America has a large geographic wealth discrepancy. Major cities like New York and San Francisco have gross domestic product per capita levels multiple times higher than the rest of the country. GDP growth comes from innovations by either major corporations or startups. A major reason we haven’t seen even economic growth across the country is that the lion’s share of major tech companies are based in California or New York. The tech industry isn’t going to save middle America.
When state governments try to directly fund a tech startup it usually doesn’t work because politicians make decisions that look good in the short term. Rhode Island’s public Economic Development Corporation in 2010 gave the video game company 38 Studios a $75 million loan to move into Rhode Island. With 800 jobs being promised, and the fact that the company was founded by former Red Sox pitcher Curt Schilling, the loan was a popular decision among Rhode Islanders.
The company released its first and only game “Kingdoms of Amalur: Reckoning” in 2012. The game received positive reviews, but only sold 1.2 million copies, well short of the 3 million copies it would needed to break even. Only a few months later the company went bankrupt while developing a World of Warcraft like massively multiplayer online roleplaying game. These types of games are expensive to develop; the company and the state were too ambitious.
Betting $75 million for a risky company was a major blunder given Rhode Island’s small population and struggling economy, but even multi-billion dollar companies aren’t guaranteed to help their home city in the long run. The cellular service provider Sprint is merging with T-Mobile, a move which is expected to leave most of the 6,300 employees at Sprint’s headquarters in Overland Park, Kansas unemployed.
Sprint was given heavy property tax abatements by the Overland Park officials in 1989 in order to bring Sprint to Overland Park. Sprint has only been paying full property taxes on their campus since 2013. It’s not a complete lost since is appears the 17-building campus will be mostly occupied after Sprint-T-Mobile downsize their presence, but it is hard to believe the new tenants will be able to replace the job loss. New companies might also just abandon their previous locations or move in new employees, diluting their job creation.
Raleigh, North Carolina has some success building a startup scene. The “research triangle” of Universities — North Carolina State University, UNC-Chapel Hill and Duke University — provide a massive talent pool for companies to draw from. The area contains the “Research Triangle Park”, a research park funded by a mixture of local government, universities and private companies. It has workspaces designated for startups, and the universities provide startup funding to students. The park employs 55,000 employees and 10,000 additional contractors. Considering the size of the population and economy of Raleigh, Research Triangle Park should be considered a huge success.
Leveraging the intellectual production of universities is the only way I see states building a tech scene for themselves. Almost every state has at least one major research institution in it. For economic development the right institutions need to be in place, but developing and expanding current successful institutions is much easier than trying to start new institutions from scratch. The University of Connecticut School of Engineering students benefit from the fact that we are basically Pratt and Whitney University. Connecticut has a potential for growth if we can find a way to use UConn and Yale to foster a startup scene similar to Raleigh.
The bidding war we saw over Amazon’s second headquarters was a ridiculous show of desperation by almost every state. We shouldn’t have to constantly sacrifice state budgets for a good job market. It’s time to make full use of the United States’ greatest resource, our universities.
Matthew Nota is a contributor for The Daily Campus. He can be reached via email at firstname.lastname@example.org