What Metro Boston lacks in oil, coal, and corn, it makes up for in the intellectual and financial capital that fuels innovation — the key to the region’s past success and future prosperity.

OVERVIEW

The driver of the Massachusetts economy, Boston is also is the financial, institutional and cultural capital of New England.  Boston’s economy peaked in 1999 – 2000 with commercial vacancy and unemployment rates at historic lows. Boston’s key industry clusters — higher education, health care, financial services, professional and business services, and tourism-hospitality — were all on the upswing.

The boom years initiated a new era of city building, with investment in the city’s parks and schools, community technology centers, revitalized neighborhood business districts and plans for the South Boston waterfront.  The Big Dig, the largest infrastructure project in the world, opened up visionary possibilities at the heart of the old city, positioning Boston and the region for growth well into the 21st century. Likewise, completion of the Boston Harbor cleanup in 2000 set the stage for new open space access, housing and commerce at the water’s edge. And the city’s network of community development corporations and organizations initiated sophisticated projects integrating housing, transportation, open space, cultural programming, technology access and commercial development.

The face of Boston changed with major new development projects such as the sleek Millennium residential and hotel complex, restoration of the Landmark Building in the Fens and the new Grove Hall Mecca in Roxbury. The groundbreaking for the long-awaited Crosstown Center development within Boston’s Empowerment Zone and a new biosciences research cluster in the South End laid the foundation for increased economic vitality throughout the city.

In 2000, Boston had one of the strongest economies in the nation, having made the successful transition from a manufacturing economy to a knowledge-based one, with strength across diverse sectors – real estate, high tech, bio-tech, health care, and education. But by 2002, in response to a national recession made worse by the tragic events of 9/11, Boston had experienced severe job losses in sectors that previously had been its primary economic drivers.

But Boston is home to a number of “recession resistant” sectors. Its institutions of higher education — 36 in the city and 74 in the region — together enroll about 265,000 students each year, contributing billions of dollars in purchases of goods and services and thousands of jobs. In addition, Boston contains 22 hospitals, 16 of them teaching hospitals. Despite the economic contraction, these sectors continued to show strength.

Boston also contains a network of community health care centers and community development corporations, the headquarters of major national and international non-profit organizations, major cultural institutions and museums, and a wealth of community-based non-profit organizations. Boston’s highly developed and diverse non-profit sector accounts for about 27% of Boston’s jobs. 

Boston has one of most well educated workforces in the world. About 36% of its residents hold at least a bachelor’s degree, and, historically, students attracted to the region have stayed on to start companies, organizations and families. While only about 9 % of MIT graduates grew up in the Bay State, more than 45 % of the software, biotech and electronics companies founded by MIT graduates are located in Massachusetts.

Immigrants continue to play a major role in the revitalization of the region’s cities and the growth of the region’s workforce. According to the Center for Labor Market Studies at Northeastern University, one of every five labor force participants between the ages of 20-35 was a foreign immigrant in Massachusetts in 2000.  This new diversity connects Boston to ideas and regions across the world — an asset in the global economy.

More than half of Boston’s residents are people of color, according to the 2000 Census. The diversity of the city and vitality of its institutions and organizations help to attract and retain the knowledge workers, researchers,  entrepreneurs, venture capitalists and other drivers of the innovation economy. As a result, Boston ranked third on the Creativity Index, a complex measure used to determine a region’s long-term economic potential. Metro Boston, likewise, ranked as one of only 42 major high-tech centers around the globe. Boston is also linked economically to secondary cities in the region — creating a regional economic and cultural synergy built on mutually reinforcing strengths.

But today, like many cities around the nation, Boston is facing difficult times. Vulnerable to global geopolitical and economic uncertainties, it must respond to the impact of a state fiscal crisis and to growing competition from other cities and regions around the nation and around the world.

WHAT HAS CHANGED SINCE 2000?

The economic contraction combined with a sharp downturn in the stock market triggered declining state revenues.   Massachusetts’ tax revenues fell 26% in the spring 2002 quarter alone, the steepest decline of any state in the nation, according to the Boston Globe. Cuts in the state’s budget are affecting all sectors — particularly education reform, public health and the arts. The cuts are having an impact on the quality of services and programs, particularly for low-income and vulnerable populations, as well as important employment sectors in Boston.

Boston’s office vacancy rate climbed from its historic low of about 2% in 2000 to 4% in 2001 to more than 9% in 2002.  Hotels are seeing similar trends as tourism and business travel are both down — with domestic visitors balancing a decline in international visitors.

Health care and higher education showed gains in 2002, with health care adding 3,600 jobs and higher education adding 3,500 jobs, while financial services lost 1,400 jobs. Employment in technology declined, with the loss of 15,000 jobs in Greater Boston, wiping out the gains in the other industry sectors, according to the Greater Boston Chamber of Commerce’s Leading Industries Index. The visitor industry showed gains, increasing by 4% in 2002 and outperforming the industry nationally.

Massachusetts’ Technology Fast 500 firms dropped from 57 to 31 between 1997 and 2001 while California gained two and New York gained 21, according to the Massachusetts Technology Collaborative’s Index of the Massachusetts Innovation Economy 2002.

