Positioning a city as progressive and innovative in the post-recession economy is requiring public officials, perhaps more than ever before, to think and act like entrepreneurs in order to maximize the economic development potential of anchor institutions such as higher education and medical facilities, alternative energy–related industries, and biotechnology firms, according to a new report from ULI.

Building on Innovation: The Significance of Anchor Institutions in a New Era of City Building,
written by ULI senior resident fellow for urban development Tom Murphy, maintains that in the current environment of extremely limited public funds, being competitive means being able to create new economic engines, new marketplace synergies, and new corporate enterprise offshoots. The difference between the winners and losers, Murphy says, is a shared goal by both the public and private sector to create a climate for progress. “The technology and information economy has created a tempo of quick-speed change and public/private community interdependencies so great that they have generated a new paradigm of local economic development and city building,” he says.

“The ability to reinvent is a must, not an option. The forces of global trade, new requirements for energy and infrastructure, climate change impacts, technological innovation, and demographics are redefining the elements for cities to compete and succeed.”

A three-term mayor of Pittsburgh, Murphy was instrumental in that city’s revival as an education and medical hub following the decline of its steel industry, which was the city’s economic driver for much of the past century. Murphy’s report was released as part of a ULI forum, “Anchor Institutions as Catalysts of Urban Investment,” held April 4 and 5 in Washington, D.C. While the concept of reinvention to catalyze economic growth is not new, “what’s new is the global nature of the competition, rapidity of change, and the need for communities to form partnerships across traditional boundaries,” Murphy says.

The report highlights several U.S. urban areas—including longtime anchor institution hubs such as San Francisco and Boston; firmly established hubs such as the Research Triangle in North Carolina; and up-and-coming anchor institution magnets such as Austin, Pittsburgh, and Seattle—to illustrate the potential for growth and attraction of venture capital when the existing work of anchor institutions is leveraged with public sector leadership and engagement. All the metro areas but one, Houston, experienced sharp declines in manufacturing jobs between 1990 and 2010; however, during the same period, all experienced substantial job gains in professional and businesses services, and education and health services. Now, nearly all have unemployment rates that are below the national rate. Murphy points to the resilience of education- and medical care–based economies, attributable largely to the fact these institutions are place-based and cannot easily relocate.

The metro areas that have successfully leveraged the benefits of their anchor-institution economies are those that are acting as partners, rather than impediments, to ensure that investments in the institutions spur an infusion of venture capital and a flurry of related startup businesses. Murphy lists several actions public officials can take to foster an entrepreneurial business climate—among them assembling and providing surplus land, adopting favorable tax policies, and fast-tracking the approval process. (A 2010 survey from the National Venture Capital Association notes that most factors for attracting venture capital investment rely on favorable government policies rather than individual company activities. The same survey lists health care services, medical equipment, clean energy technologies, and new media among the sectors most likely to attract increased investments over the next five years.)

“The relationship between the receptivity of the local business community, availability of skilled workers, and the responsiveness and creativity of local government are all factors well-known to venture capitalists and will often influence where they suggest new companies locate,” Murphy says.

Murphy offers some lessons from the most entrepreneurial of the “eds and meds” urban areas:

  • On leadership: leadership requires someone to visualize the result, understand its place in overall city development, create public enthusiasm, make it real, and begin to identify the resources necessary to move forward. The leadership needs to be sustained and committed to the long term. These developments will extend beyond the term of an elected official, often taking ten to 20 years to succeed.
  • On strategy: an individual development needs to be seen strategically; it should be understood as catalytic in its impact on both the market and perception. A strategy needs to be critically focused on a true competitive advantage, not on an abstract idea of some undefined goal.
  • On institutional capacity: to carry through on long-term commitments, public/private/university partnerships require sophisticated organization on all sides. A critical ingredient is the research institution’s commitment to an efficient technology transfer process and an institutional commitment to an entrepreneurial approach. On the public side, the most effective results occur if the land, financing, and deal-making responsibilities and authority are all in one place.
  • On financing: as local budgets are cut, it will require creativity and shared vision to make state or local financing and state pension funds available, and to create new funds. Leveraging private investments with public financing may require tools such as tax increment financing, small business loans, industrial revenue bonds, infrastructure funds, and public tax-exempt financing.
  • On education: a knowledge-based economy will be driven by educated people; anchor institutions attract an educated workforce, and, conversely, they are attracted to places that appeal to an educated workforce.

Decisions on land use, maintains Murphy, are integral to the ability of cities to transform themselves to thrive in an economy dominated by knowledge-based institutions rather than manufacturing. “The ability of a community to reuse its former manufacturing sites, to synergistically locate technology companies near research labs, to encourage the growth of anchor institutions, and to build vibrant, engaging, and modern places to live and play are central to a competitive community.”