Innovation

Florida’s Biotech Bet

Posted on by Joe Cortright

For more than a decade, one of the hottest trends in economic development has been pursuing biotechnology. Cities and states around the nation have made considerable investments in biotech research, ranging from California’s voter-approved $3 billion research program, to smaller efforts in cities around the country, including Indianapolis, St. Louis, and Phoenix.

One of the states that made the biggest bets on biotech was Florida, which in 2003 committed state funds to luring the Scripps Research Institute to building a new campus in Palm Beach County. The Scripps deal served as a template for subsidies to other life sciences research institutions opening similar research labs in other Florida cities. The total cost of the program is estimated to reach more than $800 million.

In a new article, Reuters has questioned whether Florida has gotten its money’s worth for the investments it has made in biotechnology. The biotech investments were originally sold based on the promise that they would lead to a flourishing new industry employing more than 44,000 people. But a decade later, there’s little evidence of progress.

We’ve long followed the biotechnology industry. In 2002, my colleague Heike Mayer and I undertook an extensive study of the clustering of the US biotech industry, published by the Brookings Institution–Signs of LIfe–which showed that the industry’s economic impact was tightly concentrated in just a few leading centers around the nation. While life sciences research was becoming slightly more widespread as more cities competed for National Institutes of Health (NIH) funding, all of the measures of commercialization–new firm startups, venture capital investment, and privately funded research and development partnerships– were becoming more concentrated in a few leading cities. Our analysis showed that three biotech leaders (Boston, San Francisco, and San Diego) had decisive competitive advantages in starting and growing new biotech firms that other cities would find difficult, if not impossible, to overcome.

The succeeding decade has confirmed our original analysis. The three leading centers are even more dominant today that they were a decade ago. In 2000-01, Boston, San Francisco, and San Diego accounted for about 54 percent of venture capital invested in biotechnology. In 2010-12, the three metros accounted for 60 percent of biotech venture capital. Data on venture capital flows come from the PriceWaterhouseCoopers Moneytree survey.

There’s probably no better indicator of the growth of biotechnology commercialization than the flow of venture capital funds to new startup companies. By this measure, the state of Florida’s position is essentially no different than it was a decade ago. While venture capital funding fluctuates from quarter to quarter, Florida’s share of national biotechnology venture capital funding is still less than 1 percent–in the same range that it was before its subsidies to Scripps and other research laboratories.

As it turns out, doing biomedical research doesn’t automatically lead to new companies and job creation. The hard and costly work of turning promising research ideas into marketable products happens in only a few places. The challenge in growing a commercial biotechnology hub is in overcoming the overwhelming competitive advantages that established clusters have in being places that have the financial, human, and institutional resources to succeed in this complicated and risky business. Despite the time and expense that Florida and other states have invested in biotech research, there’s almost no evidence that anyone has made anything more than marginal changes to the landscape of the U.S. biotech industry.

How is economic mobility related to entrepreneurship? (Part 2: Small Business)

Posted on by Joe Cortright

We recently featured a post regarding how venture capital is associated with economic mobility. We know that these are strongly correlated—and that, if we are concerned with the ability of children today to obtain ‘The American Dream,’ we should be concerned with how to increase economic mobility.

To understand more about how cities can increase intergenerational economic mobility, we wanted to take a look at another measure of entrepreneurship: small businesses per capita.

We follow Glaeser, et al, and measure the number of businesses with 20 or fewer employees per 1,000 population in each of the nation’s largest metropolitan areas. As in the previous post, we measure economic mobility as the probability that children born in the bottom quintile rise to the top quintile as adults.

The chart below shows the results: cities with a larger number of small businesses per capita have higher rates of economic mobility. This relationship is positive, but statistically less strong a fit (R-squared: .16) than venture capital.

The data from this post and the previous one suggest that there a positive relationship between entrepreneurship and higher levels of economic mobility, particularly that economic mobility is somewhat correlated with higher numbers of small businesses and more strongly correlated with venture capital.

