Issue Position: A Plan for Turning Ideas into Meaningful Employment (TIME)
Issue Position
Issue Position: A Plan for Turning Ideas into Meaningful Employment (TIME)
Thirty years ago, if someone had said that over the next three decades, DuPont, Chrysler, and GM would lay off more than half their employees, but that Delaware would emerge in relatively good economic health, we'd have thought it was crazy. But we survived, and even gained strength. We did it in part by adding to our "3 Cs" (chemicals, cars, and chickens) a fourth "C": credit cards. This just goes to show that the only law of life is change.
Today, our economy is changing again: Even in the financial services industry,
which represented the progress of the last 20 years, employment has dropped during this decade.1 Our population is growing and aging as so many retirees are moving here in search of low property taxes and the Delaware quality of life; the ratio of workers to retirees is declining, which means we will need to dramatically increase workforce productivity to maintain the lifestyle that all these Delawareans, new and old, have come to expect. Meanwhile, companies can and do shift jobs all over the world. We clearly can't rely just on our traditional industries. We need to create a Delaware that helps our existing companies grow and that develops new jobs, in new fields.
One thing I know how to do is build a business. And I know what it takes to help entrepreneurs be successfulmore venture capital, more networking opportunities, and stronger ties between our colleges and universities and industry. But, most importantly, in a time of change and global competition, more-of-the-same won't cut it. Timid steps forward, or spending a little more money here and there on approaches that have worked before, won't work in the new world economy. Doing more of what we've been doing isn't enough - it's time for change, and bold leadership.
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What does that change look like?
It's a complex question involving macroeconomic trends, corporate policies,
unions, investors, demographics of the workforce, politics, and countless other factors. But I offer this proposal: Even as we continue to value and work with our traditional businesses, we also must make our state more attractive to a class of businesspeople who will help usher in a new economic era in Delawareentrepreneurs.
Expert analysis and my own conversations with business owners confirm that
Delaware is not considered supportive to entrepreneurship. In fact, Delaware ranks in the bottom 10 percent of states in the Kauffman Index of Entrepreneurial Activity.2 This means that fewer new businesses are started per 100,000 residents here than in almost any other state. The Council on Competitiveness also found Delaware lacking as a place attractive to entrepreneurs. We need to do better.
"When you meet businesspeople in China or in Europe or in Latin America, you find that their conceptual model is the American entrepreneur."
Rob Glazer, CEO of RealNetworks3
Clearly, we value the immense contributions of our large employers. They've
been mainstays of employment, civic involvement, and charitable giving for decades. They'll continue to be major assets and, if we work with them effectively, potential sources of additional growth. However some of our major employers have announced that they are unlikely to add significant jobs here, so we'd be courting danger to rely on them primarily as major generators of big job growth in the future.
Instead, let's talk about what we should be doing to make Delaware more
attractive than ever for the kinds of employers that will promote job growth and be good corporate citizens.
Creating the Right Climate
The most effective role government can play in economic development is to
create an environment in which economic activity can be vibrant. Understand that's a different role from picking certain specific companies or industries to bet on. A very different role.
Here's what I mean. As I travel around the state, I'm often asked what I believe will be the "next big thing" the industry or piece of legislation that will provide the same sort of jumpstart the Financial Center Development Act did more than two decades ago. I think that's the wrong question to ask. Delaware shouldn't be in the business of picking new industries to bet on, although we should be working closely with the ones already here, to help make them stronger.
Now why is that? What's wrong with picking industries?
Let me put it this way. Earlier in my career, I was fortunate enough to work at some great companies, including Nextel and Comcast. As an executive responsible for mergers, acquisitions, corporate strategy, and finance, I worked with some very talented financial professionals, including top-notch venture capitalists people who make bets on specific industries and companies by providing startup funds to young businesses.
