Some people read crime novels. Some people read fantasy epics. Some people read bodice-rippers.
Me? I read wonky reports so you don’t have to.
That said, if I had my druthers, I’d have every candidate for state or local office read “The Global Startup Ecosystem Report 2021,” an annual report produced by a San Francisco nonprofit that attempts to measure the business health of cities around the world and which ones are best for tech startup companies. I guarantee you they’d wind up a lot more prepared for the challenges they’ll face in office.
Why does this matter to us? Southwest and Southside will never be mistaken for Silicon Valley. On the other hand, this report is always full of lessons that we can scale – in this case scale down – to our part of the world. Don’t think we’ll ever be a tech hub? This report addresses that early on: “All industries are tech industries,” the report says. “In most industries digitalization has been accelerating for decades. Covid floored it.”
So just what are these lessons? Here are the five biggest ones.
- Universities matter. This is pretty obvious but still bears repeating. It’s fashionable to say that universities are “the industrial parks of the future,” except that the future is already here. At some point, every city touted in this report traces its current economic status to having a university, often several of them. “Startup ecosystems often cluster around universities, hospitals, and other research organizations that spin off intellectual property,” the report says. That’s why the Virginia Tech Corporate Research Center is so important to the New River Valley and the Virginia Tech Carilion Academic Health Center (aka, the medical school and research institute) is so important to the Roanoke Valley. It’s why Lynchburg is lucky to have so many colleges and why Danville was so keen two decades ago to get the Institute for Advanced Learning and Research. It’s why I’m still baffled that there hasn’t been a community clamor in the coalfields to push Gov. Ralph Northam’s idea of making the University of Virginia’s College at Wise a research center for renewable energy. (Some readers may remember that when I was with The Roanoke Times, I editorialized in favor of UVa building an “innovation campus” in Southwest Virginia as a counterweight to the one Virginia Tech is building in Northern Virginia. I wrote about it again for Cardinal in November. Both times, she silence from both Charlottesville and coal country was telling.) Scale this down further and there are colleges and community colleges across Southwest and Southside. If localities aren’t trying to figure out how to leverage those assets, they should be.
- Demographics matter. If that first category highlights one of our strengths, this one highlights one of our weaknesses. Many of these cities are flourishing because they have a lot of young adults – young, college-educated adults. That’s another way of saying they have a large and growing workforce. By contrast, localities in Southwest and Southside generally have older populations, and often shrinking populations, at that. We don’t think of Istanbul as a tech hub but this report does, and its young population is one reason why. Half of Turkey’s population is under 32, the report said, and many of those are in the country’s largest city. No other city in Europe (Istanbul is half in Europe, half in Asia) has so many young adults, the report says. That’s why “this young and digitally connected population makes Istanbul one of the best spots to test new ideas and products.” The lesson for us seems clear: We need more young adults. There are groups working on this – we recently had a story about how the Tobacco Commission is paying off student loans for people in certain high-demand fields who agree to live in the commission’s territory in Southwest and Southside. But clearly the region needs to do more, much more.
- Education matters. Not surprisingly, the cities that StartUp Genome ranks best also tend to have the most educated populations. There is perhaps no more direct tie than that between a community’s level of educational attainment and its economic fortunes. This is a point not lost on some leaders in our region. It’s the reason The Harvest Foundation in Martinsville has committed $10.3 million to pay for every student in Martinsville and Henry County over the next 13 years to attend Patrick & Henry Community College – a true generational commitment to changing the fundamentals of that community’s economy.
Still, it’s worth underscoring this point for anyone who hasn’t fully grasped it yet – and to illustrate just what we’re up against in the global marketplace. The report pegs some unlikely places as up-and-coming tech capitals. All make the list because of their educational systems. Cape Town, South Africa, gets hailed because its universities “produce more than 12,000 STEM graduates and more than 500 coders a year.” Edmonton, Alberta, is the coldest major city in North America but it’s a tech hot spot despite the Arctic blasts that make 5.4 degrees the average low temperature in January. That’s because this city the size of the Richmond metro area has 125,000 college students and produces 550 tech-sector graduates a year. Canada also stands out in another way: It’s got the most educated population in the world. According to the Organization for Economic Cooperation and Development, more than 52% of Canadians age 25 and up have a university degree. Next come Japan (50.5%), Israel (49.9%), South Korea (46.86%) and the United Kingdom ( 45.95%). That’s right, five other countries come in about the United States, at 45.67%. Most of Southwest and Southside come in much lower. In Montgomery County, 46% of those 25 and older have a college degree. That’s an unfair comparison in many ways, since Montgomery is home to Virginia Tech and Radford University is next door. The next highest rates, though, are 38.5% in Lexington, a two-college town, and 34.7% in Roanoke County. Once you get outside the region’s biggest metros – Roanoke, Lynchburg, the New River Valley – no locality tops 30%. West of the New River Valley, the highest rates are in Bristol and Washington County, both about 23%. In Southside, the highest rate is in Prince Edward County – 24% and home to two colleges. But many communities in Southwest and Southside rank in the teens or lower. Dickenson County is just 9.3%; Greensville County a state low of 7.5%. Centuries ago, people fled Ireland to seek new economic opportunities in North America and many of those wound up in this part of Virginia. In the new economy, it’s today Ireland that has the advantage over us.
Ireland ranks somewhat below us, at 41%. However, this report says almost 30% of Ireland’s university students are enrolled in STEM-related fields – science, technology, engineering and math. According to the National Center for Education Statistics, the comparable figure in the United States is 18%. If you’re a tech company, Dublin, Ireland, looks like a better bet for the future than Dublin, Virginia. In fact, Dublin now makes the global Top 40 in this report, tied for 36th place with the Research Triangle in North Carolina – the first time the city has made the list.
