July 17, 2007
Report recommends refocusing New York's economic development programs on 'the Innovation Economy'
A major new study of New York State's economic development programs says that the state "must stop underwriting the past," and should shake up its "balkanized" development structure, work aggressively to cut the cost of doing business, and refocus its efforts on the high-wage, technology-enabled growth industries of the future.
The report, "Delivering on the Promise of New York State, A Strategy for Economic Growth and Development," was prepared on a pro bono basis by the consulting firm A.T. Kearney, Inc., and was released at a July 17 conference at the Rockefeller Institute in Albany.
The report said New York's economy "has staggered for over three decades, listing between the prosperity of New York City and the increasingly dire economic plight up upstate communities." Not only has New York's job growth fallen far behind the nation's, it said, but the state has been losing jobs in high-wage sectors and replacing them with jobs in lower-wage sectors.
This stagnation is an outgrowth of the fact that the state is "a very expensive place to do business," the report said -- a problem compounded by economic development programs that are expensive and relatively ineffective.
The full text of the report may be found at www.ppinys.org/innovation/ATKearney%20Report_July_2007.pdf.
The report repeatedly cited figures from the Public Policy Institute and elsewhere illustrating the high cost of doing business in New York, and it said "reducing the exorbitant cost of doing business in the state would be a good -- and mandatory -- first step." But A.T. Kearney was commissioned by Empire State Development to focus its study on the state's economic development programs -- and it did not mince words in criticizing the agency.
Empire State Development has a "legacy of regional patronage, a pattern of funding one-off solutions, and a perceived preference for practicing the economics of political convenience," the report said. Even the name is off-kilter, the report argued; interviews of executives in other countries found that many think the name refers to a building, not to New York State.
The agency needs "a complete overhaul," replacing a "balkanized" structure of economic development programs and offices with "a 'Business Concierge' providing end-to-end solutions for business."
The report was particularly critical of the state's Empire Zones program, which it said is highly expensive in terms of the tax breaks it disperses, and which "treats all job creation as equal, not recognizing the difference between jobs which promote high-impact growth and those that don't." At the conference, Patrick Foye, downstate chairman of ESD, said the agency would soon be issuing a number of "clawback letters" asking Empire Zone firms that had not met their jobs commitments to pay back some or all of their benefits.
The A.T. Kearney study said the agency will always have to respond to short-term needs like a local plant closing. But it said ESD should focus its long-term strategy on attracting and building industries linked to "the Innovation Economy." Jobs in "technology enabled sectors" such as nanotechnology, bioscience and "cleantech" pay an average of $65,000 a year and have a "multiplier effect" that create an additional 3.5 jobs each, the report said -- compared to jobs "outside the Innovation Economy" that pay $30,000 on average and create no more than one additional job each.
The state's priorities should therefore focus, the report said, on business development prospects that:
- Are "technologically centered or enabled."
- Compete globally.
- And are capable of "building competitive advantage utilizing New York State's assets." These assets, it said, include a well-educated, capable and "loyal" workforce; strong research capacity both in industry and in the higher education system; and the central position occupied by New York City in the global financial, media and cultural industries.
A.T. Kearney's analysts concluded that the state can do much more to spread the jobs and economic activity generated in New York City into the Upstate area.
Kathryn Wylde, who is president of the Partnership for New York City and who was instrumental in recruiting A.T. Kearney to do the report, said at the conference that "for too long there has been a disconnect between New York State and New York City. We have watched New Jersey and Connecticut build their growth off of the spillover from the New York City economy, while New York State has not competed for that."
With better economic development programs and a lower cost of business, the report said, New York should be able to double its rate of job growth and create up to 330,000 new jobs by 2014.