Even the best venture capitalists those who make millions of dollars a year -
make plenty of bad investments. Some people say that of every 10 investments made bygood venture capitalists, seven will fail, two will do reasonably well, and one will be a grand slam. Those aren't very good odds, especially if deciding who to fund is in the hands of government officials or others who are not highly trained and experienced. There's another reason too: The dangers of the "follow the herd" mentality. Take biotech, for example. The biotechnology industry has huge potential. We have some terrific companies in Delaware that are likely to be very successful. Plus, the state has done some good work to enhance their prospects of success like creating the Delaware Biotech Institute and attracting groups like the Fraunhofer Center for Molecular Biotechnology. We should continue to nurture these types of enterprises.
But we need to be careful about placing too many eggs in the biotechnology
basket, unless we find a unique niche where Delaware has a great chance of being more successful than other states. That's because other states also have biotech strategies and are pouring hundreds of millions of dollars into them. Some will be successful and some won't. The key for Delaware is to figure out our strengths, play aggressively to them, and avoid being a second-rate player in areas where others have a strong advantage. "The key for Delaware is to figure out our strengths, play aggressively to them, and avoid being a second-rate player in areas where others have a strong advantage."
If we're not picking specific industries, what specifically should we do? Let's
start by identifying the kinds of companies we want to retain, grow, and attract. Let's face it; this is not the corporate world of The Organization Man, the book that described the loyalty displayed in the mid 20th century by both employers and employees. Those days are long gone. Most employees these days can expect to have several employers during their careers. Employee turnover is high. Employer-worker loyalty is no longer a foregone conclusion.
The best employers today are those who pay decent wages, treat their employees with respect, and make every effort to provide them with chances to improve their skills, so they'll be able to take advantage of new opportunities as they come along. Those are the companies we seek. We also want good corporate citizens who'll provide financial and time resources to the community and who are respectful of our environment.
Companies who support "green" technologies will be increasingly valuable members of our corporate community. So how do we attract, grow, and retain these types of terrific employers? To answer that question, we must put ourselves in their shoes. What do they care about most? Honestly, it's not that complicated. An educated workforce is at the top of the list. The best companies choose locations with great education systems and skilled workers - even over those with low taxes4 (not that the two are mutually exclusive and in fact, we must make sure that they are not). It is clear that in addition to investing in businesses, we must invest in them human capital needed to support the industries we want to grow.
Within the next 10 to 15 years, nearly two-thirds of all jobs will require some
post-secondary education. Delaware will need to increase the number of four year degree and associates degree holders and certificate holders simply to keep pace with changing knowledge and skill demands required by employers. In order to attract companies and grow our economy we must focus workforce development on industries that represent our future, increase education and training opportunities, and modernize our approach to develop a skilled workforce. Delaware must work with businesses to design curricula that reflect the basic
skills and requirements of the kinds of knowledge based businesses we want to attract.
Our neighboring state, Maryland, took on the challenge over a decade ago to align the state's economy and workforce development efforts. Maryland identified 10 broad career clusters linked to the state's "key economic sectors." They then incorporated substantive contributions from industry advisors to create the "knowledge and skills" components of these career clusters States like Kentucky and Virginia have instituted programs to gauge the skill levels of their workforce. Career readiness certificates confirm to employers that an individual posses basic skills in reading, math and finding information - skills which all businesses need. And here in Delaware, Delaware Tech has worked closely with companies and trade groups to align its curriculum with the needs of employers. State government, working in partnership with industries and businesses can offer integrated workforce training programs to retool workers and equip our children with the skills to compete in the future.
We also must continue to focus on our quality of life so we can be, as Bill Gates describes it, "a place where talent really enjoys coming there, and working there, and raising their kids in that location."5 Delaware has done a lot in this regard from the redevelopment of the Wilmington Riverfront, to the preservation of our Coastal Zone and farmland from overdevelopment, to the Livable Delaware initiative, to strengthening arts organizations and other cultural treasures. Of course, we need to do more. That includes making our health care system available to more Delawareans and accelerating the improvement of our transportation and broadband communications networks.
