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Steel Town to Tech Town: The Metromorphosis of America

Author: Bruce Stokes

National Journal

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Pittsburgh...From atop Mt. Washington, overlooking the confluence of the Monongahela, Allegheny and Ohio Rivers, the make over of this region, once dubbed "hell with the lid off", is graphically obvious.

Two generations ago smoky grime hung in the air. The river was thick with barges of coal and steel. And steel furnaces arrayed down the valleys caste an eerie reddish-orange hue on the horizon. Today, the lights of the city's skyscrapers sparkle in the crystalline air of a balmy summer night. And pleasure craft bob on the shimmering rivers.

As visually impressive as this transformation has been, the view from Mt. Washington fails to reveal an equally profound "Metromorphosis" that is still ongoing below, as Pittsburgh attempts to transform a regional economy driven by heavy industry to one whose economic engine is high technology.

Pittsburgh's experience reflects the opportunities and the challenges facing many American cities as they endeavor to recast their local economies and create new jobs.

In this city, the Rust Belt is yesterday's story. Information technology is the fastest growing industry, employing over 25,000 people. The region now boasts of 445 software development firms, making it one of the largest software centers in the nation. The local unemployment rate was just 4.1 per cent in June, below the national average, and far short of the 14.8 per cent recorded here in 1983, when many of the region's steel mills closed.

Unfortunately, no blue print exists for turning an industrial sow's ear into a high-tech silk purse. There are still vast stretches of abandoned factory land along the Monongahela that is only now being cleared for redevelopment. The jobs being created in these new industrial parks are often more reminiscent of the steel valley this once was than the silicon valley it aspires to become. Moreover, Pittsburgh is not simply competing with its past. It is also vying with Atlanta, Denver and other cities to become a future center for technological innovation.

When steel died in the early 1980s, said Richard Florida, a professor of regional economic development at Carnegie-Mellon University (CMU) in Pittsburgh, "a window opened and we didn't make it through. The window has opened again and the question is will we make it through this time."

Pittsburgh's ultimate ability to transform itself will be determined by the technologies spun off by its universities, by its access to venture capital to exploit those technologies, and, most important, by its success in attracting and retaining high tech talent. At stake is whether the grandchildren of steelworkers can ever become knowledge workers.

Signs of the new, high-tech Pittsburgh are everywhere:

  • In a downtown office tower, young men and women labor at the intersection of the Internet and the Rust Belt. Arrayed in cubicles, talking softly into headsets, they referee an Internet-based auction. Four-year old FreeMarkets OnLine Inc. uses the techniques of electronic commerce to solve the acquisition problems of industrial America, slashing procurement costs for everything from printed circuit boards to metal fasteners. "What E-bay does for collections of Beanie Babies, we do for coal," said FreeMarkets CEO Glen Meakem.

  • A few blocks away, in a converted factory now serving as a technology incubator for budding inventors, Cye, a turtle-shaped robot wends its way through the hallways on its spoked wheels, no mean feat considering Cye lacks both an electronic eye and sensors. Able to pull a vacuum cleaner or deliver sodas from the kitchen, Cye promises to be the first truly useful and affordable personal robot.

Such Pittsburgh-based innovations should come as no surprise. "Everyone thinks of Pittsburgh as a steel town," said Dennis Yablonsky, president of Digital Greenhouse Inc., an economic development effort attempting to create a local digital video imaging and networking industry, "but it really was an engineering town." Now these skills are being applied to software and robotics.

But the transition is far from complete. Pittsburgh's high tech employment figures pale in comparison with the volume of jobs once created by heavy industry. FORE Systems Inc., a maker of data/voice networking equipment and Pittsburgh's premier high-tech success story, has 1,200 local employees. In the 1940s, at just one local site, Westinghouse had 20,000 workers making generators. Most high tech startups are small. Probotics Inc., which makes Cye, employs four people. Moreover, impressive local info-tech employment numbers are deceptive, they include many dead end jobs in telephone call centers.

And success is not assured. Pittsburgh is haunted by the high tech ventures it has let get away. The engineers that founded Sun Microsystems are CMU graduates. Lycos, creator of one of the dominant Internet search engines, started in Pittsburgh, but moved to Boston in search of management and marketing talent.

So as the 20th century winds down, the biggest challenge facing Pittsburgh, the epitome of the industrial age, is how to nurture and grow 21st century jobs.

Boston's experience with MIT and Silicon Valley's with Stanford suggest that when a sufficient number of high-tech start ups cluster around their mother university a critical mass is created that spurs self-reinforcing economic development.

Carnegie-Mellon University, a center of software and robotics research, and the University of Pittsburgh, a hub of biomedical research, can play that role locally. Thanks to their presence, the region ranks tenth nationally in university research and development expenditures. And this investment is beginning to pay off. In 1998 alone, 15 companies were created based on research done at CMU. The founders of FORE Systems, RedZone Robotics Inc., which made the robots being used to clean up Chernyoble (Sp?), and Media Site Inc. CK, a maker of a video search engine, are all CMU grads.

But, as always, geese that lay golden eggs inspire greed. Carnegie-Mellon made $25 million from the Lycos spinoff, owns a piece of Media Site and now casts covetous eyes on all technologies developed on campus. High tech entrepreneurs in Pittsburgh complain bitterly about protracted intellectual property negotiations with the university. They warn that innovative professors will leave the region altogether to avoid such encumbrances. And they recommend that CMU follow the lead of other major research universities who accept that their payback is jobs for grads and alumni giving.

