A White House staffer under President Obama and Michael Bloomberg’s former campaign manager have an idea for states looking to attract more startups: approach economic development like education reform.
In a Politico op-ed published today, consultants Seth London and Bradley Tusk — now the managing director and CEO of consulting and venture capital firm Tusk Ventures — propose that the federal government create a program akin to the Race to the Top fund created by the Obama-era Department of Education in 2009 in order to help revive the Rust Belt. In addition to his work on political campaigns, Tusk is known for his consulting work with tech companies like Uber — he worked with the ride-sharing startup in its 2011 battle to launch in New York City.
London and Tusk propose that states be given the chance to “win” grant money set aside by Congress — they suggest starting with a $5 billion fund — by submitting a proposal that would lay out specifically what they would do to attract more startups.
The pair argue that this proposal would allow states to create plans that would cater to their specific strengths and challenges, reinforcing the idea that there’s no one-size-fits-all model to economic development. The state of Iowa, for example, could submit a proposal that would focus on supporting the state’s growing ag-tech sector.
“Many startups would be willing to set up shop in Indiana, Ohio or Pennsylvania if they knew the environment was hospitable, the culture welcoming and the playing field fair. By awarding grants only to states willing to pass laws that allow startups to compete, the federal government can help make that happen,” London and Tusk write.
While London and Tusk cite Race to the Top as a success, the program faced criticism from parents, teachers’ unions, and education activists for the way in which it awarded states federal funding and for imposing what they found to be onerous metrics for measuring success.
Some states claimed in their proposal that they would be able to achieve nearly impossible gains — promising that all students would achieve proficient scores on standardized tests, for example. A 2013 report found that some states like Ohio and Tennessee had to walk back some of the goals they initially promised to meet in their Race to the Top applications.
Entrepreneurs aren’t judged by test scores, but this does beg the question of how states would be measured by a Race to the Top-like economic development program. Mark Muro, a senior fellow at the Brookings Institution, says that just as there is no one right policy proposal for each state, there is no one right way for every state to measure how successful they’ve become in creating a more startup-friendly environment.
“I think what would be the wrong way to approach this would be to say [for example] ‘the only success metric is job creation in year two,’ because you could very well have had a tremendously successful program that has catalyzed a huge amount of activity that didn’t yet yield jobs,” Muro says.
Muro tells VentureBeat that he does believe that the type of “challenge grant” proposed by London and Tusk can be a successful approach to economic development. Challenge grants incentivize states to come up with policy solutions with a sense of urgency, and they address the need for a variety of solutions needed to jumpstart a local economy. Muro also advises that while state lawmakers do have a better read on what entrepreneurs in their cities need than federal lawmakers, a successful economic development proposal would also need input from entrepreneurs, as well as leaders of local incubators, accelerators, and other startup-friendly organizations.
“You would want to get leaders in Nashville, or leaders in Provo, to be bringing ideas to this and feel like they have a strong buy-in,” Muro tells VentureBeat.
Jason Wiens, a policy director with the Ewing Marion Kauffman Foundation, says that there is a “laundry list” of ingredients that make a successful startup ecosystem, and not all are easily solved through policy — for example, creating an environment in a city or state that strengthens collaboration among entrepreneurs and encourages people from a variety of backgrounds to start businesses.
“I think the government and government leaders can play role in fostering an inclusive, open, and diverse culture, but my personal belief would be that’s it’s better led by entrepreneurs,” Wiens says.