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Science-Based Economic Development edited by Susan Raymond
Susan E. Engelking
Staats Falkenberg & Partners
At a time when the technological lead of the United States is being challenged round the globe, a handful of American cities are centers for intensive technology research and innovation. Those cities, while competing among themselves for technology industry " plums," are also playing a critical role in our nations economic competitiveness by encouraging and supporting advances in science and technology
Austin, Texas, is one of the most successful of these cities. For the past decade, city leadership-in business, government, and academia- have collaborated on realizing a vision of Austin's future that embraces science and technology advances. To a great extent, the city has staked its future on success in technology. Government and local business officials have spearheaded efforts, while the University of Texas has provided significant financial incentives, accelerated certain research programs, redefined its research paths, incubated new technology-oriented businesses, and joined enthusiastically in Austin's marketing efforts.
Background on Austin
The University of Texas at Austin has long been the linchpin of Austin's economy, and for nearly 40 years it has actively supported Austin's economic development. In 1957, the university's Bureau of Business Research conducted a study for the Austin Chamber of Commerce that recommended recruitment of light manufacturing" to the area. Historically, Austin's economy had two primary sectors:
Acting on the study, the chamber organized an economic development arm and began recruiting light manufacturing operations. Coincidentally, in 1958, scientist Jack Kilby, co-inventor of the integrated circuit, was working on his discovery at Texas Instruments in Dallas, 200 miles north of Austin. Within a few years, the chamber economic development officials began to focus their efforts on the emerging electronics industry
The economic development program began to yield results in 1963, when IBM located a Selectric typewriter factory in Austin. Since then, the city has landed an impressive array of diverse technology operations, with a major new announcement every two to three years. A brief list of companies and consortia with a significant presence in Austin illustrates the impact of this program:
From a sleepy college town of less than 200,000 residents in 1960, the metro area has grown to nearly one million people. Austin historian Audray Bateman described the transformation:
Austin had long been trying to find a better purpose for existing than the capitol and the university...It was decided that the industry [to attract} would be brain power. This was years before the computer industry, It has finally come true. 2
Think tank founder George Kozmetsky calls Austin a "technopolis" because of its scientific preeminence in technology-based research, its development of new technologies, its attraction of major companies, and its home-grown entrepreneurial technology companies. 3
Recruitment, nurture, and support for the expansions of technology-oriented companies and research operations have been major factors in the city's growth. It is currently estimated that of the 480,000 people employed in the Austin metropolitan area, approximately 85,000 work in technology industries. Of the remainder, approximately 125,000 draw paychecks from governments, mostly the state of Texas (including 17,000 employees of the University of Texas) and local governments. 4
Austin is now a city of offices and offices workers, research operations and researchers, and electronics manufacturing and assembly workers. Its workforce is among the most educated in the country:
At the same time, the city is experiencing problems typical of many American cities. Twenty-five percent of high school students drop out. The city's minority populations (twenty-one percent of the area's population is Hispanic; nine percent is Black) typically have less education and lower earnings than whites. Some neighborhoods are experiencing a significant increase in poverty, and minorities have higher poverty rates than whites. Middle class families are migrating out of the central city in search of better and more affordable housing and lower taxes; this movement is contributing to urban sprawl. 5
The city faces important social challenges: How can institutions- schools, community colleges, job training organizations- realign to train and educate local residents so that they will qualify for jobs at technology companies, which are among the highest-paying jobs in the city? How can the city assure that all citizens have opportunities to participate in the growing economy? How can the city avoid leaving people, especially minorities, behind in the new economy it is crafting?
Austin faces equally important economic challenges: How can the city assure its continued leadership in the highly competitive global sphere of technology research and manufacturing centers? How can collaboration among organizations be institutionalized to ensure continued success as individual leaders change? Given recent rapid economic growth, and public ambivalence about it, how can the city avoid complacency?
The city's success in science and technology owes much to the faithful, "can-do" execution of long-range strategic economic plans, the first developed in 1957 and the second in 1985-86. Perhaps the key economic question for Austin is this: How can the city stay on course with its long range plan and fully realize its vision as a global center in new science and technology development?
The Policy Trigger: High Stakes Opportunity
In 1983, Austin changed course. Until then, Austin had achieved success as an out post for major manufacturing operations for leading U.S. technology corporations, notably IBM, Texas Instruments, Motorola, and AMD. The Chamber of Commerce had succeeded in creating a third sector of the economy, The groundwork was laid for what would become the next phase in Austin's economic development: positioning Austin as a center for advances in U.S. technological competitiveness.
