A Quiet Crisis: 3rd Frontier Transcript
MR. FROLIK: Hi. I want to thank you all for joining us on this 7th in our series of roundtable discussions about the Quiet Crisis and the Economy of Northeast Ohio. Today we’re going to talk about the State’s role in economic development, particularly as it impacts our region. I would like to start by going around the table asking each of you, what’s the biggest economic challenge facing Ohio, Northeast Ohio in particular and what can the State government do to address it? Bruce Johnson, you’re the State Development Director, let’s start with you.
MR. JOHNSON: Well, I think short term there’s a realization how competitive the economy is and what is that doing that’s forcing manufacturers and other industrial partners to reduce costs. And part of that reduction in costs means reducing the number of people on the payroll. So the reality is, that there’s enormous international competition that has changed dramatically in the last 40 or 50 years and the State must do everything it can to assist current Ohio employers to reducing their overall cost burden.
I think long term, the big issue is how do we help the transformation of the economy from one that is still stuck in the 40s and 50s to this innovation economy, one that is driven by knowledge in the economy. And the answer for that is investment and a lot of early start up companies that are focused on things like biotechnology and advanced manufacturing. We also have to focus on the work force. We are going to be in a work force crisis in the next 15 to 20 years, both in terms of their preparation for the jobs that are high quality jobs for the next couple generations, and the fact that, you know, as the baby-boomers retire, there’s not going to be enough people to satisfy all the employment opportunities in our state.
So, short term, it’s competitiveness, long term is preparation of the work force.
MR. FROLIK: Great. Steve Sims, from the perspective of the Economic Development Office from the City of Cleveland, what is the top challenge?
MR. SIMS: Well, I would agree with what Mr. Johnson said, and I do believe that a lot of what we face here locally has to do with global economy, and the fact that we do have a base here in Northeast Ohio that is more from the industrial age as opposed to, what some would define as, new economy areas. The biggest challenge is to ensure that we can support the businesses that we do have here, to keep them here and to maintain employment. I think that Mr. Johnson pointed out the fact that, in essence, we see a lot of companies that, if they’re not closing down, they’re definitely downsizing and we have to look to what can we do to take care of the folks that are being displaced in terms of new job opportunities and I think that there are a number of areas that have promise for this area, including technology led development in the areas of biomed, biotech, so, I would agree.
MR. FROLIK: President Mike Schwartz.
DR. SCHWARTZ: Well, you wouldn’t get too much disagreement from me about any of that either. In fact, it seems to me that long term aggregating some educated intelligence and keeping it here is going to be the real challenge for us. The institutions here, which are very good institutions, here in Northeast Ohio need to be called upon to do that aggregating of that intelligence and producing more, but the work force issue is going to be very serious in the few years to come. So the universities and the schools have a great deal to do. More short run, as Stephen said earlier, I think that paying some attention to the companies that are already here and seeing to it that they’re retained and that they flourish becomes a critical issue for us in the sense of how to serve their best interests, seems to me it’s a real, real problem for us.
MR. FROLIK: Greg Browning.
MR. BROWNING: I think work force development both in terms of right through the system, education, higher education, but also employment and training issues for people already in the system, already working. Not just how do we need to put more money in, but how do we get smarter about the investments we’re making, how can we get a better strategy that adds up for Ohio is a question that I think has to be dealt with.
MR. FROLIK: Eric Fingerhut.
MR. FINGERHUT: I guess that there’s a lot of agreement here. I think that President Schwartz probably described my view the most closely, and that is to say that this has to be a place where smart, interesting, exciting people want to come because they are the ones that think of the new ideas that become new businesses and that attract investment.
The thing we have to remember is that the State or the State Government, the City Development Department, we can help individual businesses from time to time, but ultimately, that’s not how the economy grows. The economy grows by creating the conditions that people, that individuals entrepreneurs and individual capitalists want to create success for us.
Having agreed with that, I really want to focus on the second half of your question if I could, which is, what is the State’s role and just start this discussion about the State’s role by saying, I think the State has a huge role to play, that State policy ultimately can set the tone for what kind of economy we’re going to have. I think if you look at other states around the country that made this shift that we’re all talking about, frankly, quicker than Ohio did, to the knowledge based innovation economy, that you see how powerful the State’s role can be. And I think that many of us feel that frankly, we have come to this party a little bit late, that we were chasing smoke stacks too long and that we now have some catch up to do. And so, I think this discussion is timely and appropriate because we have got to figure out how we can get to scale quickly.
