Friday, December 20, 2013

Time to get innovation into gear in North Carolina

I live in North Carolina, a state that has become home to me over the years.  Nestled here on the east coast, with spacious unspoiled beaches at one end of the state and the majestic Blue Ridge at the other end.  Living conditions and quality of life are high.  The university system is top notch, cranking out thousands of highly qualified young people every year.  The weather is temperate, so much so that many places in North Carolina are filling up with retirees and "half backs" - people who moved to Florida and then came half-way back to North Carolina.  There's much to like about the Old North State.  But, and you knew there was a "but" coming, it's time to pull on the Underdog cape and admit to ourselves that North Carolina needs a new awakening.  While North Carolina has traditionally thought of itself as a leading southern state, surpassing its neighbors and taking its rightful place in the pantheon of leading states nation wide, on many meaningful criteria we've slipped over the last 20 years, and we need a concerted effort to regain our rightful position.

The North Carolina Innovation Index

If you are wondering why I am in high dudgeon about the state of the State, look no further than the wonderful new work by our Department of Commerce.  The North Carolina Innovation Index is the result of a lot of hard work by some great folks - John Hardin and others.  For several years the team has labored to pull a lot of data together to assess some of the factors that indicate how "innovative" the state is, and its relative position versus other comparable states and near neighbors. 

The results are in, and frankly, they ain't pretty.  North Carolina has a deserved history of progressive politics, forward-looking investments and leading innovation.  At one time North Carolina built a lot of modern highways, and was called the "Good Roads State" when the automobile was still a new phenomenon.  Later, North Carolina invested in its universities to build more education and to train more knowledge workers.  North Carolina also established a number of research parks, none more famous than Research Triangle Park, to attract knowledge based industries and research to the state.

All of that good investment is far in the past.  We've been reaping what our forefathers sewed, and have simultaneously eaten our seed corn.  The most recent innovation index suggests that on many significant innovation criteria, from income to wages to jobs to education, our state has slipped.  We've basked in the adulation and envy of other states for years, not noticing that they were catching up or surpassing us, all the while not bothering to invest in new solutions and existing capabilities.
It's not enough to have good beaches and great mountains, unless tourism is meant to drive our economy.  Tourism is great, but it spawns low-paying seasonal service jobs at best.  So while mountains, beaches and nice climate are great, they don't necessarily lead to great business opportunities. 

What about our educational system?  While the UNC system of colleges is on par or better than many comparable state university systems and cranks out thousands of graduates each year, many of those graduates are leaving the state to find work elsewhere.  The vast majority of the graduates who stay settle in only a handful of counties, creating greater disparity between the "haves" and "have nots" in North Carolina.  Increasingly we'll see brain drain from many counties to locations like Wake County, Mecklenberg, the Triad and a few other locations.  But many people with advanced degrees are treating North Carolina as a brief stop-over, a place to receive education and then move on.  We need to find ways to keep more of these people in North Carolina, creating businesses and jobs. 

But to continue on the educational system.  Looking at the primary and secondary educational systems, North Carolina faces real challenges.  Our teachers receive some of the lowest compensation in the nation, a legacy of decades of mismanagement, poor focus and ever-widening distribution of limited funds.  The impact on teacher salaries didn't start with the Republican takeover in 2012, but some of those policies are exacerbating an historic lack of investment and funding.  Compounding problems in the classroom are increasing in-migration from other states and countries.  While North Carolina is recognized as a "high quality of life" state, many people have moved here and placed enormous strain on an already taxed educational system.  We need far more experimentation and far more focus on primary and secondary education, to improve the chances for young people to gain knowledge and have the chance for gainful employment.

Tech Transfer
Considering the strength of the university system, one would think that the state would abound with new start-ups capitalizing on university research and the great ideas of recent graduates.  Our universities generate a lot of research, but for many reasons we do a poor job of converting that research into new companies and new jobs.  The Index points out that North Carolina is actually one of the top states for academic research, but lags in venture capital investment and in new corporate starts, as well as in transferring technologies and research from the university setting to private enterprise.  All eyes turn to Silicon Valley, yet in Duke, UNC, NC State alone we have more than the equivalent of Stanford University, never mind growing research sites like Wake Forest in the Triad (which seems to be doing the best of all NC universities in translating research into jobs) and UNC-Charlotte and UNC-Wilmington on the coast.  Why the disparity between Silicon Valley and RTP in new corporations, new start up and new wealth creation?  It's not the depth or breadth of research, and it's not the availability of smart, motivated people.  There's a gap in tech transfer and a gap in venture funds, as well as a east coast and southern notion about failure that often stymies investment, versus recognition of failure as a learning vehicle that seems to accelerate investment in Silicon Valley.


