A Practitioner’s Perspective On Understanding And Developing Industry Clusters

August 14, 2014

By: Jeff Marcel, Senior Partner, TIP Strategies

At TIP, we stay abreast of the practical work it takes to grow local economies, and we explore and rethink targeted approaches to economic development work. In this blog, I’ll share with you some of the things I learned about developing industry clusters.

As the former president and CEO of the Economic Development Council of Seattle and King County, it was my job to figure out how the organization could influence businesses’ decisions to come, stay, and invest in the Seattle region. The targeted industry cluster approach we established has yielded benefits to the Seattle region by increasing jobs and investment and by building an appreciation and understanding about what drives the local economy.

During the ten years I led the EDC’s economic development efforts, we established multiple cluster strategies targeting aerospace, clean technology, maritime, financial services, interactive media, life science, medical devices, and fashion and apparel industries. Frankly, the traditional economic development incentive tools in Washington State didn’t compare well with the competition, so we experimented with various industry cluster development programs out of necessity. We discovered valuable approaches to working with and within industries to encourage their growth.

Lesson 1: Run data to find industry clusters without assuming anything beforehand.

Alan Mulally, the former head of Boeing Commercial Airplanes and current CEO of Ford, famously said, “The data will set you free.” Assuming the industry cluster data you compile is accurate and current, you’ll be able to look at reality squarely. Data may reveal facts you weren’t aware of and can provide a sense of trends in growth or contraction. Examining the Financial Services industry cluster in the state of Washington is a perfect example of this. After the global financial crisis of 2008, the Seattle region lost one of its most iconic corporations, Washington Mutual, also known as WAMU. This was a sizeable loss, and many interpreted it as the end of the financial services industry in the state. The EDC ran the numbers and found that, although 3,400 jobs were lost at the WAMU headquarters, the industry across the state still accounted for 130,000 jobs in 2010, with 8,200 establishments in the accounting, banking, investment services, and insurance sectors. This information was not only a surprise to economic developers but to local industry as well.

Lesson 2: Speak the language your target audience appreciates: the language of data.

But this data isn’t just an educational opportunity for the practitioner. It is incumbent on the economic developer to educate the rest of the community about the importance of industry clusters to the local economy. This is doubly true for educating policy makers who may move forward with decision making without a full sense of what drives the local economy. The data should also be used to educate business decision makers and industry leaders. A spreadsheet that lists company names, operations, employee count, revenue, and associated business costs means more than a glossy community-marketing brochure. An example of this work is the analysis the EDC conducted on the interactive media-video game software development industry in the state of Washington starting in 2007. We compiled a list of over 150 companies in the industry, mapped their locations, and conducted an economic impact analysis quantifying annual revenue growth for 2006 at $4.2 billion. We also calculated the number of jobs at over 15,000 and provided a breakdown of occupations serving the industry and their wage rates. This data quickly spread across the internet and advanced the region’s reputation as a significant center for the industry. Business leaders in the area have utilized the information in their decision making process, and the effort has been responsible for bringing new companies and talent to the community. Additionally, local political leaders understand the industry is a real economic powerhouse for the region and needs to be prized.

Lesson 3: Know the sectors or niches in the industry cluster you are targeting for growth; they are not all the same and may have different needs and drivers of success.

The industry cluster approach is a targeted way to get the most out of your resources—you can’t be everything to everyone, so figure out what you have or what you want, and go after it full force. But don’t stop at the industry level: specify which sectors within the industry are present. We often hear communities proclaim a desire to grow their clean technology industry. While “clean technology” is an industry cluster, it encompasses many sectors including alternative fuels, wind energy, electric grid efficiency, natural gas, solar energy, energy storage technologies, recycling technologies, energy efficiency technologies for buildings, and much more. Digging deeper into what exists in your community and refining your targets is essential, because the regulatory environment, technologies, skills sets, and business models can be very different for each sector. At the EDC, one of the first industry clusters we targeted was the clean technology industry. We thought it fit with our community’s technological expertise and our culture of environmental stewardship. We hadn’t compiled or studied the data sufficiently to know which sectors existed, but we knew the major companies involved and were keenly aware of our community’s commitment to being “green.” Through painstaking outreach, we found one of our unique strengths. We learned there were an estimated 8,800 jobs in the state of Washington in fields related to energy efficiencies for buildings, including architecture and design, construction and engineering, and software development. That niche of expertise and concentration in the clean technology cluster has provided direction for the EDC’s efforts and allows the organization to articulate who the community is and what it offers.