In the wake of falling oil prices and the decline of the Texas economy, the "policy trigger" was an unusual opportunity, the national site search by the newly-created Microelectronics and Computer Technology Corporation (MCC). An unprecedented venture, MCC was the country's first private-sector, high-technology consortium and the first to gain approval regarding antitrust status from the U.S. Justice Department. MCC chose Austin out of 57 cities in 27 states, all vying to become the host city to new research consortia assembled to promote U.S. technological leadership in electronics.
The key to Austin's win was a new partnership between government, business, and the University of Texas at Austin. The MCC experience brought together, for the first time in Texas, business and industry and the University of Texas system to develop incentives and put forth an aggressive bid. Among the key participants at that time were the governor's office, the University of Texas system and the campus at Austin, particularly the College of Engineering, and the business community statewide and locally, including the Austin Chamber of Commerce. The full commitment of all partners was required to develop an incentive package that responded to MCC's location selection criteria. The commitment was also necessary to ensure that the state and the university had authority to proceed with the incentives, and that it was possible to raise the private financial support required.
In 1983, Texas was in the third year of a major economic slump as a result of the drop in oil prices. While Austin's economy was less affected by the oil decline than most cities in Texas, State leadership organized to support Austin's bid because the University's presence made it uniquely competitive. Henry Cisneros, then Mayor of San Antonio, threw his effort behind Austin's bid when it was clear San Antonio was not a finalist. In teaming up for MCC, all participants on the MCC Task Force believed that winning MCC was a "Must" for Texas. Then-Governor Mark White was determined not only that Texas should win, but that it should win by a wide margin.
Collectively we had to believe that winning such a laboratory was critical to charting the future of the state in terms of emerging technology rather than oil," said Pike Powers, who served as executive assistant to the governor. During the course of the proposal the project team met at least daily, "which was critical if we were to share the vision and muster the financial resources and commitment of talent that we felt MCC required," Powers said of the Austin project team. 6
The major incentives in Austin's MCC bid included:
Austin's MCC project team understood that the University of Texas at Austin was the key to Austin's bid. At the same time, cities with major research institutions like MIT and Harvard were at a competitive disadvantage because MCC sought an institution whose relationship with MCC would be so critical as to determine areas for acceleration and priority, a situation that is less likely at an institution with already established world-class research programs MCC was assured of ready access to the University of Texas and its faculty.
The Texas bid for MCC, with more than $20 million in incentives, raised and altered forever the stakes for such competitions in the United States. Texas was accused by some competitors of "buying" MCC. The president of San Diego's economic development corporation commented, "When you look at the package that Austin offered it was just not in the cards for San Diego unless someone could strike oil." 7 For Texas, however, the choice made long-term sense for redirecting the state's economy, "I look at it as an investment, not a purchase price," said Peter Flawn, then president of the University of Texas.
What made MCC a policy trigger was the shared vision required by the state business leadership, as well as academicians, in seeing technology development and new knowledge as wellsprings for what has come to be called "the new Texas economy," 8 Diverse forces joined in pursuit of new economic generators. State political and business leaders agreed on a common vision for Texas: to be at the forefront of education, economic diversification, and new applications of technology to business and industry, and products and services.
Neal Spelce, an Austin business leader and senior news anchorman, later summarized the impact on Austin:
{T}hose of us who worked so hard to land the plum knew then that for the Austin economy this would establish our reputation as a high-tech mecca. And the economic significance of the site location itself would be the trigger point for worldwide recognition as a center for future high-tech development...{S}ince MCC paved the way, so many high-tech companies have now cast their future in our area that- for the first time in history- the service sector, led by growth in high-tech, environmental engineering and consulting, and research and development...exceeded the government sector employment for several months (in 1994). 9
Today, MCC continues to occupy its facility at the university's Pickle Research Center (the former Balcones Center, renamed after Austin's long-time Congressman and research funding advocate). While some industry observers have questioned its future viability, 10 it has successfully evolved and currently employs 150 people in Austin, principally scientists, engineers, and technicians.
Regardless of MCC's future, "the die has been so strongly cast in the direction of super-charged high-tech economic growth that the economic significance of MCC's site selection of Austin back in 1982 may truly equate to the economic impact of state government and the state university on the Austin area," according to Spelce. 11
The Objective: Technology Leadership
For Austin, the real significance of MCC was the linkage of the citys economic future with the future of science and technology. What had been a successful recruitment bid became a focal point for local leaders crafting the next phase of Austin's economic development
In 1984-85, the Austin Chamber of Commerce commissioned a new long-range economic plan- the first for the community since 1957. SRI International in California was retained to examine economic issues, conduct community-wide interviews and focus group discussions, and recommend a strategic plan for the next fifteen to twenty years. The chamber's instructions to SRI International were, "tell us what we need to know, not what you think we want to hear."