This analysis is both partial and preliminary. We know from Chetty, et al, that there are other factors (segregation, schools, family structure) that influence economic mobility. A more comprehensive analysis would consider whether or not after controlling for the variation explained by these other factors there was any remaining variation explained by entrepreneurship. Moreover, these relationships are simple correlations, and do not necessarily indicate cause and effect. For example, it could be that economic mobility causes entrepreneurship. Furthermore, our data on small businesses and venture capital are taken from recent years; a more rigorous analysis would look to see whether small business and venture capital levels of two or more decades ago were correlated with economic mobility over the succeeding time period.

Still, taken as a whole, the data suggest that more entrepreneurial places have higher levels of economic mobility. Why this relationship exists and what implications it may have for policy are questions worthy of further research.

To learn more about innovation and entrepreneurship from a metro perspective, go to our cards here. (We also feature information on economic mobility and opportunity, economic segregation, and more here.)

How is economic mobility related to entrepreneurship? (Part 1: Venture Capital)

Posted on by Joe Cortright

The work of Raj Chetty and his colleagues at the Equality of Opportunity project has spurred intense interest in the extent of economic mobility, measured by the likelihood that children born to low-income parents achieve higher economic status when they are adults. Their work shows a remarkable degree of geographic variation in intergenerational economic mobility. In many communities, the chances of measurably improving one’s economic prospects are dramatically lower than in others. The variations aren’t random: their analysis finds that intergenerational economic mobility is correlated with a number of community characteristics, such as residential segregation, income inequality, school quality, social capital, and family structure.

In theory, we believe that entrepreneurship is a key mechanism for promoting economic mobility. Entrepreneurs can create new businesses that give themselves—and their employees—the chance to improve their economic position. We already know that entrepreneurship is one of the critically important factors in stimulating metropolitan economic growth. Job growth is strongly correlated with an abundance of small firms. Across metropolitan areas, metro areas with more small firms relative to the size of their population see faster employment growth (Glaeser, Kerr, & Ponzetto, 2010).

Fast growing, entrepreneurial firms may be particularly important for providing opportunities for upward mobility because they tend to hire more younger workers than other bigger firms (Ouimet & Zarutskie, 2013). Having a large number of young, small, entrepreneurial firms may create more opportunities for young workers from all economic strata to progress through the economic spectrum.

So, what is the relationship between entrepreneurial activity and economic mobility? One way we look at this is to examine venture capital per capita. (For this analysis, like most others we produce, we focus on the nation’s 51 largest metropolitan areas—those with populations larger than 1 million in 2012.)

Venture capital investments are a key indicator of entrepreneurial activity. We tabulate data from the National Venture Capital Association on the dollar value of venture capital in 2011 divided by the population of the metropolitan area. Because of the very large disparities in venture capital per capita among metropolitan, we took the log of this variable.

We compare the venture capital per capita in each metropolitan area with the level of intergenerational mobility by metropolitan area. We use Chetty, et al’s measure of intergenerational economic mobility: the probability that children born to families in the lowest income quintile had incomes as adults that put them in the highest income quintile. Among the nation’s largest metropolitan areas the probability of moving from the lowest quintile to the highest varied by a factor of about three: a four percent chance in the least economically mobile areas to a nearly 12 percent chance in the most economically mobile areas.

The chart below shows the relationship between venture capital and economic mobility for these large metropolitan areas. The data show a positive relationship between venture capital and economic mobility: cities with higher levels of venture capital have higher levels of economic mobility. (The R2 of .31 suggests that this is a statistically significant relationship.)

This strong positive relationship is not something we can immediately claim as a causal link—however, it has implications for further study. It also raises interesting questions: if cities attract more venture capital, will they be able to attract more young talent? And how will that impact economic mobility and inequality within the city?

In a future post we will examine the link between the number of small businesses in a metro and economic mobility, and conclude this segment. (To read more on economic opportunity, go here, and to read more about innovation and entrepreneurship, see our work here.)