Boston 's Economy
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Harvard Economics Professor Edward Glaeser. (Photo: Phoebe Sexton.) |
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The great Boston economy is losing top companies, job growth lags the nation and federal research and development money that has fueled innovation is shrinking. At the same time, many economists and business leaders are bullish on Boston . "The remarkable thing about Boston as compared to other metropolises like New York City is that it has crisis after crisis and repeatedly figures out a new way to survive and thrive in a changing economy" says Harvard Economics Professor Edward Glaeser; he credits the ingenuity of Boston residents. But he says that some of the Hub's transitions have been slow and painful. The question people are asking is : Does greater Boston have what it takes to rebound again?
Transformation, catching the bio-tech wave
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| Mark Fishman holds a mini fish tank. (Photo: Martha Bebinger.) |
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The headquarters of NECCO or the New England Confectionery company was billed as the world's largest factory when it opened in Cambridge in 1927. It signaled the region's manufacturing strength. Four years ago, the sugar vats and conveyor belts lined by women in white hats moved to Revere . Hundreds of scientists with bio-tech robotic processors and fish tanks moved in. Mark Fishman, president of the building's new owner, Novartis Institutes for Biomedical Research, looks across rows of metal shelves filled with lunch box size fish tanks. Novartis Institutes is the research arm of pharmaceutical giant Novartis. Fishman says Novartis is using fish as models, to get a better understanding, for example, of how anxiety relates to indigestion.
Moving to a window on the fifth floor of what's still known as the NECCO building, Fishman says Novartis relocated its world headquarters for research from Switzerland to Cambridge to take advantage of Boston 's world class hospitals, universities, a cluster of bio-tech companies and the talented researchers they attract. "If you look down the street there, there's the MIT dome. That's one of the reasons we like to be here, and if you went a few blocks, well you can actually see it poking out over the top, MGH."
Novartis has 12-hundred employees in Cambridge and is growing. But there are five other Novartis research facilities around the world, and Fishman says expanding elsewhere might be more attractive. "Boston has a chance to be the very best bio-med center in the world. They have limitations here, space limitations, housing costs, Byzantine regulations. There's a lot of competition. and it's not just competition from other states, it's global competition." That caution is sobering as many economists and state leaders look to bio-tech and other parts of the life sciences sector to revive the state's economy.
Too many eggs in a biotech basket?
The greater Boston metropolitan region is down 112-thousand jobs since 2001, the peak of the high tech boom. Four major corporations: FleetBoston, John Hancock, Gillette and Reebok have been acquired by firms outside Massachusetts in last 2 years. Barry Bluestone directs the Center for Urban and Regional Policy at Northeastern University. "We've attracted very few out of state industries to come here. We're still able to bring pharmaceuticals and others here to take advantage of our great advances coming out of our universities. But it's just another sign that we have to remain incredibly vigilant in the economic development game."
Many economists stress that expecting too much from bio-tech and other life sciences industries is risky, even in the wake the Boston Scientific-Guidant merger and the proposed merger of Thermo Electron and Fisher Scientific. Edward Glaeser, the director of Harvard's Rappaport Institute for greater Boston says "the bet for the future is that life sciences will replace computers and the technology that dominated the last revolution. But one thing we know about technological revolutions is that these things are awfully hard to predict. Are miracles happening in the life sciences every day, absolutely, are many of them happening here, for sure. Is it going to turn into something that's going to employ a wide base of people and produce a large amount of money? That has yet to be seen."
Who's manufacturing the jobs?
Bio-tech companies are adding research jobs, but the resulting manufacturing jobs are out of state or out of the country. 90% of the Bay State's bio-tech companies, including Novartis, do not make their prescription drugs and other products here.
Manufacturing still has a presence in Massachusetts. It represents one in ten jobs. But Citizens Bank vice chairman Bob Mahoney says that Massachusetts' hold on any manufacturing job is tenuous. "With the growth in third world countries, and their ability to manufacture and manufacture efficiently, very viable value added industries today will not be in 5 to 10 years. So we've got to be constantly on the innovative side of manufacturing." As manufacturers struggle with overseas competition, there are also troubling signs in Boston's information technology and financial services firms. Major regional companies: Citizens Bank and Fidelity are expanding in or moving operations to neighboring or distant states. They are lured by lower taxes, lower labor and energy cost and aggressive marketing campaigns. Mahoney says the talent is just as viable there. "We have a variety of operational units that are scattered around the country, and the notion of a call center in downtown Boston is not going to happen. We're going to go to a lower cost area and that will be a risk."
Thinking new, thinking small.
So if Boston is at a crossroads, trying to figure out which industry will be the next big thing, while the state is losing ground in manufacturing and some mid-level office jobs, then what will rejuvenate the greater Boston economy? Harvard's Edward Glaeser says, think small. "It's is not surprising that older firms have left, in fact it probably is something we have no business fighting against. We're unlikely to have a future in holding on to mature industries, our future is surely as being an incubator of new ideas, of new industries, of new firms."
Greater Boston is a well established hub for start-ups. Massachusetts has the third highest rate of patents on new technologies in the country (see graph of patent data) and the second highest rate of turning those discoveries into new companies (see graph).
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| Yet-Ming Chaiang. (Photo: A 1-2-3 Systems.) |
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One of region's many success stories is a Lithium ion rechargeable battery company called "A 1-2-3 Systems" in Watertown . Co-founder Yet-Ming Chiang is a professor at MIT. He stands, ready for action with the first commercial product to use his battery, a saw in a new line of Dewalt power tools. "My favorite is the reciprocating saw. It's almost double the power that you can get out of the wall. So, the amount of work you can do in less time is really remarkable."
