Woody Powell is a Stanford sociologist who studies the economic culture of cities. Recently, he and his research team studied why certain regions—Boston, San Francisco, San Diego—became leaders in biotechnology while others with a similar concentration of scientific and corporate talent—Los Angeles, Philadelphia, New York—did not. The answer they found was what Powell describes as the anchor-tenant theory of economic development. Just as an anchor store will define the character of a mall, anchor tenants in biotechnology, whether it’s a company like Genentech, in South San Francisco, or a university like M.I.T., in Cambridge, define the character of an economic community. They set the norms. The anchor tenants that set norms encouraging the free flow of ideas and collaboration, even with competitors, produced enduringly successful communities, while those that mainly sought to dominate did not.
Powell suspects that anchor tenants play a similarly powerful community role in other areas of economics, too, ....
I don't mean to get carried away with the analogy, but Powell's work on biotechnology institutions -- building networks of public and private institutions that enable the free flow of ideas and collaboration, even with competitors, is the way to sustainable economic development -- resonates strongly with me when it comes to economic activity up and down the scale, and across industrial boundaries. (Here's a link to some of Powell's research.)
Pittsburgh sometimes suffers from a great deal of hoarding of economic opportunity; if Pittsburgh's modest rebirth (at least as reported in the media and recognized in the White House) is to continue, the hoarding must stop. (I'm reminded of the phrase -- "The beatings will continue until morale improves!")
In biotechnology and beyond, who are Pittsburgh's collaborative anchor tenants?
8 comments:
Pittsburgh sometimes suffers from a great deal of hoarding of economic opportunity; if Pittsburgh's modest rebirth .... .... is to continue, the hoarding must stop.May I respectfully ask you to expand on what you mean by hoarding of economic opportunity? It's interesting, but I'm not sure I get what you're describing. Thanks, Vannevar
The hoarding has been an on-again, off-again theme at Pittsblog for years. The short version is that many, many people in Pittsburgh believe that that economic pie here is fixed in size, and their job is to maximize the size of their slice. A smaller (but growing?) number of people here believe that the pie is expanding, or can be expanded. For those people, sometimes a smaller piece of a larger pie is a very good thing.
For an example of an earlier post on the topic, see this.
If anyone serves as the "anchor tenants", it's Carnegie Mellon and Pitt. The geographic proximity leads to people with many connections to both universities, and they both act as incubators for creative ideas. There isn't really a private enterprise that dominates the landscape. And while there are certainly rivalries between the two schools, civic boosterism means that they will also work together.
In an indirect way, I think you could also say that the steel industry serves as a type of donor "anchor tenant". Think about all of the things that manufacturing has "given" to the high technology industry. Land, in the form of brownfields like the Pittsburgh Technology Center. A regional work ethic. Cultural capital that enables us to attract people with a high quality of life. And of course, financial support for our universities.
The size of the pie isn't necessarily fixed, but where are the the Pittsburgh startups, the small companies that are on the verge of growing into significant contributors to the local economy? In terms of startups, Pittsburgh has its bright spots but where who are the next Freemarkets, American Eagle Outfitters, etc that are positioned to join the old stalwarts, US Steel, Alcoa UPMC, etc among the region's leading enterprises.
Back to the fixed pie debate, when the region is dominated by big old stodgy organizations what you have is both very low wage growth and wealth creation. Freemarkets didn't turn out to be as big as some thought it would but one thing it did do was create new wealth and a few future Pittsburgh based venture capitalists. Pittsburgh needs more of that.
Genentech and M.I.T. provide two key ingredients for regional startup success.
In the case of Genentech, their success has created numerous startup opportunities for entrepreneurs who base their entire business plan on having their company bought or enter into a strategic partnership with Genentech. What the Valley has that Pittsburgh doesn't, are capital risk takers that supported Genentech through its growth. By doing this, those VCs ensured themselves a stable exit from startups they invested in years later.
M.I.T. provides easy/cheap access to technology with licensing that is THE model for what other universities are/should be doing. Because of the predictability of their licensing program, and the caliber of their students, M.I.T. takes more risks (getting a pattern here) of not making a buck on their licensed technology, and the region reaps the rewards.
I'm not sure, but it seems to me that UPMC is the only viable regional player with enough money to be able to buy/create new technologies in the biotech market. But, since it's a healthcare provider, rather than a company in the business of rolling out new technologies, my guess is that it doesn't focus on more marketable technologies/procedures, since it would want customers, er, patients, to have to come to UPMC to benefit from the tech it uses.
