The Birth and Death of Industry Hubs

Stephen DeAngelis

September 13, 2011

A couple of years ago Ann-Elise Henzl, a reporter for Milwaukee’s public radio station WUWM, asked a provocative question: “Is it really possible for a region to make itself the headquarters of an industry?” [“Project Milwaukee: Successful Industry Hubs Inspire Water Proponents,” 10 December 2009] What prompted Henzl to ask that question was the emergence of “a coalition of community leaders [that] is pushing the city to become a global hub for water research and technology.” In real estate circles, we’re all aware of the mantra, “location, location, location.” Milwaukee, of course, sits on the shore of Lake Michigan, one of North America’s Great Lakes, which makes it a good location for water studies. Add the fact that Milwaukee has one of the highest per capita student populations in North America, and you can see why the local coalition believes the region has all the makings of an industry hub.

 

Milwaukee is not unfamiliar with the birth and death of industry hubs. For years, Milwaukee was the nation’s hub for the beer industry. Brian Back reminds us:

“Beer made Milwaukee famous, as Schlitz liked to remind the world. Schlitz was the world’s largest brewery in the 1960s. In 1980, we were home to three of the five largest American brewers: Schlitz, Miller, Pabst. Today, Miller is America’s second-largest brewer. We made beer the sixth-major food group.” [“The beer museum that could make Milwaukee famous,” Milwaukee Journal Sentinel, 6 September 2006]

Three things made Milwaukee a hub for brewing: German immigrants, available water, and location. There was a large influx of German immigrants into Milwaukee in the 1840s and by 1856, more than two dozen breweries (mostly German-owned and -operated) were located there. Because of its location, Milwaukee could both import the supplies it needed and export the beer it produced. The industry grew until, as Back reports, the area was home to three of the five largest American breweries. Of the great breweries that once called Milwaukee home, only Miller remains.

 

Henzl reports that Wisconsin proponents for developing industry hubs in the state point to examples of two such successful endeavors elsewhere: Orlando as a tourist hub and the North Carolina Research Triangle as a technology hub. She writes:

“One of the most vocal cheerleaders for developing a water hub in Milwaukee is Rich Meeusen. He’s CEO of Badger Meter in Brown Deer, and co-chair of the Milwaukee 7 Water Council, a group promoting the idea. Meeusen likes to talk about Disney World, when making his pitch. ‘Disney in 1972 went to Orlando, they opened Disney World. The city fathers in Orlando had a meeting and said, “Oh, we can build our region into a national, or even a worldwide tourist hub,”‘ Meeusen says. Meeusen says they did just that. ‘What they did was, they coordinated government tax incentives with zoning laws, with the industries that were there, with the schools. And now when you look at Orlando, you see that they have SeaWorld and Universal Studios and all of these other things there. In fact, the University of Central Florida in Orlando is the number-two rated university in the United States for tourism and hospitality management,’ Meeusen says. Meeusen says the Orlando story illustrates how a community can build an industry cluster. Gov. Jim Doyle chooses a different example. ‘North Carolina is a state that in the 1980s really created a research hub, a triangle, that got a lot of profile and created a lot of jobs,’ Doyle says. The North Carolina Research Triangle now employs more than 40,000 workers. Doyle believes water could be the centerpiece of Wisconsin’s hub, in part because of the research facilities already operating here.”

In two recent articles, Emily Maltby talks about the birth and death of other hubs around the United States. They make interesting reading. In the first article, she discusses how “new industry hubs are drawing entrepreneurs and investors—and offering start-ups support and safety in a turbulent economy.” [“Where the Action Is,” Wall Street Journal, 22 August 2011]. She writes:

“It’s a lesson that’s all too easy to forget in a world driven by mobile devices, cloud computing and home offices. There are big benefits to setting up shop in the right spot—especially among lots of peers in the same field. Just ask sports-gear makers in Ogden, Utah. Or health-care companies in Nashville. Or nanotechnology researchers in Albany, N.Y. These cities, and others like them across the country, have become hubs for specific industries. Entrepreneurs are moving there and flourishing in the teeth of a bleak economy. The cities, in turn, are nurturing the entrepreneurs by giving them access to funding, mentors and facilities. All in all, these clusters can be ideal spots for an entrepreneur in the field. Being there means getting access to a much wider range of suppliers, customers, employees and industry experts. What’s more, industry peers are often willing to support each other as they get off the ground, sharing recommendations about staffers, potential sales leads and attractive office space, or giving each other guidance and insight about the industry. … As a hub grows, it brings other benefits to small firms. For one thing, even as businesses cooperate, they challenge each other to innovate—to come up with new ideas that make them stand out from the crowd. ‘Specialization in a region increases patents, business formation and higher wages,’ says Rich Bryden, director of information products at Harvard Business School, who’s working with a team mapping industry hubs in the U.S. When businesses come together, they also catch the eye of big players with deep pockets—especially beneficial when the economy is weak and financing is limited.”

