TIP Strategies is a privately held Austin-based economic development consulting firm committed to providing quality solutions for public and private‑sector clients.
This blog is dedicated to exploring new data and trends in economic development.
By: Sara Horowitz
Via: Los Angeles Times
For much of the past century, the Era of Big Work — the 40-hour workweek and its employer-provided benefits — were the foundation of our economy. That was then. Now, independent work is the new normal.
Freelancers, independent contractors and temp workers are on their way to making up the majority of the U.S. labor force. They number 42 million, or one-third of all workers in the nation. That figure is expected to rise to 40% — some 60 million people — by the end of the decade.
A number of factors both economic and cultural are causing the independent workforce to swell. Technological advances and globalization have greatly contributed to the erosion of traditional work arrangements. The private sector’s need for speed and adaptability is increasingly incompatible with maintaining a large, full-time workforce. And of course, the Great Recession has put to rest the notion that there is such a thing as a stable full-time job.
It’s true that many have been forced into this brave new world of freelance work by external factors. But many are getting into it by choice because independent work aligns with a paradigm shift in values that is happening both at work and in the marketplace.
Nearly 9 in 10 workers affiliated with Freelancers Union, a 250,000-member nonprofit, say they wouldn’t return to traditional work if they had the choice. This sentiment is especially true for millennials, who will make up 75% of the workforce by 2025 — and who work and consume differently than generations before them.
Success during the Era of Big Work meant promotions, benefits packages and pensions. Americans went to work at 9 a.m. and left at 5 p.m. — OK, let’s be honest, 6 or 7 p.m. — primarily for the material rewards that flowed from such employment: a new car, robust benefits, a three-bedroom house and two weeks of paid vacation. For the past century, in other words, remuneration defined success. For many workers, it still does.
However, among the growing ranks of independent workers, labor itself is increasingly its own reward, as is the opportunity to establish a work-life balance that was unthinkable during the Era of Big Work. Millions of freelancers are working when they want and how they want. They’re building gratifying careers but also happy lives. And they’re helping build a support system so they can live the lives they want.
Yes, the comfort of a regular paycheck is gone, but it’s replaced by other, arguably greater comforts: a flexible schedule, the sense of ownership and pride that comes with being one’s own boss, the ability to prioritize health and wellness in ways that are incompatible with traditional employment structures.
A recent survey from the freelancer hiring hub Elance-oDesk found an overwhelming 89% of freelancers prefer work flexibility to a traditional corporate career. Almost half of millennials prioritize job flexibility over pay, according to a national survey conducted last year by Millennial Branding, a research and consulting firm, and Beyond.com, a career advisory website.
As a result, the way Americans think about work is changing, and so is the way they spend money. Millennials in particular have reimagined the very idea of ownership and fueled the rise of conscious capitalism. Four out of five are more likely to put their purchasing power toward companies that support a cause they care about, according to a 2011 study by Participant Media.
Some argue that millennials don’t buy big-ticket items because they can’t afford them — for instance, the number of cars purchased by the 18-to-34 demographic fell almost 30% between 2007 and 2011. But that’s only one factor in a much larger equation.
In reality, millennials tend to value experiences more than things. Their consumption habits are driven less by what kind of job they have and more by their pursuit of ever-evolving technology, brands that align with their ideals and sustainable and social purpose purchasing.
From what we buy to how we work — and why we do either — the American economy is undergoing a change every bit as epic as the shift a century ago from an agrarian society to an industrial one. When workers left the farm for the factory, there were, undoubtedly, plenty who mourned the loss of the old way of life, while others eagerly looked to the next era with vision and enthusiasm. The same is true today.
Some view freelancing as a short-term path to return to the well-worn avenue of Big Work. Meanwhile, others are eagerly embracing collaborative consumption and various digital platforms — such as Etsy and Airbnb — that have enabled the freelance economy to proliferate.
Despite the tremendous changes in our economic landscape, Washington is all but ignoring the broader economic implications, as evidenced by the failure of the Bureau of Labor Statistics to even track independent workers, much less adapt to their economic needs.
Freelancers, on the other hand, aren’t just learning to adapt. Many are thriving in this new marketplace, creating powerful new platforms for working and living — co-ops, credit unions, community health and wellness centers — tailor-made for millennial technology and the 21st century economy.
