Innovation in San Diego Creates Investment Opportunities

2014 has come and gone, but the benefits of a growth year are likely to carry on for some time in San Diego. According to Connect, a non-profit group that supports innovation, they counted 446 technology and life science start-ups in 2014 up from 426 companies in 2013 (1). Of these firms, Bio-tech got 62% of the $805 million investment capital dollars while software and medical devices got a third and fourth place in total investment influx.

What does this say about San Diego? It says that San Diego has a budding bio-tech and software industry that should be supported by city policies, higher education, corporate training, and international promotion. Encouraging investment funds to find receptive companies seeking those investments for expansions puts money where it has the quickest and most efficient economic contribution.

The Economic contribution comes from using the investment money to expand operations, hire new people, and create additional contractual deals that grow not only the parent business but also smaller suppliers. Money invested into one company makes its way to other firms and the overall tax base of the city.

It is important for decision makers to look at their growing industries and find a connection between what their local competencies and resources offer to determine places to generate higher levels of investment growth. Making sure that the public is aware of these investments through various mediums that reach motivated investment entities helps in speeding up this growth process.

Economic expansion comes with the development of better city policies that further the growth of the area and better capitalizes on its local resources. Biotechnology and technology have significant international interest and is a field that is expected to grow in the future. Local military stakeholders may strengthen this industry, but the global market will determine the innovative value of its outputs. Getting companies and government to focus in the same area can mean higher levels of synergy.

San Diego Employment Numbers Trip But Could Regain Footing from High Technology Firms

2014 wasn't a great year for job creation in San Diego as employment numbers left much to be desired. According to the Employment Development Department 30,208 jobs were added to the San Diego economy in 2014 missing economist projections (1). Despite slower than expected growth in construction, professional, health, and scientific jobs the service industry added the most jobs with a 4.86% increase. Employment rates may be on the rise if San Diego focuses closely on high growth industries that already have a solid present in the area.

The numbers are not dismal and could indicate a upward swing for 2015. Service jobs are relatively easy to add and mark a level of rising consumer spending on travel, restaurants, and leisure services that mark optimism. These are some of the first jobs added to the economy before higher paying jobs also make their way onto the market.

Higher paying employment comes after lower skilled service jobs have made their initial appearance. Industries that have higher paying positions add significantly to income and wages in the area but take a little longer to kick in. Companies making larger investments in skill, recruitment, relocation, compensation and salary only add jobs when needed.

There has been a healthy discussion of encouraging technology firms in San Diego. This discussion, in addition to other high growth fields, helps in improving the future labor market by aligning the economy to industries in demand. For example, small business accounts for 2/3 rds of job creation and high growth firms 35% of job gains during the years 2009-2012 (Clayton, et. al. 2013).

Technology industries are in hot demand around the world and gaining high levels of investment. Companies that are in the high technology sectors of pharmaceutical, chemical, communication, navigation, agricultural equipment, science, etc... find themselves growing faster than many other companies. Their abilities to obtain new resources, based on market demand, pushes them forward.

San Diego has a  solid high technology based that can be used to create stronger platforms for growth. Cities that put in place policies that encourage the development and investment in growth industries often magnify growth in these sectors (Jenkins, et. al., 2006). The policies should help funnel international investment into industries that are currently, or will soon be, in high demand globally.

Encouraging those industries that are likely to provide the highest paying jobs and greatest amount of overall economic growth is smart government. It provides an opportunity to employee more people and raise the standard of living for a lot of people. Likewise, investors want a return on capital and high growth industries offer that opportunity. Making sure legislative hurdles are lowered and letting the world know of the local investment offerings in San Diego can make a huge difference in industries that are ready to break out onto the international market.

Clayton, et. al. (2013). High-employment-growth firms: defining and counting them. Monthly Labor Review, 136 (6).

Jenkins, et. al. (2006). Do high technology policies work? High technology industry employment growth in U.S. Metropolitan Areas, 1988-1998. Social Forces, 85 (1). 

