Executive Voices: an Op-Ed Column

Business Growth Busted?
We need not just a change of our politics but of our very culture

By Noah Pickus

At the 2003 Emerging Issues Forum in February, leaders from as far as Wales and as near as Georgia praised the visionaries who built North Carolina’s reputation as a worldwide technology leader.

But from the Deputy Prime Minister of Ireland to the three-term governor of Michigan, these leaders also delivered a stern warning that North Carolina was losing its way. Today’s innovation economy, they said, applies as much to farmers and textile workers as software developers and biotechnology lab workers.  In these circumstances, no single strategy can jump-start innovation; instead, success requires forging a new politics to match a new economy.

Ireland, for instance, combined lower corporate taxes and strategic investments to become Europe’s fastest growing economy. In the U.S., Michigan partially privatized its economic development efforts to create a government as nimble and flexible as the businesses it served.

In San Diego and Pittsburgh, the universities took the lead in fostering a community that crosses professional and disciplinary boundaries to nurture entrepreneurs from their initial idea to a finished product — Carnegie Mellon and the University of Pittsburgh went so far as to form a joint economic development agency. And in Georgia, industry chiefs pressed government and university leaders to turn innovative ideas into start-up companies that create more and better jobs.

These regions have realized what North Carolina has yet to learn. In today’s economy, we can’t know which innovations will translate into marketable products; what counts is being ready to seize unplanned for opportunities. Similarly, a politics for our age requires an environment that encourages risk-taking, rewards flexibility, and embraces a free flow of ideas among government, industry and academia. This requires not just a change of our policies but a change of our very culture.

At the forum, Lou Gerstner, former CEO of IBM, underscored the critical role that culture plays in creating the conditions for success. “Culture is not part of the game,” he said. “It is the game. Most of the really important rules aren’t written down anywhere. Culture is what people do without being told.”

At IBM in the 1990s, Gerstner found a culture that couldn’t adapt to changes in the marketplace. To create a more flexible company he had to overcome the entrenched belief that some new strategy would revive IBM. Instead, he had to get the company’s overlapping and contending fiefdoms to recognize that their future lay in integrating their capacities.

Nearly every speaker at the forum drew explicit parallels between Gerstner’s message and North Carolina’s current condition. North Carolina, they said bluntly, lacks three key elements: a coherent strategy, a focal point for direction, and a method of evaluation.

They characterized our state’s approach to economic development as reactive, resulting in a competition between an ever-increasing number of organizational and regional stakeholders.

The good news is that these problems can be solved without large new expenditures. Instead, we need more of what Gerstner prescribed for transforming a culture: focus, execution, and personal leadership.

So what can be done — and who needs to do it?

State government can become a catalyst for opportunities by evaluating and inducing collaboration among the many individual initiatives across the state. To be successful, this process must be sustained rather than episodic; it must be autonomous from any particular administration and provide elected leaders with an ongoing assessment of whether their investments are working and how they relate to one another.

More specifically, government needs to consider whether its tax structure hinders entrepreneurs from creating home-grown companies. Dave Rizzo, CEO of MCNC, specifically suggested that North Carolina exempt investors for the first five years of capital gains taxes if they launch a North Carolina company based on locally developed intellectual property. He also proposed providing a tax credit for intellectual property-based companies that locate in rural counties.

For their part, North Carolina’s universities need to bolster collaboration among their technology transfer offices and economic development agencies. They also need to enable those offices and agencies to more proactively help companies throughout the commercialization process.

Entrepreneurship is not, however, limited to technology-based strategies, as Ernesto Sirolli made clear at the forum. Sirolli, an international developer of rural innovation strategies, urged North Carolinians to adopt a more grassroots approach to economic development. Towns can boost their economies, he said, if they focus on seeding hundreds of small businesses, not on recruiting a few large companies.

North Carolina must do more to value all of its entrepreneurs. Those entrepreneurs who prosper must, in turn, do more to value North Carolina. At the forum, CEO’s Richard Holcomb and Matthew Szulik stressed that too many of our knowledge-economy leaders are missing in action when it comes to setting strategic priorities for the state.

In Georgia, for instance, an industry-driven research alliance has leveraged university assets to support the regional economy. To date, the alliance has generated 80 start-up companies that employ 2,000 Georgians and have attracted more than $500 million in private investment.

Some of the strategies for jump-starting innovation that were advanced at the forum are controversial. More than anything, what North Carolina needs now is a robust public debate that assesses these strategies and compares them to our current efforts and to those of other states.

Noah Pickus is the director of the institute for Emerging Issues.

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