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By Chris Farrell
December, 1999
Part of MPR's "Minnesota in the .Com Age" special
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Every once in a great while, major technological breakthroughs dramatically
change the economy. Coal and steam power in the early 1800s, the railroad and
the telegraph in the latter half of the 19th century, electric power and mass
production in the first half of the 20th century. Today, information
technologies are driving a surge in innovation that's transforming the way we
live and work.
IN THE VANGUARD
of the revolution is the Internet. Imagine. Before 1995 no one
had traded stocks online, and e-commerce was hardly a revenue ripple in
corporate America. This year, the Internet economy will total more than $500
billion, bigger than the $355 billion airline industry. That's according to the
Center for Research in Electronic Commerce at the University of Texas.
The World Wide Web is spawning hundreds of thousands of entrepreneurial dot.com
companies, such as Amazon.com and Ebay. The competitive pressure is forcing
old-line firms like stock broker Merrill Lynch to reinvent itself around the
Internet, tossing aside traditional ways of doing business and building direct
pipelines to customers.
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Larson: This is not an evolutionary change. This is a revolutionary change.Steve Larson is head of marketing at Net Perceptions, a leading e-commerce company that creates Web sites sensitive to a customers' needs and preferences.
Larson: The Internet will dramatically change the way we buy products, shop, meet with people. I get asked, "Is the Internet overhyped?" Given the explosion, when we look back five to 10 years from now, I think we will say it is underhyped.Indeed, the information revolution is part of an even broader wave of innovation. Biologists are engineering stunning advances in medicine and agriculture. Manufacturing companies are developing new fabrication techniques that boost productivity and cut costs. Each innovation feeds off and reinforces the other in a global economy where ideas, knowledge, money, and information are combining as never before.
Yet history shows that not everyone prospers in an innovation-led economy. While 17th-century textile makers in Britain built the modern factory system, middle-class weavers in Yorkshire sank into poverty. In the 1800s, the spread of railroads devastated once-flourishing communities that ended up without a rail link.
Some observers worry Minnesota is being left behind as the new economy surges ahead
Bennet: I don't think we are falling behind. I think we have fallen behind.Like many Minnesota-based venture capitalists, Frank Bennet dismisses the state's standing when it comes to high-tech.
Bennet: We've gone from a leadership position 20 to 30 years ago, gone from the top of states in venture capital to between 15th and 20th. Money follows innovations, entrepreneurs, and opportunities. If that's the case, money is leaving Minnesota.The glory has faded from Minnesota's legendary computer companies like Control Data and Cray. The University of Minnesota is a bureaucratic Goliath rather than the region's knowledge center, like a Stanford or the University of Texas. Politicians devote more time to sports stadiums than high-tech entrepreneurship. An air of complacency is almost as obvious as the state's well-known traits of courtesy and civic engagement. Why get worked up about high-tech when the unemployment rate is 2.2%?
True, when it comes to some indicators of high-tech development, Minnesota is above average, but not by much. For instance, the Progressive Policy Institute puts Minnesota 14th in its ranking of states poised to profit from the new economy. Minnesota is 13th in the nation in information technology employment, and the Twin Cities is 39th among major metropolitan areas, according to Mark Zandi, chief economist at Regional Financial Associates.
Put it another way. Think of today's high-tech hot spots. Silicon Valley is ground-zero in the new economy. The Seattle area is booming thanks to Microsoft. Austin is a dynamic high-tech center with Dell Computer at its center. Washington D.C. is the mother lode of telecom networks. Boston's Route 128 is thriving. But the Twin Cities? Minnesota? Silicon Prairie?
Yet Minnesota may be doing better than the numbers suggest.
Joel Ronning is head of Digital River, a leading provider of online stores and shareware publishing for companies around the globe.
Ronning: I'm seeing a lot of momentum here in the state in terms of Internet interest, in terms of the business community building up around the Internet.Ronning says Minnesota is now getting the high-capacity telecom lines high-tech companies need to do business. Steve Larson of Net Perceptions adds that he's seeing more of the creative dialogue, the exchange of ideas, that generate new ventures.
Larson: There is a real buzz with the Internet stories in the local community. Digital River. Net Perceptions. Big Chart. Inspired a lot of people to go into it.The high-tech tide may no longer be receding. The talent pool is expanding. For instance, information technology jobs accounted for 20% of Minnesota's job growth between 1995 and 1998, about the same pace as Massachusetts. Minnesota ranks among the top six states in the nation for patents. Yes, Minnesota lacks the energy and the mercenary appeal of Silicon Valley. But state economist Tom Stinson believes the trend is in the right direction.
Stinson: The more people that you have in that key industry the more spin-offs, new ideas, and the more synergy's you are going to get and its going to breed growth.These synergies are breeding growth beyond the Internet. The Mayo clinic is a medical research center of global repute. Medtronic, the med-tech behemoth, is adding workers and building a new world headquarters in Minnesota. Art Collins, president of Medtronic, argues that Minnesota's medical device industry is doing well.
Collins: Well with respect to medical tech, I would almost say Silicon Valley may be a mini-Twin Cities in terms of its capability in spawning new medical device and technology companies.Minnesota offers many of the key attributes critical for high-tech growth, including a skilled labor force, an international airport, and a good quality of life. What it lacks is a university that nourishes new firm creation, like the universities in San Francisco, Austin, and Boston. That's why the high-tech community is applauding chancellor Mark Yudoff's efforts to transform the "U" from an ivory-tower bureaucracy into the community's idea factory.
Yudof: I think, and this may sound boastful or overstated, but the success of Minnesota over the next 25 years is going to be intimately tied to the success of the University of Minnesota.He's not exaggerating. High-tech companies gravitate toward vibrant universities. High-tech firms as a group are almost twice as profitable as most other kinds of firms. Profit margins in the business, measured as the ratio of profits to output, run about 20% versus 12% for nonfinancial non-IT firms. High-tech jobs pay well. Economists at Regional Financial Associates calculate that earnings of workers in IT producing industries were $55,000 last year, compared to $38,000 in IT-using industries, and just over $30,000 for non-IT industries.
Clearly, the stakes are high for Minnesota -- and it's government. Competitive advantage no longer belongs to the biggest, or those blessed with abundant resources or the most capital. In the new economy, skill, knowledge and entrepreneurship are king. The choices governments make, from telecommunications policy to the cost of doing business, can encourage or retard high-tech growth. But the number one priority is education, says Art Collins of Medtronic.
Collins: I think the educational system is important and just on the university level, but also high school grade school, and pre-school. Remember we not only have to attract talented and skilled employees, but we also have to be attractive for young families. So I think education is very important, and on each level.Of course, there are risks. A high-tech economy is tumultuous. Businesses will succeed and fail at a rapid pace, while workers will quickly gain and lose jobs. Yet the prospect of falling behind, of becoming little more than flyover country in the new economy, is far worse.
And it could happen without a sense of urgency. The lesson Joel Ronning takes from the demise of the region's earlier computer industry is instructive for companies -- and the Minnesota economy.
Ronning: It's a warning, a real lesson to be learned by all high-tech managers. There is always someone at your shoulder, there is always someone at your back, there is always someone one foot behind you who is trying to get one foot ahead of you. And if you relax, you are dead.The transition from the Industrial Era to the Internet Age won't be easy. But embracing the high-tech economy will pay off for years to come when it comes to jobs and income.
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