Remember, we’re all talking about investments and if we all agree the State needs to make investments in work force development, education and technology, and research and development. These investments have payoffs that are many years out into the future. These are not quick payoffs, so we’ve got to get to them. We’re seeing that some of our neighbors have gotten—started seeing some of those payoffs quicker because they got to the investment sooner than we did.
MR. FROLIK: Okay. Dorothy Baunach.
MS. BAUNACH: Every one said almost all there is to be said, except that I think that the biggest challenge is economic growth and competitiveness. And we’re certainly not growing as everyone has mentioned, quite the way other regions are growing. And really, to get there from here, first of all, we have this economic base that needs to be transformed. It will take along time and it’s a big base, but it will be the platform for growth and then it’s about entrepreneurship and innovations and how we can build on the assets we have and take ourselves into that next economic stage of growth and per capita income that is at least comparable, if not above average, as we have been in the past.
MR. FROLIK: Okay, great. There’s a lot of good things there that I think we’ll get back to in the course of this conversation. First, I want to go—Eric talked about setting the tone. Let’s go to the monitors and look at what Governor Taft said when we talked to him in the later stages when he was here actually, for one of your summits in October, about the tone for the future and the economy.
GOVERNOR TAFT: We have been involved in over 600 economic developments since I became Governor, creating, or retaining about 100,000 jobs. We also have a plan which we’re implementing, the Third Frontier Project, to really position Ohio for prosperity.
MR. FROLIK: Bruce, throughout the campaign and in the last year, even non-campaign events, the Governor’s talked about the Third Frontier, and obviously, it’s a very broad rubric with a lot of elements, can you talk about what you see as the most important component and how it can impact the State’s economy?
MR. JOHNSON: As Eric said, it’s a long term approach. You can’t expect success overnight. The Governor, before this year, insisted upon the Technology Action Fund. He insisted on Ohio’s Tobacco Funds being spent for biomedical research in this State. And the State does have a history of trying to be and investor in innovation through the Edison Programs and through others. The governor also recognizes that we have a lot of work to do, and so, he has offered the States most aggressive package ever for technology growth in the state through state investment and that’s the Third Frontier Project. It’s a 1.6 billion dollar, ten year proposal that has the potential to spark new business formation in our state over time.
MR. FROLIK: Okay. In the discussion that’s been—you’ve heard about the Third Frontier, I would like all of you to feel free to jump in and think about; is this, does this make sense? Is this the way we should be going? Eric, what do you think, from a member of the legislature?
MR. FINGERHUT: Joe, I think the Third Frontier is a good initiative. Bruce and I have served on committees together trying to flush it out. I think that frankly though, we’re not at scale yet. 1.6 billion sounds like lot of money, but over ten years you start realizing that it’s really not very, not as significant as it needs to be. You know, if the Third Frontier is going to be our flagship investment, which it sounds like it is from the Governors discussion, you want to compare this to the flagship initiatives in other states, and the fact is, that it is not an investment that is at scale compared to other states, in their flagship technology investments. And again, remember the comment I made earlier, which is, we’re coming to the party a little bit late. So, we’re coming to the party late, I think we’re still not at scale yet. It’s a good start, but if that’s our sole set of investments, we’re really not going to be there.
If I could make one comment on the clip we saw from the governor, talking about setting the tone, Bruce and I have this discussion a lot. He started his conversation by talking about the 600 or so individual projects that the Department and the State has been involved in and then moved to the Third Frontier. Relating back to what I said at the beginning of this discussion, I really think we have to move away from talking about the 600 projects and, you know, however many jobs were involved in those particular projects. Not that they shouldn’t keep trying to help businesses when they need help, but we really have to think in terms of setting the table for innovation and job creation that we have nothing to do with. The ideal situation here is that we created an economic environment where jobs are being created and they don’t have to call Bruce and ask for help.
MR. JOHNSON: Eric, it’s not either or. The people in Lorain working at the Ford plant, the people in the Lordstown plant in Youngstown are very happy that the state comes to the table to save a couple thousand jobs that means spinning off 6 to 10,000 jobs in the area. Those are important investments to work and there’s a lot of competition. I said before that the most important factor is the fact that we’re in international competitive situation and people have a lot of choices in terms of where they make their investment. We want them to make major capital investments in Ohio and continue to build a good quality manufacturing jobs that exist in our state. This is a recognition, the Third Frontier Project is a recognition that the State has always been engaged in the infrastructure of the economy. It used to be roads and bridges. It still is roads and bridges. It is used to be transportation, water and sewer. It still is those things, but in addition, it is the ability to attract talent. Eric is exactly right, and the other folks are exactly right, but it hasn’t changed all that much. The Edisons and Wright Brothers were innovators of their time. We need to make sure that the State of Ohio has the infrastructure, the high quality, higher education institutions, quality K-12 institutions that provide an opportunity for Ohio to have its unfair share of real innovations in our economy.
