Long time commenter and guest post contributor Rod Stevens, a real estate and economic development consultant at Business Street, joins me for the inaugural podcast of 2019 to talk about the overlooked opportunities in high tech industrial economic development.
People tend to think of high tech as software or biotech, but there’s often an under-the-radar high tech economy already in place in the overlooked industrial businesses of many communities. We talk about what these businesses are, where they are located, what they need, and why you’ve never heard of them. If the audio player doesn’t display for you, click over to listen on Soundcloud.
https://soundcloud.com/aaronrenn/the-overlooked-opportunity-in-the-high-tech-industrial-economy-with-rod-stevens
Subscribe to podcast via iTunes | Soundcloud.
Featured image credit: Portland Bolt CC BY 2.0
Nice discussion. Thanks for the shout out, Rod. 🙂
So the presence of tech and the professional class workers and execs is not a threat to working and middle class people and jobs, but an opportunity for them to access the new economy. “Tech bros” do not ruin things, but create new opportunities for existing businesses to participate in the new economy.
No. What Rod was talking about is manufacturing companies continuously improving automation. That’s usually a job for mechanical engineers and technicians.
App-design “tech bros” don’t do that.
Elon Musk would one exception to that, as he first made his money at PayPal (though he is now based in a city with more mechanical engineers and technicians than the SF Bay).
Pretty much everything Musk has started since PayPal involves mechanical engineering, applied physics, and/or automation (cars, aerospace, batteries, boring). Note that he does not have a degree in computer science…he studied physics and business at Penn.
I think that it is fair to classify Musk as a techie because he first made his money in Silicon Valley. So he knew how the hustle and hype necessary for fundraising, but has managed to build companies whose primary innovations are in the physical world.
I think that the skill that Musk has, and which is rare, is that of hype, fundraising, and building a new business dependent on engineering in the world of atoms, not bits. What is (perhaps) important about IT culture is the education and knowledge of publicity and fundraising, and maybe also a bit in managing a new company as well. I cannot think of another industry nearly like IT in those regards.
I’d classify Musk as more of a business type like Bezos. Both had solid east-coast business credentials along with engineering skills and their own capital (Musk = Wharton + Penn phyisics + dad’s money; Bezos = Princeton + Wall Street + hedge fund money) before heading west. Neither one is from the Stanford-Silicon Valley pipeline.
To steal a line from another frequent commenter here, they didn’t design apps to help you figure out how your sofa would look in your living room. They disrupted big markets and then plowed money into tangible ventures (astro-space, digging tunnels, building vehicles, newspapers…).
The presence of the “tech bros” nearby didn’t hinder the manufacturing innovation in the bar area. Big tech didn’t drive out innovative manufacturing. Some have suggested that big tech actually wrecks local economies by crowding out all other economic activity. They tell me that ,”tech bros ruin every thing they get their hands on. Thank god we don’t have them in our city.” This interview suggests that that is all wrong.
Matthew: I’ve never been quite sure what “tech bros” are,but I think the term refers to young software engineers in Silicon Valley who are running start-ups, frequently with the kind of fraternity culture they experienced or cultivated in college. Most of the people I’ve encountered in this new generation of urban industry are anything but that. Most are seasoned businessmen (the majority are men), many are mechanical engineers or people have a great interest in that, and most are really engaged in the business of design,production and selling their products.
That’s quite a different business culture from the software startups, where many if not most of the people working there are software engineers, the companies are running on someone else’s money, there probably isn’t a viable product to sell yet, and the exit strategy is sale to Amazon, MS or Google.
To the contrary, most of this new urban industry is stand-alone and makes industrial products, i.e. remanufactured windmills for power production, heat recovery systems, monitoring and control systems for food produciton, etc.
Rod, I think the one item you and I have discussed that may support Matthew’s claims is what you’ve said about cities’ “sweet spot” manufacturing zones (what others have called “gray belts”) well-positioned logistically near rail, highway, and/or water being sucked up by real estate redevelopments. I think you mentioned one or two zones in NYC, and that most cities have such zones. (Detroit is the extreme example.)
In that way, it’s kind of a second-order disruption: scarce, near-downtown real estate of sufficient size to make big developments is in demand for reuse. It happens that the real estate is, was, or could be occupied by high-tech manufacturing.
