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Executive Summary:
This thought paper expresses some new ideas on the Palm Beach County Six Pillars Economic Strategy. The goal of this paper is to encourage more discussion among business and financial leaders about how existing small technology firms can be the catalyst for implementing the Palm Beach County Six Pillar Strategy. The full paper is available at The Private Capital Market Newsletter.
Introduction:
The State of Florida, in cooperation with the Florida Chamber Foundation, has created an economic strategy featuring investment and innovation in six critical areas of the economy.
Several counties and regions have taken the state strategy and boiled it down to fit their local economies. Among the first counties to act were the County Commissioners of Broward and Palm Beach, both of whom adopted their local versions of the Six Pillar strategy.
This thought piece takes elements of the two county strategies and boils them down even more, primarily from the perspective of what capital and labor resources small companies in three promising technology clusters need in order to grow.
The main philosophical idea behind this paper is that existing small technology firms are the agents of change in making the Six Pillar strategy a success. In other words, part of the public purpose and mission of the Six Pillars strategy can be achieved if small companies are encouraged to engage in technological innovation, and can obtain the required capital and labor to grow.
The three existing technology clusters selected for attention in this paper are:
1. Life sciences and biotech, especially as it may relate to research and manufacturing production.
2. Computer and information technology, especially in the areas of medical instrument innovation and medical device manufacturing.
3. Avionics and aerospace technology, especially in the area of aviation electronic device manufacturing.
Something Borrowed and Something New:
Two geographic regions, Orlando and Ocala, have embarked on ambitious economic strategies that precede and complement the work on the State Six Pillars strategy, and those two regions have ideas that can be borrowed to benefit the Palm Beach Six Pillars strategy.
The Orlando High Tech Corridor strategy features technological innovation along a transportation route that stretches from Orlando to Tampa. The high tech strategy primarily focuses on investment and innovation in information technology firms.
The Ocala strategy takes an idea called “economic gardening” from Littleton, Colorado, and applies it to their own regional economy. The emphasis of economic gardening is to plant seeds of innovation in the local economy, and then have the policy environment of both government and the private sector focus resources on helping the seeds grow.
This paper agrees with the geographical focus of the Orlando strategy, but slightly modifies that strategy to fit the Palm Beach county region. The county already has 3 established technology clusters, and one part of the county is in the process of implementing the “North Palm Beach Life Sciences Corridor” in the northern part of the county.
The idea in this paper is that the same type of geographical emphasis of the Jupiter corridor applies to the other two existing technology clusters in the county. In other words the same logic that drives the Orlando and Jupiter corridor strategy is that certain types of small high tech firms like to be located close to each other in districts and technology parks.
This strategy advocates that two new geographic areas be designated as the Palm Beach Medical Device Corridor and the Palm Beach Avionics Engineering Corridor. The paper advocates that a similar set of land use and zoning policies be implemented for the two new corridors as is currently contemplated for the Jupiter corridor.
This paper also agrees with the “local economic gardening” logic of Central Florida. The main points of commonality between the two ideas is that the Six Pillars strategy will be a success with a policy priority on growing local small companies into much bigger companies.
The main difference between the Ocala plan and the thoughts in this paper for Palm Beach concerns the difference between new venture creation as a public policy priority versus an emphasis on growing the existing base of local companies into much bigger, more extensive technology clusters.
Part of the difference in the two ideas is that this paper advocates policy attention on the entire intermediate supply chains that service and support the 3 existing small business clusters. By directing attention to the internal supply chains, local dollars will continue to flow inside the Palm Beach economy, as firms within the 3 clusters buy and sell intermediate goods to each other in the clusters.
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The common term that economists use to describe this idea is strengthening the local income and employment multipliers within the regional economy. One great benefit of this new policy emphasis is that the new economic structure in Palm Beach County would serve as a global industrial recruitment magnet to very large companies that wanted to locate facilities close to the Palm Beach cluster, tending to diffuse economic growth to both Broward and Martin Counties.