DR. SCHWARTZ: It seems to me that the universities have really resonated to the governor’s proposal for the Third Frontier and have been talking collaboration in ways I haven’t seen before in 26 years in this state. And if anything, that’s a healthy driver, it seems to me for getting some things going. And it’s especially important because the areas of technology that are being talked about have been very well defined and so we can assess our strengths and development in new kinds of ways trying to bring new talent in where we might be a little bit weak and so on. So I think just the conversation about this so far has proved to be helpful. Now, whether it happens or not, that will have been okay. But we want it to happen, although we do agree that it’s probably not enough, but it’s a start and it’s an important place to begin.
MR. FROLIK: Dorothy.
MS. BAUNACH: I’m a great supporter of the Third Frontier and the new Wright Center of Innovation, RFP that’s out at this time waiting for proposal, has caused a lot of folks to start talking to each other across the State, regionally and across the State. I think the one thing we have to be careful of though, is that the first 50 million dollars is all capital dollars and that sort of leads as Ohio has always been a leader in terms of capital assets and fixed assets, property, plant and equipment, that’s what we’re used to investing in. Again we’re looking at a knowledge economy and innovation. We’re going to have to get some additional funds like the Technology Action Fund, which has been so good, but it’s a small portion of the mix at this point, only 15 million dollars a year and it’s probably the most important money, that early stage seed money, technology validation money, and so, a new program it’s got some great potential, but I think there also will have to be some tweaking along the way.
MR. JOHNSON: Northeast Ohio has really done well with these Technology Action Funds and that’s because the assets of Northeast Ohio are so impressive. One of the challenges we’re going to have as we continue through this Wright Center process is to insist that the science be world class. You can’t invest anymore in something that is good enough for Northeast Ohio or good enough for Ohio or good enough for the United States. You have you to invest in opportunities that are world class opportunities. And we also have to make sure that people outside politics are the ones evaluating these proposals from a science perspective and from a business commercialization perspective so that we can have real job opportunities instead of window dressing for the people of our state.
MR. SIMS: What I would add is, what I think the program will provide is a great framework for how we can invest. It finally puts the State in a position where we are focused around some very specific things. I really wouldn’t want to lose the Senators point about scale and I would really also have to piggyback on the comment related to what types of funds are going to come and the timing of those funds because we are talk about something that is different than what we have had in the past, in terms of a kind of investment that is needed. But more importantly when you think about it, we’ve been talking about the entire State of Ohio when we talk about scale and my personal experience would be that without a doubt the entire kitty can be used in Northeast Ohio easily and meet all of the qualifications and standards regarding world class.
MR. FINGERHUT: If I can just make one final point on this, we really need to remember that we’re not just, our businesses are just not in competition with each other, but the State is in competing with other states and with our countries. We want world class science. I agree with everything Bruce said. So does every other state, want world class science and the world class scientists have choices and that’s where the issue of scale really comes into play. We just lost a world class scientist from the Cleveland area down to North Carolina. I’m certain that scale had something to do with that decision. We simply have to face up to, and this is, as a State Legislator, and Bruce was for many years, and still our State Director, you know, we make priority choices all the time, and I think the point that I have to make today is that we haven’t made the tough prioritization decisions to get us at the scale we need to get.
We’re better today than we were four years ago, there’s no question about that, but we’re still nowhere close. Other states took their tobacco money, for example, and invested for more of it in the types of technology initiatives that we’re talking about, than Ohio did. Other states have taken their flagship proposals comparative to the Third Frontier and invested more. That’s our competition, we have to be aware of that. I’m glad it’s stirring conversation, Doctor Schwartz, and I’m glad that it’s getting people working together. Those are all positive things and I support them, but we have to realize those conversations are all happening next door and all around the world.
