Why Government Can Initiate but Must Not Lead

Having gone on and on about the effectiveness of incubators as an economic development tool, some people might think I’m advocating that governments create and run more incubators. A perky little blog may not be the place to try and tighten the focus on an issue like this, but let me try: at the municipal level of government, incubators deserve more energy and investment, but city governments should not be directly involved in their operation.

Let me blunt that fine point with added emphasis. Government must initiate the development of incubators because it is in the public interest to do so. But economic development is not the mission of governments alone. Players in the other sectors have a vested interest in the creation of opportunities for new companies and new workers.

Corporations and investors like incubators because they are cost effective places to innovate, prototype, recruit talent, prospect for intellectual property, and sell services. Anyone interested in creating employment in specific industries can benefit from an incubator, including colleges and universities, trade unions and industry associations.

After all, our economy’s well-being depends on a sufficiency of competitive companies with a skilled work force in a regulatory and policy framework that optimizes the potential of both capital and labour. Government sets the stage on which the other actors play their parts. But I want to be clear: once the curtain goes up on a new incubator, the government should be watching from the wings, out of sight.

This sounds a bit harsh, but it’s consistent with what governments say of themselves. When we worked on the program review of Toronto’s Economic Development, Culture, and Tourism Division years ago, we kept hearing that the government should steer more and row less. That is to say, governments should influence the direction of economic development in the City but shouldn’t duplicate or compete with what the private sector can do on its own.

Again, I apologize if my tone isn’t blog-lite enough, but the details matter. Extending their own metaphor, we must be clear about where the pilot steers from. Steering from the front isn’t very helpful. The view is better, the air is fresher, and you’re more visible at the prow, but the rudder of a boat is at the back for a reason. You have to steer from the stern or you actually impede the vessel’s progress.

Here’s a quick example of municipal government steering, not rowing. During the onslaught of the 2008 global economic meltdown, Mayor Bloomberg of New York announced that the city had to diversify its economy. It was too dependent on financial services, which made it vulnerable to downturns in that industry. He named five new priority sectors for development, and the City’s Economic Development Corporation set about creating incubators and partnerships to run them. New York University’s Polytechnic incubator on Varick Street is one result. The City’s role has been limited to modest seed funding and brokering of the real estate deal. Putting the players together and greasing the wheels, that’s it. It’s been in operation for three years now and has already yielded an economic return to the city that is orders of magnitude greater than what the city put into it. Plus, the NYU-Poly Varick St. Incubator has a long waitlist of qualified companies waiting for entry.

Governments are unique in their power to serve the public interest. It’s why they have to lead economic development initiatives, and why they recognize the value of business incubators. The caveat is that they can inadvertently displace, discourage, or devalue the vital contributions other sectors can make to the success of business incubators.

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