That’s not the most amazing nugget in this report, though. It’s this: In Serbia, coding is a mandatory subject starting in fifth grade. A country with a population smaller than Virginia now has more than 80 specialized high schools devoted to computer science and electrical engineering. Meanwhile, we have candidates for office running on phantom issues like some social theory that’s not even being taught. Serbia is beating us to the future and our so-called leaders don’t even seem to know they’re in a race.
4. Incubators and accelerators matter. Another common theme running through the most successful cities is that they have lots of programs designed to take small companies and help them grow into big companies. Edmonton (there’s Edmonton again) has more than 20 such programs. So does Cape Town, South Africa. Hyderabad, India, has one aimed at women that has assisted more than 3,0000 female entrepreneurs. Fortunately, we have these, too, just not at the same scale. Roanoke has RAMP, the Regional Accelerator and Mentoring Program. Danville has The Launch Place. There are others scattered around the region, so that’s not meant to be a comprehensive list. Now, here’s a challenge: Should every community have a program like this? If the answer is “no,” then why not?
5. Government matters. Now we come to the portion of our program where we make conservatives unhappy, particularly those of a libertarian bent. (Don’t worry; this report makes liberals unhappy, too, in the next section). This 290-page report is almost 290 pages of refutation against the notion that the best way for businesses to prosper is for government to leave them alone. On the contrary, as the report goes through city after city, it makes the case that government activism is the way to jump-start the economy. That may be less true in well-established tech capitals, but it is definitely the case in less-established ones. How did Bangalore, India, become a global tech hub? Partly because the state that it’s in “provides financial support to startups through various funds, including the semiconductor venture fund, the bio venture fund and the AVGC venture fund which focuses on companies in the animation, visual effects, gaming and comics (AVGC) sector and related businesses.” Since 2015, the state has invested the American equivalent of $40.5 million.
In Seoul, South Korea, the government helps underwrite the salaries of some employees for qualifying startups – to the tune of $10,000 a year for the first year. Stockholm, Sweden, funds a program that provides a free advisor to certain startups. The Australian state of Victoria – home to Melbourne – has created a $136.6 million fund to help startups. For comparison purposes, Victoria has a population of 6.6 million, which makes it smaller than our state of Virginia. Our Virginia Innovation Partnership Authority might mimic some of what LaunchVic is doing, but there’s no comparison in funding: Virginia’s allocated $8.95 million for that in its first year.
In Canada, the provincial government of Quebec has committed $95.4 million toward a goal of making Quebec City “the entrepreneurial capital of the country within five years.” Much of that will go to funding promising startups. Quebec City may be off our radar screen because the people speak French and there are no big-league sports teams, but Quebec City has still become a big-league tech player, particularly for artificial intelligence and life sciences work. This metro area of 800,000 – not that much bigger than the region from the New River Valley to Lynchburg – is home to 500 high-tech companies with annual sales of $2 billion, the report says. And that’s before the government’s attempt to boost Quebec City into an even higher league. (Alas, the National Hockey League still spurns Quebec City as a potential expansion city.)
Now, you don’t have to like any of this. You might think this smacks of entirely too much government involvement in the private sector. Nonetheless, this is the economic reality we’re dealing with. In a global economy, all these cities are our competitors. If we can’t figure out a way to keep up with them, then we won’t. If you think America is a declining economic power, this might be one of the reasons why. Now it comes time to make liberals unhappy.
6. Taxes and regulations matter. OK, they may not matter as much as some conservatives think. Some 70% of the money invested in startup companies goes to just five cities, all in what we’d think of as high-tax states: San Francisco, San Jose, Los Angeles, New York and Boston. Still, the report points out that many of the fast-rising tech hubs around the world are in low-tax environments. How this squares with all that government funding, I don’t know. However, the report does repeatedly draw a connection between the rise of certain cities and their low taxes and light regulations.
Miami is now considered a rising tech star. The report credits the 2017 tax law changes that Republicans pushed through. “The 2017 federal tax policy changes made Florida, with its favorable tax structure — including one of the lowest corporate tax rates in the US (5.5%) and low sales and property taxes — an appealing alternative to high-tax states like California and New York,” the report says.
Remember frigid Edmonton? Apparently all those universities aren’t the only reason Edmonton is being heralded as one of the top tech hubs in North America – and the world. The report says: “Edmonton has some of the lowest taxes in Canada, with no provincial sales tax, no payroll tax, no health care premiums, and some of the lowest personal and corporate income taxes in the country.” (I should point out here that this isn’t all bad news for liberals who think corporations should get taxed. Why are there no health care premiums? Because Canada, unlike us, has a national health care system. What some consider socialized medicine apparently helps make for a good business climate; seven of Canada’s eight largest metros make the report’s list of rising cities – only poor Winnipeg is the exception. But I digress.)
We Americans think of Amsterdam – where coffee shops have long sold marijuana and the red-light district is a well-known tourist attraction – as the epitome of a liberal European city, in more ways than one. But when it comes to business, Amsterdam is apparently a city that conservatives could love. The report says there’s no tax – none whatsoever – on the salaries of startup founders for the first three years. Sex, drugs and rock ‘n’ roll? Amsterdam apparently has sex, drugs and no taxes for entrepreneurs – maybe not so catchy a slogan but enough to make the city Europe’s fastest-growing business ecosystem, one that now generates more startups per capita than any other city in Europe. Denmark, another famously liberal country, also claims it has such a streamlined system of regulations that it’s possible to start in a business in just a few hours.
That should be enough to make local governments across Southwest and Southside do some thinking, and enough to discomfit both liberals and conservatives. At least for today. I’ll be back tomorrow with more insights from this report that community leaders in the region ought to study.