Platform for Mass. Economic Growth

(facebook is not the only startup conceived in the innovative laboratory that is Massachustts to leave.  A good article and some ideas for thought by Mr. Lyons. – promoted by Rob “EaBo Clipper” Eno)

So today in the Boston Globe, their technology correspondent wonders about our economic growth in a story titled, Can Massachusetts Produce the Next Google?

The gist of it is that we have a lot of small high-tech startups, but none seem to grow large enough to become the next Fidelity. Scott (I have met him, of course, as he covers my industry) talks about how the high-tech investors and leaders can help, but he doesn’t cover the bigger issues – issues that are very important outside of the 495 hub, where you’ll have a lot less high-tech stuff.

What can we do?

Note: This is a key issue for all MassGOP legislative candidates! I hear all kinds of lame slogans from our candidates who need a much better sales pitch and much more radical solutions.

Here are my thoughts… (read more)

First, for the sake of contrast, let me quickly outline what I see as the Democrats’ economic growth agenda. (No, I am not going to be a jerk about this – the BMG folks should look at this list and agree.)

1. More local aid (financed by taxes, lottery/gambling revenue, etc)

2. Some infrastructure improvements (financed by taxes, fees, and federal stimulus)

3. More spending on traditional education (teachers, buildings, aids in the classroom, special education)

4. Small and medium investments in green technologies (solar, etc)

5. Very small investments in startups (some incubator stuff)

6. Medium-sized investments in business facilities (things like enlarging the Convention Center on the waterfront)

7. Medium- and Large-sized investments to develop distressed property (lots of examples of this, East Boston and South Boston Waterfronts being good examples)

So…. What should MassGOP candidates, by contrast, advocate?

1. Less local aid (I am serious – time to stop laundering money from the local level to Beacon Hill and back to the local people) In exchange, we will help the localities control their own costs by helping them manage their union contracts. They will get more out of this formula.

2. Much more infrastructure. The Democrats are too timid on this. We need a lot more improvements on roads, bridges, and airports. We can finance this by lowering the costs by abolishing the nonsensical prevailing wage laws and also by levying a large tax on the wealthy to finance infrastructure – and nothing else. Much of our state’s infrastructure, built in the 1930s and 40s was financed 100% by taxes on the wealthy. They could afford it then and they can afford it now. We can sit down and explain to the rich (I know many of them) that this money will go to meaningful things, not the pockets of corrupt housing chiefs.

3. Move education funding from traditional to non-traditional. Fund the creation of infrastructure to enable curriculum and certification to work across public, charter, private, and home schooling. Unite these systems and remove the friction between them. This will increase competition and, over time, radically reduce the costs of delivering traditional education.

4. Stop investing in green technology.

5. Don’t directly invest in startups. Instead, improve transportation options to areas where startups can afford the rent.

6. Stop investing in business facilities. We should not be handing money out to hotel and convention-center businesses. The private sector can handle this all by itself.

7. Continue developing under-developed areas. I think the Democrats are right to do this kind of thing. We need more of it.

Beyond these contrasts, let me add a few more things:

8. To help get control over our #1 cost in this state (health care) add this to the exchange: a site where people can anonymously post their own medical records and care so that other people can make recommendations for treatments and providers. Maybe the state can bid this contract out and let others implement it. My best friend is on Commonwealth Care and she has multiple chronic problems and coordination is not happening – which causes tremendous waste. Her case is typical. There needs to be a way where lots of people can post their status, share tips, and doctors can also make anonymous recommendations to improve their care and lower costs. Yes, the system should be able to do this, but we know it does not. This approach is better than a top-down approach such as the accountability stuff the legislature just passed. In addition, the state should set up a Yelp-style recommendation site that would help determine which services are and are not effective. (This would be a tremendous cost reducer.) Or the private sector should do it and the state should not strangle it with regulations.

