Characteristics of Successful Places: The changing dynamics of innovation and entrepreneurshipin economic development

Saint Louis Federal Reserve Bank/Heartland ForwardNorthwest Arkansas Regional Economic Briefing| Bentonville, AR| November 4, 2019

Presented by: Ross DeVolPresident and CEO, Heartland Forwardhttps://heartlandforward.org

Presentation overview

• Innovation and long-term growth

• Technology and science assets

• Entrepreneurs and young, knowledge-intensive firms

• Most Dynamic Metropolitans

• Conclusions: innovation and entrepreneurs

Long-term regional growth process

• Large regional differences in growth

• Few barriers to flow of economic activity

• Export-intensive activity is critical

• Manufacturing is an export sector

• Healthcare services or medical science can be an export

Factors affecting disparity in regional growth

• Existing industrial structure• Cost of doing business:

• Tax rates, capital costs, wage rates, space costs, energy costs, health care costs, etc.

• Labor force skills, access to markets and capital• Research, development, innovation and entrepreneurial capacities• Universities/colleges committed to tech transfer and creating human capital• Quality of place issues

Business increasingly driving innovation

0

100

200

300

400

500

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Total R&D

Business

Federal Government

Higher Education

U.S. Research and Development SpendingBillions of 2009 Dollars

Source: National Science Foundation

STSI Research and Development Inputs Index

Source: Milken Institute

14th

12th

Entrepreneurs vital to a dynamic economy

10

11

12

13

14

15

16

17

18

1993 1996 1999 2002 2005 2008 2011 2014 2017Source: Census Bureau

Percent of U.S. Employment at Young Firms

STSI Risk Capital and Entrepreneurial Infrastructure Index

Source: Milken Institute

14th

10th

Human capital investment key to growth

10

15

20

25

30

35

40

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

Percent of U.S. 25 and Older Population with a Bachelor's Degree or Higher

Source: Census Bureau

STSI Human Capital Investment Index

Source: Milken Institute

14th

4th

STEM workforce converts research to viable firms

0

1

2

3

4

5

0

2

4

6

8

1960 1970 1980 1990 2000 2015

Number of Jobs (Left Axis)

Share of all U.S. Jobs (Right Axis)

U.S. Science and Engineering JobsMillions Percent

Sources: National Science Foundation analysis of Census Bureau and Bureau of Labor Statistics

STSI Tech and Science Workforce Index

Source: Milken Institute

14th

7th

Advanced services’ success critical to job creation

4

5

6

7

8

2003 2005 2007 2009 2011 2013 2015 2017

Advanced Manufacturing

Advanced Services

U.S. Employment in Advanced Industries Millions of Workers

Sources: Brookings Institution analysis of Emsi data

Advanced industries account for majority of U.S innovation

8.717.2

60.0

80.0 81.289.0

0

20

40

60

80

100

Employment GDP Exports Engineers Patents Private SectorR&D

Advanced Industries' Share of 2015 U.S. Macro Measures Percent

Source: Brookings Institution analysis of Moody's Analytics, Export Nation 2013, and Bureau of Labor Statistics data

STSI Tech Concentration and Dynamism Index

Source: Milken Institute

14th

10th

State Technology and Science Index

Source: Milken Institute

14th

8th

Innovate to create high wage jobs

0

20000

40000

60000

80000ActualPredicted

Actual versus STSI-predicted Average Annual Pay US Dollars

Source: Walton Family Foundation analysis of Milken Institute and Bureau of Labor Statistics data

US Metropolitans by share of employment at young firms

Source: Heartland Forward analysis of Census Bureau data

14th

Model-predicted employment growth performs well

-20

-10

0

10

20

30

40

502010-2017 Percent Change in Employment

Actual Employment Growth

Model-Predicted Employment Growth

Metropolitan Areas, Ranked by Actual 2010-2017 Employment GrowthSource: Heartland Forward analysis of Burea of Labor Statistics and Census Bureau data

Source: Milken Institute, Ross DeVol

Regionalentrepreneurial ecosystem and life cycle

Most Dynamic Metropolitans Metrics

Measure Time Period SourceYoung Firm Employment Ratio 2016 Census BureauPer-Capita Personal Income 2016 Bureau of Economic AnalysisMedium-Term Job Growth 2013-2018 Bureau of Labor StatisticsShort-Term Job Growth 2017-2018 Bureau of Labor StatisticsShort-Term Job Momentum Dec. 2017-Dec. 2018 Bureau of Labor StatisticsMedium-Term Average Annual Pay Growth 2013-2017 Bureau of Labor StatisticsShort-Term Average Annual Pay Growth 2016-2017 Bureau of Labor StatisticsMedium-Term GDP Growth 2012-2017 Bureau of Economic AnalysisShort-Term GDP Growth 2016-2017 Bureau of Economic Analysis

Most Dynamic Metropolitans

Source: Heartland Forward

14th

NWA in Most Dynamic Metropolitans

Measure Ranking Z-ScoreYoung Firm Employment Ratio 191st -0.241Per-Capita Personal Income 9th 2.611Medium-Term Job Growth 13th 2.006Short-Term Job Growth 92nd 0.579Short-Term Job Momentum 108th 0.460Medium-Term Average Annual Pay Growth 103rd 0.443Short-Term Average Annual Pay Growth 18th 1.274Medium-Term GDP Growth 11th 1.970Short-Term GDP Growth 57th 0.766Overall Performance 17th 1.096

Conclusion: innovation and entrepreneurs summary

• Entrepreneurial capabilities are essential to maintaining an innovation ecosystem

• They combine existing technology with new discoveries into the marketplace

• Serial entrepreneurs critical advantage in most dynamic ecosystems

• Research universities are one of the strongest assets America can use to compete in the age of innovation.

• University IP creates both middle- and high-skill industry jobs through innovation and commercialization.

• Early stage risk capital is essential to the process: banks don’t accept IP as collateral for loans