Lesson 4: Know what makes your community uniquely suited for the industry beyond the numbers.

After analyzing data and industry research, you might still find ways to differentiate your community from others with a concentration in the same space. Data analysis and industry research deepen your understanding of your community, however, there is more to a community than is apparent from general data. Qualitative differentiators may be difficult to identify, but they are worth seeking; they may include a cultural quality or an environment that arises from major participants in an industry. An example of this is Seattle’s global health sector within its life science industry cluster. Like other life science hubs, Seattle has well educated people, numerous research institutions, clinical hospitals, a world-class research university, a few hundred life science companies, a robust entrepreneurial community, and outstanding philanthropic foundations. What sets Seattle’s global health community apart from Boston, the Bay Area, or Geneva is the willingness of scientists in the Seattle region to work together across institutions. The culture is collaborative rather than cutthroat. This collaboration has led to new discoveries and the identification of efficiencies and has created an alternative environment attractive to many researchers. The spirit of collaboration is something that doesn’t usually appear in general data, but it is a real differentiator and a part of the Seattle region’s sales pitch. The only way to discover this kind of quality is to work with and get to know the local industry and appreciate its context in the overall industry cluster. What makes your community uniquely suited for the industry category you are targeting? Having available land in a business park doesn’t always strike a chord of interest with companies, but sharing something special about your community’s connection with their industry often does. A differentiator might be a company or entrepreneur whose star is rising, an industry giant, a research and development center, or university or technical college that has a special program.

All of these lessons point to the importance of economic development practitioners having a thorough understanding of the industry clusters within their communities and what makes their offering unique. The garden-variety approach of promoting greenfield real estate options, general tax incentives applicable to all companies, low cost of living, and low business costs may not be enough.

Ten ways to establish and understand your value proposition to an industry cluster and project the value of the industry cluster to others:

  1. Find a volunteer or hire a local part-time expert (e.g. a retired executive) with knowledge and credibility to lead the development of an industry cluster program.

  2. Join an industry association and be present at industry functions, locally and outside the community.

  3. Understand the needs of the local industry, then identify ways to meet those needs.

  4. Be a connector. Industry leaders are busy running successful businesses. As someone who spends time meeting with many companies and leaders within an industry, you may see opportunities of which they are unaware. Put that entrepreneurial drive into action, and be a business development resource for those companies.

  5. Educate elected officials and policy leaders about industry clusters and possible issues and conditions that have implications and impacts to their success. Take the opportunity to present an unbiased view given the practitioner’s vantage point.

  6. Spend your marketing dollars wisely, and target media resources seen as credible and established in the specific industry. Create a communications plan, and stick to it. Don’t let the inevitable “immediate special advertising” opportunity distract you from your established plan.

  7. Build industry cluster expertise. Don’t just assign a sector to someone. If your potential assignee isn’t familiar with an industry, make sure he/she at least has an interest, then invest in education to build his/her level of expertise. Or, hire someone who already has expertise and an established network and credibility—think retired Baby Boomers. Utilize this expertise to generate attention for your economic development goals by having that individual be a resource for local media. Have him/her submit industry-related articles, white papers, and editorials, and seek out speaking engagements at industry events as well as community forums.

  8. Consider hosting a state-of-the-industry annual event or other industry networking events. Provide a forum to showcase industry leaders, and present economic data about the sector or new opportunities or challenges that will impact the future of the industry.

  9. Partner with industry associations on economic development work, marketing efforts, and industry events, and host inbound and outbound industry delegations. Industry associations know the industry intimately and have a vested interest in its success, so they often make an ideal partner for economic development work.

  10. Lastly, identify other markets that have a concentration in the target industry, and collaborate with them. Find ways to encourage businesses and educational institutions to partner together, encourage industry financing opportunities, and encourage trade within the industry between both markets. When you establish these kinds of relationships, business development opportunities can expand exponentially. The key is to identify how both communities can benefit from a reciprocal agreement. Your partners will begin to look for opportunities for you just as they are in search of opportunities for themselves.

I welcome the opportunity to discuss industry cluster development programs with you and learn about the economic development efforts and target industry cluster work in your community. Please feel free to contact me at jeff@tipstrategies.com.