Playing to Our Strengths
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We must also play to our strengths. Delaware has long been known as a
"corporate capital" with streamlined business practices and low taxesthe 3rd lowest in the nation, according to the Tax Foundation.6 Delaware has a concentration of corporations in the automobile, chemistry, financial services and insurance, and corporate legal services markets. Our strong legal services industry is a prime example of how industries with high paying jobs can grow given the right climate. Protecting our franchise as the best legal environment in the country and, in fact, building on it, is a crucial economic development goal.
Delaware's intellectual and economic firepower is recognized worldwide. The
Wilmington region produces patents at more than three times the national average.7 Delaware companies are leaders in some very exciting areas. In addition, Delawareans are more productive than workers across the country. While our wages are close to the national average, our cost of living and cost of doing business are below the national average.8 Our proximity to major markets is a big plus for our region as well.
Entrepreneurship and "Growing Our Own"
Just as government is not well-suited to picking future blockbuster industries,
government also is not the ideal provider of entrepreneurship support services, which we'll examine in a moment.
Instead, state officials must make a vigorous effort to promote and value a culture of entrepreneurship in the private sector. As a report of the National Governors Association suggests, "This means that we must adopt policy changes aimed at meeting the most compelling needs of entrepreneurs."9
A comprehensive study done for the National Governor's Association (NGA)
identified five steps governments can take to become an "entrepreneur friendly" state:10
Integrate entrepreneurship into economic development efforts.
Use the education system to nurture future entrepreneurs.
Facilitate the incubation of entrepreneurial companies.
Facilitate the investment in diverse sources of risk capital for entrepreneurs and growth companies.
"Get out of the way" through regulatory reform.
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The state of Delaware already is pursuing some of these excellent
recommendations. With leadership from the private sector and state encouragement, we could create an explosion of entrepreneurial growth that future generations will look back on with gratitude. Such a model may be emerging in Delaware.
Since 2004, I've been part of an exciting effort to create more entrepreneurial
activity in Delaware: the Delaware Entrepreneurial Action Group. Chaired by my friend Ernie Dianastasis, this group of highly successful entrepreneurs and venture capitalists recently launched a nonprofit entity called First State Innovation. Its mission is to "connect entrepreneurs with traditional seed capital, access to alternative funding, skilled human capital, commercial capitalization assistance, entrepreneurial resources, and intellectual capital."11
In 2003, the Council on Competitiveness conducted an assessment of the
competitiveness of the Wilmington region. Besides identifying the need to make Delaware more attractive to entrepreneurs that I just discussed, the assessment also suggested that we improve linkages among academic institutions and the corporate sector in Delaware.
Improving Our Economy Through Our Academic Institutions
To create the strong academic-corporate links that can produce future
entrepreneurs, states such as Maryland and Iowa have developed entrepreneurship certificate programs in fields as diverse as engineering and liberal arts.12 The program at the University of Maryland is a great example. More than half the spots in the program are reserved for students from outside the business school. Students take four courses in entrepreneurship and then develop in-depth business plans in the final semester.
Entrepreneurship education initiatives at the University of Delaware have
achieved recognition. In both 2003 and 2004, the university's Alfred Lerner College of Business and Economics was named one of the nation's top 100 entrepreneurial colleges and universities by Entrepreneur magazine. The college offers a variety of entrepreneurship courses and programs, including a program for teachers in the Center for Economic Education and Entrepreneurship, a new concentration in venture creation for MBA students, undergraduate courses in small business management, and the opportunity for students to work on real-life projects with the Delaware Small Business Development Center.13
We need to applaud these important and timely efforts. We also need to broaden and increase them.
"Another important way to use our higher education resources is to support faculty entrepreneurship. . . . Government should be prepared to leverage commercially viable research and ensure institutional support for faculty who are interested in entrepreneurship" Another important way to use our higher education resources is to support faculty entrepreneurship. While government should not try to turn professors into entrepreneurs, it should be prepared to leverage commercially viable research and ensure institutional support for those faculty who are interested in entrepreneurship.14 To do this, the National Governor's Association "Guide to Strengthening State Entrepreneurship Policy"
recommends questions we need to be asking:
"Are faculty members encouraged by the administration to pursue entrepreneurial ventures and/or to collaborate with private industry and entrepreneurial companies?
