Minutes on workshop "Economic Development Promotion"
- Seattle, University of Washington, Department of Geography, 11 September 1998 -
1. Objective and participants of the workshop
On Friday, 11 September 1998, a workshop on economic development promotion took place in the Department of Geography of the University of Washington in Seattle. The workshop was part of the scholarship project "Structural Change on the Ruhr" run by the Initiative Group Ruhr. The workshop's objective was to discuss the findings of the two scholars located in Seattle doing research on economic development promotion, Frank Osterhoff and Stefan Lilischkis. Frank Osterhoff's subject is economic development policy, especially technology policy; Stefan Lilischkis is working on impediments and promotion of technology-based business start-ups. The workshop was attended by the following experts and representatives:
Prof. James W. Harrington, University of Washington, Department of Geography
Volker Heck, RWE, Essen
Prof. Dr. Helmut Karl, Universität Jena, Fakultät fuer Wirtschaftswissenschaft
Prof. Dr. Günter Krumme, University of Washington, Department of Geography
Dr. Uwe Stoklossa, Initiative Group Ruhr (IR), Essen
Roland Waniek, Rhine-Westfalia Institute for Economic Research, Essen
Furthermore, the following researchers sponsored by the Initiative Group Ruhr took part: Britta Busse, Patrick Dufour-Bourru, Stefan Lilischkis, Frank Osterhoff, Oda Sans, Petra Seitz, Alexander Ziesemer. Guest: Stefan Spiegel, Ruhr-Universität Bochum, Geography student.
2. Minutes of the discussion on economic development policy
Prof. Karl wants two issues to be discussed: The situation in Greater Seattle and the implementation of policies which the Ruhr Area can learn from Seattle. More precisely, he asks about coalitions in the local community. What are the gains of cooperation or competition and rivalry?
Actors in economic development
Prof. Krumme points out that before William Gates sen. there were other active people in the region. He recommends Frank Osterhoff not to focus too much on Gates. Seattle has a history of great individuals.
He mentions that Boeing and Microsoft used to pull strings behind the scene of regional policy, now they do it more openly. Boeing often threatened to leave the state if nothing is done about certain issues, e.g. taxation.
Moreover, the port is an important actor in regional policy.
History of regional economic development
Prof. Harrington recommends Frank Osterhoff to add statistically and historically based facts. However, it is hard to get data on regional development. Data is only available on county level. With such data, one can trace the development of sectors, maybe of certain firms. There are certain things one cannot find out by interviewing. Regional initiatives and organizations all devolved. The question to be answered is: Why? Harrington mentions the following issues:
Prof. Krumme agrees that "historical digging" would be good. Frank Osterhoff's statements need fine tuning.
Credibility of interview results
Prof. Krumme reminds that the answers of the interviewees are not always credible. Interviews bring in personal views. For example, a company may say: "We cannot employ more people because of lack of land." There might be completely different reasons behind.
Prof. Krumme mentions that Washington state spends very little money on education. The government says: "Why should we spend more money on education if educated people come from the outside?" Washington's brain size grew, and the state did not have to pay for it.
Comparison of the economic structure of the Ruhr Area and Greater Seattle
Frank Osterhoff's theses that the Ruhr Area and Greater Seattle have a similar economic structure in terms of "hubs and spokes" is discussed. Prof. Krumme questions if the economic structure of Greater Seattle really is similar to the Ruhr Area. There are not many similarities between the Ruhr Area and Greater Seattle. In any case, the term "structure" does not fit really in this context. "Structure" has a different meaning in the USA.
Frank Osterhoff defends his statement: It is hard to find a middle-sized company in the Ruhr Area that does not depend on big companies like Krupp, RWE, Thyssen.
Volker Heck states that the Ruhr Area receives much money from the government for education, e.g. to the RUB. That is completely opposite to Greater Seattle.