Maltby goes on to “look at seven up-and-coming innovative centers. All have solid partnerships between the public and private sectors, a growing work force to fuel the industry and long-term strategies for development. And entrepreneurs say being there is vital to their success.” The first hub she writes about is Indianapolis, IN, where a Life Sciences hub has developed. She reports:

“The state has added 8,800 jobs in the life sciences in recent years, and today some 825 medical-device companies, drug manufacturers and research labs call Indiana home. Indianapolis, which is home to big names in the field such as Eli Lilly & Co. and health insurer WellPoint Inc., is leading the transformation. Corporations like these have added the lion’s share of the state’s new life-sciences jobs. Now they’re helping smaller companies get off the ground, too—by spinning off new businesses as well as by backing independent start-ups.”

The city Maltby discusses is San Antonio, TX, where a Cybersecurity hub has emerged.

“There are more than 80 information-technology and cyber-related businesses in San Antonio, and that figure is increasing rapidly, according to the city’s Chamber of Commerce. Many entrepreneurs are anticipating a flood of government contracts from the new Air Force Cyber Command headquarters in town. The military chose San Antonio in part because the armed forces have always had a strong presence there—and many of the city’s workers have security clearances from the Defense Department and the National Security Agency. Another big plus: a stream of skilled graduates from the Institute for Cyber Security at the University of Texas at San Antonio.”

Maltby next reports that a Nanotechnology hub has emerged in the Albany, NY, area.

“The city now boasts more than 4,000 people in the industry, centered on the College of Nanoscale Science and Engineering at the University at Albany. The school has doubled in size during the recession to its current 800,000-square-foot complex. Dozens of nanotechnology companies have established a presence there to take advantage of research facilities and business incubators; since 2008, nearly 50 new start-ups have launched within its walls.”

For years we’ve been reading about the fact that plains states have been depopulating; but, Maltby reports that one city in America’s heartland, Kansas City, is home to “Silicon Prairie.” She explains:

“Kansas City, straddling the Kansas and Missouri state line, is home to tech giants like Sprint Nextel Corp. and Cerner Corp., but its industry ranks have been swelling with smaller firms. In 2009, the number of tech companies rose by 5% to 2,900, trumping the growth rates of well-known hubs like Silicon Valley, Boston and Austin, Texas, according to a 2010 study published by the TechAmerica Foundation. Part of the lure for entrepreneurs: a high-speed fiber network from Google Inc., which chose Kansas City over 1,100 other cities to set up the service. Expected to roll out next year, the network will run 100 times faster than current broadband, which will likely bolster cloud-based technologies and pave the way for high-definition streaming services that will be hard to find elsewhere. … Entrepreneurs who have relocated from the coasts also tout the friendly business environment. It’s far less expensive to build a firm and develop technology, they say, and there are fewer state and city regulations to worry about. And, as in other hubs, many entrepreneurs are helping each other.”

For all you beer drinkers who have been wondering where the beer hub went when it left Milwaukee, you might want to look south to Asheville, NC. Maltby claims that city now has now become a specialty beer brewing hub. She writes:

“Craft beer is a small industry, but it has a devoted customer base. One Southern town is going after those fans with vigor. Asheville, a Blue Ridge Mountain town of 75,000, has 10 breweries, with two on the way. That can’t compare with the 40 in Portland, Ore., but it stacks up to other beer havens like Milwaukee and Boulder, Colo., which both have fewer than a dozen. … Entrepreneurs new to the area seek mentoring from the established brewmasters and the Asheville Brewers Alliance, formed to exchange ideas and promote the industry. They also tap Blue Ridge Food Ventures, an incubator for developing and commercializing products.”

The next hub that Maltby examines is in Nashville, TN. Although Nashville remains the hub for country music, it is also becoming a hub for health care. Maltby explains:

“There are more than 250 health-care companies in the city, and their numbers are rising. Employment in nursing, hospital and ambulatory services jumped 16% between 2004 and 2008, for instance. That, in turn, provides fertile ground for companies that create medical devices and patient-care systems. … Last August, the city launched an entrepreneur center to spur innovation; two-thirds of the firms that have sought mentoring and financing are related to health care. State programs have also helped propel the industry. Recently, some $180 million in public funds has been made available to burgeoning firms.”

