digital imaging, aerospace and defence electronics. Both icon of resilience, however, the city still has a long way to go Westinghouse and Allegheny feature in the Fortune 500 list. to shake the perceptions of its steel industry decline.

Challenges Lessons for Australia

Aging infrastructure and environmental pollution remain Enduring three economic recessions within a century, challenges for Pittsburgh. Until recently, there was no Pittsburgh’s turnaround reveals lessons for Australian cities dedicated financial support for public transport. Fortunately, facing industry upheaval. Pittsburgh’s transformation new legislation was passed in 2013 to allocate funding from demonstrates the importance of a diversified economy and existing taxes and improve the public transit which presently the effectiveness of consolidated planning across private serves 230,000 daily riders.27 Like many post-industrial cities, and public sectors. University collaboration, business there are large sections of vacant land and derelict buildings incubator development and effective legislation provide an in Pittsburgh’s downtown. As the city is modernised further, environment for startup companies to thrive while attracting care should be taken to preserve historic icons. Several attention from larger technology companies. community organisations are dedicated to this cause. Community concerns have also been raised regarding the At present, Australian government agencies are freedom of technology companies in Pittsburgh, highlighting implementing strategies to address the closure of Victoria’s the risks of autonomous vehicle testing and the lack of Hazelwood coal-fired power station and the loss of the established rules to govern in the aftermath of an accident.28 automobile manufacturing industry in Victoria and South Australia. Strengthening ties between the private sector and Compared to larger cities, Pittsburgh’s low cost of living and educational institutes, and pursuing business-friendly extensive network of recreation trails appeals to young and economic development strategies will create the greatest educated job seekers. The median price for a single family opportunity for regions to forge a path into the future.

Forging the Future – Lessons from Pittsburgh, Pennsylvania 4

REFERENCES

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21. E&Y LLP and Innovation Works, Inc., A snapshot of Pittsburgh’s technology investment landscape, accessed 8 March 2018. 22. Forbes, Why Did Uber Pilot Driverless Cars In Pittsburgh? Here's Why, www.forbes.com/, accessed 6 March 2018. 23. CyLab, CyLab Research Areas, www.cylab.cmu.edu/, accessed 6 March 2018. 24. UPMC, UPMC Facts and Figures, www.upmc.com/, accessed 8 March 2018. 25. Pittsburgh Technology Council and Price Waterhouse Cooper, State of the Industry 2017 Report, www.pghtech.org/media/189948/SOI-2017.pdf, accessed 8 March 2018.

26. The Guardian, Pittsburgh's thriving tech sector brings new life to the city, www.theguardian.com/, accessed 6 March 2018. 27. The Port Authority of Allegheny County, www.portauthority.org/paac/, accessed 8 March 2018. 28. The Washington Post, Uber’s self-driving taxi test isn’t something to hail, www.washingtonpost.com/, accessed 8 March 2018. 29. Livability, United States Metropolitan Areas, livability.com/metro, accessed 5 March 2018. 30. United States Census Bureau, Metropolitan/Micropolitan Datasets, www.census.gov/data, accessed 5 March 2018. 31. National Bureau of Economic Research, Geography of intergenerational mobility in the United States, www.nber.org, accessed 28 April 2018.

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