Bacon's Rebellion

James A. Bacon

“Putting People First”
It made a great campaign slogan. Now Governor Warner should make it the centerpiece of an economic development policy based on human capital.

Bob Frisch was running a successful practice as an advisor and fund raiser for small-business CEOs in New York when he realized that he could live almost anywhere and continue what he was doing. A year ago, he moved his family to an upscale development outside Charlottesville. The taxes are lighter and the cost of living is lower. He’s traded in three hours of daily commuting for working out of his house. The weather is terrific, and he plays a lot more golf than he used to. His biggest question upon moving south was whether he’d be accepted. It turned out not to be an issue – he’s made plenty of friends. “The lifestyle down here is much better,” he says. “Without a shadow of a doubt.”

His business hasn’t suffered, says the 47-year-old Frisch. He makes a living by making deals happen; his forte is putting the right people together. While maintaining his old New York ties, he’s added a new set of Virginia connections. He’s gotten active in the Charlottesville venture-capital group, and he’s actively working on a couple of local projects.

Although Frisch has yet to raise money for a local entrepreneur, he’s confident that he will soon. Relationships, built on trust, take time to build. “A lot of what I do is holding hands,” he says. “If it’s reading documents [that needs to be done], I read the documents. If it’s picking up someone at the airport, I pick them up at the airport. I’ll look at your plan or your company, I’ll talk to some money people.”  

There are dozens of pre-retired executives like Bob Frisch who have dropped out of the rat race, moved to Virginia for reasons of lifestyle, and then become engaged in the local business scene as investors, advisors and even founders of new enterprises. Pre-retirees have made a noteworthy contribution to Virginia’s economy, particularly along the I-64 Corridor where, drawn by up-scale developments, universities and recreational amenities, they have settled in large numbers.

Remarkably, while the state of Virginia has allocated $15 million this year to promote tourism and another $15 million to recruit out-of-state corporate investment, it doesn’t spend one dime to recruit more executives like Bob Frisch. But there's no reason that can't change. Gov. Mark R. Warner, a former venture capitalist, knows first hand that human capital is the foundation of the Knowledge Economy. The greatest challenge in putting together a venture-funded enterprise typically isn’t finding the money, it’s assembling the right management team.

Michael J. Schewel, secretary of Commerce and Trade, is charged with the task of developing Warner’s strategic economic development plan for Virginia, “One Virginia, One Future.” His office has scheduled seven public hearings in September to solicit public input. A corporate attorney by background, Schewel had little interaction with Virginia’s economic development professionals before signing up with Warner. Coming fresh to the field, he may prove open to unconventional strategies.

Two pillars of Virginia’s traditional economic development strategy have been tourism promotion and industrial recruitment. Even after absorbing huge budget cuts earlier this year, tourism and economic development are slated to spend $30 million between them. That number will be chopped again as state agencies carry out Warner’s latest cost-cutting edicts, but it still represents a significant sum to work with. The Warner administration has a historic opportunity: It could become the first state in the nation to explicitly make it a top priority to recruit human capital. Other states, notably Pennsylvania, have initiatives to retain their human capital – recent college graduates, in particular – but none, to my knowledge, is actively recruiting seasoned industry executives.

Virginia’s tourism and economic development professionals are among the best in the business. They win frequent national kudos. But, as I argued in “Nowhere to Run,” our traditional industrial-recruitment strategy focuses on sectors of the economy that put Virginia in competition with China, India and other industrializing nations with competitive advantages in semi-skilled manufacturing and back-office operations. The wisdom of promoting tourism is questionable as well: What strategic value is there in building an industry dominated by low-paying and seasonal jobs?

Although its mission may need re-tooling, the Virginia Economic Development Partnership is well  equipped to carry out a human-capital initiative. VEDP employees already possess expertise in the industries that Virginia would want to recruit executives from. They have strengths in research, marketing and advertising. They have relationships with natural allies such as chambers, universities, regional economic developers and other state agencies. Finally, they are imbued with an aggressive, can-do spirit. In sum, Virginia already has a team in place that could do the job.

As I see it, a “human capital” approach to economic development would target two distinct markets:

• Research scientists conducting world-class R&D

• Seasoned executives in strategic industries who have reached pre-retirement age and might be open to making a change in lifestyles

Building world-class research institutions in Virginia happens to be one of the top objectives of Virginia's secretariats of Education and Technology. It should be in Commerce and Trade as well. There is a broad consensus among those who think about economic development that university-based research offers tremendous potential to seed surrounding communities with innovative new technology start-ups – Virginia’s future growth companies.