At that time, local leaders were "riding high," in Texas terminology. In 1984, 3M Company had begun relocating the first of three divisions to Austin, following a successful recruitment conducted by the same cast of characters who won MCC-the governor and his staff, university officials, and business leadership. 3M's new Austin facility included administrative and marketing offices, and, most important for Austin's emerging vision, research and development laboratories to be staffed over time by hundreds of scientists and technicians.
In addition, in 1984, Austin hosted a conference on "Megatrends" following the publication of John Naisbitt's book of the same name in which he identified ten "Megatrend cities" of the future, including Austin. Co-sponsored by the daily news paper, the Austin American-Statesman, the conference and extensive media coverage heightened local community awareness about the potential for Austin's future in research and development, knowledge, and new technology.
SRI International consultants shared in the excitement of their assignment, writing that Austin is poised for greatness. The city today has all of the elements needed to build an advanced information and knowledge economy that would provide opportunity for all residents within a uniquely liveable environment." 12
SRI's report, "Creating an Opportunity Economy," continues to guide economic and community development thinking. SRI articulated a vision and charted a course of action for Austin, stressing the linkage between quality of life and economic development. Science and technology are at the heart of SRI's vision:
We at SRI believe that Austin, of all American cities, is in a unique position to be the next center of excellence in several of the key technologies of the future. Austin is already strong in microelectronics, computer hardware and software, and telecommunications hardware...Austin is also in an excellent position to take advantage of another driving force in the transformation of the United States from an industrial to an information society- the revolution in values and lifestyles ...[I]f Austin follows the strategies suggested... the wealth created by both present centers of excellence and by new technologies will spread throughout the economy creating jobs and entrepreneurial opportunities in all sectors, for all Austinites- an opportunity economy in a uniquely livable city 13
SRI defined Austin's future in terms of a five-sector economy, Three sectors were science- and technology-oriented:
Over time, the strategies and actions recommended by SRI to nurture and expand these sectors caused new policies to be created and old policies to be reshaped. SRI's recommendations included:
The Policy Process
The key players in the policy process in Austin were those who had bonded during the MCC experience, solidified their working relationships during the 3M recruitment, and initiated the SRI International study, They were University of Texas officials, both within the state system, including the chancellor, and on the Austin campus, including microelectronics professor Ben Streetman; government officials, notably Pike Powers in the governor's office and later as Austin managing partner of the law firm Fulbright & Jaworski; and the Chamber of Commerce and a cast of local business leaders who, like Spelce, envisioned a technology future for Austin.
Each sector-university, government, and business-occupied a critical role in the process. The university, with an endowment second in size only to Harvard's, had the resources to offer significant incentives and a mission of scientific research excellence that coincided with Austin's emerging vision. Government could under write efforts, offer incentives, and provide the ultimate salesmanship when needed: persuasive, personal strokes by political leaders like the governor and mayor. The Chamber of Commerce could spearhead, champion, and shepherd the vision, as well as educate and involve large numbers of community and business constituents in the task.
Then and now, the center of gravity for policy action is a core of business and university leaders, with new players added as people move on. The cooperation and relationships established in 1983-86 continue to exist.
The experience was repeated and the roles and relationships solidified in 1988, when for the second time, Austin won a much heralded competition as the site for a new national research consortium. Sematech, a consortium of U.S. semiconductor manufacturers focused on technological leadership in new manufacturing production methods, chose Austin over 137 other cities.
"Winning MCC not only fast-forwarded Austin's economy, it also forced critical choices for this state concerning economic development and diversification, really for the future of the entire state," said Peter Mills, former vice president for economic development for the Chamber of Commerce. "Thus when Sematech emerged, we were ready for it."
The University ofTexas again marshalled its resources. The university provided the site by acquiring an existing 275,000-square-foot manufacturing facility and creating a new 92-acre university research park around it. Sematech required a state-of- the-art cleanroom, and local industry and university facilities experts worked long hours to develop a cleanroom conversion plan that met its needs.
"There has never been a better example in recent times of the impact of higher education on the state's economic well-being," said Lieutenant Governor Bill Hobby when Sematech announced its move to Texas. 15 Hobby's statement underscored the value of the university's initiative in the face of setbacks in the course of 1987. The most critical setback occurred in the summer of 1987, when patty politics defeated a bill in the Texas legislature to appropriate bond funds to help build the Sematech facility. This setback deflated the spirit of many of the members of the Texas team because without such financial resources it was believed that the financial stakes were so high as to preclude an Austin win. However, the university stepped in with access to the Permanent University Fund.
