Jim Howell has been a central figure on Boston's economic landscape for over thirty years. His experience with economic development, however, predates his arrival in the Boston area. Howell's economic start can be traced back to 1962, when he completed his graduate dissertation on industrial maturity in New England at Tulane University. Following the conclusion of his graduate studies, Howell then moved on to a position in the United States Commerce Department. He worked there with Lowell Ashby of the Economic Development Administration (EDA) for almost seven years until 1969, when he was offered a position as Chief Economist at Bank of Boston in Massachusetts.
Concurrent with Howell's movement into his new position at Bank of Boston, the New England economic environment was in the midst of a dramatic period of flux. The area, whose industries had been some of the most successful labor-intensive factories ever since the Industrial Revolution, was now becoming economically outdated in the new wave of capital intensive industry that was beginning to dominate the rest of nation. The cotton, wool, shoe, and furniture factories that had driven the New England economic machine for the first half of the century were quickly being made obsolete by both the automated industrial workplace of the post-War era and by the computer revolution of the 1970s. The transformation of places like Lowell, whose mills had once been on the cutting edge of economic innovation and productivity, was clearly emblematic of the dramatic transition to capital-intensive industries that the New England region was undergoing.
However, even as the Massachusetts economy seemed headed for a dramatic economic collapse, with its core industries in disarray and its unemployment rate skyrocketing well above the 10-12 percent range, the economy surprisingly rebounded in the late 1970s. This economic rebirth, or the Massachusetts Economic Miracle as it is often called, shocked both those within the state and worldwide. How could a state whose central industrial base was eroding beneath its feet, suddenly and unexpectedly begin to experience rapid growth levels on par with some of its most prosperous economic times? The most direct causal force driving this paradox was the rapidly emerging high-tech computer industry.
New high-tech computer firms such as Digital, Wang, and Data General quickly evolved into high powered, capital-driven companies that proved themselves immediately capable of filling the vast void left in the aftermath of the state's blue-collar industrial collapse. These new entities found refuge outside of the city limits in the suburban communities of Maynard, Lowell, and Westboro and provided the economic spark necessary to ignite the state's newfound growth. As this new area of expansion took hold in Massachusetts, the economy went into a period of dramatic revival. Through the late 1970s and early 1980s, the state was sailing along quite smoothly. It had made an amazingly rapid transformation from economic recession as an industrialized dinosaur to a dynamic rebirth as a bastion of new age, high-tech development.
This upturn was sufficiently strong to help the state avoid the ills plaguing the rest of the nation during the national recession of 1980-1982, as its industries grew and its unemployment levels reached to less than 4 percent. However, even in the midst of this incredible prosperity, there were economic undercurrents that would soon emerge to spell trouble once again for Massachusetts in the late 1980s.
First, much of the growth Massachusetts had experienced with the success of its new high tech industries had been made in the suburbs. Although this influx of money contributed to the economic prosperity of the state as a whole, it did very little to help the city of Boston grow. The downtown area still looked very similar to how it had been in the 1970s. Second, and quite related, the high-tech firms were not only physically located outside the city limits, but were also lacked both a keen sensitivity and a desire to see how their growth could more broadly contribute to the emergence of downtown Boston as a first-class metropolis.
These undercurrents finally made themselves more fully apparent in 1988 when Massachusetts fell deeply into another recession. This recession would last six years and be marked by greater severity both in its depths and its length than the downturn of the early 1970s. The causes of this decline were two-fold. First, the high-tech industries that had fueled the state's growth in the early 1980s had lost their competitive edge. Second, the downtown area had experienced a period of increased commercial real estate construction, which over-saturated the market, caused numerous projects to default on their loans, and inevitably resulted in a dramatic series of bank foreclosures. This recession left high unemployment, high commercial office vacancy rates, and well over half of the city's banks either closed or merged in its wake. By the early nineties, Boston was in need of another economic miracle.
Although many hi-tech hardware firms had fallen on hard times, software companies and other knowledge-based industries resurrected the region's economy. As it had for the past several decades, the Boston area continued to foster innovation, but this innovation and the newfound prosperity came in a different set of industries. Around 1994, Boston's economy began a promising turn around thanks to the growth of important knowledge-based industries that drive the new economy. Medical and biotechnology firms have been regional economic leaders, and their strength is clearly a reflection of Boston's unmatched concentration of colleges and universities. Next, software companies, which are less capital-intensive and cyclically sensitive than hardware companies, also grew in size and number. In the last several years, internet-based companies have added to this boom as Boston has followed the lead of Silicon Valley. Besides science and technology, traditional sectors like financial services (including venture capital) are a part of this knowledge-based economy. Lastly, universities and think tanks have also played a key role both supporting the region's other industries and as robust, profitable entities themselves. Boston's economy is currently strong, and should continue to be, because these industries are among the fastest growing and most profitable in the economy.
Boston's economic future looks bright because universities provide the training ground for the new economy. The region is uniquely positioned for success in knowledge-based fields because of its vast reserve of higher education. The greater Boston area is home to over 300 colleges and universities, more than any other US city. Furthermore, the link between education and the local economy has become all the more evident as college students and recent graduates start new companies at an unprecedented rate. Boston is often looked upon as a model for development, and this training base provides much of the fuel for economic growth. While other cities might have a more modest regional educational endowment, they can still learn from Boston's development history. This is because education isn't the whole story behind Boston's growth. The city's future is also bright because of the unmatched capital invested in public works projects here. All told, the Big Dig, harbor cleanup, waterfront development and new sports facilities represent $50-60 billion in direct investment. This exceeds the total development capital currently invested in any other US city.
