{"id":4086,"date":"2017-09-18T14:31:07","date_gmt":"2017-09-18T14:31:07","guid":{"rendered":"https:\/\/journal.c2er.org\/?p=4086"},"modified":"2018-04-30T20:46:45","modified_gmt":"2018-05-01T00:46:45","slug":"use-three-wave-history-at-your-peril-rediscovering-past-american-state-and-local-economic-development","status":"publish","type":"post","link":"https:\/\/journal.c2er.org\/2017\/09\/use-three-wave-history-at-your-peril-rediscovering-past-american-state-and-local-economic-development\/","title":{"rendered":"Use Three Wave History at Your Peril: Rediscovering Past American State and Local Economic Development"},"content":{"rendered":"
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Peter Cooper’s 1830 Tom Thumb. Image owned by the Baltimore County Public Library, Towson Maryland USA. http:\/\/www.bcplonline.org\/<\/p><\/div>\n

The race to break into the Erie Canal’s lock on Ohio’s Midwest grain and corn markets was already on. Pennsylvania State had committed to fund its public\/private, canal\/railroad alternative, and Ohio approved an 1837 (Ohio) Loan Law creating a state program to loan one-third of canal or railroad expenditures to private entrepreneurs. Like today’s Space X, the new frontier beckoned.<\/p>\n

Baltimore, the nation’s third largest city at the time, committed to an unproven and horribly expensive mode, the railroad. Inventor\/investor, Peter Cooper (former real estate developer of Baltimore’s \u00a0Canton neighborhood) and twenty-five local business investors led by Charles Carroll (signer of the Declaration of Independence) needed to raise venture capital (VC) for monies to finance design and installation of track, railroad stations new technology to compete in the race to Ohio. They had no track nor locomotive, just a hope and a prayer–and community support.<\/p>\n

The investment group (1827) issued a 42,000 share “subscription” (a low-priced stock offering) to the Baltimore community. Like today’s crowd-sourcing, hundreds of Baltimore residents bought a share or two in a railroad with no assets or locomotive–$3mm (1827 dollars)–a substantial sum–to lay track between Baltimore and Ellicott City.<\/p>\n

With the track installed (1830), the investors proposed a late summer race between a horse\/stagecoach and Cooper’s new-fangled invention, the “Tom Thumb” locomotive–America’s first steam-powered locomotive. The hope was the race would motivated investors into a second VC round \u00a0to finance Tom Thumb, “the engine that could”, the locomotive that would power the Baltimore & Ohio and to open up Ohio’ isolated agricultural production to eastern markets.<\/p>\n

The race was held.<\/p>\n

Tom Thumb broke down.<\/p>\n

The horse won handily.<\/p>\n

VC flowed into the project, however.<\/p>\n

The 1830 race triggered a City of Baltimore buy in. In return for board seats, the City injected $3m equity (proceeds from tax-exempt municipal bonds) into the private company, reorganized into a hybrid quasi-public city commission. Empowered to issue tax-exempt bonds and conduct eminent domain\/tax abatement, that city commission\/private corporation laid the track, built local stations and developed a working locomotive, complete with patents. B&O went on to win the competition with Pennsylvania. B&O built the first passenger station and profit-making steam locomotive, and the first to enter Ohio (1852). B&O went on to become today’s CSX.<\/p>\n

The more things change, the more things stay the same!<\/p>\n

Nearly 200 years later, innovation and VC still reflect hope, not actual performance. While Tesla’s Elon Musk got off to a better start, his Tom Thumb electric car already “worked” (selling for $100,000 with somebody else’s battery). Yet, despite no profits in sight, Musk’s “Tom Thumb”-equivalent electric car drowned in private\/federal\/municipal\/state VC–like the 1830 B&O.<\/p>\n

Tom Thumb provides a glimpse into our three hundred-plus year economic development history, a history that includes public VC for privately-owned technology innovation–not to mention crowd-sourcing. In Baltimore’s city commission one sees an early version of our quasi-public development authority, and a government VC EDO. What’s more this was not new in 1830. State equity capital to private firms began in the colonial period. Tom Thumb and the B&O were only one example of literally hundreds. BTW the commission was not the first public\/private railroad EDO either, that being in 1817 New Jersey.<\/p>\n

This Issue’s TAKE AWAY<\/strong><\/p>\n

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Musk & Sen. Diane Feinstein at Fremont CA production plant. 2017<\/p><\/div>\n

American state and local economic development enjoys a long, and meaningful history–a history that is almost completely unknown to almost every economic developer. \u00a0 Arguably most of what goes on in today’s modern economic development was developed in recognizable form hundreds of years ago. Innovation did not start with the Internet or the knowledge-based economy.<\/p>\n

Our history offers value to current economic and community developers. It is worth your time to understand it.<\/p>\n

American economic developers often subscribe to a version of ED history derived from the three “WAVE” paradigm”. In that paradigm, modern” (post-industrial Third Wave) ED is a new era vastly different from anything previous–a brave new world. The First and Second Waves, characterized by Chambers, boosterism and heavily-laced with inappropriate, ineffective and immoral business incentives, passed into history. Third Wave economic developers prided themselves for discovering innovation, “the entrepreneurial city and state”, technology and gazelles, VC–and more. The great EDOs of the Third Wave were government, nonprofit and universities. The private EDOs were thrown into the dustbins of history.<\/p>\n

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President Obama and Musk at Space X Launch in 2010<\/p><\/div>\n

The reality presented in the\u00a0As Two Ships<\/strong> history is these strategies previously existed and government was a major player long before the post-industrial age. “Post-industrial” economic developers retooled\/renamed several hundred year-old existing ED tools\/strategies, formed new EDOs, and devised new jargon and thousands of pages of \u00a0legitimizing theory, concepts, and algorithms–to fit their \u00a0“modern” world view.<\/p>\n

Those who do not know history are condemned to repeat it–mistakes and all.<\/p>\n

The problem with a three-hundred year history<\/strong><\/h2>\n

It overwhelms us. There is too much of it. Past economic developers wore different clothes and didn’t use the correct jargon. They were often politically-incorrect. Worse, our history is often not what we think it is; a lot of it doesn’t fit into our current perspective–and we usually don’t like that! How do we deal with these problems?<\/p>\n

First things first, let’s break down the bulky history.<\/p>\n

As Two Ships <\/strong>reconverts\u00a0two historical realities into themes that “break down” the accumulated mass of history into manageable bites.\u00a0The two organizing themes were (1) a temporal classification system called “Eras”–that included within each Era thematic sub-time periods labeled “Ages”; and (2) the recognition of America’s three macro-regions, North (New England, Mid-Atlantic, and Midwest), South and “West”. Each were settled by different ethnic\/racial groups in different time periods, possessed unique histories, political cultures and congruent policy systems, and evolved local\/state economic bases during different stages in American capitalism’s evolution.<\/p>\n

This Journal \u00a0issue focuses on ED’s four “Eras”, leaving the “Ages” to another day. The next issue dwells on each region’s evolution through our American state and local ED\/CD history.<\/p>\n

\u00a0As Two Ships<\/strong><\/em> collapsed time into four “Eras”:<\/p>\n