Do university intellectual property policies discourage entrepreneurship or the commercialization of research results?
What sorts of resources, such as sabbatical leaves, do our institutions provide to assist faculty entrepreneurs?
Do faculty union contracts have supportive provisions such as adequate time for outside consulting?
Would faculty entrepreneurs be encouraged by their peers if they pursued an entrepreneurial business venture?
Can universities become equity partners in such ventures?"15
Such collaboration is not meant to change the fundamental goal of our educational institutions that is, teaching and scholarship but offers many win/win possibilities for education and commercialization.
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Dave Roselle, the highly regarded former president of the University of Delaware, has outlined a series of ideas to leverage resources and encourage faculty entrepreneurship. Professors often aim to attract grants from corporations and organizations like the National Institutes of Health (NIH) and the National Science Foundation (NSF) in order to finance their own research projects. Roselle has suggested that state government offer matching funds for such grants. So a $2 million NSF grant might include $400,000 from the state. Roselle believes that funders would find such matches highly attractive, bringing more outside funds into Delaware institutions.
Finally, we should explore the idea of a university venture fund as a means of
spurring economic development. Michigan's successful university venture fund is the most active such program in the nation. The University of Michigan's Wolverine Venture Fund (WVF) has been making strategic investments in early-stage, technology-oriented companies since it began in 1997. "We should explore the idea of a university venture fund as a means of spurring economic development."
The WVF is run as a collaborative effort among the private sector, the faculty,
and the students at the University of Michigan. When an entrepreneur submits a funding request, the largely student-run WVF creates an investment proposal the students eventually will defend to a senior advisory board of venture-capital professionals. If the board approves, the WVF invests in the company. The investment typically totals between $50,000 and $200,000 for seed and first-round expenditures in the project. Among the most noteworthy aspects of the WVF is its innovative funding method. "Seeded" with a one-time endowment from the university, the fund's proceeds funnel directly back into its own reserves.16
Increasing the Availability of Risk Capital Google. Amazon. Many of America's most successful companies have
developed thanks to the financial and intellectual resources provided by venture capitalists. In Delaware, the old Juniper Bank (now part of Barclays) and the growing 10 Finestationary.com are two examples of venture-backed organizations. And there are a few small local venture capitalists, including the Delaware Innovation Fund (DIF) and Inflection Point ventures. But generally, Delaware lacks venture capital resources.
Without local venture capitalists pounding the pavements, looking for deals and connecting entrepreneurs, we're not making the most of our potential for economic development and job creation.
Why does all this really matter? According to the National Governors'
Association's Center for Best Practices, risk capital serves five basic functions:17
It is used for research and development (R&D). In certain fields, such as biotech, R&D is critical.
It is used as "innovation capital," which funds applied research to develop new products.
It is used as "seed capital," which underwrites the entrepreneurs and other new and young companies who do not have fully established commercial operations. These firms may not be eligible to obtain traditional funding, and the seed funds help them continue research and product development and to launch new products.
It is used as "venture capital," an institutional means of financing high-growth, riskoriented, innovative businesses that can't get funding through traditional bank routes.
It is used as "mezzanine capital," which finances profitable, established companies, generally in the form of subordinated debt.
I collaborated with David J. Freschman, President and CEO of the Delaware
Innovation Fund (DIF), on a 2001 study and report to the Strategic Economic Council of the State of Delaware on the impact of venture capital in Delaware. David knows first hand about the role of venture capital in business. The DIF is a $10 million private nonprofit venture capital firm established in 1995. It provides investment funding and other help to encourage the growth of startup and early-stage high-tech companies in Delaware and throughout the mid-Atlantic region. The other help comes in the form of technical assistance through business counseling, entrepreneurial seminars, and the DIF's wide network of professional resources.