Nevertheless, said Florida, "the ability to innovate is not enough. The ability to attract and retain talent is what matters." CMU, Pitt and nearby Pennsylvania State University produce 1,100 graduates every year in electrical engineering and computer design. Like steam engine mechanics at the dawn of the industrial revolution, this newly-minted high tech labor force can find work anywhere.

Moreover, two out of five FreeMarket employees come from outside the region, as do more than half of FORE Systems' workers. Getting such skilled technicians to settle in Pittsburgh is no easy task when Seattle beckons. For every person that CoManage Corp., a FORE Systems software spinoff, recruits from outside the area, another turns a job offer down because of the city's steel town image.

Making Pittsburgh a place software engineers want to live as well as work will be no easy task. With an aging population (the death rate is higher than the birth rate), Pittsburgh has a geezer not a geek culture. Beer-and-a-shot bars far outnumber computer cafes. The city is spending millions of dollars to subsidize spectator sports for couch potatoes, while the work-hard, play-hard techies Pittsburgh hopes to attract lobby for more mountain bike trails and fields for the local 300-person Ultimate Frisbee league.

"Let's face it," said Richard S. Borden, FORE Systems' senior manager of corporate public relations, "you've got to play the game by the rules and the rules on amenities are set in Silicon Valley." So FORE Systems has a cricket field for its English and Indian engineers. And CoManage has weekly pinball tournaments.

A more difficult challenge is the region's need for a thicker labor and mating market. High tech workers know that they are likely to change jobs frequently, so they want sufficient local job opportunities so they won't have to relocate when they do. If they are transferring into the region, they want their mate to have a range of employment options. And, since most high tech workers are young and single, they want a pool of like-minded people with whom they can socialize and eventually settle down.

For a long time the paucity of investment capital was another obstacle to Pittsburgh's high tech aspirations. But no longer. Venture capitalists have dollar signs in their eyes since the recent sale of FORE Systems for $4.5 billion. CoManage has been able to raise $16.5 million without a product to sell. And FreeMarkets recently attracted $10 million. But raising money in the current bubble economy is hardly a challenge. The real test of Pittsburgh's attractiveness to venture capitalists will come in the next recession.

The task of marrying local universities, money and talent is a difficult one. "Entrepreneurs want change and they want it now," said Mark DeSantis, a CMU adjunct professor. But Pittsburgh suffers from institutional sclerosis. High tech executives carp about competing economic development bureaucracies, a holdover industrial elite ambivalent about losing power and political leadership dependent on an aging, skeptical electorate.

In the end, possibly the greatest hindrance to Pittsburgh's hoped-for transformation is the cautious local business psychology. J. Todd Simonds, RedZone's chairman, ruefully remembers a CMU grad who came to him with a software idea. Simonds sent him away because he couldn't see how the product related to RedZone's robotics business. That 28-year old entrepreneur recently sold his idea for $28 million. "When you play the game with zero sum rules, everyone loses," said Simonds, who is determined to embrace the next good idea that comes through his door, whatever its provenance.

So, despite how far Pittsburgh has come, from the industrial stone age to the frontiers of the information age, it will need to go even further if it is to complete its Metromorphosis. The transition is an improbable one. And no other major industrial city has made the leap. But the plethora of high-tech startups already in Pittsburgh suggest the city may just make it.

Benchmarking Box

Every city now aspires to be the next Silicon Valley. The motivation is obvious. As Pittsburgh has learned, high tech startups experience two-and-a-half times the job growth of existing companies. And high tech employment pays 50 per cent more than average work. But while many localities pursue this Holy Grail, few are likely to succeed. And in this national competition, Pittsburgh trails many comparably-sized cities.

Overall, assessing economic performance, quality of life and other indicators, Pittsburgh ranks only seventh among 15 localities, such as Cincinnati, Kansas City, Minneapolis and St. Louis, that are regularly benchmarked by Douglas Heuck and a team of reporters from the Pittsburgh Post-Gazette.

Pittsburgh's ranking has consistently been pulled down by its relatively poor showing economically. The city ranks 15th in overall job growth and only in 13th in the creation of much-coveted high tech jobs. As a result, Pittsburgh is 14th in unemployment and only 11th in average annual pay increases.

But the race is still ongoing. And in the competition for high tech workers and startups, economic performance is often a residual of the local quality of life, a contest in which Pittsburgh fares much better. Compared with similarly-sized localities, Pittsburgh is the safest place to live. It has the second best cluster of universities and the fourth best medical facilities. And it has the second lowest traffic density.

Pittsburgh boosters defensively argue that benchmarking is irrelevant because they don't want to become Atlanta, with its growing traffic jams. Nevertheless, Pittsburgh's lack of relative economic success is a telling reminder of the steep road ahead. At the same time, in a high-tech era when entrepreneurs can choose to grow their businesses anywhere, the local quality of life (pause to reflect a moment on the incongruity of even using that phrase in any discussion of Pittsburgh a generation ago) suggests Pittsburgh still has a fighting chance of succeeding in its "Metromorphosis".

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