Building regions’ economies must move beyond ‘incentive wars,’ leading researcher says

Earlier this month, the National Science Foundation announced it had awarded its newest Regional Innovation Engines to 12 teams across 20 states.

The initiative is designed to accelerate the development of various technologies, encourage workforce talent and grow regional economies by playing on those regions’ strengths and connecting them with others. And it’s one in a series of efforts by the federal government, including some under  the CHIPs and Science Act, to invest in regional economies and kick-start the industries of the future.

Thinking regionally and developing different industries has become a greater point of emphasis for state and local governments in recent years. And Maryann Feldman, a professor at Arizona State University’s School of Public Affairs, said last week it’s a much better way to grow economies, rather than engaging in “incentive wars” where states and localities try to outdo each other on tax breaks and other attempts to woo businesses, often large tech companies. And the jobs that are brought in are not usually good ones, she added.

“I'm going to go out on a limb and say I think that the best thing state and local government can do is to create conditions that allow people to realize their dreams and to realize productivity,” Feldman said during a panel discussion at an event in Washington, D.C. hosted by the Special Competitive Studies Project last week. “We have so much dedicated towards picking winners and losers, and if we look at incentives that states offer companies, most of them are going to Amazon to build warehouses. Those are really crappy jobs.”

Another obstacle to building strong regional economies is a lack of reliable financing, Feldman said. Since President Donald Trump took office, states and localities have struggled in the face of reduced, delayed or even cancelled federal grant funding, which many rely upon to help with investment in new industries and sectors of their economies. Instead of federal funding, venture capital has stepped in, but their incentives and measurements of success are different.

“Venture capitalists are not about building companies and building companies in place,” Feldman said. “They build companies with the idea that they are going to flip them. They're either going to sell them or they're going to merge them with someone else, so we don't have a lot of little companies starting that then seed a landscape where the local area will benefit from those investments.”

If regions want to change those narratives and find a more sustainable way forward for their economies, partnerships with academia are crucial. John Hardin, executive director for the North Carolina Board of Science, Technology and Innovation in the North Carolina Department of Commerce, applauded that state’s Research Triangle of Chapel Hill, Durham and Raleigh, which all have world-class research universities and are in close proximity with each other.

That then provides a “regional impetus” for businesses to locate there and for startups housed inside those cities’ universities to scale their ideas. That impetus could also extend to those with funding, whether it be local business organizations or government entities, to invest in those local companies, he added.

“I wouldn't say that all innovation is local, but I would say a lot of innovation is local, in that the jurisdiction of my office is the entire state of North Carolina, but North Carolina is many states within that single state,” Hardin said. “Most people identify themselves with their region as much or more than with the state overall.”

Being able to go from what Andrea Hill, executive director of Virginia Tech’s LAUNCH: Center for New Ventures, called “discovery to deployment” is so dependent on physical locations, whether that be academic institutions, financing, networking or having the “human factor” to work on solving issues. Hill noted that the center, which helps researchers turn discoveries into new technology ventures by the university’s campus in Blacksburg, is just one example of a “regional innovation ecosystem.”

“You need the infrastructure, the testing, the validation, you need all that to make that ecosystem for innovation really thrive, and that's extremely valuable,” Hill said. “Proximity does matter. Geography, I think, is still very important.”

Meanwhile, states and localities are all excited at the prospect of being leaders in developing artificial intelligence, finding new use cases and using AI research as a way to grow their economies. But Hardin said adoption may not look as flashy as some have suggested and instead will be focused on finding marginal gains across thousands of sectors that then add up to make AI “pervasive.” Not all of those gains will be home runs, he said, but, to use a baseball analogy, there will be “singles and doubles that’ll add up to a lot.”

Feldman said building a strong regional economy will create a “flywheel effect” and encourage more entrepreneurship. But she said some changes need to be made in how the country is thinking about AI, and also how the big tech companies are going about their business.

“I see so many of these promising local startups around the country get gobbled up by the big tech giants,” she said. “These companies are not growing by innovating and doing their own in-house research and development. They have de-risked their process by acquiring going concerns that have demonstrated value, and then bringing them into the company. That also makes it very hard for regions to compete against these tech monopolies.”