In our report, we identified the role other state governments have played in the development of venture capital:
"Venture capital has become such an important component in the creation
of economic development that many states see this financing tool as a
critical component to their economic development initiative. In fact, 31
states have allocated state funds to venture capital; 17 provide tax
incentives to encourage venture capital investing; 19 direct state pension
funds to venture capital and 10 use other state fiduciary funds."18
According to the Progressive Policy Institute, Massachusetts and California led the nation in 2002 for venture capital as a percentage of gross state product (GSP). Delaware ranked 26th, with just 0.3 percent of its GSP devoted to venture capital. (The national average in 2002 was 1.1 percent.)19 As David and I pointed out in our report, there simply isn't enough resident venture capital available in Delaware to make meaningful investments.
A Capital Idea for Delaware
Delaware must do more than put its toe in the water when it comes to venture capital. It's unlikely we'll be able to attract the quality of investors and level of interest that's necessary to promote meaningful economic activity with an investment of less than $50 million.
Of course, that doesn't necessarily mean the state needs to provide the money itself. In fact, state general operating funds are a poor choice as a source of these funds. There are other ways that states can generate venture capital, as I'll outline below. And in no case should the investing decisions be made by state employees, elected officials, or anybody other than experienced investors with a strong track record of investing. Creating the right venture capital environment is also about more than the money..
That's why a strong support mechanism like that proposed by First State Innovations is important, because it can provide some of the services and networking opportunities that entrepreneurs need to be successful. Some states offer handsome incentives to angel investors whose monies are most often used to provide seed capital for newly formed businesses. Typically, tax credits are 20 to 30 percent of the amount invested. Virginia, Maine, Vermont, and West Virginia offer credits of up to 50 percent, subject to some limitations. Hawaii offers a tax credit of up to 100 percent over five years in qualifying high-technology businesses.20
12 Iowa adopted an "angel investor" law as part of a comprehensive program to
establish infrastructure for venture capital development. The law allows a tax credit of 20 percent of the amount of a cash investment made to purchase equity in qualifying businesses and community-based seed capital funds. Tax credits can be used against personal and corporate income taxes, financial institutions' franchise taxes, insurance premium taxes, or the credit union moneys and credits tax. An individual investor can claim up to $250,000 in a single year (five individual investments in five separate qualifying businesses). The maximum amount of tax credits authorized under the legislation is $10 million.21 Utah, Michigan, Ohio and South Carolina have all availed themselves of a new
form of financing venture capital activities. They have borrowed funds from major financial institutions and have used the funds to invest in venture capital firms which commit to search for local venture capital deals. The states commit to issue tax credits if the loan is not repaid. Closer to home, Pennsylvania invested $2 million in Ben Franklin Technology Partners of Southeastern Pennsylvania. The grant was designed to insure angel investors for up to 25 percent of their investments, to a maximum of $200,000. Investors pay an annual fee of 1.5 percent of the total invested for this coverage. According to an independent analysis, this investment has created tens of thousand of jobs, more than $400 million in state tax revenues, and a stunning 23:1 return on the state's money.
Oklahoma, Colorado, New Mexico and Massachusetts have made investments in a non-traditional venture firm which invests in successful small local businesses which have the potential for nationwide and global expansion but lack resources and expertise. The states make investments into a venture fund. The venture fund in turn raises matching capital and then finds small businesses in underserved areas in which to invest.
The venture fund forms a board of directors for the small business and provides experienced entrepreneurs that add value to the management and direction of the small company allowing it to grow. States investments yield a double bottom-line - they grow companies and jobs in their state and receive a return on their investment. Small businesses who receive capital have the option of buying out the venture shares in their business or shares are sold at a profit and returned to the state.
We should all take a lesson in financing from Muhammad Yunus, winner of the
Nobel Peace Prize Mr. Yunas won the prize in recognition of the practice of
microlending in Bangladesh. Yunas built a successful bank by providing affordable business loans to those who ordinarily would not have access to start-up capital through traditional lending institutions. Ironically, small businesses in this country usually list as their number one impediment the lack of access to capital. Traditional lenders look for businesses with an established track record and credit history. Many first time entrepreneurs find it almost impossible to borrow the money they need to start a business.
