What public policy can do to bolster Boston tech

Institute for Greater Boston
Rappaport Institute for Greater Boston

What can government do to prevent Boston from becoming the next Detroit? The comparison sounds far fetched, yet a new paper from Harvard’s Kennedy School offers the reminder that a city’s entrepreneurial vibrance doesn’t always last forever. Before the Big Three auto makers became the dominant force in the city, Detroit was a bastion of entrepreneurship, too.If Greater Boston is going to continue to thrive economically, it will need to keep producing successful technology startups, argue Harvard authors Ed Glaeser, Steve Poftak, and Kristina Tobio. Citing data that the share of large firms in Boston has risen in recent decades relative to small ones, the paper sets out to examine public policies that can help boost tech entrepreneurship.

Skeptics of government will find cause with some of the paper’s recommendations, including its pessimism around state efforts to directly fund startups. The authors looked at the subsequent success of companies that had received funding from MassDevelopment, a state agency that, among other things, provides loans to technology companies. They then compared those firms’ progress to a similar group of companies that didn’t receive state money, and found little to no difference in success rate. The authors point to the lousy record of government investments in startups more generally, and suggest, at minimum, that the state more rigorously evaluate its efforts. (Two years ago I reported on Massachusetts’ venture capital agencies — distinct from the MassDevelopment program — and came to a more optimistic conclusion.)

While direct funding of startups remains controversial, the authors point to several other possible policies, including making non-compete clauses illegal, shifting the tax burden from sales and property taxes to corporate profits, and ensuring the provision of fiber optic cable. The paper also notes that anything that improves educational outcomes can only help tech companies, since they tend to employ highly educated workers.

The authors are also cautiously positive about Boston’s growing Innovation District. “Creating a center of small technology firms in the heart of Boston is not guaranteed to succeed,” they write, “but it seems like as sensible a move as a government can make to further the growth of innovative entrepreneurship in the region.”

It doesn’t take a PhD to recognize that the effort to brand a specific Innovation District, begun by Mayor Menino, is a gamble. But what the paper offers is a theoretical backing for why such an initiative might succeed. First is density — dense urban cores excel at facilitating the free exchange of ideas, and as such make excellent homes for technology clusters. Second is the fact that finding attractive real estate is often more challenging for startups than attracting capital.

The effort to attract tech companies to the Seaport helps on both counts.

If the Innovation District remains a gamble, it is one based on solid foundations. Riskier still is the authors’ consideration of a similar tech clustering initiative in one of Greater Boston’s less prosperous neighborhoods. As they write:

The open question about clustering is whether a cluster can be developed in an area without prime waterfront real estate or proximity to a major research university, such as the Dudley Square neighborhood of Roxbury.

The paper suggests that such an initiative in Dudley Square might focus on education technology, since the Boston public school system’s headquarters is nearby. In fact, such an effort is underway, as MIT grad Gilad Rosenzweig is raising money to open a startup workspace in Dudley Square. A similar effort is underway in Dorchester.

The odds that the new projects fail is high, the authors admit, but government does have a valid interest in ensuring that the economic gains from tech and entrepreneurship are broadly shared. As the paper puts it:

The technology sector has not managed to significantly employ the less skilled or reduce social inequities. Ensuring that the benefits from technological innovation flow to the poor, as well as the rich, is one of the great challenges of the 21st century.

Unfortunately, it is a challenge to which there is, so far, no satisfying answer.

Walter Frick is an associate editor at the Harvard Business Review.
Follow Walt on Twitter