New Cleveland – Using the Stimulus Package to Recreate Cleveland’s Economy

The just-passed stimulus package presents Cleveland with a once-in-a-century opportunity to recreate itself with a new and sustainable economy. We can choose to fritter away Ohio's stimulus dollars on ordinary infrastructure like roads and bridges, creating temporary jobs that give no lasting advantage to Ohio's workforce nor the state as a whole, or we can focus our spending on a differentiated asset that will form the basis for Cleveland's new global competitiveness.

It is time for all who wish to live in New Cleveland, a center of financial and social influence in the 21^st century, to step forward and lay its foundation. It is time to honor the bold and entrepreneurial spirit of the many men and women who built this once great industrial city by inventing the city anew. A new vision. A new economy. A New Cleveland.

It is imperative that we do so now. The world economy may be in a prolonged downturn, but it will end, and it will end with real growth in regions that understand and capitalize on a world connected by the Internet and a global economy. If we do the hard work now, vast sums of new private capital that become available during the recovery will see opportunity here, as they did over a century ago. And New Cleveland will grow, shining, on the shores of Lake Erie.

It can be done, and Ohio has done it before. In 1825, Ohio did it on its own, without federal money. Rather, with a combination of foresighted public (first) and then private investment Ohio catapulted itself into position as the 3^rd largest state in the country, and Cleveland from the 45^th largest city in the country to the 5^th.

One single act by the fledgling State of Ohio changed it from a subsistence farming state to an interstate commerce powerhouse. One state investment transformed an economy based primarily on bartering into one of the nation's largest financial infrastructures. One state-engineered resource made Cleveland the place where returns were higher and investment risk lower, and attracted private investment at thousand-fold multiples. This one act was responsible for assuring that it was Cleveland, and not some other Midwest city, that became one of America's premier economic powerhouses. One engineered resource: the Ohio and Erie Canal.

The canal connected Lake Erie with the Ohio River. Ohio farmers suddenly had outside markets for their crops from Canada to New Orleans. The entire Ohio population had access to goods and raw materials from the eastern seaboard to the Gulf of Mexico. An economy based on interstate trade was born. And as soon as entrepreneurs and investors saw that there was a place with wide access to raw materials and markets, they came by the thousands with millions of investment dollars in hand. In short, one publicly-engineered resource created fertile ground - the seeds of private investment followed. And Cleveland was transformed from a small agrarian city to an American powerhouse.

If the state had waited just a decade, Cleveland might have been Durham, or Lubbock, or Des Moines - a nice, small city among many small U.S. cities. Why? Because a new technology had been developed, one that brought the advantages of a canal to any place in the U.S. , regardless of its elevation or proximity to major water sources - the railroad. If the state had waited, the whim of fate (or more likely the owners of the railroads) would have decided what U.S. city became the next great industrial center. Instead, because Cleveland had already developed as a business and financial center, the railroads all rushed to serve Cleveland factories and businesses. And the virtuous circle continued. Cleveland attracted even more private investment once served by the railroads because the potential for gain was increased.

The key point: private equity doesn't care about a region, a local economy, or what local interests might do in the future. Private equity cares (correctly) about risk-managed return on investment. A focused public investment in an engineered resource can allow a region to offer higher return potential and reduced risk, just as the canal created a regional advantage for private investment. This, in turn, gave Ohio a developed economy, a large experienced labor pool, and established businesses, allowing it to capitalize on new advances in technology (like railroads) rather than being at their mercy.

Did this take a massive planned economy? No.

Did this require the state to make the bulk of the investment that transformed it? No.

Did the Ohio's transformation result from a grand industrial plan? No.

Ohio's foresight with a single, specific infrastructure investment increased the opportunity and reduced the risk sufficiently to attract great sums of private investment.

We have only seen the first effects of the newly global economy, and we have seen a fraction of the true business innovations that will spring from our newly connected, real-time, world. Now, before the recovery, we must make our own advantage, as did over a century ago. If we do not, we will simply wave at the passing global economic express train.

It is time to build New Cleveland together.

Governor Strickland's appointment of Ronald Richards as the "infrastructure czar" is a critical first step. It is essential that the governor and Mr. Richards have the courage to see this as a once-in-a-generation opportunity to transform the state, just as the canal was. We should encourage Mr. Richards, with a small team of global business entrepreneurs, to identify a long-term economic platform that can give Ohio a unique and sustainable global niche. We should give Governor Strickland the necessary support to direct a large, public-scale investment in a differentiated asset to make Ohio fertile ground for global investment.

It is time for us to build New Cleveland.

(a follow-up post:  Have the COURAGE to Get Involved in New Cleveland!)