Factors Influencing the Long Term

Sustainability of Entrepreneurial
Technology Centers
Ross Gittell, Jeffrey Sohl and Edinaldo Tebaldi

University of New Hampshire

Objective of inquiry
To provide insights into the contributing factors to
economic success in technology centers over the
last business cycle (approximately 1990-2003)
Explain and understand differences among USA tech
centers in changes in employment and per capital
income
This inquiry is a follow-up to previous study (Gittell
and Sohl, forthcoming) of the experience in USA
technology centers in the early 2000s economic
downturn

USA Entrepreneurial Technology Centers

Growth in high technology goods and services
explained 65 percent of the difference between
USA metropolitan areas with the fastest-growing
economies and the average (Milken, 1999)

How the Milken top ranked tech poles

fared over the full course of the last
business cycle and why some performed
better than others is the focus of inquiry

Factors effecting tech pole economies during the

tech downturn (Gittell & Sohl, forthcoming)
Lack of diversification in overall economic base
Limited diversity within high technology industries
High average wages
High levels of venture capital funding during the
end of the boom period of the late 1990s

Contradictions in Tech Center Development.

Some of the same factors that were negative
influence in downturn over the full business cycle
contributed to long-term economic growth

The Tech Poles ranked ordered in aggregate performance,

LT and ST employment changes and per capita income
change rankings. From strongest performing to weakest
Growth Rankings
TECH POLES
Austin
Rochester
Houston
Denver
San Diego
Boise
Atlanta
Albuquerque
Raleigh
New Haven
PhoeniX
Newark
Washington, DC
Oakland
Seattle
Middlesex
Dallas
San Jose
Boston
San Francisco
Philadelphia
Orange County
Chicago
Los Angeles
New York City

90-03 Employ.
Rank
1
9
10
6
11
2
5
7
4
21
3
20
13
16
14
12
8
19
18
22
25
15
17
24
23

2001-02 Employ.
Rank
16
4
8
17
1
14
9
3
11
7
10
6
2
13
23
19
20
25
21
24
5
12
18
15
22

Per Capita Inc.

Rank
4
9
5
3
15
12
14
19
18
8
23
11
22
10
6
13
16
1
7
2
21
24
17
25
20

Aggregate
Rank
21
22
23
26
27
28
28
29
33
36
36
37
37
39
43
44
44
45
46
48
51
51
52
64
65

Creative Destruction Process in the

Technology Centers
The tech poles with the greatest variance (ups
and downs) in employment growth had the
strongest overall growth performance over the
full business cycle
Among the tech poles with the greatest
differential between long and short term rank
all but one ranked in the top tier in
employment growth 1990 to 2003 and three
(of the eight among the top third) ranked
among the top tier in per capita income
growth.
This suggests the force of the creative
destruction process in the USA tech poles

Groupings of the USA tech centers --from most robust to least -over the full course of the business cycle
(1) the high tech growth centers with employment
concentrations in growth sectors within high technology, such
as bio-technology and health care-related industries (e.g., San
Diego, Rochester);
(2) relatively recession resilient USA technology centers
based in metropolitan areas with high concentrations of nonprofit and technology related institutions, such as universities
and governmental agencies (e.g., Raleigh,New Haven);
3) mature tech centers vulnerable to decline emanating from
lack of diversification and high costs (e.g., Silicon Valley and
Boston);
(4) large metropolitan area centers lagging significantly behind
in overall economic performance the other tech centers (e.g.,
NYC, Los Angeles, Chicago)

Econometric Modeling
Dependent Variables Long-term (full 19902003/01 business cycle) growth in:

employment
per capital income
Tested a range of explanatory variables
suggested by theory and literature as
effecting technology center economic growth

Econometric Model Results

Model 1: Dependent Variable: Change in Employment, 90-03

Variable

Employment,
% change 1990-2003

Model 2 : Change in Personal Income, 90-01

Variable

Coefficient

t-ratio

Constant

0.081

0.73

High Tech Gini 1990

0.5355

Chg in Tax burden, 90-03

Personal Income,
% change 1990-2001
Coefficient

t-ratio

Constant

0.4735

4.25

3.32

Gini Supersector 1990

0.9761

2.37

-10.139

-2.15

Tax Burden 03

-3.5260

-2.82

Chg home price

83-03

-0.0014

-2.13

Venture Capital Per Worker

93

0.00014

7.01

Adjusted R-squared

0.47

Adjusted R-squared

0.43

Included observations

25

Included observations

25

Method

OLS

Method

OLS

Employment growth model:

Significant explanatory variables
Specialization within high tech (as measured by gini
coefficient) contributed to growth of employment over the
last business cycle
This is in contrast to earlier findings (Gittell and Sohl,
forthcoming) that concentration within high technology
contributed to pronounced employment decline during the
economic downturn