9. We must radically change the way that cities and towns run their governments. There is a great deal of IT infrastructure that is available that could dramatically lower costs. Organizations like Code for America are dedicated to do this, and have a good presence in this state. It’s time to create a common infrastructure platform for all municipalities to use. And by God – don’t let the state choose that platform! Ask Code for America what to do – and then do it.

10. Get control over the unions (or more accurately, get control over the parts of government that the unions control). Unions suck the life out of state politics and local politics. Local politicians are unable to match the pressure of national and state-level unions over their finances. We must level the playing field between the average town and the unionized employees there. This is a hard fight, but we must first explain convincingly what the costs are to cities and towns on the contracts they have. If we can show the price tag for union dominance of local politics, and show what that money would buy, that would be the first step in redirecting that money to infrastructure, development and better education.

11. Radically improve the transportation in this state. Get control of the MBTA and the unions there (slash costs, obviously). Allow more lightweight options (think Bolt Bus, not Amtrak) to develop.

There is so much more I could put in here, but I hope that this at least inspires people to think bigger about why the public should give us more power in this state.

About edfactor

  • But potentially there might be nothing we can do.

    We are in a period of technology company consolidation- it’s been going on at least 10 years and even large companies (ex. Cognos) have been sucked into the technology giants like MS, IBM, and Oracle. Even SAP is rumored at times to be an acquistion target.

    I think the driver is that large corporations like to have technology that will extend accross the enterprise, and will turn to their infrastructure backbone provider to get it. If there is an indentified need, those infrastructure companies will seek out the smaller ones who are working on products that meet those needs and acquire them. They then integrate the products and are able to push it into existing customers.

    If anyone one company resists acquisition, the major companies can just create products themselves using their enormous resources, and they will always win against a smaller company when selling into their own large customers.

    MA is in a bind because one thing that may change the game (or at least the score) is that housing prices need to come down so that young recent graduates want to stay. That would require too much to make happen, and homeowners and property owners are not going to be on board with that because it will increase pressure on prices of existing housing. It’s not like the pay differential here can make up for the 2x housing costs, and for younger folks there is more excitement to be had in other parts of the country.

  • edfactor

    Jamison –

    Well, I do agree that big companies are acquiring lots of small ones. However, my experience with big companies (mine and our clients) is that they cannot innovate on their own. (This is true of many other industries: cars, drugs, etc)

    To the point of the article, I don’t mind if we don’t produce giant, 5,000-person firms in this state anymore. I think the future is probably to have 100 firms that have 500 employees, not 10 firms that have 5,000.

    The problem we have now in Mass. is that we have this outdated lure-huge-companies here mentality, like every state in America. But there is no way in hell that Massachusetts is going to compete with the South in that game.

    The other issue is that the global labor market changes everything. Firms can now site parts of their workforce any place in the world. There simply is no large company that is going to put all or most of their employees in one place anymore. Not here, not in any state.

    This is what happened to Fidelity – a story that is widely misunderstood. This company first branched out across Massachusetts, then across New England, then across America, then across the world. Those closures in Marlborough were not the result of moving people to other New England states – most of the work there has been steadily headed to Asia. There was nothing anyone can do here.

    Even a company like Apple, which has many thousands of people in Cupertino – is misleading. Most of their products are assembled in Asia, meaning that their “workforce” is in many places around the world, and that the campus in California is merely the slice of people that it makes sense to have in a high-cost area.

    The future of Massachusetts is not Gilette, Compaq, and Fidelity – it is HubSpot. Their story, a few people growing to hundreds in a few years, is what we must optimize our taxes, regulation, transportation, and education around. They didn’t need to be lured here with big tax breaks and back-room deals. They just found the soil fertile for the things they wanted to do. I doubt they will get to 1,000 employees in Mass – they will probably begin outsourcing more. But they don’t have to become huge. We just need to make sure others can follow their path.