Currently North Carolina has one of the highest unemployment rates in the country, combined with relatively low wages.  This is a conundrum, because low wages should attract more businesses and more jobs, thus reducing unemployment.  However, because of the attractiveness of the living conditions, we have some of the highest population growth, so we've attracted many people to the state but haven't built the capacity for more businesses.  Wages will remain relatively low until more businesses are created or existing businesses expand to account for excess labor capacity.

Add to that fact that North Carolina has been relatively slow to migrate from a focus on agriculture, manufacturing and other relatively low-wage industries to higher wage industries.   While the economy is relatively diversified, North Carolina remains heavily reliant on manufacturing, moreso that comparable states.  As more and more of the manufacturing base moves to Mexico, China and Southeast Asia, we've yet to replace it with higher tech manufacturing and other high-wage, knowledge based work.  This can be seen by touring the parts of our state where manufacturing was king, where many of those communities are at risk of hollowing out due to a lack of manufacturing jobs.  For too long our mantra has been that North Carolina is a great place to place a business due to right to work, low wages and a reasonable well educated workforce, along with great quality of life.  All of those factors are true, but are also true in a number of comparable states.  We need a new mantra that says businesses should move here or start here because of the sheer human capital, our creativity, experimentation, innovation capacity and so forth.  These factors will create more knowledge based jobs and much higher salaries.


It's time to re-energize an innovation agenda for North Carolina. Not for one small community, which research parks or other investment zones create, and not for one class of people or one cohort.  We need a full fledged vision that positions North Carolina where many of its citizens think it already is - as a leading state for jobs, education, life style and other important factors.  We need a hard look in the mirror to realize that we aren't where we could be, or should be, based on the many gifts we have in this state.  We need to combine, not compete, across the state for better education, better job creation, more creativity and innovation.  We need to get hungry and challenge ourselves to become the best state, not just in the Southeast, but in the nation, for opportunity, business creation and yes, wealth creation.

This means trying out a lot of new concepts, changing and modifying laws and regulations, reducing the cost of knowledge transfer, convincing more people with more education to stay here after graduation, to encourage more business creation, to capitalize on the quality of life here.  Judge Brandeis once wrote that States are the laboratories of democracy, and he placed the mantle of experimentation directly on the states.  Increasingly as states we are becoming mere appendages of the federal government, rather than seeking out our own strategies and development plans.  We need a vision for North Carolina that looks out 15-20 years, the way the planners of RTP did when they broke ground for a research park in a played out tobacco field.  Who will step up to the challenge?  Who will encourage experimentation and try out new programs and activities?  Who will work to sponsor new business creation?  Who will act as angel investors to fledgeling companies?

Another famous commentator noted that Rome didn't fall because of external threats but because of internal rot and complacency.  While North Carolina doesn't have quite the issues that Imperial Rome was confronted with, and probably has more reasonable rulers than Caligula or Nero, we face some of the same internal complacency challenges.  We as citizens need to demand more from our leaders or replace them.  We need to tell them that we want North Carolina to be a leader in creativity, in innovation, in new business creation.  And if they can't figure out how to help us, we'll do it for ourselves.  But to do that we need to have a vision, and communicate that vision so everyone, in every corner of the state understands the vision and sees "what's in it for me". 

Pat McCrory, I'm looking at you.  You have a chance to lead this change, or be swamped by it.  But this isn't a Democratic issue or Republican issue, this is a North Carolina issue.  The people who founded RTP didn't worry about politics or parties, they worried about the future of the state, and we benefit from their foresight.  Will our future generations benefit from our foresight and investments, or will North Carolina become nothing more than a nice place to retire?
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posted by Jeffrey Phillips at 8:52 AM


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