Jeff Marcell
Senior Partner
TIP Strategies, Inc.

How Owensboro Tobacco Grew A Possible Miracle Drug To Treat Ebola

August 13, 2014

By: Janet Patton
Via: Lexington Herald-Leader

In this undated photo provided by Kentucky BioProcessing, tobacco plants are grown in a controlled environment at the Kentucky BioProcessing facility in Owensboro, Ky. The company is using tobacco plants grown at this facility to help manufacture an experimental drug to treat patients infected with Ebola. (AP Photo/Kentucky BioProcessing) UNCREDITED — ASSOCIATED PRESS

When two American aid workers came down with the deadly Ebola virus recently, an experimental treatment materialized seemingly out of nowhere. How did a possible miracle drug for one of the deadliest diseases in Africa come to be grown half a world away in a small town in Kentucky?

Because of chewing tobacco, malaria, Charles Darwin and Australia.

For decades, tobacco has been a solution in search of the right problem, and Ebola might be that problem.

In the 1990s, when smoking rates slipped below 30 percent, Kentucky tobacco farmers began to look for another way to make money. And a lot of eyes turned to Daviess County.

There had always been a lot of tobacco grown in the Owensboro area, including acres of a variety known as “dark air-cured” for Pinkerton, a local chewing tobacco company.

But what was growing there now was different: it would never be smoked or dipped.

A California start-up called Biosource Technologies was paying Daviess County farmers to grow genetically altered tobacco that could produce pharmaceuticals.

One of the first was Rod Kuegel, then president of the Burley Tobacco Growers Cooperative Association, the “pool” buyer for unsold tobacco for cigarettes. At the time, burley was still Kentucky’s top agricultural crop, worth more than $840 million.

But Kuegel was keen for a new opportunity.

“We grew a cat vaccine,” Kuegel said last week. Biosource was happy with the results but didn’t want to plant more.

“The man said, ‘The good thing is we got 3 million doses of cat vaccine,’” Kuegel said. “‘The downside is we’ve got 3 million doses of cat vaccine.’”

That was typical of the early stages of the business. Sure, you could do it, but would it make any money?

Why Owensboro?

For decades, farmers around Owensboro had been growing tobacco for Red Man, made by Pinkerton. In 1985, as smokeless tobaccos were gaining market share, Swedish Match bought Pinkerton. In the early ’90s, the company built a tobacco research and processing facility in Owensboro to explore the chemical potential of tobacco called the Reserca R&D Station.

Out in Vacaville, Calif., a tech startup company called Large Scale Biology was working on genetically engineering ways to make drugs with plants, including tobacco, which has long been the plant equivalent of the white lab rat.

Tobacco was the first plant to be successfully spliced with foreign genes. Tobacco mosaic virus, so named because of the mottled pattern it produces in tobacco leaves, was the first virus ever discovered and purified.

Large Scale Biology pioneered ways to use the tobacco mosaic virus to get foreign genes into plants, which would then reproduce the desired proteins.

By 1995, a company called Biosource was looking for a way to ramp up production of their experimental drugs, including a vaccine they hoped would fight malaria, so they came to Owensboro. (Biosource would acquire Large Scale Biology in 1999, choosing to keep that name.)

There was widespread interest in using tobacco to produce vaccines and treatments for everything from an antibody to fight tooth decay to an anti-inflammatory protein for use in cardiovascular surgery, along with treatments for orphan diseases — defined by the FDA as conditions that affect fewer than 200,000 people nationwide — cancer, AIDS and infectious threats.

While many companies were experimenting with genetically modified crops such as corn, tobacco — because it wasn’t a food crop — seemed safer and easier.

The technology for pharmaceutical production worked well, but commercializing the process remained problematic. Large Scale Biology had no experience in the arduous and expensive process of getting a new drug through the FDA approval process.

By 2005, the company was in financial trouble. It filed for bankruptcy in January 2006.

“It might be fair to say Large Scale Biology was ahead of its time, and ran out of money before the technology was mature enough,” said Kenneth Palmer, a University of Louisville researcher who worked at Large Scale Biology.

“They laid the groundwork — they had a very innovative group of plant virologists who developed the expression systems to induce plants to make proteins they don’t normally make, like antibodies,” Palmer said. “They developed a lot of the basic technologies currently used today.”