When the legislature killed the bill we had drafted for bond monies, the university then stepped to the table and committed their academic resources and participation to the process along with their financial might. We just couldn't have been as competitive without that. In the final analysis we were probably better off with the university as the "banker" rather that the state directly. 16
In addition to the university's financial resources, Travis County created a County Research and Development Authority, which then issued $38 million in industrial revenue bonds that enabled the purchase of the University of Texas Montopolis Research Park. The result was a bid that directly answered Sematech's needs, although Austin's financial package trailed that of other finalist communities. Altogether, Austin's incentive package totalled $68 million, compared with bids from several other states, including Massachusetts and California, exceeding $200 million.
After the Sematech win, U.S. News and Word Report wrote that "MCC and Sematech give Austin the "critical mass" of high-tech manufacturers, suppliers and workers that allows businesses to sustain themselves-and expand. With a large number of companies and research groups, scientists and technicians can change jobs if they are stymied in one organization. And the more firms, the more likely they are to create spinoff concerns." 17
At the heart of Austin's approach to economic development policy-making is a set of shared community priorities and beliefs. First, a high value is placed on the ability to mobilize quickly and act on opportunities. The MCC, 3M, Sematech, and later success could not have been accomplished within the normal pace of community reaction, deliberation, and decision making. An accelerated "can-do" pace and risk-taking spirit became essential factors in Austin's economic development success, with frequent meetings at pre-dawn hours, decisions made quickly, and incentives secured expeditiously,
This pace responds directly to the technology industry, Timeliness is becoming Increasingly important as the pace of technology and scientific innovation quickens. For example, the window of opportunity for a new wafer fabrication operation, like those now in Austin, is measured in weeks and quarters, not months and years.
A second shared community priority is a commitment to Austin's role in the country's technological competitiveness. Local leaders based a national public relations campaign in 1987-90 on the theme, "Austin: What the World is Coming To," reflecting the premise that technology research, development and manufacturing operations in Austin were important to the future ability of the U.S. to compete globally, During the Bush administration, Austin business and university leaders became proponents for a national industrial policy to support strategic technologies. This issue was comprehended by local leaders as important to the vision of Austin and the research collaborations it sponsored as a community.
The commitment to policies supporting U.S. technology competitiveness supersedes Austin's parochial interests. Sematech required federal funds to pursue the magnitude of its mission. Austin's U.S. Representative J. J. "Jake" Pickle pledged support for Sematech funding regardless of the ultimate site location, and he helped mobilize the strength of the Texas congressional delegation to secure that funding.
Pickle also sponsored landmark research-and-development tax-incentive legislation during his long congressional tenure. Following Pickle's retirement in 1995, newly-elected Lloyd Doggett sought and won a place on the House Science Committee and its basic research subcommittee, which have jurisdiction over national science policy, including projects by the National Science Foundation and the Office of Science and Technology Policy
Austin business leaders are dedicated to collaboration as a competitive tool. Kozmetsky suggests the development of U.S. technology policy apart from an industrial policy by "assisting U.S. firms-large, medium, and small-to find and put rapidly to use the best technology available through collaboration....Under this approach, U.S. science and technology focuses more on the downstream phases of application and commercialization." 18
A third shared community priority is educational excellence at all levels, preschool to post-graduate. Science, technology, and information industries demand it. Furthermore, educational requirements keep rising. Among semiconductor industries in Austin, for example, the baseline education for wafer fabrication operators is now the twelfth-grade level and will be raised to two-year associate degree equivalency within the next two years. Some industries require even more for basic employment. Applied Materials requires all new employees to have completed college at a minimum, not because of what their jobs require today, but because of future requirements projected by the company. 19
Education as a priority has been one of Austin's greatest policy challenges of the last decade. While progress has been made- public schools test scores have risen, new business and industry partnerships with public schools have been created, and voters have authorized a property-tax base for Austin Community College and approved a major school bond election- many setbacks have also occurred. State funding for Austin's central school district has been sharply reduced, dropout and teen pregnancy rates have risen, and youth gangs have added members. Middle class families have migrated to suburban areas, leaving behind in the city's central school district a school-age population that is less affluent, more predominantly minority, and less equipped for the future economy being charted by city leaders. 20
A shortage of trained local job applicants has caused business and industry to recruit workers from outside Austin to meet their workforce requirements. This fuels resentment among local residents and controversy about the city's growth.