In 2001, about 4,000 patents were granted to Massachusetts inventors. This placed Massachusetts ahead of other Leading Technology States (LTS) in this widely-used measure of innovation capacity and economic dynamism.

Despite the near-term economic contraction, Boston advanced. The I-90 Connector to the Ted Williams Tunnel opened and the Silver Line has begun service, linking Roxbury with the Financial District. Some industries, especially bio-tech, continue to look for space. The large bioscience company Novartis announced its move to the area.

CHALLENGES

Despite its high ranking on numerous economic indices, Metro Boston can no longer take its status in the New Economy for granted,with stiff competition for venture capital, research dollars, highly-skilled workers, manufacturing jobs and business headquarters. According to the 2002 report An Economy at Risk by MassInsight, other states have developed sophisticated and comprehensive technology and economic development strategies to drive investment.

Families in the Commonwealth face increasing economic vulnerability. The State of the American Dream in Massachusetts, by the Center for Labor Market Studies at Northeastern University for MassInc, concludes that bread-winners in the typical middle-class family in Massachusetts are bumping up against the practical limits of working more hours, also raising questions about the quality of family life.   Two-parent families are relying on working wives to boost incomes, as roughly 80% of the income growth for married couples over the past 20 years can be traced to the wife’s earnings. During the same time period, the typical married couple’s annual income rose from $11,000 to $70,000 in real terms. In contrast, the income of female-headed families remained flat at just $25,000 annually.

Low-income people are bearing the burden of the state’s fiscal crisis. Poverty increased slightly over the 1990s, despite the economic boom. Homelessness has increased in Boston, with 6,200 homeless individuals identified in Boston in 2002, and a marked increase in homelessness among families. A range of Medicaid benefits programs serving low-income and vulnerable people are being cut or sharply curtailed. At the same time, increases in rents, transit fares, college tuition, prescription drug costs and fuel are making it difficult for low-wage workers, seniors and people on fixed incomes to live in Boston.

Having atleast a two-year college degree has become a pre-requisite for a middle-class standard of living. According to The State of the American Dream in Massachusetts, since 1979 the number of college-educated workers in the state is up by 415,000, while workers with high school degrees declined by 156,000. Since 1979, real family incomes increased for families headed by someone with a bachelor’s degree — to $24,000 or 30%; while families headed by high school graduates were down by 1%.

The affordable housing crisis in Boston is getting worse.  Housing prices in Boston increased by 37 % between 2000 and 2002 alone. In addition to the burden placed on low- and middle-income households as they seek to buy into one of the most expensive housing markets in the nation, high housing costs are undermining the long-term viability of Massachusetts' professional labor pool.  Studies also document the adverse effect of high housing costs on the recruitment of highly skilled professionals.

Boston, the region and the state lost a significant percentage of young people between the ages of 20 and 35 in the 1990s — a loss made more significant by the growth of this age group in Boston’s major competitor cities. This decrease in energetic young people reflects a “brain drain” that threatens the region’s future prosperity, unless the challenge is met by attracting and retaining talented young adults (the drivers of innovation), and cultivating the talents and the skills of our city’s young people. Young adults, whether recent graduates or new immigrants, are tempted to leave Boston for other cities as they calculate the disadvantageous ratio of salary to the cost of housing. Boston’s cost of living continues to be higher than that of many other cities.

Massachusetts has been shown to have one of the most fragmented workforce development systems in the nation. In part, this reflects a high degree of innovation and initiative at the community level, supported by government, but it also reflects a lack of willingness to cede territory and resources from one community-based, city or state agency to another in the interest of coordination. According to MassInc, one-third of Massachusetts’ workers lack the necessary skills in literacy, language and technology skills to compete in the New Economy.

Boston’s population is growing because of an influx of new immigrants, but racial and ethnic disparities in access to key resources and in outcomes persist. Areas of particular concern are disparities in health and education that start early in life, such as low-birth weight and asthma rates that are higher for blacks and Latino residents.  In Boston, more than 70% of Boston’s public school children (86% of whom are children of color) are eligible for free or reduced-price lunches — a proxy measure of poverty that remained unchanged through the boom years of the 1990s.

Public higher education tuitions in Massachusetts rank among the highest in the country, according to the New England Board of Higher Education. This constitutes a barrier to public college and university enrollment among low- and middle-income students.  Massachusetts also lags in its investment in higher education when compared with other states.

Businesses and organizations in the Boston area report difficulty in recruiting young professionals of color.  In addition, baby boomers — largely white — are growing, as a proportion of the population is aging in place, filling leadership positions and restricting opportunities for younger people of all races to advance. 

Cuts in state funding for the arts threaten to turn back gains made in the quality and dynamism of the city’s cultural life over the past several decades. The Creative Economy, with more than 250,000 jobs throughout New England, undergirds the tourism industry  — the third largest in Massachusetts. Boston also contains more cultural and arts groups per capita than any other major city. Losses in this vital and varied industry sector could create an adverse ripple effect throughout the economy.