Would be interested to see what kind of spin-off technologies have come from UPMC and if UPMC has licensed any tech from local startups.
But, since it's a healthcare provider, rather than a company in the business of rolling out new technologies
I wholeheartedly agree with you in your sentiments, Pittsburgh needs more Fore Systems, more Freemarkets, etc that will create wealth which will eventually be redistributed as risk capital, with most of it going the Pittsburgh startups.
What you said about UPMC brings up a very interesting point. UPMC is a health care provider but recently they did enter the "business of rolling out new technologies." UPMC does have a venture arm and I believe it was titled something like strategic business initiatives, SBI, or something like that. A friend of mine happens to work for one of UPMC's tech startups. The UPMC ventures webpage was taken offline at some point, but I was able to dig up this cached page.
This brings up a question for Professor Madison. Mike - UPMC is a nonprofit but this doesn't seem like a practice of your typical nonprofit. When I heard about UPMC investing in start up or portfolio companies I wondered how this would work in legal terms. If UPMC incubates these portfolio companies, sells them off and makes a profit, wouldn't that have an effect on their legal status as a non-profit? Wouldn't the proceed from the sale of these businesses be subject to taxation?
In real estate, an “anchor tenant” usually means a large tenant that takes up a significant portion of the real estate (and contributes most of the necessary cash flow). It’s easy to see why a real estate developer would want such a tenant, although it’s not without risk. Losing a tenant that takes up 90% of your cash flow can have a lot more impact on the bottom line than a tenant that accounts for only 5%., especially if you presume that the larger tenant will be more difficult to replace.
If the analogy is extended to the regional economy, steel and other basic industries represented the anchor tenants of the region for much of the Twentieth Century. Nobody wanted to replace them when they were paying the rent, and when they cut back, replacement tenants of that size just weren’t available. The mid-century diversification strategy that Chris referenced made a lot of sense from a risk perspective.
But there are other ways to look at anchor tenants. Qualitatively, good anchor tenants not only are big, but help expand the market for others. In retail, good anchors are supermarkets or department stores that bring in customers on their own, regardless of what’s around them. Smaller stores locate nearby, to take advantage of the foot traffic generated by the larger store. This retail orientation has been the dominant economic development strategy of the City of Pittsburgh since the Murphy administration. Subsidies are used to build up to a critical mass of activity, usually by subsidizing a few big players to serve as anchors that bring in customers.
Powell takes the concept in a new direction, looking at anchors to not only define, dominate and drive markets, but also to define the culture of how businesses interact and share information. One could imagine that size would be necessary to have this kind of impact, and in the biotech field they point to large companies and institutions holding sway. In Pittsburgh one could imagine that longstanding industrial ensembles, anchored by Fortune 500 behemoths, define this culture. Change means either getting them to alter their business practices (and wouldn’t competition and Wall Street be influential here?), or first requiring another significant diminishment of their influence. In this scenario, change in the region occurs when the current anchors are replaced by new dominant industries.
I wonder if the term “anchor” does a disservice to Pittsburgh in this regard. It gives the implication that the region still needs a big player that by shear size and power completely changes the nature of the game, the new version of the David Lawrence/RK Mellon for the 21st Century. The regional shift to “eds and meds” has done little to change the overall business culture of the region. Many have looked to the universities to fill a catalyst role, but scientists and engineers are often reluctant and uninspired entrepreneurs. Institutions like UPMC have operated more Robber Baron than open source.
The challenge of economic development efforts that focus on anchors is that it is difficult and risky to pick companies that lead to the desired result, at least outside of leasing out retail malls. If instead economic development efforts in the region focused on increasing innovation and efficiency across industrial ensembles, the system would not only be fairer, but also more directly impactful on the competitiveness of the region as a whole. It’s not that there is anything wrong with big companies, and in a strong system they add stability for supply chains and managerial skills for later stage companies. But larger, more successful companies are a result of sound business strategies and a supportive environment, not the other way around. For any region, success is dependent upon the ability of any good idea, no matter the source, to be recognized, supported, and able to reach its potential. Ultimately, successful regions will do this better than anyone else.
Alas, Genentech co-founder Herb Boyer is both diasporan and Pitt grad.
Post a Comment