The Chamber of Commerce, which has spearheaded educational changes and school bond elections, cites an "expectations gap." Community expectations- and business requirements- for the public schools are rising rapidly, and the schools are not changing fast enough to satisfy them. Test scores indicate that Austin has the best urban school district in Texas. But the business community is calling for the Austin educational system to be globally competitive. 21
The most promising efforts in education involve business and industry collaborations, notably the Capital Area Training Foundation and the new School-to-Work Initiative. These efforts have the potential to introduce to school districts, which have been isolated politically and professionally, the spirit of public/private collaboration that has characterized Austin's pursuit of technology.
A fourth shared priority is quality of life The long range plan developed with SRI International expressed the importance of quality of life to Austin's economic development:
[Q}uality of life in Austin has become a key economic issue. it it it To satisfy the aspirations of its residents to attract and retain leading edge companies Austin must develop a rich artistic and cultural diversity, while retaining enjoyable parks, uncontaminated water, an easy commute, and top-quality schools....{The}issue of growth that divides most communities can be an overarching concept that unites Austin. 22
Austin's quality of life is closely linked to workforce vision that focuses on "knowledge" workers:
The U.S. economy is...being transformed by a values revolution- the growth of "inner-directed values" among scientists, engineers, technicians, intellectual, and entrepreneurs. They...place a high value on schools, cultural richness, amenities, clean water, and the like it...These people (and their companies) will be able to make an especially significant contribution to Austin over the next few years because they will be the leading edge of the city's development as an advanced information and knowledge center. 23
Austin's recent economic, social, and political history has been significantly shaped by the growth of its "knowledge worker" population. The presence of the university, the desirability of Austin's lifestyle, and the city's emphasis on industries that require highly educated workers has resulted in a population that is not only more educated, but younger, more mobile, and more likely to have relocated in the last ten years than the populations of the other major cities in Texas. 24 In local public policy deliberations, quality of life is a constant consideration, and what constitutes quality of life is a constant subject of debate
The Substance of the Initiative
The overall initiative for Austin to become a global center for technology excellence was the sum of scores of separate actions involving dozens of policies and hundreds of individual players. The impact of the initiative has been magnified by synergies as one institution's actions support another's. For this analysis, the policies and actions are grouped into four substantive areas.
Capacity Building
Since 1993, capacity building has occurred in several arenas: educational, intellectual, and physical infrastructure.
With both MCC and Sematech, the university accelerated plans. Since a strengthened microelectronics department was critical to the recruitment of the semiconductor industry, the university created new endowed chairs, acquired faculty, invested resources, and built facilities to attract the talent that is needed. Plans for the next ten to fifteen years to increase the stature of the university's engineering and science effort were collapsed to compete for those projects. Since 1983, the university has invested $20 million in the Center for High Performance Computing and $25 million to construct the Center for Microelectronics. The MCC and Sematech bids attracted more than $20 million in new private funds for the university in Austin. Thirty-two new $1 million endowed chairs and professorships were created in microelectronics, electrical engineering, computer engineering, and computer science.
To build physical infrastructure capacity, Austin voters since 1983 have approved bonds totalling over $1 billion for water, wastewater, electricity, and other facilities and services to equip the community into the twenty-first century. The single largest project is a new municipal airport, one of only two major new airports in the nation to be undertaken since the Dallas-Fort Worth Airport opened in 1973. Austin's airport is scheduled for completion in late 1998 or early 1999. Technology companies supported the airport bond campaign, since increased air cargo and passenger capacity were considered critical to their industries.
Incentives
Economic incentives have been crucial to Austin's success. Foremost among them are those offered by the University of Texas, both the state system and the Austin campus.
Overall, the university's incentives have focused on four areas:
Likewise, incentives provided by city and county government have focused on four areas:
Climate for Entrepreneurs and Innovation
SRI International's report crystallized a vision for Austin as a hotbed for technology, software, and information entrepreneurs. Austin's reputation as a sponsor of entrepreneurial success was secured in 1988 when Inc. magazine named Austin the number one entrepreneurial city in the U.S. based on the number of new enterprises being created. The climate for entrepreneurs was further strengthened in 1988 with the creation of the Austin Technology Incubator. The Incubator was created to nurture and assist the growth of research and technology operations that have high growth potential. The University of Texas owns the incubator facility and provides access to Business School faculty and graduate students. On average, it houses thirty startups or spinoffs, and it hosts an annual "graduation ceremony" for companies ready to move out. The incubator is also host to a service which matches the requirements of venture capital companies with the needs of research and technology businesses in Texas. 25
The Greater Austin Chamber of Commerce (renamed in 1987 to reflect its increasingly regional role) has contributed $25,000 annually to the Incubator since its inception, in addition to operating a Small Business Division which provides management and technical assistance to emerging companies.