Joseph Schumpeter’s Concept of Entrepreneurship and Combinations

Joseph Schumpeter was an outstanding economist that immigrated to the U.S. Many of his works were not mathematical like other economists but he did delve into the economy as a complete economic system. His work has led to new ways of thinking about the economy as a system and offered a greater understanding of creative destruction and entrepreneurship as part of the economic model. 

He believed that entrepreneurship is an important part of the economic system. These difficult to account for innovations result from companies that have the ability to research important product improvements.  Innovative improvements are a force that changes the market and allows some companies to earn higher levels of revenue for a time until their products are copied by others. The innovative process is needed to maintain new products and a market leading position. 

He outlined his theory in the book Theory of Economic Development (1911) and maintained the fundamentals throughout his life. He believed development is not possible without new products and services. He outlined his concept of innovation through a idea called combination that includes (pg. 66):

1) The introduction of a new good, not yet familiar or of a new quality of good.

2) The introduction of a new method of production.

3) The opening of a new market.

4) The conquest of a new source of supply of raw materials.

5) The carrying out of a new organization of any industry, like the creation of a monopoly position or the breaking up of a monopoly position.

Those creating the combinations are called entrepreneurs. They can be within a company or have their own business. They take information, connect it to new uses, and develop products. Economic development comes from this process of finding new sources of knowledge and putting them to productive use. 

As markets change and adjust there are cycles of destruction and creation. War, famine, political forces, scarcity and much more cause the constant need for change to seek a system in equilibrium. Large adjustments can cause pain but can also put a system on a higher plane of existence. Without pressure to change, few things will develop and the economy will become stagnant.

Schumpeter, J.A. (1934). The theory of economic development. Oxford University Press, New

York.

British Report Indicates that Higher Education Has Economic and Social Benefits

A British report on Higher Education entitled the “Quadrants” helps bring forward the idea that higher education has many secondary benefits beyond earning higher incomes. Education is often a process of learning about how to make money but it can also be seen as a process of personal enrichment. According to the November report from the UK Department for Business and Innovation Skills this enrichment makes its way into society in substantial ways. 

Direct benefits of education often include characteristics, social interaction, and accreditation and signaling benefits. The person develops to a higher level through advanced education. They are more able to deal with others as well as stronger in their marketability. Likewise, their personal characteristics become enhanced. 

An increase in the educational attainment in society has a marked wider benefit for society itself. Crime statistics, health, happiness, and just about everything else improves. Societal conflict decreases as members are more capable in understand differences. They are also generally less angry with immigrants and can navigate a way to deal with others.  This ability to see other perspectives increases civil activity and social cohesiveness. 

Businesses are particularly interested in economic growth and development. Approximately 20% of UK growth between 1982 and 2005 was a result of higher graduate skill levels. As each percentage point of society (1%) becomes educated the long-run productivity increases between .2% and .5%. On a higher level this means that 1/3^rd of all labor productivity between 1994 and 2005 were a result of higher education. 

The argument the report brings forward is that graduates in the regional economies improve the economy and lifestyles more than their expenses. This would mean there is an advantage to encouraging students to get an education and then work within the market they graduated from. Retaining these students within the country improves productivity and economic activity.

The three industries that seem to hire more graduates are innovative firms that engage in research, financial industries and creative industries. Innovative firm’s hire science graduates while financial and creative industries hire graduates from other areas. Those industries that are innovative, financial oriented or creative hire over double the graduates than other industries.

For those who seek to spark higher levels of entrepreneurship it is important to consider the report’s findings that higher educated people are more likely to engage in entrepreneurial activity. The productivity and training gains are twice the rise of wages which means companies get a higher return rate.  The economy has an easier time expanding when there is a willing and education workforce to do the heavy lifting.

Reference:

UK Department for Business and Innovation Skills (2013). The Benefits of Higher Education Participation for Individuals and Society: key findings and reports "The Quadrants".  (Bis Research Paper 146) Retrieved November 21, 2013 from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/254101/bis-13-1268-benefits-of-higher-education-participation-the-quadrants.pdf