Making the transition from research to business is not easy for many inventors. Chiang avoided that pitfall by finding partners: one who raised money and another who took on business development. Chiang says his strength is in the lab. Chiang says that was confirmed in one early interview with a potential investor. "He said, well, you're a full time professor at MIT, how committed are you to this new company? I was a little bit stumped. And he said, OK, let me make it very simple for you, imagine a ham and egg sandwich. The chicken is participating, but the pig, now the pig is committed. So are you the chicken or the pig?"
Chaing's company, "A 123 Systems" has about 50 employees at its headquarters in Watertown , another 30 workers in Detroit working on a lighter, more powerful hybrid car battery and 30-million dollars to expand. All of the manufacturing, several hundred jobs, is in China , Korea and Taiwan. Chaing says Boston's strength is brain power. "It's important for us to be here as long as we depend on technology and innovation for our livelihood. To develop new products at the pace we would like to we really need to be at a place like Boston , if not Boston ." "A 1-2-3" started just four years ago with the help of one partner's extensive contacts in the venture capital community.
Capitalising on innovation.
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| Mark Poznansky. (Photo: Martha Bebinger.) |
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Venture capital has been the key to turning discoveries out of Boston's hospitals and universities into products and jobs (see graph). But many inventors say finding money to launch a business is becoming more difficult in Boston (see graph). "It is that line that you have to kiss a lot of frogs before you meet the angel in this setting" says Mark Poznansky, an assistant professor at Harvard medical school and a founder of a company called "Celtaxsys."
Poznansky spent four years, off and on, trying to sell a discovery he says could free the immune system to attack cancerous tumors. Investors kept telling him to come back at a later stage of development. Poznansky says venture capital is a misnomer. "It was neither venture nor capital because we were doing something which was venture, yet the venture capitalists wanted it to be very secure in a phase 2 trial before they were willing to invest. And in fact at one meeting, one of these guys said to me, well, couldn't you tell me that you have, in a vial, something that you could sell for me for $10 that would cure asthma? And Isaid if I had that I don't think I'd be coming to you."
Through a high school friend, Poznansky found several angel investors or individuals willing to bet on his discoveries. He moved his company and its jobs to those investors' home base in Atlanta . One venture capital partner in Boston shakes his head. Adam Caper, the managing director of Synchrony Venture Management says "what I often see in entrepreneurs is that they just aren't sophisticated about where they can get money." Caper adds that there has always been a gap in early stage funding. But Caper says savvy entrepreneurs learn to work the investment system in Boston. "There is no better place in the world I think than Boston because of its strange mix of academia, technology and capital. We're standing next to the John Hancock building. I can go a mile in any direction and get everything I need to start a billion dollar company. I don't know where else in the world you can do that."
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| Abby Barrow. (Photo: Martha Bebinger.) |
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But groups that help the individual scientists find money for a first lease or a few research assistants, say Poznansky's frustration is common. Massachusetts Technology Transfer Center director Abby Barrow says "it's really, really, really difficult to get very early stage funding. It's actually easier to go out and get $10-15 million than it is to get the first 500,000 to a million that you'd actually need to do the real proof of concept." Barrow says the problem for start-ups is that venture capital firms have a lot more money than they did five or six years ago; but that money is still typically managed by a few partners. "If you've got a lot of money, but still the same manpower to invest it, you can only invest in large chunks of money. So they're really going into much later stage investments with bigger amounts of money."
A slow leak in the tire?
Barrow has just launched an on-line database where potential investors can browse among more than eleven hundred inventions from area hospitals and universities. Even at the current funding level for Barrow's center and a half dozen other initiatives, Massachusetts spends only about 15% of what competitor states do on assistance for start-ups. Funding for Barrow's program runs out in a year and prospects for renewal are tied up on Beacon Hill . Massachusetts Insight president William Guenther says greater Boston's shortfalls are taking a toll , "it all feels like a slow leak in the tire, it's not a blow out. The public system, politics and government tends to respond to proximate crises. We don't have a proximate crisis yet in this wonderful area of innovation. Bt it is a brewing crisis and unless you respond early, you may find that it is too late in the game." Guenther says Boston has to boost investment in training and retaining a talented pool of workers for the jobs that will secure Boston 's future.
Related Links:
Reinventing Boston: read Harvard Economics professors Edward Glaeser's article on “Reinventing Boston.”
Boston History and Innovation Collaborative: Read "Innovate Boston," a report out earlier this year from the Boston History and Innovation Collaborative.
Novartis: read more about the transformation of the former Necco factory into the Novartis Institutes for Biomedical research.
Morphing, Virus-Battery: two articles on Yet-Ming Chiang's research on batteries.
A 1-2-3 Systems: the website for Yet-Ming Chiang's company, "A 1-2-3 Systems."
Mass Biotech: How does Massachusetts stack up against other states trying to build biotech and other research-based industries? Here are three charts that put Massachusetts in perspective.
Massachusetts Technology Collaborative: see a report from the Massachusetts Technology Collaborative that lays out the state's strengths and challenges.
Celtaxsys: more on Mark Poznansky's research.
Massachusetts Technology Portal: the "Massachusetts Technology Portal" mentioned by Abby Barrow. It is a database of more than 1100 discoveries from hospitals and universities in Massachusetts.
Mass Insight: for more about William Guenther and Mass Insight's analysis of the state's innovation economy.
Mass Insight: A description of Mass Insight's economic development campaign. |
