Phoenix Makes a Play to Become An R&D Powerhouse

The Greater Phoenix Area, once an epicenter for the foreclosure crisis, now wants to become a hub for software, engineering, and research.

National Journal
Nancy Cook
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Nancy Cook
May 27, 2015, 7:53 a.m.

In the years fol­low­ing the Great Re­ces­sion, politi­cians, busi­ness lead­ers, and eco­nom­ists throughout the Great­er Phoenix area did some soul-search­ing about the state of the loc­al eco­nomy. Phoenix had been hard hit by the burst­ing of the hous­ing bubble, shed­ding more than 300,000 jobs in hous­ing, real es­tate, and con­struc­tion be­gin­ning in 2008. What eco­nom­ic growth the re­gion did ex­per­i­ence over the last two dec­ades came from pop­u­la­tion growth in­stead of real eco­nom­ic activ­ity, ac­cord­ing to an ana­lys­is done by the Brook­ings In­sti­tu­tion’s Met­ro­pol­it­an Policy Pro­gram.

Loc­al of­fi­cials knew that they needed to find a new path for the re­gion­al eco­nomy: a long-term strategy to boost growth, wages, and pro­ductiv­ity for the re­gion’s roughly 4.3 mil­lion res­id­ents. That strategy, they de­cided, would come from trans­form­ing Phoenix in­to a loc­al hub for re­search and de­vel­op­ment by build­ing off the re­gion’s ex­ist­ing ad­vanced man­u­fac­tur­ing, aerospace, and de­fense in­dus­tries. The trans­form­a­tion is still in its nas­cent stage, ex­pec­ted to take hold over the next five to 10 years.

Na­tion­al Journ­al spoke with Kath­leen Lee, vice pres­id­ent of re­search and strategy for the Great­er Phoenix Eco­nom­ic Coun­cil, about the re­gion’s new plans, loc­ally nick­named “Ve­lo­city.” Ed­ited ex­cerpts of the con­ver­sa­tion fol­low.

Tell me what Phoenix was like after the Great Re­ces­sion.

The en­tire na­tion was in a deep re­ces­sion, and Phoenix was one of the places hit hard. We had some sig­ni­fic­ant down­turns in the hous­ing mar­ket. Our pop­u­la­tion growth slowed down be­cause there was no real mi­gra­tion hap­pen­ing na­tion­ally. Like oth­er places, we had a high un­em­ploy­ment rate at the time as well. We’re in a re­cov­ery mode right now—al­most 85 per­cent re­covered. The ef­forts around Ve­lo­city came out of that point in time, when the re­gion really star­ted look­ing at oth­er in­nov­at­ive strategies to sus­tain eco­nom­ic growth over the long haul.

So how did Phoenix of­fi­cials come up with the idea to turn the re­gion in­to a hub for re­search and de­vel­op­ment?

When the re­ces­sion hit, we star­ted to look at our eco­nomy. We looked at our top met­rics and dug deep­er in­to the as­pects of our eco­nomy in terms of our in­dus­tries, in­nov­a­tion, and en­tre­pren­eur­i­al ca­pa­cit­ies. We did an as­sess­ment and looked at where the po­ten­tial op­por­tun­it­ies were. Out of that work were the three strategies from our eco­nom­ic growth plan.

But why fo­cus spe­cific­ally on re­search and de­vel­op­ment? It seems like every city now wants to mas­ter this.

Cer­tainly, the glob­al eco­nomy is driv­en by know­ledge sec­tors. In any eco­nomy, if you really want to con­tin­ue to see eco­nom­ic growth and really see the cre­ation of good jobs, you need to fo­cus on pro­ductiv­ity and in­nov­a­tion. For sev­er­al dec­ades, be­cause we were such a high-growth area, I think a lot of people for­got that we have a really strong in­dus­tri­al base and elec­tron­ics and semi­con­duct­ors and oth­er re­lated in­dus­tries. That in­dustry base is already es­tab­lished here.

In or­der for us to really look at how our in­dus­tries will per­form over time around these new tech­no­logy areas, we need to have more re­search and de­vel­op­ment cap­ab­il­it­ies. Re­lated to that will be the know­ledge and skilled work­force that can sup­port that type of growth. That is why we landed on that.

I nev­er really knew that Phoenix already had an in­dus­tri­al base. What does that look like?

In our re­gion, we spe­cial­ize in aerospace and de­fense, semi­con­duct­ors and elec­tron­ics. These are in­dus­tries that were es­tab­lished in the 1950s. The his­tory of these sec­tors is that early com­pan­ies came here and set up op­er­a­tions around re­search and de­vel­op­ment; at the time, there was a lot of work around tech­no­lo­gies geared around de­fense. Those busi­nesses grew in­to large com­pan­ies like Hon­ey­well or In­tel.

Now, what we’re see­ing is that some of these com­pan­ies are look­ing at oth­er kinds of new tech­no­logy areas. So if you look at re­search and de­vel­op­ment in­vest­ments in our re­gion, you see that a sig­ni­fic­ant por­tion of our total re­search and de­vel­op­ment is in private in­dustry. In­tel, for ex­ample, made huge in­vest­ments here. We’re also see­ing a sig­ni­fic­ant amount of com­pan­ies that are soft­ware or in­form­a­tion tech­no­logy com­pan­ies that sup­port, not just con­sumer products, but also man­u­fac­tur­ing and oth­er kinds of in­dus­tries. We’re be­gin­ning to see that kind of in­form­a­tion tech­no­logy and pro­duc­tion get bet­ter in­teg­rated in­to the new type of busi­ness mod­el.

Do you con­sider this a makeover for the Phoenix area?

I wouldn’t say it is a makeover. I would say it’s an ac­cel­er­a­tion of what we already have and build­ing upon those cap­ab­il­it­ies. I think “makeover” im­plies that we’re try­ing to do something en­tirely dif­fer­ent. If you look at oth­er re­gions and places, if you try to do that and you’re not hold­ing on to what you already have, the like­li­hood of suc­ceed­ing will be very dif­fi­cult. We’re build­ing on what we already have and then ad­ja­cent in­dus­tries like soft­ware and in­form­a­tion tech­no­logy are ac­tu­ally grow­ing out of it.

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