The Era of Big Work is indeed over, and good riddance. Welcome to the Era of Meaningful Independence.
By: Chris Tomlinson
Via: Houston Chronicle
U.S. Federal Reserve Chair Janet Yellen’s speech on the economy is the most anticipated portion of the annual Economic Symposium Conference in Jackson Hole, Wyo. this week, but the most interesting discussions will be around this year’s theme: the labor market.
Unemployment, under-employment and low-quality jobs continue to hamper the U.S. recovery from the Great Recession, and many economists wonder if there has been a fundamental shift in how the labor market behaves. Employers nationwide complain about not having enough qualified workers, even though the unemployment rate remains high.
Texas employment numbers have been much stronger, thanks mostly to the boom in oil and natural gas production that has taken up much of the slack in the Texas labor market. When Texas employers complain of a shortage of workers, it’s because the unemployment rate here really is low.
One reason for the shortage of workers nationally, the Wall Street Journal ventured Thursday, is the unwillingness of employers to raise wages. Better pay would induce more people to participate in the labor market, or relocate to where there are jobs.
Another problem could be what employers consider to be qualified. The Greater Houston Partnership has launched an initiative to make sure young people get training that matches the needs of local employers.
There is also the question of what qualifications the employer is demanding and the barriers to employment many low-income people face. Perhaps employers take responsibility for training workers, or making sure they are paid well enough to pay for childcare and health insurance.
The findings presented at the conference over the next three days could answer a lot of questions about what it takes to make sure every American benefits from the nation’s recovery.
By: Mike Maciag
About 4.3 million workers nationwide lost a long-time job between 2010 to 2013.
Every three years, the Labor Department publishes data on such displaced workers. Reports released Tuesday examined types of workers losing jobs held for three or more years and how well they’ve recovered in the aftermath of the recession.
Employees become displaced for a number of reasons. Roughly equal numbers of workers fall into one of three categories that explain their job loss: Closing/moving of a company, elimination of a position/shift or “insufficient work.”
More Displaced Workers Are Finding Jobs
Long-tenured displaced workers are having better luck at finding new jobs, but the jobs market still remains more difficult than in the years leading up to the recession.
In January, 61 percent of these workers had secured new employment, up from 56 percent in 2012 and 49 percent during the height of the recession in early 2010.
Among demographic groups, just 55 percent of blacks had regained employment. Whites somewhat fared better, while nearly 65 percent of Hispanic found new jobs.
About 21 percent of workers displaced over the three-year period reported they remained unemployed in January. Another 18 percent had dropped out of the labor force. Older Americans stopped looking for work at the highest rates, and many likely retired. But nearly 17 percent of younger displaced workers ages 20 to 24 also dropped out.
Industries Where Most Regain Employment
It’s much easier to rebound from a job loss in some industries.
Nearly 70 percent of displaced leisure and hospitality workers found new jobs. The bulk of these are low-wage positions where the competition for openings isn’t as fierce. The transportation and utilities industry, one of the stronger sectors in recent years, recorded an equal rate of employment.
By comparison, just under 53 percent of displaced hospital workers found new jobs — among the lowest of any industry.
The following chart shows the January employment status of longtime workers losing their jobs between 2011 and 2013, by major industry:
For separate occupational groups, about two-thirds of management and professional employees regained employment.
Mid-Atlantic, Pacific Regions Have Lowest Re-employment Rates
Much like the economic recovery, the ease at which displaced workers find work varied significantly across regions.
Those losing jobs in New England, where unemployment is generally lower, mostly found work, with about 74 percent employed in January. Data suggested a far more difficult economic climate in the Mid-Atlantic region, which includes New Jersey, New York, and Pennsylvania. Less than 53 percent of displaced workers there obtained new jobs.
Job losses resulting from plant closures or moves were most common in the East South Central and Mountain regions. About 46 percent displacements in the West North Central region (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) resulted from the elimination of positions or shifts – more than any other area. (See the note below this table for states included in each region.)
The Labor Department does not publish worker displacement data for individual states.
Half of Those Finding Jobs Took Pay Cuts
One of the more frequent criticisms of the current recovery is that many of the newly created jobs pay poorly.