Even though Boston development projects have been hampered by opposition on many fronts, in the end the success of major public investment in urban renewal should be clear. Boston will be a dynamically modern city once the central artery is completed underground and the new Charles River crossing further expedites traffic flow between Boston and Cambridge. As a consequence of the Big Dig, the city also enjoys a new fiber optic infrastructure making doing business, both for high tech and traditional firms, faster and more efficient. The success of these modernizing developments in America's oldest city suggest even greater possibilities elsewhere as cities across the nation combat sprawl and urban flight through vigorous renewal programs.
Education and investment are two of Boston's most vital knowledge-based industries, but interestingly they also intersect to drive regional development. For example, the National Institutes of Health invests 58% of their grant money in Boston's teaching hospitals. As home to not only an enormous quantity of universities, but also to several prominent and world-renowned institutions, the Boston area naturally attracts investment in these institutions, their labs, and their projects. Thus education and private investment form a fortuitous cycle which continues to produce innovative research ideas and leaders of government, business and the hi-tech industry. While Boston's development is highlighted by knowledge-based industries, it has not only produced more jobs for those with advanced training; investment in the city has created jobs in a wide range of industries. In addition to the upper level executives and managers leading Boston's new industries, many jobs have been produced in administration, construction and service occupations. Unemployment in the Boston area has fallen to 3%, lower than the national average. Clearly the benefits of economic growth have been felt by a wide-ranging constituency, and everyone in the region stands to gain from future development as well.
Throughout the 1970's and 1980's, city government was antagonistic to Massachusetts businesses. As a result, companies distanced themselves from Boston both in the geographic sense and in terms of their corporate culture. It was in this period that the industrial leaders - Digital, Wang, and Data General - all established suburban headquarters outside the 128 loop. For years Massachusetts businesses believed they had little to gain from the city and felt no responsibility for engendering civic concerns among employees and industry peers. This has begun to change however, as state and city government have facilitated development through a less intrusive style. The state legislature is more sympathetic to growth than it was in the past, and is more receptive to pro-business policies. The business community as a whole has welcomed this attitudinal shift, but some companies continue to protest interactions with government and centralized planning. Particularly in the software industry, where firms typically establish themselves in peripheral suburbs rather than downtown, an apathetic attitude towards civic issues still prevails. For economic development and urban renewal to be successful, city government and the business community must communicate and cooperate better than they have in the past. The value of business to urban renewal is clear, but for businesses to adopt a culture of civic concern and awareness, government must make the positive externalities of regional growth more tangible.
While Boston can serve as a model for economic growth in many respects, its record of cooperation, coaltion building, and problem solving is not so strong. Boston's development, like development everywhere, has been halting and has progressed with little centralized planning. Because it is driven primarily by private investment in certain stages, this is to some extent an inevitability of economic development. Even so, the city's past development plans could have been more coherent, and hopefully the development of areas like the South Boston Waterfront will provide an example of this in the near future. In Massachusetts, the Metropolitan District Commission is charged with coordinating the Greater Boston area's 101 cities and towns, but little progress has been made in producing a coherent and comprehensive regional development plan. The absence of such a plan certainly doesn't compromise the development and growth that has occurred, but having a more holistic development framework may have better maintained the vitality of the downtown area, especially during the commercial real estate glut of the late 1980's.
Furthermore, a coherent development plan might help the city overcome its endemic neighborhood tribalism, which threatens development at nearly every turn. Yet Boston is both blessed and cursed by the obstacles development projects encounter here. While it may be the toughest city in America to develop in, some have suggested this improves the quality of projects that get approved through a process of Darwinian competition. Still, whether this possible benefit is worth the disabling gridlock that accompanies it is doubtful. Over zealous neighborhood interest groups are a major obstacle for developers as the New England Patriots experience in seeking a new stadium locale demonstrates. While spillover effects from development projects are not always tangible, all Bostonians stand to gain from the city's growth and prosperity and have an interest in making development work.
There are lessons to be learned from Boston's development experience already, and many more will emerge over the next decade. While the city has the unique good fortune of deep reserves in both education and private investment, effective governance must combine these ingredients to produce growth and regional prosperity. In this respect, Boston can serve as a model for public/private coalition building for cities in the US and abroad. Although few cities can match Boston's present educational and financial resources, all can learn from its example and realize their potential both to grow economically and to enhance urban spaces and community sentiment. Targeting and investing in “push” industries is what drives urban development and Boston has hit on a winning combination with its set of high growth knowledge-based industries. For development to be lasting and sustainable, both corporations and government must work together to identify these industries, and then to offer their support, financial and otherwise.
As the home to over 300 colleges and universities, the Greater Boston area is a natural site for innovation, leadership, and knowledge creation. As the Internet and wireless technology have transformed communications, information, not capital or labor, has become the currency of the new economy. The private sector's knowledge-based industries have established a strong economic base in the region, and Boston is now in the midst of a period of unprecedented development thanks to the enormous investments of city, state, and federal capital. While Boston's development remains incomplete and has experienced its share of setbacks, many can learn from its model. In addition to investing in promising and cyclically insensitive knowledge-based industries, Boston provides instructive lessons on cooperation between public and private sectors, and achieving economic growth and urban renewal simultaneously.
Jim Howell was Chief Economist at BankBoston from 1969-1989. He has also founded a consulting firm, The Howell Group, with expertise in the areas of economic forecasting and analysis, economic development planning and policy development.
NB: FutureBoston.org neither endorses nor guarantees the historical accuracy of "Recollections" columns. All facts and opinions expressed here are taken from informal interviews.
Interview: July 13, 2000 | Last Updated: September 7, 2000