An interview with...

Ashley Swerengin
Director, Central Valley Futures Inst.

We hear a lot about the new economy developing in the San Joaquin Valley, the Central Valley and the Great Basin. What are they looking at when they describe the new economy?

In about 1997, the economists around the state were saying that it was a new industry that was going to take over the existing industries, like defense and aerospace and things like that, with a decline in those industries. By the year 2000, those same economists were saying that the new economy was not about a new set of industries, but it was about the same industries that we have in the state competing in completely different ways. In other words, information technology enabled things to move a lot faster, have higher quality control -- all the gains of productivity -- and it was about every industry innovating with the use of information technology.

How does that affect the Central Valley?

It's a huge impact. In the San Joaquin Valley, we have historically been built on industries that didn't necessarily require a lot of innovation or technology. When the global economy shifted towards this new knowledge-based economy, it pretty much happened all around us and we didn't feel the impact quite as much as other parts of the state. We didn't experience the tremendous economic upswings in the late 1990s and the beginning of this century, but it did get on our radar screen and a lot of our local companies and industries started realizing that they too had to compete in a different way, or else we'd risk falling further and further behind.

What is "cluster-based" economic development, and how does it apply to improving our economy?

Cluster-based economic development is really gaining a lot of speed all over the world. In the San Joaquin Valley, we've been working on cluster-based strategies for the last several years, with the help of Great Valley Center, and Collaborative Economics out of Palo Alto. Essentially what cluster-based economic development refers to is working from your existing industrial strength. In other words, we don't want to be the next Silicon Valley, and we certainly do not have the capacity that they do in the information technology area -- but we do have real economic strengths in the San Joaquin Valley. By organizing those industries that do compete well in the global economy, and providing specific support to those industries, they have a better chance of succeeding. They come together to work collaboratively, so that they can compete better on a global basis. The clustering strategy and the support that goes into that is simply a way of making sure that those cluster industries get the resources they need to expand and to compete globally.

Is that being developed now?

Yes, we're very active in cluster-based economic development in the Central San Joaquin Valley, which is the Fresno/Madera area. We want a water-technology cluster that capitalizes on this region's strength in precision irrigation, and other water and flow technology, and we're looking at how we can transition or expand that industry to be one that really serves a worldwide market. If you think about it, it makes perfect sense; as developing nations all over the world grow in population, as our needs in freshwater here in the Valley, in the state, and certainly in the nation increase, the people who make the technology that make the maximum use of water possible are pretty important. So we think that the San Joaquin Valley can be the Silicon Valley of water technology.

What other areas are you looking at besides water?

Similar to water technology, we're looking at our strengths in agriculture and in looking at the possibility of launching a food technology cluster. We're still 18 months away of having some real data on what we might be able to do with that segment, but it would capitalize on our production side, and hopefully maintain the processes and the science and the technology that goes into turning the raw products into the finished product that you and I enjoy as a consumer.

In your report, you talked about moving focus away from Highway 5 to Highway 99. What will that do to the population explosion that we are already feeling -- the belief that we're going to be one big city? Would bringing in these industries and developing them around Highway 99 cause more problems than it might relieve?

That's not an area that I could really speak to, but the one thing I will say is that considering the population growth that we're expecting, now is the time that we -- as a region -- have to decide where we want that growth to happen. Although a report has been developed that suggests that it happen on the 99, I think that it's time to open up the discussion and get all the regional stakeholders at the table to figure out, what does our vision of success look like in ten years and twenty years? And there's a lot of work being done in those areas -- but if we don't figure it out now, it will just happen, and then we will have many unintended consequences and a lot of the trouble that you're talking about.

So many things cross over regional lines, in terms of developing these different economies; do you think that it is possible to reach a consensus on issues such as developing these cluster industries?

Yes, I think it is possible. The real opportunity however is to make it specific. In other words, instead of saying, as a region, "We have to make all the decisions together"…that's a pretty difficult task to achieve. But if you say, "Boy, we really need to come to some consensus we best compete with in the global economy." It's a pretty simple discussion to have and it's easy to identify our partners, and to look at the data, and come up with a consensus. If you look at the issues, many of them are regional in nature, and as long as they are taken on single point, it is possible to bring people together. They are always going to be somewhat macro, and then you have to look to be able to implement them in each sub-region, and that's a challenge in and of itself. But I do think that there's a growing momentum in the Valley -- thanks to the work of many organizations; the Great Valley center is certainly one -- to help us to at least start embracing the idea that we should be thinking and talking together. In my experience, simply talking to one another is a big step forward. It is not that we have to reach the same conclusions or work at the same pace to get things done, but those dialogues are a critical first step.

What would a plan like yours do for the unemployment issues that are raised very strongly in this area?

Clearly the goal is to reduce unemployment, increase per capita income, and improve the quality of life for all residents in the San Joaquin Valley. That's what we're all doing. In terms of helping the unemployed now, either through direct, new unemployment opportunities, and through addressing underemployment -- which is just as important as unemployment -- it is much more difficult to measure. But the fact is, if we could advance folks who are underemployed into higher level positions where they could benefit from income increases, we have an opportunity for the lower-skilled, unemployed population to move up into entry-level positions and have their turn to be trained and move up through a career progression plan. It is really about moving the total work force through training and increased skill development and all kinds of techniques to higher positions. Clearly we can't do that without increased economic opportunities, growing the companies we have, and overall, innovating.

That broadens the issue further. Many of these people who are in position to take these jobs have not had an education at all.