Ten percent higher concentration within high tech activities

in the early 1990s added approximately five percent to
employment growth over the business cycle
Examples of this are tech poles with the highest
employment growth 90-2003 -- Austin and Boise.. had the
highest concentration of employment within high technology

Employment growth model

Tech poles with lower growth in state and local
tax burdens also had significantly higher growth
rates in employment

As the local and state tax burden increased 1

percent, the growth rate of employment
decreased by approximately 10 percent
Philadelphia and Los Angeles had the lowest
employment growth and were among the tech
poles with the highest increase in state and
local taxes

Employment growth
The third significant variable was long term
housing price increase, 1983 to 2002

As the growth rate of housing price doubled the

growth rate of employment decreased by
approximately .15 percent
Rapid housing price increases appeared to
dampen employment growth most in San Jose,
San Francisco and Boston. These were the top
three tech poles in housing price increase 1983
to 2003 and were among the slowest growth
tech poles in employment

Per capita income model

The per capital income growth model
identified three explanatory factors
local and state tax burden level (2003)
general (super-sector) industry
specialization (1990)
venture capital flow at the beginning of the
economic boom (high growth) period or
1993

Per capital income (pci)

Local and state tax burden level was significant
Level was more significant than rate of increase
(which was significant variable in employment model)

The pci model suggests that for each 1 percent

increase in tax burden, there was approximately a 3.5
percent decline in growth rate of personal income per
capital in the tech poles 1990 to 2001
Raleigh and New Haven are examples of tech poles
with high per capita income growth and relatively low
state and local tax burden level

Per capital income..

Super-sector employment specialization. (This was not a
significant factor in the employment growth model but within
high technology industries concentration was)
This finding is in contrast to earlier findings (Gittell and Sohl,
forthcoming) that concentration of employment within supersectors contributed to pronounced employment decline during
the economic downturn

With every 1 percent increase in super-sector specialization (as

measured by super-sector ginis) in 1990 personal income per
capital increased approximately 1 percent
Silicon Valley and San Francisco both had high super-sector
concentration of employment (the 4th and 2nd highest) and had
the highest growth in per capital income among tech poles

Per Capital Income

Venture capital $s per worker, 1993
This variable had no significant effect on employment
growth over the full business cycle and had a negative
effect on employment growth during the economic
downturn (Gittell and Sohl, forthcoming) as too much
VC$ was chasing too few good start-up ventures

An increase of $1,000 in 1993 venture capital per worker

increased personal income per capital by approximately .14
percent over the full business cycle in the tech poles
Boston, San Jose and San Francisco all ranked among the
highest tech poles venture capital per worker in 1993 and
had significant growth in per capital income over the
business cycle

Insignificant factors
There were several variables suggested by the
literature as affecting growth in technology
centers that did not have statistically significant
effect
Quality of life (as measured by Morgan and
Morgan 2003)
Diversity (as measured by Florida 2002 and
including foreign-born and gay percentages)
Housing prices was not significant in the per
capita income model (it was in the employment
model)

Main Finding
The Schumpterian (1934) process of creative
destruction worked with strong force in USA
technology centers in the 1990s and early
2000s
The core contributing factors to growth long
run --such as concentration of employment in
particular high technology employment
sectors and high venture capital flow -- also
had significant but negative effect during
downturns

Leading examples of the creative destruction process:

Silicon Valley and Boston compared to USA 1970 to 2003.
Last cycle peak (2000) to trough (2001) was shortest
Percent Change in Total Em ploym ent: 1970 to 2003 (33 years)

15.0%

10.0%

5.0%

-5.0%

-10.0%

-15.0%
San Jose, CA

Boston

US

33

31

29

27

25

23

21

19

17

15

13

11

0.0%

Factors influencing the creative destruction

process and contributing to its shortening
Globalization of the economy and increased
competition among cities
More rapid product life cycles.. fostered by
institutional process that facilitate accelerated
innovation and commercialization (e.g., University
R&D, venture capital)
Accelerated process life cycles.. In the late
1990s..fast, broad and deep application of IT, Internet
and now wireless technologies. USA tech centers
were among first adopters of IT in broad range of
industries but residents in other areas caught up
fast This was affected by rising education and tech
know-how across the population
Sticky factor prices (e.g., housing and taxes) in
major tech centers

Future Inquiry
More detailed case analysis of USA technology centers

This could involve inquiry over the last quarter century

and even further back in time. More in-depth historical
analysis should consider in detail changes in the
character and length of business cycles in tech centers
Analysis of how global competition, technology change,
product and process life cycles and local factor prices effect
local development cycles
Consideration of whether the dynamics in technology
centers outside the USA were similar to what was observed
in USA tech poles in the 1990s and early 2000s

Future Inquiry
The character and pace of economic change
in technology centers is an important area of
inquiry
Many useful insights can be gained from ongoing detailed empirical study of technology
centers in the USA and other nations
A challenge will be for the inquiry, and
insights provided thereof, to keep pace with
changes in the technology centers