The existing industrial recruitment targeting and tax incentive strategy of Palm Beach County could be slightly shifted to focus on large companies who agreed to buy intermediate goods from the small firms in the 3 technology value chains.
The Public and Private Resources Needed to Implement the New Ideas Contained in This Paper
One of the great benefits of relying on existing small, private companies to perform the public purpose of the Six Pillar strategy is that it does not cost a lot of tax dollars for taxpayers.
Most of the organizational and management work for implementing the ideas can be done by re-arranging certain types of social business networks to promote technological innovation and private capital market investments in local companies.
A brief outline of each of the five ideas contained in this paper appears below, with the cost estimates for implementing the idea in Palm Beach County. Each idea is further explained in the main body of the paper.
1. The Creation and Administration of the Feser Technological Econometric Model of the Palm Beach Regional Economy.
The most expensive new item required by the business and political leaders in Palm Beach is a new economic tool that suggests the best path of economic development in the 3 industrial clusters. The new economic model was first developed in 1997, by a regional economist named Dr. Ed Feser, now the Chairman of the Department of Regional Planning at the University of Illinois.
The Feser model uses very advanced statistical methods, mostly in the area of factor analysis, to uncover hidden or non-obvious economic connections between firms in regional industrial value chains. These hidden linkages can be explained as “gaps” in the local intermediate value chains in Palm Beach County.
Filling the gaps in the value chains becomes a economic policy goal of the Six Pillar Strategy aimed at strengthening the income and employment multipliers in the Palm Beach regional economy.
There are upfront costs to obtain the national economic data from the Bureau of Economic Analysis, upfront costs to modify the national economic data to make it a regional model of Palm Beach, and upfront costs to apply the statistical analysis to the regional technical coefficients.
After the initial costs have been absorbed, part of the on-going administration of the model can be handled by a organization like Florida Power and Light, that has an existing staff of economists who would understand how to update the model every year.
The estimated upfront costs to create a functional version of the Feser Technological Econometric model of Palm Beach is $100,000. The ongoing management and administrative costs to update the model each year, and to distribute the results of the analysis to business and financial leaders in Palm Beach, Broward and Martin Counties would be equivalent to one year of salary for a staff economist at Florida Power and Light.
2. The Creation of The Palm Beach Technology Forum.
One of the most interesting research findings about technological innovation is the role of knowledge diffusion among local social business networks. Tacit knowledge diffusion occurs when engineers or production workers in a metro region share knowledge about new ideas in a social or business networking event, or at professional trade shows.
Tacit knowledge is contrasted with “codified” knowledge that involves more formal research and development, as may occur in a university lab or private large corporation.
The great thing about local tacit knowledge diffusion is that it does not cost taxpayers anything. It occurs naturally whenever engineers and scientists get together in the right type of environment.
The main idea is to create a monthly forum that explicitly focuses on technological innovation in the 3 Palm Beach clusters. A sponsoring organization, such as the Economic Council of Palm Beach, in conjunction with Florida Power and Light, would host the event and set the agenda for each meeting.
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Unlike the knowledge diffusion associated with codified knowledge, which features costly and more closed networks, tacit knowledge is just like open source coding. It works well when the doors of the event are thrown open to as many different diverse sources of the technology community who have a business or financial interest in the 3 technology clusters.
One secret of technological innovation is that the greatest ideas for new products and new manufacturing processes occur as a result of technological knowledge crossover between two distinct industrial value chains. When the sponsoring and host organizations for the Palm Beach Technology Forum invite a broad spectrum of engineers, scientists, technology firm executives and the professional service provider community together each month, the resulting idea flow would be just like a petri dish of cells.
The event would tend to create on ongoing flow of new product innovation within the Palm Beach economy. This part of the Palm Beach Strategy is called “Deal Mapping.”
There would be very little upfront costs or ongoing costs to implement this new idea.