Recruiting a single scientist can contribute every bit as much for Virginia’s economy as bringing in a light manufacturing plant. A top researcher often brings millions of dollars in federal research funding with him, not to mention a train of junior professors and graduate students. Additionally, many researchers end up commercializing their technology through local business enterprises.

Remarkably, the job of recruiting distinguished faculty and researchers is seen in Virginia as the job of the universities and the universities only. I don’t know of a single instance of a university ever calling upon the state or surrounding community to help attract a big-name faculty member. The issue simply isn’t on the radar screen of local politicians, economic developers or civic leaders. While the state and localities willingly dole out hundreds of thousands, even millions of dollars, in Government Opportunity Funds, industrial-road connectors, utility connections, site preparation work, workforce training funds and tax breaks, Virginia doesn’t mobilize community resources to attract a world-class research scientist.

(The Gilmore administration did start up a Commonwealth Technology Research Fund, funded this year with $8.5 million, to provide Virginia universities with matching funds when opportunities exist to attract federal or corporate research dollars. Perhaps the scope of this program could be modified to allow administrators of the fund to collaborate with efforts to recruit out-of-state researchers, not just research grants.)

The Warner administration, working through the VEDP and cobbling together funds allocated to industrial and tourism development, could do a number of things to assist the state’s universities in recruiting top faculty:

1. Develop and maintain a database of researchers in top research institutions around the country. Who are the super stars? Who has tenure and who might be looking for a better post? Who are the promising graduate students soon to be entering the job market? In other words, who are the best prospects for recruiting to Virginia?

2. Target the top prospects for an awareness-building campaign. Get out the message: Virginia isn’t just for lovers – it’s for Knowledge Workers.

3. Partner with universities to work the trade and professional conferences where personal contact with star researchers can be made.

4. Create recruiting clubs including political and business leaders, early-stage capitalists, intellectual property attorneys and other professionals who work with start-up companies. These clubs would roll out the welcome mat to academic prospects and demonstrate community enthusiasm for their work.

It’s one thing to develop technology in a university or federal lab and quite another to commercialize it locally. If Virginia communities lack executive talent with experience in the field, the technology won’t attract venture support for a local start-up. Instead, it will be sold or licensed to someone outside Virginia who possesses the requisite skills to covert it into a viable enterprise.

Northern Virginia has a deep reservoir of talent in the information-technology sector, but executive-level human capital is spotty in Virginia's other tech sectors. Fortunately, the Old Dominion is in a favorable position to recruit human capital. Southern Virginia forms the northern edge of what Forbes magazine identified in 2000 as the hottest pre-retirement region of the country. The region stretching from southern Virginia into North Carolina and South Carolina is a leading destination for affluent professionals seeking an affordable cost of living and recreational amenities such as golf and sailing, but not so remote they find it difficult to pursue business opportunities. (See also the August 2001 article, "Here Come the Pre-retirees," in Virginia Business.) Many pre-retirees are consultants, many are investors. Some of these Type-A personalities wind up running businesses despite their intentions to follow a life of leisure.

While economic developers have largely overlooked this trend, home builders have not. Along Interstate 64, developers have built a number of upscale residential communities – typically arranged around golf courses – that cater to affluent, out-of-state executives. Proximity to the University of Virginia and the College of William & Mary, I presume, is a major marketing bonus.

The Warner administration can build on this trend by redirecting marketing dollars from recruiting Fortune 500 corporations to recruiting Fortune 500 executives. VEDP’s research unit could develop and maintain a database of executives in strategic industries, focusing on those in their 50s, and perhaps paying particular attention to those with family or school ties to the Old Dominion. VEDP would be well advised to forge strong relationships with the alumni offices of Virginia universities, which already collect much of this information.

After identifying desirable prospects, the state could begin selling them on settling in the state. Perhaps building on its expertise in tourism, VEDP could assemble special travel packages, customized to the executives’ personal interests, which would lure them to Virginia to visit. Communities could form executive-level welcome wagons of prominent citizens whose job would be to entertain these out-of-state dignitaries. The subliminal message: Virginia isn’t just for lovers or even research scientists – it’s for middle-aged executives who want a change of pace and a high quality of life.

Mark Warner used the phrase “putting people first” as a bumper-sticker slogan during his election campaign last year. It sounded nice but I never knew what it meant. Today, he has an opportunity to inject some substance into the catch-phrase – and create national recognition for Virginia -- by becoming the first governor to build a state's economic development strategy around putting human capital first.

-- August 26, 2002  

One Virginia,           One Future

According to an e-mail promotion inviting citizens to attend one of seven public hearings next month, Virginia's economic development strategic plan has seven main goals: