Tech Talk: Assessing Tech-Based Growth Strategies

High tech job growth

What can state governments do to best facilitate technology-based economic development? New research published in the Journal of Social Science Research suggests it’s the continuity of support more than making the “big splash.” In other words, the steady pace just might win the race.

Kevin Leicht, a University of Illinois professor and study author, says: “You don’t have to necessarily put a huge amount of money into these investments, and most states don’t. But you have to just keep doing it and plugging along and allow for a lot of failure, and in most cases, you’ll get something for it.”

The State Science & Technology Institute offers this summary of the research findings:

For “State Investments in High-Technology Job Growth”, authors Leicht and J. Craig Jenkins of Ohio State University assess two policy frameworks advanced by proponents of technology-based economic development.

A “technopole strategy” seeks to plan and support the growth of high-tech industries in specific locations. The authors suggest that elements of this centralized strategy include high-technology business incubators that provide subsidized R&D space; research parks; subsidized space for high-tech businesses (including seed accelerators); and technology development programs at universities and/or government industry research consortia.

The less centralized “entrepreneurial strategy” seeks to decrease barriers to starting a small business by supporting the development of local networks, entrepreneurs and partnerships. The authors include the following in this framework: public venture capital programs, small business innovation research programs, technology grant and loan programs, and tech transfer efforts.

The authors found Georgia, Pennsylvania, New York and Ohio exhibited the longest record of accomplishment in supporting high-tech policies. Ultimately, they concluded that entrepreneurial policies promote high-technology job growth in regional contexts where there is considerable high-tech employment already, while two policies – SBIR and technology deployment policies – had direct, additive effects on high-tech job growth regardless of agglomeration and location factors.

Although precise annual expenditure data would give a more exact measure of job creation in cost/benefit terms, the authors estimate that one additional year of commitment to technology deployment policies yields about 1,300 additional high-tech jobs and one additional year of SBIR commitment yielded 1,976 additional jobs.

The findings suggest that entrepreneurial programs tend to work best for rural (low population density) states, where those policies may help states play “catch up.” Conversely, the authors find limited evidence that technopole strategies support high-technology job growth net of other factors, though these policies can be effective when coupled with existing high-technology advantages.

The conclusions generally support this commonly heard refrain: It is oftentimes the small and incremental steps, not the massive recruitment/relocation deals, which spark transformative economic development.

Protecting the 401(k) Plan Sponsor

Money safety concept

According to Groom Law Group, since 2007 there have been nearly 40 lawsuits about fees and expenses paid by employees in 401(k) plans. Of the 40 fee and expense lawsuits filed since 2007, a few have actually been adjudicated through the courts, some have been dismissed and several have been settled out of court. For the lawsuits that have been settled or adjudicated, the amounts have been in the tens of millions, not to mention the legal fees that are incurred.

What should companies do?

Below are items that we believe are prudent processes that plan sponsors should follow:

  1. There should be a clear governance structure that delineates who appoints retirement plan committee members and also a process to monitor the plan’s fiduciary committee.
  2. Fiduciaries should look, at least annually, for lower cost investment options for the plan. The same investment option may have several ways it can charge fees which come with different requirements that can change over time. This makes the process of conducting a regular review so very important.
  3. A review of service providers on a regular basis helps keep costs and services in line with industry changes.
    a. Service provider fees should be benchmarked on a regular basis.
    b. Requests for Proposals should be conducted at least every five years to make sure that fees and services are in line with industry standards.
    c. Service providers should be skilled and have adequate experience in providing the needed services.
    d. Service providers would include (but are not limited to) record keepers, advisors, trustees, custodians, and plan auditors.
  4. A regular review of the investment options and categories offered to participants should be conducted.

A 401(k) plan is a great vehicle to help employees prepare for retirement and, for most employees, it is one of the only vehicles available to them (other than social security). In my opinion, the 401(k) is one of the most successful wealth accumulation vehicles created in history. Americans have accumulated trillions of dollars toward retirement simply by taking money from their paychecks on a regular basis and putting it away for their retirement years.