I don’t just mean “crowding out” physically. Some suggest tech crowds out capital and skilled workers, too. But, if both can coexist in the Bay Area, they can coexist anywhere. The choice isn’t between having start ups and manufacturing. The narrative of startups as somehow fraudulent con games meant to monopolize markets to deprives that the good people of the world of real honest work is mistaken.
Your remark is puzzling. Neither Rod nor Aaron made that suggestion. I introduced the “crowding” argument based on a conversation I had with Rod separately, but aside from ridiculing the usefulness of one app, I don’t think I (or anyone else) suggested that the tech bros are somehow depriving people of honest work.
Rod fairly specifically confined his remarks to the making of things, and to the need for middle-skill jobs that don’t require computer science degrees.
No, they didn’t mention it, but it is implied by their discussion. This interview suggests that the Bay Area is a perfect place to investigate the relationship of the ‘old’ and ‘new’ economies. I regularly hear the idea that the “tech bros” are ruining the ‘real’ economy from people in my city even though it is among the least ‘tech’ cities in the country. Many in this city described tech in fearful and resentful terms long before such language emerged in national media. If old and new can coexist in the center of the tech economy, as described in this interview, then tech is no threat to the established economic interests of a third tier city perched between the Midwest and South .
I think it’s used simply to describe innovators who others fear and resent. It’s almost always used as an insult. This interview suggests that tech can coexist with other economic activities.
This was a really great discussion – thanks to Aaron and Rod.
Some people describe tech in such dire terms is because so much of it seems dedicated to centralizing control, harvesting “Big Data” (and selling it to all kinds of nefarious people) and encouraging a mindset of mindless convenience at all costs (usually to the poor new pieceworkers and Amazon warehouse slaves).
Of course, I am utterly enamored with my own tech toys (smart phones, music sites, the whole infrastructure. heck, this very blog. And I will admit that one cannot have one without the other. But when one reads breathless media reports about how Birmingham, Alabama is “GETTING INTO TECH BIG TIME dontchaknow?” and the example given is yet another grocery delivery ap…one begins to wonder and even spit out the koolaid.
Why do you begin to wonder? Steam power is a simple enough idea but it transformed economies. Why would another simple idea have similarly profound effects? How do we know if something is valuable or merely a fad?
Isn’t that the question that basenjibrian was giving an answer to? IT doesn’t, at the moment, seem to be producing anything that moves goods or people from point A to point B any faster, nor does it seem to be making it less labor intensive to produce the things that people spend most of their money on (housing, transportation, food, medical care, education (in terms of both tuition and taxes), nor does it really seem to be having much impact on the quality of those things either.
Now, there are plenty of IT folks working on automation of lots of things related to housing, transportation, medical care, education, and agriculture, but besides agriculture (where I think people are using autonomous tractors, drones, and other equipment) I don’t think IT is really having much impact yet.
There is one more area that I haven’t mentioned where I think IT has had an impact; policing. It seems that things like CompStat have played a role in the overall downward trend of crime in the US (as has aging and probably a lot of other factors as well).
Maybe it is having an impact on hiring people to run errands for you or in hiring a taxi. That just doesn’t seem like that big of a deal overall (though the markets are big enough to attract capital investment). It also does have an impact on figuring out what things you want to buy or what services you want to purchase.
Anyway, the overall picture is that IT isn’t really changing much in the physical world, just keeping people glued to their screens. It has had impact on facilitating offshoring, but it seems that has run its course already.
You are saying that services don’t have economic value. Then why does everyone pay so much for them? Tech hubs have become rich from people paying for the services they provide. Has the whole thing been one giant con? Is google a colossal fraud with no real economic value? Have we all be a party to a massive collective delusion? It’s all the Matrix? I think many in my city agree with you. This view not only explains why they don’t try to participate in the new economy, but why they have contempt for it and work to keep it out of their city.
How has IT improved or changed the goods or services that people in the US spend most of their money on? People spend most of their money on housing, transportation, food, healthcare, education and the military (mostly via taxes). As I wrote above, IT has changed how people search for services and goods that they purchase. That is of some value. But it clearly isn’t as transformative as say, electric power, which changed the amount of stuff that one person could produce and buy. IT hasn’t really changed anyone’s ability to afford a doctor’s visits, or dramatically improved the quality of patient care (as viewed via outcomes). Nomade it more affordable to educate a child, nor is that education of a higher quality than it was 20 years ago, so far as I can tell.