Roland Waniek says that there are similarities. The economic sectors are quite narrow in both regions, there is a monostructural economy in both. Of course, the life cycle of industries in Greater Seattle and the Ruhr Area are much different. What will happen when the software industry in Greater Seattle goes down in some years? It is very interesting that Greater Seattle thinks about the future, diversifying the region. That was completely different in the Ruhr Area in the 50s and 60s. So the Ruhr Area can learn a lot from Greater Seattle.
Prof. Krumme adds that the timber industry in Washington is comparable to the coal industry in the Ruhr Area.
"Growth poles" in the Ruhr Area and in Greater Seattle
Volker Heck raises the question what would happen if Microsoft was split up in three parts, as it happened to other companies in the USA before. Stefan Lilischkis replies that people in Greater Seattle are very concerned about that. That is one reason why diversifying the economy is promoted. Prof. Krumme says that people in the region have no understanding what would happen to the region if Gates died.
Prof. Harrington states that Seattle is currently not an industrial district. He refers to the "growth pole" model of technological change. It has been a long time ago since steel and coal provided technological development. What happens when growth poles decline? Software might contain new technology that could only be found when Microsoft was split up - because then, new markets needed to be found. Is the basis of the growth pole in Greater Seattle strong enough to last?
Roland Waniek points out that in the RA, the structure of the large enterprises was almost monopolistic. When problems came, they had to restructure themselves. That process takes time. Frank Osterhoff, Volker Heck, and Prof. Karl disagree. They say companies can change their field of activity dramatically.
Volker Heck asks if not the supply side policy is the problem in Germany. In Germany, it is a widely discussed approach to create new companies to decrease unemployment. Greater Seattle shows: No artificial solution is possible.
Prof. Krumme mentions that Boeing crowded out other businesses when the company was thriving. When Boeing turned down, there were many start-ups.
Prof. Karl shifts the discussion towards recommendations to the Ruhr Area. The role of the alliances Frank Osterhoff described - the Chamber of Commerce, the Technology Alliance, and the Trade Development Alliance of Greater Seattle - needs to be clarified. What are the gains of cooperation of the three alliances? Do they have a specific production function? Do they have joint interests? Why do they support start-ups? Prof. Karl reminds that in Germany, there are many round tables. They often conduct rent-seeking activity. He raises the questions if the success of cooperation in Greater Seattle is for all people, and why the Ruhr Area does not have such cooperation. Do people in the Ruhr Area not see the money on the street, or are there barriers of cooperation? Maybe there is not anything comparable between Greater Seattle and the Ruhr Area or recommendable to the Ruhr Area.
Frank Osterhoff replies that what Greater Seattle did would of course work in the Ruhr Area, too. In Essen there is already public private partnership.
Transaction costs and organizational flexibility
For Prof. Krumme, the transaction cost perspective is important. Are institutions in Germany suitable for high-tech development? Is the Ruhr Area too conglomerated? Furthermore, the dissolution of collaboration boundaries is important. A firm today is not the kind of firm it was in the past. They now have new organizational structures. Is the US system just faster responding to changes than German firms?
For example, it is very difficult to define what Microsoft is, because so many contract workers work for Microsoft. Organizational boundaries are different today. Where are the boundaries in firms? Structures are changing very fast. The number of transactions decreases. What the Ruhr Area can learn is greater organizational flexibility.
3. Minutes of the discussion on technology-based business start-ups
Roland Waniek introduces the discussion by stating that the Ruhr Area is lagging behind in terms of business start-ups. The questions to be answered are "why?" and "how can we improve the situation?". Particular emphasis should be on start-ups out of universities. In the USA, the MIT is a well-known example. It is worth while searching for reasons why the Ruhr Area does not perform a notable start-up activity although having large and good universities.
The term "spin-off"
The term "spin-off" is discussed. The group agrees that spin-offs are mainly start-up businesses out of a research facility. Microsoft cannot really be considered a spin-off, because Bill Gates and Paul Allen did not do any specific research on computing at university; in fact "they left Harvard disgusted" (Prof. Krumme) and were much more influenced by their High-School than by university.