The last hub that Maltby examines, a hub for outdoor gear, is located in a city much smaller than those discussed above. It does have an essential ingredient, however — location. The city is Ogden, UT, which nestles against the Wasatch Mountains near the skiing venue used for the Salt Lake City Olympic Winter Games. Maltby writes:

“Ogden, a small city some 40 miles north of the capital, packs a concentrated punch in the outdoor and recreation industry. Ogden made headlines in 2002, when it hosted events for the Salt Lake City Olympic Games. Those Olympic facilities, along with acres of pristine mountains, canyons and rivers, are the main reason outdoor-apparel and equipment companies have been moving to town: The site offers a perfect spot for testing new products, and it’s easily accessible from a nearby airport that supports direct flights to Europe. What’s more, business owners say, the growing base of competing companies in the area push each other to design the best equipment. Utah has a relatively modest share of the industry; the state estimates it’s home to about 5% of the outdoor-products firms in the U.S. Still, companies that expanded in or relocated to Utah have created at least 2,550 jobs in the past six years, according to the Economic Development Corporation of Utah.”

Admit it it’s nice to read some encouraging news along with bad economic news with which we are constantly being barraged. I believe Maltby’s article answers the question poised at the beginning of this post by Ann-Elise Henzl, “Is it really possible for a region to make itself the headquarters of an industry?” The answer, of course, is yes. A deeper reading of Maltby’s article, however, makes it clear that the yes answer has a lot of qualifiers. Each hub she describes has a unique set of circumstances that makes it ideal for establishing a hub. The hubs emerged fairly rapidly, but not overnight. Finally, they required cooperation between the public and private sectors.

 

As Milwaukee learned with the brewing industry, hubs can die as well as be born. Complacent cities are dying cities. To remind us how quickly hubs can fade away, Maltby wrote a companion article about hubs that no longer exist. [“They Came—and Went,” Wall Street Journal, 22 August 2011] In her article, she highlights four former hubs: Akron, OH; Lowell, MA; Paterson, NJ; and Lehigh Valley, PA. Akron was once the tire hub of the United States. “During the peak years, more than 300 rubber companies called the city home.” Now only Goodyear Tire & Rubber Co. remains. Lowell was a textile hub. According to Maltby, “clothing, tapestries and carpets poured from 10 major complexes. Smaller companies burgeoned, too, producing products like containers for the finished fabrics and leather straps for the mill machines.” Paterson, too, was in the textile trade and was once known as “Silk City U.S.A.” According to Maltby, “The town had, at its peak, more than 300 major factories and countless smaller manufacturers that employed 25% of the 110,000 residents.” But textiles is a fickle industry that looks for cheap labor. First, the textile industry moved south and then it moved overseas. The Lehigh Valley region “was once dotted with iron furnaces”; but today, “only a handful of the mom-and-pop foundry shops are still in the area.”

 

As we all know, creating jobs is much more difficult than cutting them. Industry hubs are one way of helping to create jobs. Paul Davidson reports:

“Northeast Ohio is among a growing number of regions that are combating the loss of traditional factory jobs by developing industry clusters in fields such as biomedicine, renewable energy and aerospace. Besides medical devices, the Cleveland area — a more than century-old stronghold for auto, rubber and glass making — aims to carve out niches in clean energy and flexible electronics. Hubs that group manufacturers, suppliers, training programs, researchers and others in the same region, aren’t new. Hot beds such as computers in Silicon Valley, biotechnology in Boston and film in Hollywood developed organically and have thrived for decades. But with the loss of 8.7 million jobs in the recession, state and local officials are more active in trying to speed the growth of nascent clusters to create new jobs. Emerging industry centers include electric-car batteries in Michigan, clean energy in Colorado and robotics in Pittsburgh. In clean energy alone, 20 regional non-profits have sprung up around the USA in the past three years to coordinate funding and product-launching efforts among companies, universities, entrepreneurs and state agencies.” [“To get jobs, areas develop industry hubs in emerging fields,” USA Today, 6 June 2011]

It will take a lot inspiration, hard work, and luck to create the 8.7 million jobs that were lost during the Great Recession. The jobs that will be created probably won’t require the same skills as those that were lost. That is why any job creation program must be accompanied by a job skills re-training program. Although politicians would like to think that they can create job creating hubs — they can’t. They can only encourage the private sector, through policies and incentives, to establish them. Nevada has spent six years trying to develop the University of Nevada Las Vegas Harry Reid Research & Technology Park. The 122-acre site has received $2 million in federal funding but, aside from the land, has only a very nice, landscaped sign to show for Nevada’s efforts. The site sits vacant. Milwaukeeans nevertheless have high hopes. They know that clean water is going to be an even more precious commodity in the years ahead and may be on the verge of establishing a hub that will have legs.