Don’t get me wrong; like Mr. Basenji, I love Netflix and Amazon, and I shop at Wal-Mart (IT applied to logistics). I used the websites Trulia and Zillow when buying our home. I have even used Wal-Mart’s grocery pickup app to buy groceries, which is IT facilitating me buying a service (though not a new service, but one greatly facilitated by IT).
But overall, my biggest expenses are my mortgage, my student loans, taxes, food, expenses for my car, my share of healthcare premiums and doctors bills, and tuition payments for my daughter’s kindergarten (at a public school that has a combined pre-k/kindergarten class; she misses the cutoff for kindergarten by 10 days). I don’t see how IT has changed much about the overall pattern of economic activity in the US, nor how people spend their money.
Now, one thing that isn’t mentioned is that the US is a global hub for IT activity; those engineers working in Silicon Valley aren’t just working to provide services for people in the US, which is part of why there is so much money to pay them, as they are shooting for a global market.
So, is IT a con game or not? Is SF the headquarters of a giant ponzi scheme? If so, then any one and anyplace that resisted their siren call has been wise and not foolish. Places that have stagnated in recent decades while these giant frauds sucked up money, people, and power have been been vindicated by their stagnation. Their failure is a sign of their success. You should move to the city I live in. You’ve find many many people who’d completely agree with you. They take pride in their economic decline, as the ancient Jews took their wandering in the desert as a sign of God’s special appreciation for them as a superior society able to withstand challenges other society’s could not.
I think a lot of IT is like an arms race; you have to do it to reach customers, and that convenience is something y that people are willing to pay for, but it doesn’t change what is sold or how much is sold. As the Nobel economist Robert Solow famously quipped “You can see the computer age everywhere but in the productivity statistics.”
Is that a yes or a no?
@P Burgos – I think tech has had a massive change on the physical world. For instance, the fact that tech has fundamentally changed, as you have said, how we buy things has upended ended the commericial real estate market (as it is essentially choking all but the strongest commercial retailers), manufacturing (as companies now have real time or near-real time data on exactly how much they need to produce any type of product), and logistics (as all of those goods are moved in many more different directions than ever before). “Buying goods” impacts essentially every area of the economy, up and down the supply chain, and white collar and blue collar. That is why tech has such disproportionate power – its ability to reach consumers directly with great efficiently disrupts every facet of the economy.
My view is that IT is much less transformative than Watt’s steam engine or electricity, which may be setting the bar too high to consider something a transformative technology.
IT does make it easier to manage long supply chains, but South Korea and Taiwan were industrializing and becoming integrated into global supply chains in the 60’s and 70’s. While I could be wrong, I don’t think mainframe computers had much to do with the rise of Japan’s auto industry in the ‘70s (though it might have been mini-computers by the 70’s?).
So far as I can tell, IT hasn’t changed how long it takes a cargo ship to cross the Pacific. It hasn’t changed how long a subway cat takes to go from Brooklyn to Manhattan, or how long it takes to drive I-40 from Wilmington to whatever town is its terminus in California. It hasn’t cured cancer or hypertension. Not, so far as I can tell, has it changed how many nurses, aides and doctors it takes to care for an ER patient or had all that much of an impact on what those folks do in caring for a patient.
It does make a lot of things we were already doing a bit more efficient. But not grossly more efficient in the same way that steam and electric power made the manufacture and transportation of goods more efficient.
As you say, where IT has been undeniably transformative is in its “ability to reach consumers directly with great efficiency.” I am taking the position of Peter Thiel, a “tech bro” if there ever was one, that “we were promised jet packs, and instead we got 140 characters.” I will consider IT transformational when I start to see the cost of building a home decline, or when we get flying cars like the Jetsons, fully autonomous vehicles, or I have an appointment with Dr. Watson. I would also accept tech as being transformational if Elon Musk can dig a mass transit tunnel for $100 million or less in the US. Exoskeletons for the elderly and for workers and soldiers would also qualify in my book. Totally automated factories and warehouses would be another one.
Many of the things you’ve described have been profoundly affected by IT in ways you don’t seem to realize. Still, for the sake of argument, how do you expect markets to respond when something genuinely transformational DOES comes along and people see this period as an exercise in mass financial delusion much like the tulip panic of 17th century Holland or the various gold rushes of the 19th-century American west? Will capital abandon SF and move to Detroit where ‘real’ economic activity can resume?