Only 52 percent of displaced workers who found full-time positions reported earnings that matched or exceeded that of their lost jobs. About 27 percent took severe pay cuts of more than 20 percent. (These figures exclude those who found part-time work or became self-employed.)
Still, by this measure, earnings of rehired displaced workers are about on par with other surveys prior to the recession.
In general, those reemployed in stronger sectors found better-paying jobs. Here’s one more table showing the earnings status of displaced workers who were employed full-time in January.
By: Alan Ehrenhalt
A few weeks ago, business leaders in Houston introduced a new slogan aimed at helping to attract more corporations to town. It’s a simple slogan: “Houston: The City With No Limits.”
Like almost any good civic slogan or motto, this one can be interpreted in many different ways. But to quite a few outsiders, it will signal one overriding idea about the nation’s fourth-largest city: There is no zoning. Houston, they believe, is a place where you can build anything you want next to practically anything you can think of — a greasy garage on a pristine residential street, a convenience store in the midst of expensive single-family houses, a noisy bar next to a nursing home.
That’s only partly true. Houston does, in fact, operate without the benefit of a city zoning code, and in the last 70 years, it has voted against having one three different times. The garage owner who wants to set up shop in between private homes does not have to worry about any comprehensive city code that might forbid it.
That doesn’t mean, however, there are no obstacles to building that garage. In many residential neighborhoods, there are enforceable private deed restrictions that determine what can be built. There are rules governing lot subdivision, building setbacks and parking permits. There are preservation and landscaping laws. All of these contribute to making development in Houston a little more orderly than most people on the outside tend to imagine it.
Even so, the stereotype about Houston being a wide-open development town has some validity to it. If your goal in life is to operate a nightclub in the vicinity of a Baptist church, you’re much better off trying it in Houston than in Boston or San Francisco. The absence of general zoning is in fact a major reason why first-time visitors notice a haphazard or unpredictable quality to Houston’s neighborhoods.
Whatever views one may hold about a city without zoning, it’s hard to deny that Houston has done pretty well for itself over the past generation or so. Its population has grown faster than that of almost any other American city. Its unemployment rate is among the lowest. It continues to attract new businesses no matter what slogan it chooses to adopt for itself. And a growing number of scholars, notably the urbanologist Edward Glaeser, have argued that Houston has done well precisely because it imposes so few restrictions on development.
But will a developmental free-for-all bring Houston the same heady results in the coming decades that it brought in the preceding ones? Or is it, at long last, time to impose a little more order on the unwieldy metropolis? Those are questions that Houston’s development community has spent the past couple of years trying to puzzle out, as it has negotiated the twists and turns of a legal event known to just about everybody as the Ashby case.
The focus of the case is a 1.6-acre lot near Rice University that for decades was home to a nondescript two-story apartment building known as Maryland Manor. This building, set among single-family homes worth a million dollars and more, didn’t do much to enhance the appeal of the surrounding properties, but it didn’t especially bother anyone either.
In 2007, however, Buckhead Investment Partners announced that it had acquired Maryland Manor and planned to tear it down and construct a 23-story luxury apartment complex with 228 residential units. No matter how it was designed, this new building would be out of place in an area consisting almost entirely of one- and two-story homes. And scarcely anyone, besides the developers, tried to argue that it fit the neighborhood.
The neighbors set to work to determine what they could do to derail the new project in a town where there were no zoning laws to help them. They beseeched the city, which did not particularly like the project either, to use any available legal means to stop it. Then-Mayor Bill White wrote in a letter to area civic groups that he would use “any appropriate power under law” to alter the development. The city continued to deny building permits during five years of negotiation. Finally, in 2012, city officials decided they were out of options. They concluded the city had no legal grounds for blocking the project and reached a settlement with Buckhead granting it the legal right to build, in exchange for steps to mitigate light and noise from the building and a promise to create a physical buffer between the high-rise and the neighborhood.
That appeared to be the end of the story. But actually, it was only the beginning. The homeowners regrouped and filed suit in the Houston District court, arguing that even at 21 stories, the new proposed height, the Ashby project was a public nuisance and subject to a court injunction preventing its construction. They also asked the court to award damages to the residents living closest to the project, on the grounds that it would decrease their property values, damage their homes and create serious traffic problems. The plaintiffs argued that 10 existing homes near the site could suffer cracked slabs, buckled walls and burst pipes just from the construction process.
