How Economic Development Should Work

Sulzer Metco brings its coating technology expertise to CCAM.

If you want to get a sense of how government can usefully engage itself in promoting Virginia’s manufacturing sector, consider the Commonwealth Center for Advancing Manufacturing (CCAM) in Prince George County near Petersburg. The not-for-profit center has created a venue where corporations collaborate to test the latest high-tech manufacturing equipment — like a new plasma sprayer recently donated by Sulzer Merco, a Swiss company — on a commercial scale.

“This space is designed exactly the way you would see it if you went to any modern, advanced manufacturing factory,” Executive Director Dave Lohr told the Times-Dispatch. “When we test technology here, we are taking the scale-up risk out of it.”

The consortium got its start when Rolls Royce announced plans to build a $500 million aircraft-engine components plant in Prince George. Modeling the site on other R&D facilities it has backed in the United Kingdom, the British company donated 20 acres near its 1,000-acre plant. The 60,000-square-foot building is owned by the University of Virginia Foundation. Construction was financed with $2.5 million in funding from the Virginia Tobacco Indemnification and Community Revitalization Commission, $4 million from the federal Economic Development Administration and a portion of $5 million in state recovery bonds.

Private companies joining the consortium as Tier 1 members pledge $400,000 annually along with equipment and research support. Organizing members include Rolls Royce, Canon Virginia, Newport News Shipbuilding, Siemens, Chromalloy, Sandvik Coromant and Sulzer Metco. Additionally, the University of Virginia, Virginia Tech and Virginia State University participate by contributing the efforts of faculty and graduate students.

Bacon’s bottom line: Government funding was instrumental in getting CCAM off the ground. But there are tremendous differences between backing CCAM and, say, the government-as-sugar-daddy model that has squandered billions of dollars on Solyndra and other failed alternate-energy enterprises. First, in supporting CCAM, government is supporting research. It is not underwriting privately owned commercial enterprises. Second, government is supporting a not-for-profit enterprise that has painstakingly assembled buy-in from three universities and numerous private corporations, constituting proof that there is real-world demand for what it does. The government is not picking winners and losers. It is taking very little risk.

Rather than devoting funds to entice individual companies to invest in Virginia — such as the dubious $2 million contribution to Celanese Corporation (see here and here) — discretionary funds available to Virginia’s governor would be better invested in consortia like CCAM. One prospect for consideration would be the Virginia Logistics Research Center, which models itself on CCAM.

Corporations come and go from Virginia with disturbing frequency. Investments in knowledge creation and innovation have a much longer half life.

– JAB

14 Responses to How Economic Development Should Work

  1. only one question. If this enterprise was involved in solar panels instead of what it is – what would you say?

    to hone in on the issue – who decides what is an “appropriate” focus of such efforts or not and what is the appropriate criteria?

    you specifically mentioned research rather than commercial start-up so that’s why I asked.

    Bonus Question: How do we get away from partisan perspectives on this kind of thing?

  2. One way you get away from partisan perspectives is to refrain from writing about the issues in the context of specific individuals such as President Obame or Governor McDonnell. Keep the individuals out of it and focus on core principles. That is what I have tried to do here.

    If the consortium were oriented toward solar panels, I wouldn’t have a problem with the government providing asssistance as long as (a) the mission was research, (b) the consortium enjoyed buy-in from multiple corporations and universities, and (c) and the knowledge created was broadly shared.

  3. Curious that VCU isn’t involved since they are right smack on our “Capital of Creativity.” Know why?

  4. Jim – do you consider Solyndra as a Proxy for Obama’s perceived policies?

    that’s sorta why I asked…

    do you differentiate between “research” and “economic development”?

    seems like your post was treating them similar?

    Here’s the deal. Is the approach with Solyndra fundamentally wrong and if so how would you differentiate what you are advocating from what Solyndra was doing?

    I’m truly trying to understand why Solyndra was so bad when it sounds like what you are advocating here is not that different.

    so draw a bright line… so I can understand.

  5. By Jove, I believe Bacon has gotten it!

    This did not just “bubble up”. It represents a coordinated effort by government, private industry and academia.