Entrepreneurial successes are legendary in Austin. Michael Dell began Dell Computer Corporation, now a Fortune 500 company, in 1982 while he was a freshman at the University of Texas. University engineering graduate Frank McBee founded Tracor in the 1950s, which eventually spawne Montopolis Research Park.d a cluster of technology companies totalling twenty-five spinoffs and more than 6,000 jobs to date. 26
The university's favorable stance on allowing faculty to reap financial rewards by retaining ownership in their inventions further encourages new research startups. Altogether, more than in most cities, Austin business and university leaders treasure, support, and encourage young companies because of the awareness that they may not only succeed phenomenally, they could also spin off the science and technology successes of the future.
Targeted Marketing and Recruitment
Business, government, and the university have long collaborated on targeted industry recruitment efforts. In 1988, during an economic slump, the Greater Austin Chamber of Commerce initiated a program which expanded the effort and established a rationale for attracting and nurturing targeted companies. The program responded to SRI International's recommendations to sharpen recruitment activities, strengthen community partnerships, and follow through on long-range economic plans.
Diversity was a key theme of the program. Within science and technology, the program identified targets including biotechnology and pharmaceuticals, software, telecommunications, publishing and electronic information, federal research opportunities, as well as microelectronics and computers. University strengths, priorities, and resources were inventoried to tap their potential for leverage. The program led to a number of recruitment successes, as well as increased funding to support the chamber's economic development programs and mobilization of business and academic leaders. The program directly involved university faculty and administrators:
{The university} has been an incredibly willing participant in any recruitment effort...They have been enormously cooperative in wooing prospective employers and articulating the curriculum, but what we're seeing now is an intense town and gown effort. We are finding new levels of cooperation in it . We're seeing a level of unbridled enthusiasm that has not really been tapped before. 27
The chamber's economic development division continues to direct the city's industrial recruitment efforts and to collaborate with university faculty and officials on marketing to specific companies. University faculty are frequently the source for information about new technology ventures and opportunities.
Organizational Structure
The Greater Austin Chamber of Commerce with its Economic Development Division has provided the organizational glue for Austin's technology thrust. Chamber officials manage an economic development research, recruitment, expansion, and retention program, which is also charged with fostering an entrepreneurial climate. At $450,000 for the year 1995, the program is funded at a considerably lower level than most programs in comparably-sized cities and most cities in Texas. The program continues to rely heavily on volunteerism, business-sponsored incentives, and the resources of the University of Texas. 28
In that sense, the organizational approach has not changed significantly since the MCC experience. Less than $20,000- most of it private funds, some chamber funds and none of it taxpayer funds-was spent on recruiting MCC. Donated time, resources, and services, such as helicopters to show site selection team members the city, and quality of life survey commissioned especially to make Austin's case to MCC, accounted for the "lavishness of the recruitment drive. This 'volunteerism' represents a substantial personal and collective investment in the promise ofMCC," it was reported at the time. 29
Volunteerism and private contributions continue to figure significantly in incentive packages. For example, a real estate venture gave a favorable purchase price to Applied Materials on its 175-acre site in northeast Austin. A private donor purchased and donated to the University of Texas the building which initially housed the Austin Technology Incubator.
The University of Texas continues to be the source for the large-scale financial commitments required for Austin to be competitive. The university has a legislative mandate to pursue excellence, and it embraces opportunities to accelerate the pace. Expenditures to advance Austin's technology economy are viewed as an investment, not a cost. Initiatives are decided by university leaders, who have an institutional memory, William Cunningham, now chancellor of the system, was dean of the College of Business Administration during the MCC experience. During his tenure as president, both the Austin Technology Incubator and the Montopolis Research center were created. Cunningham continues to be a strong proponent for capacity building in science and technology research.
Organizational structure in government is less defined. Austin's elected officials, especially the mayor and county judge, are key players, contributing their time, personal attention, and powers of persuasion to collaborative efforts. However, institutional memories within government are fading, especially as new elected officials replace incumbents. Talk radio and taxpayer revolt have combined to paint city-county incentive programs as zero-sum- rather than economic investments. Since the tax abatement policy was allowed to lapse in 1991, fewer meaningful financial incentives are available.
Outputs and Impact
The result of Austin's collaborative effort can be summarized in several ways. First, the sheer number of technology-based companies now exceeds 900. Eighty-five thousand Austinites are employed by the array of technology research, development, and manufacturing companies and consortia.