Daviess County farmers are progressive, Kuegel said, and many hoped Large Scale Biology would give them another revenue stream from tobacco, a crop they knew how to grow very well.

They envisioned large fields of bioengineered tobacco that wouldn’t require the same level of expensive manual labor as traditional tobacco.

But the use of a modified version of the tobacco mosaic virus sprayed on plants created new headaches: growers of conventional tobacco worried about gene transfers. And the federal Food and Drug Administration worried about consistency.

The answer was to go indoors to grow everything in a clean environment and keep the conditions tightly controlled. No thunderstorms or droughts, no hail or insect swarms.

But that also meant fewer big fields of tobacco and fewer farmers getting paid to grow it for pharmaceutical companies.

Instead, the company would build an indoor facility the size of a Wal-Mart supercenter with 32,000 square feet of growing space, filled with a totally different kind of tobacco, Nicotiana benthamiana, with its own interesting history.

Not your smoking tobacco

In December 1831, when HMS Beagle set sail on a five-year survey of South America, Charles Darwin was aboard as gentleman naturalist. Darwin was a social equal of Capt. John FitzRoy, and they got along. Ship’s surgeon Robert McCormick, who had expected to be the naturalist discovering all the new and interest flora and fauna, became increasingly put out at the favoritism shown Darwin, who got the plum trips ashore while McCormick fumed.

By April, McCormick asked for and received permission to leave; he was replaced by his assistant, the Barbados-born Benjamin Bynoe. Darwin took Bynoe under his wing, teaching him useful collecting techniques. When they arrived at the Galapagos Islands, Bynoe and Darwin camped on Santiago for a week with their servants, gathering fish, snails, birds, reptiles and some insects. Bynoe was there when Darwin began to realize that the species of the various islands were all different; before this, he had not labeled them by island.

In 1836, the Beagle returned to England via Tahiti and Australia, and Darwin went off to study his finds and write the observations that lead to his famous treatise on natural selection, On the Origin of Species.

When the Beagle left the next year to survey Western Australia, which had become a British colony in 1829, Bynoe again went along and this time was both surgeon and naturalist. Somewhere along the northern coast, Bynoe picked up a species of wild tobacco, according to a paper on the history of the plant written in 2008 by UK tobacco genomics professor David Zaitlin, UK plant pathologist Michael Goodin and two other professors at Washington State University and North Carolina State University.

A specimen of this plant wound up in the records of the Royal Botanic Gardens in Kew, where it was eventually named in honor of botanist George Bentham, who described it in his Flora Australiensis in 1868.

Nicotiana benthamiana turns out to have unique characteristics that have made it a darling of modern science.

Because the species developed in isolation, benthamiana has no built-in resistance to much of anything, said Orlando Chambers, director of the Kentucky Tobacco Research and Development center. That makes it easy to infect with the altered tobacco mosaic virus and with agrobacterium, a gene-swapping bacteria that causes tumors in plants.

Modern science also discovered that N. benthamiana, unlike other common research plants, is terrific for a process called “agrofiltration,” in which tissues are flooded with liquid that spreads quickly throughout the entire leaf.

Benthamiana is fast growing but could never survive outside, Chambers said. It is perfect for large-scale indoor growing in soil-free systems, where the plants can be completely controlled.

In Owensboro, the facility also uses automated systems that can infuse whole plants in agrobacterium-laced solutions, which the plants soak up. The agrobacterium carries the foreign genes into the plants, which are then reproduced in bulk. In just a week or two the desired compounds are extracted from the plants.

Since the 1970s at least, tobacco researchers had known the plant could produce copious amounts of chemicals. The problem was finding something worth the effort.

One of Large Scale Biology’s last projects was an individualized “vaccine” for non-Hodgkin’s lymphoma that would use each patient’s own cancer to create the “cure” and grow it in bulk.

“Sixteen patients enrolled and were given 16 different vaccines, one each,” Palmer said. The goal of the trial was to see if the vaccines were safe, he said. They were, and the outcome was promising. Other pharmaceutical companies are pursuing this avenue of research.

The success came too late for Large Scale Biology, but it proved a tobacco-grown pharmaceutical could be safe. And the speed and relatively cheap cost of the process made it a very attractive option to outside drug researchers, which became the saving grace for the facility.

