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guestview: Capital offense

A recent report published by the U.S. Bureau of Economic Analysis ranked Tennessee dead last in the nation in per capita personal income growth last year.

Understandably, that news gave the people across the state who were under the impression that Tennessee had been on an economic development tear the past few years a reason to scratch their heads.

As a lagging indicator, current income growth levels cannot be used to judge the current administration’s work in economic development today. Nevertheless, the report does point up something significant. The way to achieve income growth is not merely through traditional “smokestack” recruitment but rather to diversify the economy into higher wage industries. The best way to accomplish that is to increase entrepreneurial activity. Unfortunately, the high-growth entrepreneur gets largely left out of the equation in economic development circles. It’s ironic given that the presence of healthy entrepreneurial activity in a region’s corporate ecosystem is always among the key indicators industry wants to see when considering relocation.

Successful entrepreneurialism requires capital, and Tennessee is blessed with a number of venture capital firms that make investments in Volunteer state startups. But when you begin breaking that investment down across different phases of company formation, it becomes pretty obvious that Tennessee has some inefficiency early in that formation continuum. Most of its funds are not set up to invest in Tennessee companies early.

Who is going to step up and deal with it? Arguably, more public involvement is required. The Tennessee Technology Development Corp. (TTDC), the state’s lead organization for promoting technology-based economic development, has been given a shot to do just that with $5 million in seed money from the state. With this frugal apportioning in hand, the TTDC has been given 18 to 24 months to show that public investment can, over the longer term, diversify the economy into higher wage, greater skill opportunities, which in turn leads to the creation of wealth.

One way TTDC is working to show its merit is pretty simple, though desperately needed. Though research enterprise is significant in Tennessee, the state surprisingly does not win many federal grants or awards. In 2005 (the latest year for which complete data is available), Tennessee companies won 43 grants totaling $12.5 million awarded through the $2.5 billion federal SBIR program, which puts money into small tech companies. Comparatively speaking, Alabama companies were awarded 150 grants totaling $36.3 million in funds. Since SBIR funds are often some of first money into a company, serving as that crucial first money seed investment round, greater program participation is a solid early focus. Examples of Tennessee companies that have successfully used the SBIR program in the past include East Tennessee’s Protein Discovery and Memphis’ GTx, which is now a public company.

It’s a shame that Tennessee has so much to work with in terms of research and technology know-how and yet does so little to assist it. States like Pennsylvania, Georgia and Kentucky are doing much more interesting things in capital formation. Bottom line — the time to pursue the innovation agenda in Tennessee is now. And preparing Tennessee for real success in the 21st Century is tied in to research infrastructure, entrepreneurship support and capital. It takes doing something different. As Gov. Phil Bredesen has said many times about many subjects, if you keep doing the same things over and over, you’ll get the same results. Lawmakers need to begin in earnest the discussion of a comprehensive capital initiative for Tennessee.

Ruble is editor-in-chief of Business Tennessee magazine, which reports on the people and issues that define Tennessee.


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