3. The Palm Beach Technology Professional Service Providers Meetup.
Another interesting research finding about local technology innovation is that it works much better when the market intermediaries who make deals happen see themselves as a community with common interests. Even though the lawyers, CPA’s, product design firms, commercial real estate, commercial construction, business insurance and engineering firms all know each other as a result of competition, they rarely see themselves as a organizational force to promote local technology innovation.
As new ideas from the Deal Mapping events become crystallized, the intermediate market professionals begin to meet to discuss how best the new ideas can be commercialized in Palm Beach County. This part of the Palm Beach Strategy is called “Deal Creation.”
There would be very little upfront costs or ongoing costs to implement this new idea.
4. The Creation of the Palm Beach Regional Capital Market Exchange.
Palm Beach County already has an existing, extensive community of capital market firms, but like the case of the professional service providers, the capital market firms generally do not see themselves as a unified force with a common purpose aimed at promoting local technology innovation.
Parts of the capital market firms have organized themselves into various angel investor groups or venture capital associations, with a common focus on finding and funding promising new ventures. These existing groups do not generally have an interest in funding established technology firms that have no clear path to a capital exit event.
The main gap in capital markets that needs to be filled in Palm Beach is not in venture capital funding of startup firms. The main gap is funding for existing small technology companies who need small amounts of capital in a wide variety of securities, to fund internal firm growth. Most of the funding required by the small technology firms is to get the next generation of product out the front door.
This idea is to form a member association of all the interested capital firms, including asset based lenders, commercial finance, investment bankers, angels, business loan firms and venture capitalists that focus on funding small technology firms in the 3 industrial clusters.
Just like the historical case of the beginnings of Wall Street, where traders met under a tree to buy and sell securities, this organization needs a central meeting location for allowing all members to meet and discuss funding deals.
As the deals are crystallized in the Deal Mapping events, and further refined by the professional business intermediaries in the Deal Creation meetups, this new group would focus on how local capital can fund local innovation for small firms in the 3 clusters.
This part of the Palm Beach Strategy is called Deal Funding, and it costs very little to get it started. After it was operational, member firms would support the group through membership dues and fees.
5. The Creation of the Palm Beach Life Sciences Construction Skilled Labor Market Exchange.
Much of the literature in the Florida Six Pillars document, and also in both Palm Beach and Broward County, addresses the skilled labor required for firms to produce goods and services inside the existing clusters. One benefit of the new Feser Model would be to suggest to local community colleges and universities the future set of skills required in the region, if certain types of capital investments are made.
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There is however, another type of skilled labor market that is not well addressed in most of the literature, and that labor market exists in the very front end of the process of local technology innovation. That skilled labor market gap occurs in the very small ventures and sole proprietorships that operate skilled craft firms for construction of hospitals, research facilities and manufacturing plants in the 3 clusters, and the very large construction prime contractor firms who build the facilities.
The gap can be overcome by the creation of a web-based labor market exchange, where the large contractors can open bids for the very small contractors to bid on.
The small firms would become members of the exchange, and in exchange for capital investments in skill training, would agree to continuously upgrade the skills of their workers in a select group of construction trades.
This part of the strategy has an upfront cost to develop an e-commerce membership web site that would cost about $30,000.
After the website is developed, this part of the strategy would have upfront costs to register with the SEC a closed end mutual fund that would target business loans and capital investments to the community of small construction craft firms that became members of the exchange.
The upfront SEC registration costs would be about $75,000, and the first year’s operational costs of the new mutual fund would be about $80,000.
After the first year of operations, the Fund would be self-sustaining.
About Thomas E. Vass: I have lived in Raleigh most of my adult life and I am both a fee-based investment manager and capital market advisor to small technology firms. Back in the 1980s, I was an economist with the State of North Carolina, and wrote the economic policy document that contained the idea for creating the North Carolina Council for Entrepreneurial Development.
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