Second, Austin has become a preeminent center for the U.S. microelectronics industry with the presence of AMD, Motorola, Applied Materials, and an estimated 200 suppliers to the industry, in addition to the two national consortia, Sematech and MCC. Motorola and AMD are so important to the economy in terms of their capital investment, contributions to the tax base, attraction of large supplier companies, and global influence on Austin that they can be termed "super-primary employers." For its concentration of semiconductor operations, Austin has been called "Silicon Hills," in contrast to northern California's Silicon Valley, Angelos Angelou, former vice president and chief economist for the Greater Austin Chamber of Commerce, commented, "The presence of these major international competitors has made Austin a global center versus a regional one, and that effect is magical." 30
Third, Austin has become a national center for software development with 440 software companies already present and employing 30,000 people. This signals the successful execution of the information industry development program recommended by SRI International.
Next, Austin's entrepreneurial status is growing as entrepreneurial spinoffs from the University of Texas and local companies abound. Typical of the spirit, Ambion, now a forty-employee molecular biology company, was founded in 1990 by a University of Texas professor who says the company's success "gives me the freedom to be an inventor." 31 The Austin Technology Incubator completes its seventh year, -having assisted in the growth of 55 startups, including 24 "graduates" of the incubator. 32
Finally, the magnitude of accelerated investments by the University of Texas exceeds $165 million when endowments and new capital investment are totalled.
Postscript: Policy Challenges Ahead
The good news for Austin is that it has made tremendous progress toward its strategic vision to become a globally-significant center for technology research, development, and business. The bad news is that the task doesn't get easier. Although Austin is among the few cities in the U.S. in the lead, the pack is now global and gaining ground. Just as the pace has quickened in technology and scientific developments, so it has in economic development.
Austin's vulnerabilities for the future must be addressed for the community to continue to occupy a special role in contributing to U.S. technological success. Those challenges center on four policy arenas: tax policies, education and workforce training, urban planning, and institutional commitment.
Tax Policies to Encourage Capital-Intensive Technology Research, Development and Manufacturing
Austin's governmental bodies- cities, counties, and school districts-rely heavily on property tax revenue, but this reliance now has a negative impact on emerging, desirable technology industries. Austin's cost of living, on the rise, is no longer sufficient to offset the property tax burden. While Austin seeks to attract capital- intensive technology industries, its reliance on property taxes penalizes those industries. Property taxes tax capital investment, and they place extraordinary burdens on companies that require extraordinary investments.
Austin has staked much of its success on microelectronics. Semiconductor manufacturing facilities, in particular, are among the most extraordinarily capital intensive of any industry, 33 Two new wafer fabrication plants, each exceeding $1 billion were under construction in 1995.
Education and Workforce Training for the Local Residents
Austin's unemployment rate hovered below 4 percent for most of 1994 into 1995. To meet service and manufacturing labor demands, local employers were recruiting regionally and nationally, Yet within certain predominantly African American and Hispanic neighborhoods, the unemployment rate among males is reported to approach 15 percent. Nearly one-quarter of all high school students drop out before earning a diploma, thus eliminating themselves from consideration for well-paying technology industry jobs with career opportunities. At the same time, area employers are increasing the entry-level standards for basic math, science, reading comprehension, and written and oral communication skills. 34
To avoid leaving behind local residents in the technology and information sectors, Austin social and educational institutions- public schools, community college, job training organizations- must realign to prepare and train residents for actual jobs.
Urban Planning to Accommodate Growth
Austin is experiencing rapid growth following an economic downturn in the mid-to-late 1980s. But while the physical infrastructure to accomodate that growth exists, the community consensus is not as clear.
"Austin is a big city. This statement itself causes some Austinites to argue," wrote former city manager Camille Barnett in introducing Strategic Choices, a policy paper intended to identify the city's physical, economic, and social trends, relate them to experiences of other communities, and define possible actions to intervene and change course. Barnett continued:
We are not a compact city. Our development pattern is the opposite of what we say we want it to be... One of the myths we hear in Austin is that we are different. We are an oasis, a beautiful place without the problems of other cities. This myth gives us a sense of being special and adds to the vital Austin spirit. But our myth also blinds us to very real trends and very real problems. If we fail to see- or deny what we do see- then we too will decline . . . . We will become victims of our own success. 35
Barnert's document triggered a community discussion but no resolution about the future of Austin and its urban plan. Land use and environmental land regulation are among the most hotly contested local political issues today,
For Austin to continue to succeed in science and technology, it must develop an urban master plan or adopt a decision process which allows the city to accommodate new technology growth in a way that does not compromise the quality of life.
Institutional Commitment to Long Term Economic Development
"Austin's greatest danger is complacency," according to Angelou. Because of Austin's success during the past decade, he sees a tendency to relax that could derail its long-term plan.