@ Matt
I am not saying that there aren’t financial returns to companies in Silicon Valley. There are.
What I am saying is that there isn’t a lot of impact on people’s standards of living. Just go look at all the debates among economists about whether or not wages have risen in the past 30 years. The fact that it is an open question should tell that even if they have risen, they haven’t risen by much, which isn’t what you would expect to see over a 30 year period of a technology that is transformational. Of course IT might become transformational like electricity or steam power some day in the future, and I hope that future comes sooner rather than later. But it isn’t here yet.
Most of the examples of things I listed that could be considered genuinely transformative have to do with either providing complex services to people in highly regulated environments (education and healthcare), or in doing things in the physical world (often in highly regulated, complex environments, like in vehicles or construction, including infrastructure construction). As I said above, those are the main things where people’s incomes go.
So whatever metros around the world that prove best at developing an ecosystem where companies can combine deep knowledge of IT with deep knowledge of how to fit a square peg innovation into regulatory round holes and with deep knowledge of whatever the area that the IT is being applied to, probably along with some deep knowledge of mechanical engineering as well when the activity is concerned with moving physical objects, those would seem to be the winners in the future. That is I think why some people are worried that China could become the most innovative economy in the future; they don’t have to deal with the problems of regulations (just Chinese politics, which may actually turn out to be worse for innovation than the US regulatory apparatus).
My guess is that people will mostly move to where the people providing the money live, so there could be big impacts on one or two companies (and their founders) hitting it big and then using their wealth to fund other companies. So if Tesla really hits it big, maybe LA becomes one of those cities. Silicon Valley will likely remain one of those places. DC might be one of those places as well. I would suspect that second and third tier IT hubs are unlikely to become those kinds of places, though they will have plenty of relatively highly paid IT employees doing ho-hum work.
I can assure you that IT is very much involved in “providing complex services to people in highly regulated environments (education and healthcare), or in doing things in the physical world (often in highly regulated, complex environments, like in vehicles or construction, including infrastructure construction)” today. All of these activities happen in very different ways than 20 years ago.
You’re really arguing that services don’t have value and that physical objects and activities have inherent value. In capitalism, markets create value, not the physical activity of producing or moving physical objects. Marx described this 150 years ago. Nothing has inherent value in capitalism. Tech just rapidly furthered the fulfillment of this capitalist dynamic creating vast new pools of capital in the process. If markets could create faster trains, exoskeletons, or cures for cancer people would buy them. If they haven’t, it’s because they aren’t able to. In the past, government was a big part of creating such things. Complaining that capitalist markets don’t value goods and services from the Midwest as much as they did won’t change any of this. Accepting the new economy and it’s capital markets and means of accessing that capital is the only way. Waiting for it to prove itself to the skeptical will leave the skeptical completely marginalized. You can’t be part of something if you’re skeptically watching it from the sidelines. You can’t have your cake and eat it too.
Although IBM was one of the first companies to jump on the Smart City bandwagon, it made its first sales in policing, because policemen are highly paid and the stats suffer if they’re stationed in the wrong place.
The industrial internet will require IT, but also also a knowledge of how things work in the field, and someone to design and make the hardware. Think of all the different kinds of knowledge that will go designing an irrigation system that gets the right amount of water to each area of a farm field
…in Nebraska, where the big irrigation companies are located. 🙂
Doesn’t Israel also have a high tech irrigation industry? Making the desert blossom, etc etc.
Yes, though the entire State of Israel is less than half the area of just California’s Central Valley (a big desert that blooms) and far smaller than the irrigated acreage of arid Nebraska (west of the 100th Meridian).
I’ve seen the kind of water distribution technology Rod refers to. It comes from a manufacturer in Valley, Nebraska.
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The big farm tractor manufacturers have add-on GPS and GIS based control systems too. Farming is already teched-up, according to my cousin the farmer.