This was a novel, if not an unprecedented, employment of the nuisance concept in a civil action. Judges apply the nuisance standard to obnoxious sights, smells or clearly offensive activities that create hardship for the community in which they are located. To declare a building yet unbuilt to be a nuisance mostly on the basis of its planned size was to make an argument that no court anywhere had ever bought. It was, in effect, to impose a nuisance standard on the basis of aesthetics. “This is really breaking new ground,” law professor Josh Blackman told a local reporter. “This is the furthest that any residents have tried to challenge something in Houston history.” Blackman described the prospect of an injunction against the developers as “backdoor zoning for the wealthy.”
Still, it wasn’t a crazy challenge. The case was sent to a jury, and there was always the possibility that a jury would feel more sympathy for the homeowners than for the development company. In fact, that was pretty much what happened. In December, the Houston jury awarded 20 homeowners a total of $1.7 million in damages on the grounds that a 21-story tower in their vicinity would indeed constitute a nuisance to the conduct of their everyday lives. The jury returned the case to Judge Randy Wilson to determine whether he should issue a permanent injunction blocking the building from being built at all.
At this point, high-priced legal talent and substantial media attention were focused on the case. And the arguments zeroed in on what the ultimate importance of Ashby was: It stood to determine whether Houston’s free-for-all development system would remain intact or would be made subject to an unpredictable judicial review process. “If a permanent injunction is granted,” one pro-development organization wrote in a friend-of-the-court brief, “it throws all the rules out the window.”
The developers argued that the Ashby opponents were trying to circumvent established city law. They said the homeowners considered themselves “special” and more sensitive to petty annoyances than other residents of the city.
The homeowners responded that money wasn’t the issue. “It’s about homes; it’s about community,” plaintiffs’ attorney Jean Frizzell insisted. “They want to call these people special; they are fighting for their homes and their community.”
As the case proceeded in Judge Wilson’s court, the city of Houston found itself in a rather unusual position. On the one hand, it agreed with the plaintiffs that the Ashby project was indeed a nuisance. Mayor Annise Parker called it “the wrong project in the wrong place.” But she opposed the idea of an injunction forbidding construction, agreeing with the defendants that it could bring chaos to development citywide.
In the end, that was about where the judge came down. He agreed the project would be a nuisance to its neighbors and granted them $1.2 million in damages. But he refused to prevent the building from being built. “If an injunction is granted,” Wilson wrote, “it will have a chilling effect on other developments in Houston.”
Then he honed in on the big issue. “As Houston becomes more and more urbanized and denser, perhaps Houston should reconsider whether zoning is appropriate for this city.”
That is unlikely to happen. At a minimum, a comprehensive zoning code would dramatically revalue properties all over the city, amounting to a substantial redistribution of private wealth. No elected city leader, not even an outspokenly progressive one like Parker, is going to advocate that.
But neither would it be correct to suggest that free-for-all development will proceed in the future as it did in pre-Ashby times. A precedent for awarding nuisance damages has been set, assuming it is not reversed on appeal. The concessions offered by the Ashby developers over the past seven years seem certain to place pressure on others building where there is significant local opposition. The city government, while backing away from zoning, will be asked to impose new regulations on future projects. One such rule, allowing neighborhood groups to apply for minimum lot size restrictions, has already become law.
But the most interesting question emerging from the case may be whether it will lead to more large infill projects in the central areas of the city. On the one hand, the court and the city government have made it clear that Houston’s build-it-anywhere legal structure will remain more or less intact. On the other hand, the sheer amount of time and effort required of the developers on the Ashby project may send a signal that it remains easier and cheaper to build in the exurbs where they do not have to deal with entrenched community feeling.
Or, still another possibility — developers might draw the lesson that there is plenty of useful work to do in creating urban density, but they have to go about it in a more sensitive and appropriate way than they did on Ashby. That might be the best outcome of all.
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:
- 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.
- Join an industry association and be present at industry functions, locally and outside the community.
- Understand the needs of the local industry, then identify ways to meet those needs.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 firstname.lastname@example.org.
TIP Strategies, Inc.
By: Janet Patton
Via: Lexington Herald-Leader
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?
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.