Owensboro hospital to the rescue

As Large Scale Biology was on the verge of going out of business, Kentucky agricultural entrepreneur Billy Joe Miles came to the rescue.

Miles, who has a farm less a mile from the plant, had toured the Owensboro facility as well as Large Scale Biology’s California labs with Gov. Paul Patton, University of Kentucky president Lee Todd and Jim Ramsey, future University of Louisville president.

“I got a call saying the company had gone bankrupt and they were going to close the plant in Owensboro,” Miles remembered last week. He quickly arranged to cover employees’ salaries and keep the doors open while he worked out a plan to save it.

As chairman of the University of Kentucky board of trustees, his first thought was UK, where the Kentucky Tobacco Research and Development Center is located.

But the deal didn’t quite come together, so Miles turned to two other boards with which he was affiliated: the Owensboro hospital and the Kentucky Agricultural Financing Corp., a loan pool set up with money the state got from cigarette makers in the tobacco settlement.

The ag fund loaned the hospital $3.6 million, and Owenboro Medical Health Systems completed the $6.4 million purchase that spring.

Renamed Kentucky BioProcessing, the facility has become a leader worldwide in commercial-scale production of proteins in plants, often on a contract basis.

In July 2007, KBP began a collaboration with Mapp Biopharmaceutical and Arizona State University’s Biodesign Institute to work on Ebola. With a grant from the Army, ASU’s Charles Arntzen and Mapp developed the treatment that was used last week on American aid workers Dr. Kent Brantly and Nancy Writebol.

KBP also drew the interest of the Defense Advanced Research Projects Agency. In 2010, following the H1N1 flu scare, DARPA awarded a contract to the Owensboro plant to show that flu vaccine could be made quickly and safely in tobacco plants. Benthamiana could grow the vaccine much faster than other, egg-based vaccine production systems. KBP and similar facilities are primed to grow millions of doses of vaccine for the next pandemic.

“This system would represent a significant alternative in the nation’s ability to protect itself from potential biological threats,” KBP said in a new release last year. “This proof-of-concept program will be focused on influenza, but the system would be adaptable to producing recombinant proteins against other types of pathogens.”

Kuegel, who recently toured the plant with a group of farmers, said the flu vaccine was a crucial hit.

“They created several million doses for the government,” he said. “There’s no facility in the U.S. that can replicate the speed and accuracy that Kentucky BioProcessing can deliver.”

In January, the Owensboro hospital sold KBP to Reynolds American, which is continuing to operate it as a contract bioprocessing facility.

Philip Patterson, president and CEO of Owensboro Health, said the time had come to let KBP go.

“When the board rescued it, they understood the importance of the work going on, work that was still largely conceptual at the time. But the board saw there was promise and value economically for Owensboro,” Patterson said.

“The reason we sold it was we wanted to find the right research partner, a company that could provide significant funding needed to take the next step. Obviously we found that in Reynolds American. They have the expertise at an international level to truly take the work being done at KBP and give it far reaching opportunities. … It’s exciting, and I think there’s more to come.”

The next phase

The University of Kentucky also maintains a connection to KBP. Scientists at the Tobacco Researcher center in Lexington are working on improving benthamiana, to “humanize” it so that the chemicals it reproduces are even more compatible.

Palmer now heads the Owensboro Cancer Research Center, a partnership between U of L and the hospital, and is still collaborating with KBP.

Last week, just as Ebola was making headlines worldwide, U of L and Palmer were announcing another major grant, $14.7 million from the National Institutes of Health to develop a gel that would block transmission of HIV, the virus that causes AIDS.

They will use the tobacco plants to “manufacture” a critical protein from red algae.

The U of L program also has received major grants to develop a cheaper second-generation HPV vaccine to fight cervical cancer and a vaccine for cholera that also could fight colon cancer. All will be grown in KBP’s plants.

So far, only one plant-based pharmaceutical has made it onto the market anywhere in the world — a treatment for Gaucher disease, a rare genetic disorder of the liver — made by an Israeli company using carrot cells.

For Ebola, KBP was preparing for the first human drug trials later this year when the request came to ship doses to Atlanta’s Emory University for the American aid workers. Now, with calls to make the serum more widely available, those efforts may speed up.

If treatment is proved to have helped Brantly and Writebol and if the results can be borne out with further testing, the drug, called ZMapp, may give biopharmaceuticals the big winner its has long needed to attract significant investment.

