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When it comes to the New Economy, no metropolitan area is without assets--and precious few have a monopoly on success.
by | June 2001

It's hard to imagine two metropolitan areas more different than Los Angeles and Rochester, New York. One is in the West, the other in the East. One is big, the other small. One is sunny, the other snowy. One is growing, the other shrinking. One, in the popular image, is hip to the New Economy. The other is not.

Yet according to a new study ranking American metropolitan areas by their potential for New Economy growth, Los Angeles and Rochester are almost exactly alike. They rank 20th and 21st out of 50 major metro areas in their New Economy potential, and their scores on the Progressive Policy Institute's "Metropolitan New Economy Index" equal the national average almost exactly.

How can two cities be alike when they're so different? It turns out that when it comes to the New Economy, no metropolitan area is without assets. And no metropolitan area has a monopoly on success. Well, maybe some do. At the top of PPI's index are a few familiar names: San Francisco, Austin, Seattle, Raleigh-Durham, San Diego, Washington and Boston. These are the hands-down winners in the New Economy competition so far. But as venture capitalists look beyond the obvious locations for the new opportunities, the next round of winners isn't so obvious.

PPI's index used 16 different indicators to assemble the rankings, including "gazelles" (fast-growing companies), publicly traded companies, high-tech jobs and patents issued. San Francisco--no surprise here--was in a class by itself. Austin was a distant but strong second, and the other top locations were clumped together farther back.

Once you get down to the "average" places, each city has assets and liabilities, and the combination of the two is always different, which suggests that each metro area should pursue a different economic development strategy.

It's not surprising, for example, that L.A. outclasses Rochester in a wide range of categories. L.A. ranked 12th in "gazelle" companies, while Rochester ranked only 40th. L.A. took 9th place in online population (40 percent of the population using computers) whereas Rochester was dead last, with only 25 percent. L.A. ranked second in the number of registered commercial Internet domains, whereas Rochester ranked 28th.

Their overall ranking was almost exactly the same because Rochester has a lot of assets that L.A. doesn't have. A longtime corporate town- -home to both Xerox and Kodak--Rochester has a strong managerial class (ranking 31st in managerial and professional jobs compared with 42nd for L.A.). It ranks fifth in computer use in the schools, whereas L.A. ranks 47th. Thanks to the Rochester Institute of Technology and other local schools, Rochester ranks sixth in science-engineering and 11th in academic research and development funding, where L.A. was 30th in each. Between the universities and corporations, Rochester ranked first in patents issued (L.A. was 28th). Indeed, Rochester's ratio of 2.33 patents per 1,000 workers was more than 50 percent higher than the ratio in San Francisco and Austin, which ranked second and third, respectively, in that category. When you break down the New Economy this way, it becomes pretty clear why both Los Angeles and Rochester are "average." L.A. has a huge and technologically hip population, as well as a lot of business activity. But it's also an immigrant town, which makes work-force training and education a huge challenge that the region can't seem to overcome.

Rochester, on the other hand, has an extraordinary base of economic infrastructure capable of supporting the New Economy, including a long history of tech-oriented companies, great universities and a work force capable of bringing innovation into the marketplace. What drags Rochester down is not an Old Economy reality, but something resembling an Old Economy attitude. Nobody's hanging around on the Internet at home, and it's apparently a tough climate for tech start-ups.

So, while L.A. has the money and the entrepreneurial zeal, the region's challenge is to bring a huge population of recent immigrants along for the ride. For Rochester, it's mostly the opposite problem-- the workers and the ideas are there, but the region's economic leaders have to bust out of the 1960s, encourage tech-smart kids to stay in Rochester and help them get started.

I've lived half my life just outside Rochester and the other half just outside Los Angeles. At first glance, I, like most people, would lay my money on L.A. as a New Economy winner. Yet after looking at the Metropolitan New Economy Index, I'm not so sure. Bringing a sense of upward mobility and high-tech entrepreneurship to millions of recent immigrants is a daunting task. Changing the attitudes of a few bankers and civic leaders--or replacing them--seems simpler by comparison. And that's why there's no guarantee that places such as L.A. will be New Economy winners and places such as Rochester will be New Economy losers. A decade from now, it could just as easily be the other way around.

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