Next-generation local leaders- both political and business leaders- do not always have an understanding of the intense efforts required to achieve Austin's economic development success. Some officials privately express the belief that Austin's economy is "booming," so there is no need to be proactive or offer incentives to any businesses.
At the same time, competition among U.S. cities and regions as centers for technology development has stiffened. The same incentives that set a new national standard in 1983 would likely not be sufficient today, because "the bar has been raised." 36 To attract and encourage expansion of technology industries, cities and states now routinely offer financial incentives that would have been considered extraordinary a few years ago. Even the most seemingly content, locally-grown Austin company is vulnerable to an appeal from another city, state, or country that will commit to assisting its growth.
To realize its vision as a global technology center, Austin must stay competitive or risk falling out of the global running. A decade age, SRI International advised local leaders:
The key to Austin's future lies largely in its own hands. It can fail to act and perhaps muddle through to become a high tech center of sorts, mourning its lost quality of life. Or, Austin can take the initiative and go for greatness. 37
Fortunately for Austin, the University of Texas continues its institutional commitment without wavering. Its contributions to technology economic development- strong initiatives in recruiting research and development, accelerating schedules for research programs, commercializing technology, incubating technology businesses, and supporting two research parks in Austin- are long term commitments. Clearly, the University of Texas is a central catalyst and continuing force in Austin's economic development.
For Austin to achieve its long-term economic development vision, institutional commitments must be secured, renewed, and strengthened among all of the players critical to its success: city and county government, the Chamber of Commerce and its economic development arm, businesses and industries, and other educational institutions at all levels. All have a direct and critical role in realizing Austin's future as a collaborative center for technology and knowledge advances for the nation.
References
Note 1: Interview with Pike Powers, Austin, January 1995. Back.
Note 2: Elizabeth A. Moize, "Austin: Deep in the Heart of Texans," National Geographic, June1990, p.57. Back.
Note 3: David V. Gibson and Everett Mit Rogers, R&D Collaboration on Trial (Boston: Harvard Business School Press, 1994), p.lOO. Back.
Note 5: Strategic Choices (Austin: City of Austin, 1993), p.5. Back.
Note 6: Interview with Pike Powers, Austin, May 1988. Back.
Note 7: Diane E. Downing, "Thinking for the Future: The Promise of MCC," Austin, August 1983. Back.
Note 8: Lieutenant Governor Bill Hobby Statement, Austin, January 6, 1988. Back.
Note 9: Neal Spelce, The Neal Spelce Austin Letter January 6,1995, p.2. Back.
Note 10: Helen Thorpe, "Is MCC Obsolete?" Texas Monthly January 1995, pp.118-20. Back.
Note 11: Neal Spelce, The Neal Spelce Austin Letter January 6, 1995, p.2. Back.
Note 12: SRI International, Creating an Opportunity Economy (Austin: Austin Chamber of Commerce, April 1985), p. V. Back.
Note 13: SRI International, pp. 89-90. Back.
Note 14: SRI International, pp. 25-34. Back.
Note 16: Interview with Peter Mills, Austin, 1988. Back.
Note 17: Kenneth R. Sheets, U.S. News and World Report September 12, 1988, p. 51. Back.
Note 18: David V Gibson and Everett M. Rogers, R&D Collaboration on Trial (Boston: Harvard Business School Press, 1994), p. xxv. Back.
Note 19: Interview with Sandy Doehen, Greater Austin Chamber of Commerce, Austin, January 6, 1995. Back.
Note 20: Strategic Choices, pp. 29-31. Back.
Note 21: Dochen, interview. Back.
Note 22: SRI International, p. vi. Back.
Note 23: SRI International, p. v. Back.
Note 24: Interview with Angelos Angelou, Greater Austin Chamber of Commerce, Austin, 1995. Back.
Note 25: Interview with Tom Stephenson, Austin Technology Incubator, Austin, 1996. Back.
Note 26: Angelou, interview. Back.
Note 27: Mills, interview. Back.
Note 28: Angelou, interview. Back.
Note 29: Downing, interview. Back.
Note 30: Angelou, interview. Back.
Note 31: Interview with Matt Winkler Ambion, Austin, November 1994. Back.
Note 32: Kilcrease interview. Back.
Note 33: Advanced Micro Devices, Incentives for Economic Development (Austin: October 24, 1994, p.8. Back.
Note 34: Dochen, interview. Back.
Note 35: Strategic Choices, p.5. Back.
Note 36: Powers, Interview. Back.
Note 37: SRI International, p.89. Back.
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