States can invest in and support micro-lenders. These lenders traditionally
provide loans to businesses with less than 5 employees who have been turned down by a traditional bank. The federal government has programs to make capital available to micro-lenders which can be matched by states to create a larger loan pool. For example, New Mexico has invested a million dollars in existing micro-lenders. While the state gets a return on their investment money, they also fuel the growth of small businesses in their state.
"We should look into how business capital programs that have benefited other states could benefit Delaware if we adopted something similar here."
We should not be reluctant to emulate other states' successes. We should look into how business capital programs that have benefited other states could benefit Delaware if we adopted something similar here.
Promoting Exports for Delaware Companies
If we're smart about it, we can turn some of today's global economic changes into real opportunity. Hundreds of millions of new middle-class families are emerging around the world. That means Delaware companies can grow by selling more of their goods and services overseas.
In February 2006, I invited Jim Lambright, president of the U.S. Export-Import
Bank, to Delaware to join me, along with Judy McKinney-Cherry of the Delaware Economic Development Office and officials from the World Trade Center Delaware, to kick off a new partnership between our state and the Ex-Im Bank. The bank, which has been operating for more than 70 years, is an independent U.S. government agency that helps finance the sale of U.S. exports, primarily to emerging markets throughout the world by providing loans, guarantees, and insurance.
Our partnership, which is aimed at helping Delaware companies expand their
exports, represents a commitment on the part of the Ex-Im Bank to promote a range of their products and services. So, for example, Delaware exporters can be confident that they'll be paid when shipping their goods to other countries. This new partnership represents an important advance in helping small businesses in Delaware become competitive in the global economy.
"Small businesses offer the greatest potential for export and job growth within the U.S. economy. Our partners ensure that these small firms have access to the same expertise and export opportunities as large companies and foreign competitors."
James H. Lambright, president,
Export-Import Bank of the United States, 200623
An important role of the Governor is to seek out and open up markets for trade. This effort has to be a partnership with the business community, which can help identify opportunities abroad and lead to the development of trade missions, bilateral trade agreements, and other business-specific relationships.
But Delaware should be doing much more to broaden its appeal internationally.
In addition, to plant other seeds of future economic opportunity, the state should build on our "sister state" relationships with cities and state-like subdivisions of other countries.
We should be developing grant programs for our universities and even community groups to create different forums for international activity and interaction, ranging from the recruitment of students from abroad to attend our colleges to sending Delaware performing arts groups abroad. Some of these talented students might decide to stay in Delaware and do great things. But even if they return to their home countries, they may start up their own companies and become entrepreneurs and be more favorably inclined to do business in Delaware. And we should market Delaware as a tourist destination for international visitors - a gorgeous place to visit and relax.
Promoting Economic Development in Rural Delaware
As I travel across the state, I hear a common refrain from parents, especially in Kent and Sussex Counties. They tell me: "I want my kids to be able to come home after college, get a great job and settle down. We know they love the quality of life here, but they'll only come back if they can work at something they love and get paid what they're worth."
This is a huge issue for Delaware. Certainly, Kent and Sussex counties are
booming and this boom will create plenty of job opportunities. But so far, most of those jobs have been relatively low-paying ones in the hospitality and tourism industries and in health care.
Delawareans want more. So what do we do?
Over the last few years, I've spoken extensively with friends who have focused significant time and attentionwith terrific resultson rural economic development.
One of them is Mark Warner, the former governor of Virginia and one of the founders of Nextel. We met back in 1989, when I joined the company as its 13th employee.