Rise Of The Super-Aged

August 12, 2014

By: Karen Beard, Senior Consultant, TIP Strategies

Photo Credit: “Elderly Japanese Women” by Mr Hicks46 via Flickr (CC BY-SA 2.0)

Recent reports by the Organisation for Economic Co-operation and Development (OECD) and the credit rating agency, Moody’s, point to a significant threat to economic growth: the global aging of the population. While aging populations have long been identified as threat to the growth of developed countries, a number of developing and emerging countries are projected to join the ranks of “super-aged” countries—those where more than one in five of the population is 65 or older—in the coming decades.

Currently, only Germany, Italy and Japan meet this “super-aging” definition. However, the number of countries in this group is expected to rise to 13 in 2020 and 34 in 2030, including a number of key Asian economies like China and Hong Kong. Furthermore, 60 percent of all countries rated by Moody’s will move into the “aging” category (defined as 7 percent or more of the population above 65) by 2015. The ratings agency predicts this demographic shift will lower annual economic growth by 0.4 percent over the next five years and by 0.9 percent between 2020 and 2025. The OECD report, Policy Challenges for the Next 50 Years, points to several other factors anticipated to shrink global growth rates including climate change and rising wage inequalities.

More information is available from the following sources:

Moody’s press release: Aging will reduce economic growth worldwide in the next two decades

OECD Press release: Global growth to slow as wage inequality rises over coming decades, says OECD

Policy Challenges for the Next 50 Years: presentations, report and data sets

OECD Data portal (including a variety of data tools in progress as part of the OECD Data Lab):
List of key indicators
OECD Data Lab

TIP Engaged By The East Michigan COG For Regional Prosperity Strategy

August 10, 2014

By: John Karras, Consultant, TIP Strategies

The State of Michigan has embarked on a cutting-edge experiment in regional collaboration, the Regional Prosperity Initiative (RPI). Michigan has created 10 Prosperity Regions with the goal of aligning the efforts and programs in five domains—economic development, transportation, workforce development, adult education, and higher education—within each zone. The East Michigan Council of Governments has engaged TIP Strategies to develop a Regional Prosperity Strategy for an eight-county area in East Central Michigan centered on the cities of Saginaw, Midland, and Bay City. The region and the state of Michigan have endured a multi-decade decline in their manufacturing sector, largely driven by the automotive sector. Manufacturing is making a partial comeback, with solid job growth since 2010, but the region has many assets that can be leveraged to grow the region’s economy beyond manufacturing.

Created by Governor Rick Snyder in 2012, the Regional Prosperity Initiative is a voluntary competitive grant process intended to encourage local private, public, and non-profit partners to create vibrant regional economies. The RPI recognizes that local partners are often in a better position to determine and affect the factors that drive economic prosperity. Establishing a formal mechanism for regional collaboration also provides opportunity for shared service delivery and technical assistance for local communities from their regions. In addition, by creating a strong regional strategy for economic prosperity, local partners will be better able to compete locally in an increasingly global economy.

To find out more about about the Regional Prosperity initiative:
Official Site
Frequently Asked Questions

Lubbock EDA Hires TIP For Strategic Planning Services

August 9, 2014

By: John Karras, Consultant, TIP Strategies

The Lubbock Economic Development Alliance (LEDA) has engaged TIP Strategies to provide economic development strategic planning services for the city. This effort will build on prior work including an Industry Cluster Study completed by TIP Strategies in 2013 and the Imagine Lubbock Together community visioning exercise which took place in 2013. The Lubbock economy has performed well in recent years thanks to the steady growth of Texas Tech University and the region’s health care sector and, increasingly, the oil and gas boom in the Permian Basin region just south of Lubbock. LEDA recognizes that the timing is right for this Economic Development Strategy because the city is in a stronger position than ever before to pursue new avenues for economic growth and long-term prosperity.

Find out more:
The Lubbock Report, a quarterly report that provides updates regarding LEDA and Market Lubbock.
Imagine Lubbock Together on Facebook

The Future Of Jobs Might Be No Jobs

August 8, 2014

By: Chris Tomlinson
Via: The Houston Chronicle

Image Credit: Tesla Motors Assembly Line by Steve Jurvetson via Flickr (CC BY 2.0)

Recently I caught a glimpse of the future of jobs, and jobs as we know them had largely dis-appeared. I needed two graphics for an outside project I was doing for another company, and the deadline was 24 hours away, too tight for that publisher’s artists to produce them. Frustrated and desperate, I went online to find a freelancer.