    What do the HubSpot guys want? (They are friends of mine)

    * Good transportation

    * Good secondary schools (feeders for their workforce, aggregation of bright people, etc)

    * A dynamic startup scene

    * Low taxes, less regulation

    * Reform of highly-skilled visa program, faster green cards for highly-skilled immigrants

    Nothing radical there.  

  • and to that I would say we probably can’t.

    I am not big on “helping” business other than providing them with a great environment to thrive.

    Besides the things you mention we need to find some way to reduce energy (particularly electricity)costs. I have no idea about this, but it’s a barrier to businesses continuing and coming here.

    One thing that often is overlooked is the role of personal income tax rates. If you are the owner of startup and are considering relocating, all other things being equal you will pick a state with lower income taxes.

    PS Most people don’t understand business, the business/government relationship or tax and regulation policies so I am only so-so on it as a political issue that has drilldown.  

  • We definitely need ot have government think about how to do things better and smarter.  Here is a few of my thoughts:

    1) Regulations need to be consistent and understandable.  Too often there is different results for similar undertakings.  This has the impact of hampering small business start-ups and growth.  Seeking a variance for changes in use can be time consuming and costly for even the smallest things.  I have heard a story of a Harvard Square creperie changing to a Belgian waffle house that required a variance for change in use.  This is an example of regulations that are not understandable and haper smaller businesses from even starting up.

    2) Transportation needs to be better, especially for mass public transportation.  MA continues to delay maintenance and legally mandated extensions of service due to its horrific financial situation.  Yes, part is the result of the Big Dig, but part is also the result of mismanagement.  Until we solve the issues of our public transit system we will constrain growth in some of the very areas where incubators and tech start-ups thrive today.  For example, I was at a MassInc meeting on public transportation and there was considerable concern about the ability of the red line to handle more riders.  The Red Line serves Kendall Square and MGH, a couple of areas with significant impact to our local and regional economy.  Potentially constraining their growth because people cannot get their on the public transportation system is inexcusable.

    3) Regionalization and in a big way.  I understand that municipalities like to have complete control over their services, etc., but its not working.  We are paying far too much for far too much overhead.  Just take the example of public housing, does every city and town need their own department with their own executive director.  I do not think so.  I believe that we can regionalize the departments and safe significantly on overhead while maintaining the core services.  If Chelsea can be rated at the highest levels whiles its executive director and assistant were out of town over half the year then we can hire managers to oversee a regional collection of agencies rather than multiple EDs

    The list can go on and on, but it will take hard choices.  Unfortunately, elected officials have not demonstrated their ability to make hard choices.  Until they do, we will continues our spiral downward towards economic collapse of cities and towns.

  • Two things:

    I just finished “All Your Base Are Belong to Us”, a book about the video game industry. There are several passages detailing the rampant company creation and destruction going on in other states that just can’t happen here because the employees get locked up in non-competes.

    Second, Massachusetts had massive growth when the capital gains rate was 0%. Under Swift/Romney, the rate was allowed to shoot back up to as much as 12%. Capital gains taxes hit new business square in the jewels:

    The capital gains tax has a huge impact on the rate of job creation.  This is because more than 100% of net job growth comes from startups.  As a whole, companies more than 5 years old are continuously shedding jobs.  “Angel Investors” invest capital in startups to pursue capital gains, so eliminating the capital gains tax for those Angels will cause them to fund more startups.

  • Karl Marx

    Today’s (gated) Wall Street Journal reports that Honda, in response to a higher valued yen, is gearing up its North American production which means more plant, equipment and jobs. Even though many believe that Massachusetts has moved on from manufacturing to other high value added industries, the question is always worth asking, particularly if we are to believe that green jobs and green manufacturing jobs are the future. Do the prohibitively high labor and energy costs always preclude the establishment of large manufacturing outfits in MA?

    To be sure it’s easier for Honda to expand its current facilities which it is doing. But will MA every recapture the kind of middle-class-creating manufacturing jobs Honda is ramping up? Even if we develop the technology for electric cars the global production chain demands that those cars be built elsewhere.