Work force is critical. I would venture to say, that in this day and age, work force is the premiere issue. It is not about attracting businesses. It is about improving the work force. If you build it, they will come. In a knowledge-based economy, companies compete better when they have smart people who know how to innovate and know how to take their company to the next level. The focus in the economic world is almost entirely on the work force development. A really good quote that I'll give you just as an example: Kansas City recently just went through a strategic planning process, and their conclusion was, "The city with the smart people wins." If your region can do what it takes to attract and retain intellectual capital, you're going to see economic growth.

What kind of comparisons can you see in something like the Sacramento Valley, which is going toward this high tech profile, and the San Joaquin Valley?

Two things; I will give you an example. I think that we have a very active, thriving, successful healthcare and medical cluster in the San Joaquin Valley. Healthcare delivery systems are excellent, some of the best in the country when it comes to children's hospitals -- central California for example -- two very acute and thriving healthcare delivery systems. At the same time, our large populations demand that we provide healthcare at pretty substantial levels. I believe that we can leverage off of that and see some economic opportunities from the existing systems that are here, and couple that with some research and development moves towards biomedical clusters, life sciences, combining our expertise in agriculture and animal science. I think that there is some potential in Central San Joaquin Valley for life sciences in general and for biomedical development. Will we realize those opportunities as quickly as Sacramento Valley is experiencing information technology? I think it's at least ten-year proposition for us. But there are some real building blocks, and it is just a question of getting people organized and doing the work. I think we will see gains in the next five years. The other thing I think we've seen real improvements in is entrepreneurial activity in the central San Joaquin Valley. We've got a very successful business incubator program and entrepreneurs that are really models for the rest of the Valley. And people from all over the country come to see what we are doing here with micro-enterprise development and some pretty sophisticated entrepreneurship. Those building blocks are starting to fall into place, and that in and of itself is a pretty big accomplishment.

Could you talk a bit about risk development and risk capital?

Money makes the world go round. If we are going to have a thriving entrepreneurial community, we aren't going to get there without risk capital. We have virtually no risk capital in the San Joaquin Valley. There are some really strong efforts that have just been started recently to change that, but up until now, there have been no risk capital funds in the Valley whatsoever. Fresno State recently created a partnership with a private sector company called San Joaquin Venture Partners, which is trying to raise a fund in order to invest in local start-up companies, and there are some folks in Northern California who are trying to bring resources up here too. But when you look at what made Silicon Valley happen, you had a major research university, you had access to risk capital, and you had people who were smart -- and putting those together, you saw the revolution that you had in the late 90s. That's a huge problem; I don't care where you are in the Valley. Sacramento Valley is further along. They have a few funds set up, but they are still falling short. They are going to need to improve access to risk capital to see their entrepreneurial sector grow as well.

What types of people or organizations do you look for?

The problem is that you have to have people who know how to manage those kinds of activities, and you can go to one of two places -- or both. You can go to the government, and there are places that you can go that take large pools of public dollars and invest them in private sector: risk capital funds. Calpers is a good example of that. It just had a successful statewide initiative to infuse Calpers dollars into different underserved communities throughout the state, did a great job, but still missed the San Joaquin Valley. And you can go to private sector people and ask them to put money into this fund, knowing that they'll yield great returns. The bottom line is that you need fund managers and people with expertise to receive those investments and turn them into profitable ventures. Once you have the people who can do it, I believe the capital is out there; at that point you just need to pursue it.

Are you getting the people?

We're trying. Several people have moved away from the San Joaquin Valley, gaining expertise in the Bay Area, and are coming back now. So we're hopeful, but we still could use a lot more.

Is there a correlation between the amount of risk capital in a region and its quality yof life?

Regions that compete on low cost, and industry sectors that compete on low cost -- agriculture would be one example -- compete based on the fact that it doesn't cost them as much to do business. Therefore, they don't make as much of a return or a margin on what they sell. Industries and regions that compete on innovation and value added to the end user, those are the industries and regions that see the premiums on the products and services that they sell. So if you have a region made up of industries that are competing on that basis, those individual companies are making more money, the employees who work there are making more money, the quality of life of the residents in that area will increase. That's the only way to get to the point where you are improving the quality of life.

If you were to develop cluster industries like you're talking about, that would in turn provide the impetus for closing the gap between the have and the have-nots.

You look for clusters that either are or have the potential to compete on innovation. An interesting thing happens when you start bringing together companies in a formal cluster process: that's when the innovation happens. Innovation doesn't happen with a person tinkering in their garage. Innovation happens when they bump up against someone doing something similar or complimentary about what they are doing. Those people start talking and they see the synergies of their products and their services have to offer. Simply convening cluster companies, and having them network together and work on common problems and opportunities, we believe that will be able to capture some specific moments to innovate. If you've got risk capital to invest in those innovations, then you've got economic growth.

What do you think the San Joaquin Valley will look like in 2020 if we manage development properly?

I'm an optimist, so my vision of the San Joaquin Valley in the year 2020: high quality of life. We've learned from the lessons of our very large urban counterparts and we don't do sprawl, which Los Angeles and the Bay Area have done. We preserve our ag land, and we develop parallel economies that build off the strengths of agriculture but take us into completely new areas, all involving science and technology; maintain the intellectual capacity. We keep our kids here after they've gotten an education. They've got opportunities because they're excited about the innovative industry sectors that are here. Overall, I would say that it would be excellence in every sector: excellence in education, in the industries that we have. All of the industries that we have competing at their absolute best; government leading in an excellent fashion -- I believe that is what the global economy demands.

And if we don't?

More of the same. A deterioration quality of life, an expanded have and have-nots chasm, and a continued feeling of a kind of "left-behind" region.

Presentation also made possible by a grant from
the Great Valley Center