Governor Warner's Virginia Works initiative represented a series of targeted investments designed to create new jobs in rural Virginia. Its main features included:
aggressive recruitment of new employers to rural and small-city areas of the state;
investment in a network of rails-to-trails (turning unused railroad rights of way into hiking and bike rails) to promote tourism;
an initiative to promote the sale and marketing of handmade Virginia arts and crafts through Artisan Centers and cooperatives of artisans (a strategy that also has been aggressively followed in Kentucky.24);
a program well-received by employers to launch an advanced
manufacturing/packaging program at a community college;
export assistance for small manufacturers in distressed areas to stem the flow of manufacturing jobs overseas;
support for specialty agriculture through additional research at local academic institutions and the development and marketing of high-value specialty agricultural production;
creation of a Virginia Community Development Bank to provide capital to new and expanding businesses in rural Virginia;
support for rural high-speed broadband connecting schools, hospitals, businesses, and industrial parks and allowing commercial carriers to connect homes at lower cost. Another example is Iowa, a highly rural state. Iowa has done a fine job of transforming its economy by finding the intersection of agriculture, university research and industry. Thanks to major investments in venture capital, energy regulation reform, export assistance, and other initiatives, it's on a real roll in terms of increases in jobs, exports, and income.25
The Iowa story is an interesting one for Delaware, given the importance of
agriculture to our state. A significant number of Delawareans work in agriculture, food, and related industries. Production agriculture alone contributes hundreds of millions of dollars to the state's economy. Beyond that, agricultural industries are top multipliers in our economy. This means that every time agriculture grows, it generates an even bigger increase in Delaware's overall economy.26
Preserving farmland not only contributes to our quality of life, it helps attract
desirable new agribusiness to our state. A good example is Picsweet Frozen Foods, which came to Sussex County to process vegetables and thereby generated millions of dollars for local farmers. By preserving our farmland, we ensure that such industries will continue to prosper and generate jobs and revenue for Delaware.27
Conversely, the loss of farmland leads to other economic losses such as the loss of processing plants, machinery sales, transportation, and more.28Farmland also provides an equitable tax base for our citizens. For every $1 paid in taxes, farms require just 50 cents in public services. For that same $1 in taxes, residential land demands $1.20 in services such as police, schools, and roads.
Given our strength in biotech, it seems only logical that our rich agricultural
heritage and our regional expertise should dovetail. An example of the kind of business synergy I'm thinking of is Pioneer Hi-Bred. The company was founded in Iowa in 1926 to meet a need that arose in the cornfields of that statethe challenge of producing disease-resistant corn in order to increase the crop's annual yield. Determined to create a hybrid seed, founder Henry Wallace and his associates planted small plots again and again, tested and retested their results, and convinced thousands of farmers to try something new. The company was so successful that it caught the eye of DuPont, which acquired it in 1999.
What made Pioneer so successful? For one thing, it has always had a philosophy of responding to change in markets and taking what it calls "the long look."30 One Pioneer leader attributes its success to its proximity to great research resources in Iowa, along with the market for corn products and the labs for testing. In his view, Delaware has many of the components necessary to achieve similar agricultural/biotech success. There are several ways we can capitalize on our strong heritage in agriculture to promote economic growth and development. Pioneer provides one. Iowa's investment in bio-based fuels offers another. Although ethanol production may not be a wise investment here - while it would increase the demand and price of home-grown corn, it also likely would divert corn from our poultry industry and drive up industry costs - there are likely ample opportunities in other areas. And in Delaware, the work of several local companies and institutions represent innovative approaches to applying plant science technology to research and development in lieu of developing product in much more expensive laboratories.
Also, we could diversify some of our agricultural production towards specialty
niche markets that are growing increasingly popular among consumers. For example, organic produce no longer is confined to weekend farmer's markets and expensive health food stores. Nowadays, most supermarket chains include organic produce and products as part of their regular offerings. And if anything, as New Castle County's new initiative suggests, we should be linking farmers providing the healthiest, freshest produce with our school districts, which not only gives farmers a large, on-going market for their produce but obviously benefits the children who consume them.
If it can be grown or raised, Delaware farmers can do it with the best in the
country. The state simply has to listen to the agricultural community, support their efforts to take advantage of these opportunities as they emerge and help develop and market the Delaware agricultural brand.