Setting up initiatives
Volker Heck states that in the Ruhr Area, everything tends to be decided in consensus, and that this is one of the impediments for economic development in the Ruhr Area. Bringing decisionmakers together to set up initiatives and organizations, as proposed by Stefan Lilischkis, was not successful in the Ruhr Area. Stefan Lilischkis suggests to bring together decisionmakers for certain, fairly small projects, for example for an "Alliance of Angels" in the telecommunication sector. Prof. Harrington adds that in Greater Seattle in the past years public issues were "talked to death". However, private issues were not necessarily talked down.
Distinguishing start-up activity
Prof. Harrington points out that there are different possibilities of entrepreneurship in different regions. In Greater Seattle, barriers to entry (individually and technically) are generally small. However, in the high-tech businesses there are barriers to entry, and start-ups are not easily possible in all sectors.
Roland Waniek states that according to the time series on new businesses in Greater Seattle presented by Stefan Lilischkis, one out of 100 inhabitants start a business each year. Compared to Germany that is a very high figure. Prof. Krumme says that the statistic presented is a good start, but not very meaningful for a thorough analysis of start-up activity.
Start-up promotion at the University of Washington (UW)
Prof. Krumme mentions several aspects related to start-up activity at the UW:
Volker Heck adds that a comparison of technology transfer would be very helpful. In Germany, offices of technology transfer are the most bureaucratic organizations at the universities. Technology transfer is also an important aspect for the final conference of the IR.
Role of universities in start-up promotion
Prof. Karl points out that the specific role of universities in start-up promotion needs to be identified, as a normative question. If universities are meant to promote start-ups, they had to teach specific skills, and they might have to establish a specific "spirit of competition" at the university.
In that context, Prof. Krumme points out that universities in the USA have an approach to teaching that is different from Germany. The "Berufsschulen" in Germany are quite famous in the USA. Many universities in the USA offer a kind of vocational training, and they go to the Germany to study the "Berufsschulen".
Roland Waniek poses the question if German universities - the system and the way knowledge is produced and used - impede business start-ups or if they help.
Start-up activity in Greater Seattle
Patrick Dufour-Bourru refers to the fact that in Greater Seattle start-ups do not mainly come out of universities, but out of existing companies. Those starters have experience and some of them are already very rich. Prof. Krumme adds that many skilled workers came to Boeing from outside the region and created their own business after some years. So the region profited from a brain-drain.
Start-up activity in the Ruhr Area
Roland Waniek raises the question what can be done to promote start-ups on the regional level, and why - for example - people do not start businesses out of the RWE. Volker Heck says that the best way to motivate people to start a business is through market forces. The challenge is to create a market-driven economy. Furthermore, the opportunities of starting a business have increased, because now knowledge-assets are more important than physical assets.
Prof. Krumme mentions the problem that big firms are not inclined to motivate their best people to start a business. Petra Seitz and Britta Busse state that security and risk-adversity are important values of Germans and that this impedes start-ups.
Transformation of university knowledge to start-ups
Roland Waniek raises the questions how knowledge created at the university can be transformed to start-ups.
Volker Heck says it should be found out if the "knowledge clusters" in Greater Seattle are different from the ones in the Ruhr Area in terms of willingness to learn and the ways of learning. He asks if the clusters in Greater Seattle are "learning organizations".
Issues for comparing start-up activity in different regions
Prof. Harrington points to three issues to be considered when comparing start-up activity in Greater Seattle and the Ruhr Area:
(1) What are the specific firms' advantages in different sectors? What do employees or
students get out of firms in the two regions?
(2) Financing is important, and the availability differs. Often financial resources are found
through sources of recommendation. It is an important question where the money comes
(3) Markets are important. There might be major differences between the industry hubs
making use of starters as suppliers.