Stephen Fuller Sees A Crisis Coming To The D.C. Economy. Can It Be Avoided?

A reversal of D.C.'s migration patterns combined with a reduction in federal spending could prove disastrous for the area's economy, but its economic development leaders are brainstorming some new ideas to help the economy grow.

The Stephen S. Fuller Institute released a report in September that showed more people are leaving the D.C. region than moving to it. Over the last three years, George Mason University economist Stephen Fuller said Wednesday at Bisnow's Unifying D.C., Maryland and Virginia luncheon, 75,000 more people moved out of the D.C. area to other places in the U.S. than entered it, a problem he does not think the region is taking seriously enough. 

"Look how much energy we have focused on 50,000 jobs by 2030, they're not all going to be here tomorrow," Fuller said, referring to the Amazon HQ2 competition. "In three years we lost 75,000 people and nobody has paid a rat's ass about it. They don't care. We should be organized, wondering why are these people leaving? This is really significant." 

The D.C. region has been among the 15 slowest-growing metropolitan areas since 2010, Fuller said. He said Dallas grew five times faster, Atlanta and Seattle grew four times faster and Boston grew three times faster. 

The problem could be exacerbated by the federal budget Congress is working on with a mid-December deadline, Fuller said. He has looked through the proposal and said it could potentially cost the region 30,000 federal jobs, a larger hit than the Budget Control Act of 2011. 

"We better hope we get a big infusion of Amazon money," Fuller said. "But what if we don't? How are we preparing for what could rattle this economy more than what has happened since 2010."

The key to solving that problem, D.C. Deputy Mayor for Economic Development Brian Kenner said on the following panel, is diversifying the region's economy with new industries. 

One area Kenner said he sees as a potential "gazelle" for growth is D.C.'s hospitality industry. If the region can innovate with new technological advances in hospitality, Kenner said, it could bring millions of dollars more into its economy.

To foster that growth, Kenner said he is working on creating a new incubation space specifically focused on the hospitality sector. Similarly, he said he is working with a global incubator in the healthcare industry that has expressed interest in being part of D.C.'s startup scene. While he said D.C. does not have as much of a biotech sector as its suburban neighbors, Kenner said having an incubator could help it grow. 

"We’ve got to think in the future about things that are going to help us 15 to 20 years from today," Kenner said. "That is not just investing in our core industries, but it’s taking a chance on investing resources in things we think are going to grow." 

In addition to helping grow the area's startup scene with incubators, economic development officials are focused on drawing large companies from other places in the country. The D.C. area got a big win earlier this year when Nestlé decided to move its U.S. HQ from California to Rosslyn. 

A key to landing Nestlé, Arlington Economic Development Director Victor Hoskins said, was showing the company the D.C. area has the educated workforce and talent pool to support it. To help Nestlé understand that, Hoskins convened a meeting between Nestlé's human resources team and representatives from the University of Virginia, the University of Maryland, Georgetown, George Washington, George Mason and Virginia Tech. Each of the schools presented Nestlé with a breakdown of how many students they expect to graduate each year with degrees relevant to the company.

"My jaw dropped on the table when I heard the stats these guys were throwing out," Hoskins said. "I know the folks from Nestlé were enormously impressed."  

The region's universities can help not only in attracting companies, but in fueling local entrepreneurship, influential venture capitalist and consultant Jonathan Aberman said. 

Aberman, the chairman of Amplifier Advisors, said the amount of money the federal government puts into research and development in the D.C. area's universities, plus corporate and government labs, could be a catalyst for private sector growth. He said focusing more on turning the new discoveries made in these labs into companies could be a boon for the region's economy.

"The absolute dollar numbers that go into our region on intellectual property creation is probably as high or higher," than competing areas, Aberman said. "What we’re not as good at is commercialization ... We need to be thinking on a regional or local basis about creating more investment around our universities, giving them money to create prototypes and focusing more on applied sciences." 

Another change that could help boost the area's economy, Aberman said, is a shift in merger and acquisitions activity. He said the region's large companies too often look outside of the region when acquiring smaller companies. This investment leaving the area cancels out any positive effects of outside corporations acquiring smaller D.C. companies, he said. But reversing this trend would be up to the companies themselves, not any government or organization. 

"If we got Nestlé, Capital One, Marriott, Booz Allen and the rest of them to buy their next technology local, this region would literally blow up," Aberman said.