Academic journal article Chicago Fed Letter

High-Technology in the Midwest-Biotech and Beyond

Academic journal article Chicago Fed Letter

High-Technology in the Midwest-Biotech and Beyond

Article excerpt

Industrial production long was the heartbeat of the Midwest economy. As that industry's role in the region diminishes, policymakers have explored new directions. At a series of conferences, local experts discussed the potential of the biotech industry as the Midwest's next frontier.

Although the Midwest is home to significant research and development (R&D) activity, this role has not led to an abundance of start-up companies or rapid growth of emerging technology industries. In 2005, the Economic Development Council of Chicago (EDC), the Federal Reserve Bank of Chicago, and other local organizations sponsored a series of meetings to analyze the potential in Chicago and the surrounding region to commercialize technology, along with attendant policy issues and possible economic development strategies. This Chicago Fed Letter reports on those discussions.1

At a conference at the Bank on April 26, 2005, Chicago Fed President Michael H. Moskow noted that Chicago must continually reinvent itself if it is to sustain its high standard of living and its size and importance. No longer having industrial production as its dominant activity, Chicago is now a "learning city," a business meeting center for the nation and the world, a corporate headquarters for the mid-continent, and a business services city that sells to the broader Midwest region, to the nation, and to global markets. But are these economic strengths sufficient? How might emerging technologies and associated new firm creation contribute to Chicago's future?

For some cities, such as San Francisco, Seattle, Boston, and Austin, TX, industry sectors centered on emerging technologies have contributed significantly to revitalizing the local economy. However, in the Chicago area, these sectors-measured by commercial activity rather than R&D-are somewhat small relative to Chicago's economic size and R&D performance. Especially in biomedical science, Chicago's degree of new firm formation appears undersized, given the significant R&D dollars flowing to the region's universities, hospitals, and federal laboratories. If this spending implies a significant potential for technology-driven growth in Chicago, what types of efforts from the public and private sectors might help bring about its full development?

Experience from other regions indicates that technology companies tend to multiply and grow most rapidly in "economic clusters." Clusters are groups of like-minded and highly interrelated firms situated in proximity. Cluster firms' proximity, composition, and relationships are conducive to creating new firms and regenerating economic activity.

Once a high-tech cluster exists, it is somewhat resistant to competitive inducements from other locations. That is partly because both firms and workers with specialized skills benefit from their proximity. By working in the cluster, the skilled worker gains a form of job security from the myriad employment opportunities at hand in the event of a job change, as well as a strong chance for career advancement at a number of nearby firms. Some of these workers go on to create new businesses of their own. Firms in a cluster benefit from the ability to hire skilled workers quickly and at a reasonable cost when a growth opportunity emerges. In addition, firms often choose to locate in a cluster because there are "ideas in the air." Locating elsewhere might mean missing out on an emerging technology or key industry direction. Of course, the presence of key business service activities-especially a venture capital community and specialized legal services-are also important to firms.

What policies might support the development of a cluster? And if public investment is made, how is success to be measured?

Biotech landscape

Much of the March 22 conference discussion of Midwest performance and strategy centered on the biopharmaceutical industry, an emerging growth sector of small companies and innovative products that has expanded steadily in the U. …

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