Douglas G. Prince is CEO and a principal at ProCourse Fiduciary Advisors, LLC.

Detroit: The Good & Possible Bad of Health Care Investments

Can medicine replace motors as the economic engine in the Detroit metropolitan area? Not so fast, says the Center for Studying Health System Change, which recognizes possibilities but warns of potential dangers in high levels of health care capital investment. The Center for Studying Health System Change reports:

Despite a weak economic outlook, Detroit area hospital systems plan to spend more than $1.3 billion in the coming years on capital improvements, leading some to hope that medical care can help revitalize the area’s economy, according to a new Community Report released today by the Center for Studying Health System Change (HSC) and the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

Overlooked in the enthusiasm is the possibility that significant expansion of the community’s health care infrastructure may lead to higher health care costs if the hospital systems can’t attract new patients from outside the Detroit metropolitan area, according to the report.

“If all the spending on capital improvements leads to increased use of high-tech services or additional costs from excess capacity, the end result might be higher private health insurance premiums, which could negatively impact employers and employees,” said Paul B. Ginsburg, Ph.D., HSC president and NICHR director of research.

The challenges facing the Detroit metropolitan area’s health care system are intertwined with the challenges facing the community as a whole, including a declining and aging population; major suburban/urban differences in income, employment, health insurance coverage, and health status; and a shrinking industrial base, according to the report.

Farra: Thoughts on Recent Market Turmoil

While we can’t make a prediction with 100% certainty, we can assign probabilities to the next trend for the U.S. stock markets. The major U.S. market indexes (Dow Jones 30, S&P 500 and NASDAQ Composite) all reached new highs for the rally on or about April 28.  Additionally, technical indicators of the market’s underlying health were all strongly positive as well. The correction that has ensued since April 28 has erased between 9% and 11% of the averages’ value. In a less tumultuous time, this kind of performance would be seen as a normal correction and not the start of a new bear market.

There are two root causes for the stock markets’ performance since the end of April:

  1. The U.S. market had not experienced a 10% correction since the start of the new uptrend in March of 2009. We saw two corrections (in June 2009 and January 2010) that declined less than 9% on both occasions. The selling was less intense than of late and the markets quickly rebounded from their lows. This correction probably marks the end of the first stage of the new bull market, where nearly all stocks — regardless of size or quality — go up. The second stage will see more selectivity among investors and moderating returns compared to the past 14 months.
  2. The Greek debt crisis and fallout among other members of the Euro currency zone has reminded investors that risk still exists in the debt markets. The U.S. experienced a private debt crisis in 2007-2008 when the mortgage market imploded and caused several large financial institutions to fail or need significant government help to stay afloat.  The Euro crisis is a government debt issue with Greece being unable to sell new debt without the explicit guarantee of the European Central Bank (akin to the Federal Reserve). This rescue package was announced two weeks ago but has yet to allay fears that more trouble may be brewing for Greece, Portugal, Spain and Italy. We think the rescue package has been effective by bringing down interest rates for all four countries though significant work remains to be done to reduce their budget deficits without causing major recessions in those countries. (This is something all governments need to do!)

A silver lining to the decline of the past few weeks is oil prices have declined from almost $90 to $70 per barrel. Look for lower gas prices as a result. Interest rates have also declined as investors have fled to Treasuries as a safe haven.  Mortgage rates will likely decline as well. Finally, the U.S. economy may have finally entered a durable recovery and this momentum is hard to reverse in a short period of time.

Investors can expect that volatility could remain elevated over the next few weeks or months as more news coming out of Europe could influence opinions about the impact on U.S. economic growth.

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George Farra is co-founder and principal of the investment firm Woodley Farra Manion Portfolio Management in Indianapolis.