Finally, with respect to our rural economic development strategy, we can learn from what other states have done to attract high-tech businesses to remote areas with a great quality of life. Thirty years ago, when the nation's focus was on growing our industrial base, rural economic development policy was geared toward creating infrastructure that would provide utilities, water and roads to attract large facilities. In the 21st Century the infrastructure most important for a rural area to be competitive is broadband capacity.
Making our Economic Development System Work for Delaware
I firmly believe, not just as a former businessman, but as someone who oversees the state treasury, that the state should not be in the business of betting on the next great industry. Instead, the state's economic development strategies most certainly should focus on creating the type of business climate that good employers want. In my experience and in listening to what business leaders tell me they are seeking, a healthy business climate includes:
Creating an educated, skilled workforce. So the state should be investing in order to intensify our efforts to make our schools world-class as well as in programs that help current workers receive training in the skills and knowledge that employers desire most.
Enhancing our superb quality of life to further attract educated, skilled employees and the businesses that seek them. The state should invest in programs and policies that protect our natural resources, strengthen our local communities, develop arts and culture, highlight our lifestyle, and provide ample opportunities for professional, social, and personal enrichment and enjoyment.
Playing to Delaware's many strengths, not only as a favorable place to
incorporate and do business, but building on the wide varieties of industries,
facilities, and areas of expertise that are found here, from financial services to
biotech to agriculture to manufacturing.
In addition, there are a few other things the state should do to improve its business climate. First, the state should re-examine its business tax incentives to be sure that they are doing what they are intended to do - attract, support, and retain the kinds of businesses and industries that will enable the state's economy to grow and prosper. I'm less interested in tax incentives that just give away the store in order to attract any business to Delaware. In my view, that simply puts Delaware in a race to the bottom with other states. If we have done everything possible to develop an educated and skilled workforce, enhance our quality of life, and build upon our strengths, businesses will come to Delaware, create jobs, and stay here.
But there are certain business activities we should encourage, and tax incentive programs should be geared to do just that. Obviously, we want businesses to create jobs. But I don't think we should reward businesses for creating jobs they would have created anyway. Instead, our job creation incentives need to focus on creating jobs with above average wages in any given industry sector, jobs with employee benefits, and jobs in industries that will grow our future economy. Similarly, we should provide incentives that encourage business investment in research and development, in part because they lead to the creation of higher wage, higher skilled jobs, but also in part because research and development usually is the precursor to business growth.
Second, where the state does step in and provide incentives, there should be mechanisms in place to ensure that the promised outcomes occur, whether it is the creation of good jobs, investments in research and development, redevelopment of brownfields, or whatever the focus of the incentive is. And in those instances where the results didn't pan out, there should be clawbacks and other mechanisms that can be used to hold corporations accountable and require them to return the state's investment.
Third, we need to be sure that the state's economic development agencies are best organized to identify economic opportunities and challenges and make it easier to assist Delaware businesses. Delaware economic development officials should not only have access to real-time databases of available land and facilities for business attraction or expansion, information regarding all available financing and incentive programs, and workforce development programs but should also be thoroughly up to date with respect to the competitive offerings of other states. And the state should establish early warning systems to ensure that we can identify businesses that might be heading for Financial trouble or may consider leaving the state long before those things occur.
Finally, the state needs to be aggressive about making investments in the kinds of infrastructure that may help attract and retain businesses - from broadband and telecommunications to water and energy to efficient transportation arteries to help move goods and services to market. With each of these, the state needs to work closely with the county and municipal governments throughout Delaware to prioritize needs and funding.
Even as workers around the globe aspire to our jobs, even as governments in other states and countries try to convince our companies to relocate, even as our own employers struggle with managing costs in a hyper-competitive business environment, Delaware can thrive. We've got what it takes a great workforce, improving schools, a community-minded spirit, and a terrific history of public-private partnerships. Those all represent a great foundation on which to build.
Now's not the time to relax and take our eyes off the ball. In fact, now's the time to recommit ourselves to investing in our future in innovative education and economic development for our own sake and for the generations of Delawareans who will follow.
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