    Now, imagine a software incubator in downtown Richmond right in the middle of Schockoe Bottom (I believe that is the area with the bars and restaurants). The city donates space in some building that has been tax foreclosed. Venture capital companies pay to renovate the building. Start-ups get free space but have to donate half a percent of their equity per month to the effort. The VCU and U Richmond techies are recruited to work – first as summer interns then as full time employees. Most start-ups fail, some succeed.

    If it takes root, the additional money generated from the development of the surrounding area more than pays the city for its donated building.

    No bubble up – concerted action.

  6. I’ve been watching “The Men who built America” and found it to be enormously interesting. I highly recommend it.

    hint: they were not “nice” people!

    hint2: they would totally hate the idea of the govt interfering with their ability to get rid of their competitors!

    hint3: “startups” were to these guys – “sport hunting” :-)

    http://www.history.com/shows/men-who-built-america

    • I’ve seen a few episodes also and have had the same basic reaction. I would say the biggest differences were the lack of an income tax and the lack of antitrust enforcement (the Sherman Act was passed in 1890, sponsored by Senator John Sherman (R-Ohio), brother of General Sherman). Interestingly, the Sherman Act passed the Senate 51-1 and the House 240-0. President Benjamin Harrison signed it into law.

      Economic regulation of railroads and grain elevators began in the 1870-80s. The Feds became involved with passage of the Interstate Commerce Act in 1887.

  7. DJR,
    The Center has been in the news, actually, since around 2006 or 2007 if memory serves. It was part of Rolls Royce locating a factory in Prince George. I recall it was pre-McDonnell, Kaine era.

    • But it was originally a “virtual center”. In other words, there was no center. It was an agreement to do some work on the UVa and VT campuses. Now, the Prince George County facility is expanding and there is a physical center being built.

      At least, that was my recollection. Kaine got it started, McDonnell got it expanded. Even Obama joined McDonnell at the facility in March to laud the effort.

      It seems like a good effort all around.

      Some of these things “die on the vine”. Some take root and expand. It seems like this particular effort is in the latter camp.

    • The bigger news is that Jim gets it. This took money and promises from government, cooperation from academia, a commitment from private enterprise. A Democratic governor landed the original deal and a Republican governor expanded the deal. A virtual research center is going to become a physical research center.

  8. Don, it’s really not big news that I get it. You’ve been lampooning me as “Mr. Bubbleup” for suggesting that some civic initiatives should come from the ground up, not the top down, but that’s a narrow set of issues that does not extrapolate to research centers.

    My bubble up comments referred mainly to the cultural realm and the goal of making the Richmond region attractive to the creative class. Richmond’s old guard has very different values and priorities than young creatives who are building the rising generation of business enterprises. The old guard doesn’t have the faintest idea of which community initiatives to support to make creatives happy. The creatives aren’t especially interested in the SOB (Symphony, Orchestra, Ballet) level of culture. They’re drawn to street culture as found in festivals, nightclubs and the like that the old guard has no interest in.

    There are other types of infrastructure needed to support economic development such as airport service, transportation links, university R&D programs, higher education institutions and the like that cannot “bubble up.” Creating those assets must come from business, academia and government working together. Very different story…

    • I’ll believe you get it when you stop calling things like McDonnell’s $2M contribution to Celanese “dubious”. Keeping 1,000 jobs in Giles County is crucial. Once gone, it’s hard to imagine how those jobs would ever come back. A one time $2M payment out of a $40B+ budget to keep 1,000 jobs and add 200 temporary construction jobs? Yeah, I know – Celanese would have stayed anyway. However, the air cover of civic support from Virginia’s government may well have helped Celanese decide to stay in Giles County.

      The creatives might not care for the SOB type culture but Triple A baseball or a professional basketball team in downtown Richmond would make a big difference.

      Here’s an example of a cultural arena that didn’t just bubble up:

      http://en.wikipedia.org/wiki/HP_Pavilion_at_San_Jose

      If you really want a vibrant, downtown Richmond full of creative types you’ll have to do more than wait for the Old Guard to bubble up some ideas.

      • Don said, “If you really want a vibrant, downtown Richmond full of creative types you’ll have to do more than wait for the Old Guard to bubble up some ideas.”

        That’s exactly the point. The Old Guard won’t have the ideas. You can’t rely upon top down development. It’s got to come from the bottom up — bubble up!

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