So at the gas station today, the pump television (because we cannot escape constant video and advertising at any point in our Brave New World, even at the gas station!) they were burbling about new ovens that “Know what has been placed in them and how to cook it”. Further examples of how modern IOT is aimed at infantilizing us and furthering our devolution into mindless, helpless consumers. I am almost certain that this oven will gather data on what we are cooking. If we click on the button that allows us to use it, it will feed us a continuous string of advertising. And a link to Amazon so some drone (human or AI) can instantly fill our refrigerator without any involvement by us-for a price. I imagine the data being fed to our insurance company “Well, Mr. M, looks like you have had beef roasts four times this month. Time to bump up your co-pay for cardiac medical procedures.” CHINA will be the lead in developing this relentless Panopticon of technology, of course. They are already using it against their own populations, especially restless Uighurs who don’t 110% buy into the religion of Party and Han Nationalism.
From a Milwaukee/SE Wisconsin perspective, I would argue that the high-tech industrial economy is highly visible and definitely not overlooked. Just for the $2 to $30 billion revenue companies we have Johnson Controls (batteries and building techology), Harley Davidson (motorcycles, $5 billion in revenue, operations in 90+ countries, just launched all electric motorcycle), AO Smith (water technology, large percentage of revenue from China), Quad Graphics (the primary consolidator of the printing industry and now buying internet marketing firms to offer full service marketing – print with web), Milwaukee Tools (massive growth rate, all time employment high in Milwaukee), GE Medical (5000 employees in area), Generac, Komatsu (building $285m zero net energy facility on Milwaukee inner harbor), Foxconn (13,000 job, 90% to be high tech). I could come up with a hundred or more examples of smaller firms succeeding like some of Rod’s examples.
I’m tempted to label this as another example of a trend that doesn’t exist (at least in the urban blogosphere) until it is observed in a coastal city.
The bad news is that the high tech manufacturing still doesn’t solve any inner city problems. The jobs are high skilled and located (with few exceptions) in suburban areas where 50 to 1000 acre sites can be assembled next to major interstate highways
I don’t believe Rod was talking about the behemoths making hundred-million-dollar investments in huge suburban manufacturing complexes.
His examples were much more modest, and more like Germany’s “mittelstand” firms: smaller/midsize specialists operating in a fairly narrow market niche and applying advanced technologies to their manufacturing operations. One key part of the German model missing in the US: the non-university training pipeline. See: https://web.archive.org/web/20140410212218/http://bmwi.de/English/Redaktion/Pdf/factbook-german-mittelstand,property=pdf,bereich=bmwi2012,sprache=en,rwb=true.pdf
The point is that pretty much everywhere in the US, these firms fly under the radar…and cities’ economic development functions probably don’t even know about most of them.
Isn’t Foxconn a big scam? I think those 13,000 jobs are a mirage.
Scam. Doubtful. They have to file annual reports and as of 12/32/18 had hired 178 full time employees (short of the 250 needed to immediately claim their first job creation tax credits. They spent $200 M to date on work employing 854 construction workers with 95% of contracts awarded to Wisconsin firms. The minimum employment totals to receive the minimum job creation tax credits ramp up pretty quickly (1820 jobs by end of 2020, 3640 by end of 2021, 5,200 jobs by end of 2022, etc ). To receive the maximum job creation credits they need to be at 13,000 jobs by the end of 2022.
Did they play Scott Walker like a fool? I’m inclined to say yes. But the big play for Foxconn isn’t extracting a billion dollars or two extra incentives for a major production facility for which they have committed a $9B investment. It’s in moving up the innovation chain where they capture a 30% profit margin vs 2 or 3% manufacturing Apple and other company’s innovative products. That’s the play for Terry Gou, and its playing out at least in part in the Midwest. He apparently doesn’t know that only the Silicon Valley model for innovation can be successful and is doing something entirely different in Wisconsin (at least that’s my take) that is being completely ignored because the project can only be interpreted at the national level in one of the midwest failure narratives
The commentary I have read is not really focused on “Midwest failure” but on overall skepticism towards massive subsidies of large corporations. And the types and permanence of the jobs created (several commenters noted Foxconn’s employment practices in unflattering ways).
I would bet the moving up the innovation chain will largely continue to occur in Taiwan and China. Wisconsin is a sop to politics (and a lucrative subsidy).
But then, I really, really hope you are right!
I hate composing comments on my cell phone. I meant reports ss of 12/31/18.
FOXCON unravels.
From 13,000 blue collar jobs to maybe 1,000 “R&D” jobs (probably marketing and the like).
Oh well. Wisconsin Know-How at work!
https://www.vanityfair.com/news/2019/01/trumps-foxconn-factory-deal-scam