MR. JOHNSON: I love this proposal. I think, obviously it can be bigger, everything can always be more. I really have to disagree with Eric’s assumption that, and just blank statement that Ohio’s proposal is not on par with what other states are doing. If you look past just the announcement of the governor and actually look at what their implementing. Every state in the union is under the same economic situation that we are in. Many of them have announced programs and not followed through on the programs that they’ve announced. On a per capita basis, Ohio’s Technology program is very competitive with virtually every other state in the union, is far ahead of most of them. So, in the last four years, we’ve made a decision to reprioritize exactly like Eric has suggested and has been suggesting for a long time. And while, yes, we would like to have more, we think getting a good start on this first 1.6 billion dollars and seeing where it takes us, is, at least good news for the people of our state
MR. BROWNING: In terms of scale, because scale as we all know, goes to numbers, but it also goes to choices. And in Ohio we have these great city states and we’re sitting in one of them, of course, Cleveland, Columbus, Cincinnati, Toledo, you name it, and we have a great tendency to react to those city states and spread money around, and it’s a great bipartisan tradition. Leaders of the state react to the needs and move money around, but is it strategic? Is it making tough choices, saying look, we’re going to leverage our strengths and that means we’re going to rifle most of our money into a fairly short list of places. Well, that might sound good, actually doing that is very difficult to do. I remember when I was Budget Director, going with the Board of Regents to North Carolina to visit the Research Triangle. It was very interesting, but I walked away thinking, well, we would have to have 7 or 8, you know, and people who didn’t live in big cities would feel that they got shortchanged in the process. It’s, we all laugh about these things but it is a serious issue.
MR. JOHNSON: If I can get Cleveland legislators to recognize that if some other place has the best proposal as evaluated by the National Academy of Sciences, or somebody like that is who we’re being to be asking to do that, then it ought to go in a different direction.
MR. FINGERHUT: Have you had objection to that, because I have no problem with that.
MR. JOHNSON: We have had no objection. I said the same thing with a group of Cincinnati legislators, that if the first 7 best projects were in Cleveland, all 7 of them ought to be funded in Cleveland. You need to say that in Toledo, and Youngstown, and Dayton, and Marion and Columbus. But more important than that, we need to have multi-regional collaborations. Maybe the best asset is GE Aircraft Engines working with the University of Akron and somebody up at one of the health organizations in Cleveland with Battelle Memorial Institute in Columbus, Ohio. Maybe the best talent in one state is not located in one community. And so, Dorothy is right about not over investing in capital assets, new building and equipment, but to have that second round of 500 million dollars that the governor wants so badly, that we’re going to put on the ballot next year for the people of the State of Ohio to say you need money to attract the best and brightest, either keep them here. You know, we have a hundred higher education institutions in and around the state and we keep losing people to other places. Keep them here or bringing them here so that Ohio can have a strong future.
DR. SCHWARTZ: That is exactly my point and the point is, when all is said and done, this is about people. This is about the best educated intelligence we can bring into this state or keep in the state, one or the other. The focus on the capital might be the city state’s problems because we’re trying to find a way to spread the money around, but when push comes to shove in all of this, if we can’t attract the very best people in science and technology and mathematics we are going to suffer as a state for a very long time. When Case Western Reserve University was able to bring an eminent scholar here from Los Alamos, that struck me as one of the best things to happen to this region. We offset it was losing one, but we got him and he’s here and here a very collaborative person so we’re seeing some great interactions with him. We need much more of that kind of money to bring folks here and keep them and that goes for out-of-state students, too. We need to bring as many of them here as we can in the hopes that they’ll keep their educations here as part of the aggregation of intelligence.
MR. FROLIK: We mentioned at one point the priorities of the Third Frontier. Can you run down the five or six categories that you have sort of targeted as the many areas when investing?
MR. JOHNSON: Yes, I can. Instruments and controls and electronics. Let’s explain it first. When I first became Development Director we asked Battelle Memorial Institute to give us a report on how Ohio can best compete in the technology economy. It’s several hundred pages, it’s on the governor and the Web site, you can look it up if you want to. The theory is, you need to build on your strengths. Okay, you can’t just create something from nothing.
And so, Ohio has incredible industrial strength that is world class. And so, we believe once you have identified what those are, that you can make strategic competitive investments that are targeted to grow new innovation out of the industrial strength. The business community has to be the driver. They have to define what the problems are that need to be solved in order to take new product to a commercial opportunity. But all this talent that is at the universities also has to be called on to solve those problems.
So, like I said, there’s instruments, controls and electronics. There’s biosciences. There’s information technology. There’s something we call advanced materials, which is you know all the composites, the titanium, et cetera. The last category is power and propulsion, that’s the automobile industry, but it’s also the electric utility industry, and it’s something that I’m very hot on, which is fuel cells. I think the real key is capturing what we call disruptive technologies. Technologies that have the opportunity to change an industry. Fuel cells will change the automobile industry, the electric utility industry, change what operates your home energy appliances some day and there’s a whole conversion from oil and gas to the hydrogen economy that will taken place in this country over the next 50 years and it will either create hundreds of thousands of new jobs or it will destroy thousands of jobs. We have to seize that opportunity, and that’s why the governor has announced 100 million dollar fuel cell initiative for our state.
MR. FROLIK: We have talked a little bit about the disbursement of money. I want to really expand on that, but let’s go to something, we have a clip of the governor talking about that issue.