Business costs in Massachusetts remain high, especially in health care, electricity and unemployment insurance, according to a report by the Greater Boston Chamber of Commerce, Reining in Massachusetts’ High Business Costs.

Metro Boston may face an educated-worker crunch with an upturn in the economy. According to the non-partisan think tank MassInc, one-third of Massachusetts’ workers lack the necessary skills in literacy, language and technology to compete in the New Economy.

INNOVATION

A new Workforce Development Initiative — a $25 million, five-year partnership among the City of Boston, the Boston Foundation and other funders — will strengthen the region’s job training programs.  There also are successful efforts to train the region’s future workforce, such as programs in the Boston Public Schools, TechBoston Academy and the MATCH School.

Governor Romney is redirecting the focus of the state’s Renewable Energy Trust Fund, making it a springboard for job creation in the renewable energy sector. A new $25 million Green Energy Fund will provide equity capital, loans, and management assistance to Massachusetts-based renewable energy businesses — jump-starting the sector. Ultimately, energy efficiency will help to reduce both business and health costs. Cities, including Boston, are also developing strategies to promote sustainable design and to bring green building technologies into the mainstream.

The City of Boston's Main Streets Program, collaborating with community leaders, local residents, business and property owners, and community-based organizations, created 227 storefront improvements and 386 new businesses with 2,761 jobs between 1995 and 2001. Mayor Menino was the first mayor in the country to introduce the Mainstreets model citywide.

The City of Boston’s nationally recognized Back Streets Program focuses on small- and medium-sized commercial services and manufacturing companies located in the "back streets" of the city.  Research conducted in 2001 by the Initiative for a Competitive Inner City (ICIC) and the Boston Consulting Group showed more than 4,000 such businesses operating in Boston, many of them family businesses that had passed from generation to generation. With most employing fewer than 20 workers, collectively they represent 100,000 jobs, about 20% of the total jobs in the city. The City's support ranges from solving space problems to helping businesses navigate through the city's licensing and permitting procedures.

Wainwright Bank has created a “pink” credit card, donating 1% of  purchases to support 13 local gay, lesbian or AIDS-related organizations in acknowledgement of the growing economic importance of Boston’s gay, lesbian and transgender community.

COMPETITION

Massachusetts and Metro Boston lack a coordinated strategy to strengthen the innovation economy.  While a 2002 Brookings Institute report, Signs of Life: The Growth of Biotechnology Centers in the US, ranked Metro Boston first in its concentration of current biotechnology activity, it also found that many other regions are investing aggressively in centers of excellence in partnership with high tech and biotech companies.Massachusetts is also falling behind other states in funding for its public higher education system — the foundation of the next generation of skilled and innovative workers in the Commonwealth. Other nations, too, are seeking to increase their share of New Economy jobs and workers.

LINKS

Boston Redevelopment Authority
The City of Boston’s planning and economic development agency. Website provides pdf links to BRA research and publications and information on events, programs, and initiatives.

Greater Boston Chamber of Commerce
A broad-based association representing businesses of all sizes from virtually every industry and profession in the region. Provides ordering information for publications, events and initiatives information, and links.

Boston Business Journal
The business sector newsletter focusing on Boston. Includes daily updates on the business world in Boston, a weekly business calendar and ordering information for the annual Book of Lists.

MassINC — Massachusetts Institute for a New Commonwealth
MassINC is a nonpartisan think tank and advocacy group to promote the growth and vitality of the state’s middle class. Website provides html links to articles from their quarterly Commonwealth magazine, pdf versions of their research publications (free registration required), and information on initiatives, forums and events.

Initiative for a Competitive Inner City
ICIC’s mission is to spark new thinking about the business potential of inner cities. Provides link to receive weekly email newsletter, pdf publications, and information on events, programs, and initiatives.

Massachusetts Benchmarks
A quarterly journal in pdf format by UMass about the Massachusetts and regional economy providing commentary and interpretation of economic data aimed at business leaders, public policy makers, educational organizations, and the general public.

Massachusetts Division of Employment and Training
Includes job and resume bank, online form requests, searchable Massachusetts economic data statistics, and program and initiative information.

Massachusetts Department of Economic Development
The state’s office responsible for attracting, retaining, and spreading economic prosperity throughout the state, providing pdf publications, economic data and resource links on and information on local and state events and programs.

Massachusetts Alliance for Economic Development
A private, non-profit partnership of business, industry leaders, and government dedicated to the economic growth of Massachusetts.

Bureau of Economic Analysis
Presided over by the US Department of Commerce. Provides access to economic data at the national, state, and local levels.

National Priorities Project
Community education, research, and training organization dedicated to making the US budget priorities something that its citizens can help shape and understand. Provides charts on recent discretionary spending and the NPP Database, which offers state data on socio-economic needs and federal expenditures, and allows you to create customized tables, graphs and reports. Pdf reports, articles, and links.

US Census Bureau
Presided over by the US Department of Commerce. The nation’s collector and provider of data about the people and economy of the United States. Website provides searchable Census database and allows you to create customized tables, graphs and reports, as well as pdf publications and links.