Within an hour of posting my requirements on a reputable website, I had five bids from verified artists whose previous clients had rated them highly. The San Francisco-based artist I chose completed the work within 12 hours, surpassed my expectations and cost half of what I expected to pay.

I couldn’t help but wonder why that publisher still had an art department. Then I asked myself, why does any company employ anyone? Certainly there will always be work to do, but do we really need jobs where people work a specific number of hours in return for a set salary for years on end?

Millions of freelance workers, particularly software engineers and Web designers, make their living doing piecework off the Internet everyday. Companies only pay for the work they need, and the freelancer enjoys operating his or her own business.

Before the Industrial Revolution, almost all laborers worked like this. Everyone was an entrepreneur offering labor and building a client base.

Now there is growing evidence that this kind of economy is returning as companies lower overhead, robots perform routine tasks, and online labor markets become more efficient. The big question is whether we are ready.

The working poor, whose tasks many companies have either outsourced or replaced with technology, have already been through this. Those whose jobs couldn’t be eliminated often find themselves labeled as independent contractors.

Skilled laborers and white-collar workers will face similar challenges. Due to the nature of the energy and construction industries, Houston is proto- typical, said Jon Roberts, a principal at the Austin-based economic development firm TIP Strategies, which has closely studied workforce trends for the Greater Houston Partnership. Roberts is challenging politicians and economists to reconsider using job numbers as a metric for economic success and urging them to focus on productivity instead.

Right skills, right time

“I see a redefinition of what is a job,” he told me. “It’s less about the number of jobs than it is about the way in which people work.”

He points out that hundreds of thousands of construction and oil field workers already take on short-term assignments on a project-by-project basis. They can often demand a premium by offering the right skills at the right time in the right place.

Americans in general are depending less on employers. No recent college graduate expects to spend his or her working life at one company, and participation in labor unions has dropped. Layoffs are commonplace, with part-time and contractual employment becoming common at every pay level.

Many corporations no longer offer pensions, leaving most Americans to manage their own retirements. Many older workers are voluntarily taking part-time work because the Affordable Care Act lets them buy their own health insurance and they’d rather have the free time, according to the Congressional Budget Office.

Robots on the job

This transformation of how we work coincides with the rise of robotics and artificial intelligence. With machines performing routine tasks, companies will need fewer daily employees and will only hire humans on a freelance basis when their unique skills are required. Roberts predicts that only corporate hierarchies will be needed full time.

More than 1,800 tech industry experts, scholars and analysts surveyed by the nonprofit Pew Research Center agreed this change is coming, but opinions split evenly on whether people would do more interesting work and have more free time, or lose their jobs to machines and perform menial tasks for low wages.

“Automation is Voldemort: the terrifying force nobody is willing to name,” wrote Jerry Michalski, founder of REX, the Relationship Economy eXpedition, in an answer to the survey. “We hardly dwell on the fact that someone trying to pick a career path that is not likely to be automated will have a very hard time making that choice.”

The survey concluded that companies will always need people’s creativity, judgment and problem-solving skills. Roberts said individuals will be responsible for making sure their skills are up to date and offered at competitive prices.

“It’s up to me to try to find where can I add value, both in terms of what the market wants and what I’m interested in,” Roberts said.

But it’s not clear people are ready. Management consulting firm Accenture found in a poll that 63 percent of Texas job seekers didn’t think they needed additional training, and most said they had turned down recent job offers because the pay wasn’t high enough. That’s likely a combination of workers overestimating their value and companies lowballing salary offers.

An astonishing 99 percent of Texas employers surveyed said government and educational institutions are not doing enough to train workers. But 49 percent acknowledged they’d never contacted one of these institutions to explain what they want.

The gumption to learn

The transition to a new economy that relies less on full-time employees and more on technology will bring pain to those who are replaced by machines and don’t have the opportunity or the gumption to learn something new. It’s also a clarion call for a public education system that prioritizes deductive reasoning and creative problem solving.

I’ve worked as a freelancer, and I know it’s tougher than having a salaried job, but I enjoyed deciding when I worked and for whom. The signs are that freelancing is where the economy is headed and that’s the world we, and our children, should prepare for.