The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
A City of Big Ideas
Here in the Southeast, a buzz has been growing around the idea of innovation. In my hometown, Atlanta, startups have been popping up like weeds. What makes Atlanta a good place to innovate? To start, Atlanta is home to a number of top-tier universities and colleges, including Emory University, Georgia State University, Morehouse College, Spelman College, Agnes Scott College, and Georgia Tech, which U.S. News recently ranked fifth in the country for engineering. The city also boasts one of the fastest-growing urban populations in the country and a cost of living below the national average.
Among recent developments, a study done by the Kaufmann Foundation ranked Atlanta second in the nation in entrepreneurial activity. As well, Georgia companies drew in more than $116 million in venture capital funding in the first quarter of 2014, compared with $46 million just two years earlier. On top of it all, Forbes magazine placed Georgia Tech’s Advanced Technology Development Center (ATDC) on its list of the top 12 Business Incubators Changing the World. So what’s the deal? Is Atlanta becoming the next Silicon Valley? Why has innovation been the buzzword of the last decade here?
A growing consensus holds that innovation is the key to economic growth in developed economies. Innovation enables firms to become more productive and thus increase output without increasing the amount of inputs (labor, capital, etc.). Throughout modern history, the kings of all innovations are the game changers, sometimes referred to as general-purpose technologies. Game changers include inventions including the steam engine, electrical power and, more recently, information and communication technology. Juan Moreno-Cruz, an assistant professor in the school of economics at Georgia Tech, noted that although you can’t always recognize a game changer right away; “there are small things that combine that make general-purpose technologies important.”
Without the small things, general-purpose technologies never become significant, and it’s here that start-ups become important. Stephen Fleming, vice president for economic development and technology ventures and executive director of the Enterprise Innovation Institute (EI2) at Georgia Tech, says that, “Innovation is the reason that they exist.” Part of Fleming’s role is to oversee Georgia Tech’s ATDC, one of the nation’s oldest—it was founded in 1980—and largest business incubators attached to a university. Throughout the years, it has graduated more than 150 companies, which together have acquired over $2 billion in outside financing. “We shelter them from the ups and downs of the market,” says Fleming. “We do this for a while so that the company does not die from the downs.” But how exactly does the ATDC foster innovation in their start-ups? “We allow them the chance to fail.”
This is one of the many things that Fleming feels the U.S. does right. “There is a difference between being a failure and failing. If you fail, you just had a very expensive education on what not to do.” This holds true even for established small and medium-sized enterprises. “Let your people try stuff!” A survey done by PricewaterhouseCoopers asked CEOs which elements are some of the “most important ingredients to successful innovation,” and 57 percent of respondents agreed: “the right culture to foster and support innovation.” Meanwhile, 37 percent also responded by citing a “willingness to challenge norms and take risks.”
So, back to the question at hand: Is Atlanta becoming the next Silicon Valley? Fleming (wearing his “No Valley” button) would answer no; we’re becoming a better version of Silicon Valley that is welcoming to small companies. He points out four parts of our innovation ecosystem that make Atlanta a great place to innovate right now: First, the city has top-tier talent from all of the schools mentioned above. Second, unlike Silicon Valley, the city has the customers for the companies (Atlanta ranks third in the nation among cities with the most Fortune 500 headquarters). Third, customers who aren’t here are just a nonstop flight away, thanks to Hartsfield-Jackson Atlanta International Airport. Fourth and final, Atlanta has plenty of capital to work with.
It’s certainly a compelling case, and I’m looking forward to seeing how it plays out.
By Trevor Lindsay, an economic intern in the Atlanta Fed’s research department
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Our Bread and Butter
It’s spring, which means warming weather, getting out the gardening tools, and convening the semiannual meeting of the Atlanta Fed’s Agriculture Advisory Council, which represents diverse agriculture and agribusiness interests across the Southeast.
Prices are always a topic of conversation at council meetings. This meeting was no exception, and here are some examples of what we heard:
- Fertilizer prices are up.
- Feed prices are down from last year’s highs.
- Fuel costs have been stable over the last year.
- Equipment and seed costs are up.
- Beef prices are up, and some producers are considering increasing herd size because of favorable prices and lower feed costs.
- The value on the very best farmland is holding up, but farmland prices may see some corrections, with the biggest changes expected on marginally productive land.
Citrus greening is reducing the supply of Florida oranges, and growers continue to seek ways to mitigate the effects of the disease. Even though costs for products that help fight the disease are up, growers are saying, “If you think it works, you do it.” Growers hope that new research funding included in the recently approved farm bill will help find a solution, but concern also exists that as production declines, processing infrastructure will be lost, which may make it challenging to expand in the future.
Foreign markets have also affected growers. For example, cotton prices are in flux as a result of China’s pricing policy, while dairy prices are enjoying an uptick because of China’s increased purchases. Poultry producers expect this year to be a good one. The poultry industry is setting export records, and producers are saying exports represent future growth.
Finding labor remains difficult for most producers, and the problem is no longer just finding the numbers they need but increasingly finding those with the necessary technical skills as well. Producers are encouraging local junior colleges to offer technical programs for farm workers: “We need fewer but better-educated laborers,” one source said. There is also a growing need for data-management skills. Many growers will outsource data management/analysis to big companies specializing in that area.
Council members agreed that the outcome of the newly signed farm bill remains uncertain as the details are worked out, but they anticipate large farm producers will have to significantly restructure their businesses.
Another challenge is coming from the consumer side, as buyers require unprecedented amounts of information about health and wellness and sustainability processes from agriculture producers. Advisory council members acknowledge that technology makes it possible to supply this information, but the group recognized the need for agriculture producers to have a seat at the table when discussing new requirements.
As the meeting drew to a close, we went around the table one last time, and these comments are among what we heard:
- “We will get more efficient.”
- “There will not be a lot of inflation in agriculture in the next year or two.”
- “Agriculture will go through another cycle of de-peopling,” but “…as the labor required to produce is decreasing, value and next-step processing is not shrinking.”
As I reflect on all I heard that day, I know technology will continue to play a big role in agriculture production, and its use is expanding every day. I also know from talking with our council members that good old-fashioned tenacity, know-how, and the love of farming shine through. The continued marriage of these disciplines will literally be our bread and butter for years to come.
By Teri Gafford, a Regional Economic Information Network director in the Atlanta Fed’s Birmingham Branch
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Keeping Up with the Technologies
Sometimes the words that come out of my mouth are pure entertainment to my children. Take my venture into the world of Twitter about a year ago. Although I had an account, I used it exclusively to follow breaking news. I never posted anything—I couldn't imagine anyone being interested in what I had to say. The kids had accounts and I followed them, along with several economics-themed accounts as well. When I broke down and posted my first message, I proudly announced "I did my first twit." You can imagine their laughter, and my shame.
Although I rarely "tweet," I do follow more and more economics news and commentary accounts. (I have 12 followers—most are family.) Of course, I follow the Atlanta Fed on Twitter as well as the Federal Reserve Board of Governors. If you have not had a chance to check out these resources, take a moment and look them over. Also look over those Twitter accounts that the Atlanta Fed follows. There are many great resources for following economic news from across the region.
By Mike Chriszt, a vice president in the Atlanta Fed's research department
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