National Journal

In the years following the Great Recession, politicians, business leaders, and economists throughout the Greater Phoenix area did some soul-searching about the state of the local economy. Phoenix had been hard hit by the bursting of the housing bubble, shedding more than 300,000 jobs in housing, real estate, and construction beginning in 2008. What economic growth the region did experience over the last two decades came from population growth instead of real economic activity, according to an analysis done by the Brookings Institution's Metropolitan Policy Program.

Local officials knew that they needed to find a new path for the regional economy: a long-term strategy to boost growth, wages, and productivity for the region's roughly 4.3 million residents. That strategy, they decided, would come from transforming Phoenix into a local hub for research and development by building off the region's existing advanced manufacturing, aerospace, and defense industries. The transformation is still in its nascent stage, expected to take hold over the next five to 10 years.

National Journal spoke with Kathleen Lee, vice president of research and strategy for the Greater Phoenix Economic Council, about the region's new plans, locally nicknamed "Velocity." Edited excerpts of the conversation follow.

Tell me what Phoenix was like after the Great Recession.

The entire nation was in a deep recession, and Phoenix was one of the places hit hard. We had some significant downturns in the housing market. Our population growth slowed down because there was no real migration happening nationally. Like other places, we had a high unemployment rate at the time as well. We're in a recovery mode right now—almost 85 percent recovered. The efforts around Velocity came out of that point in time, when the region really started looking at other innovative strategies to sustain economic growth over the long haul.

So how did Phoenix officials come up with the idea to turn the region into a hub for research and development?

When the recession hit, we started to look at our economy. We looked at our top metrics and dug deeper into the aspects of our economy in terms of our industries, innovation, and entrepreneurial capacities. We did an assessment and looked at where the potential opportunities were. Out of that work were the three strategies from our economic growth plan.

But why focus specifically on research and development? It seems like every city now wants to master this.

Certainly, the global economy is driven by knowledge sectors. In any economy, if you really want to continue to see economic growth and really see the creation of good jobs, you need to focus on productivity and innovation. For several decades, because we were such a high-growth area, I think a lot of people forgot that we have a really strong industrial base and electronics and semiconductors and other related industries. That industry base is already established here.

In order for us to really look at how our industries will perform over time around these new technology areas, we need to have more research and development capabilities. Related to that will be the knowledge and skilled workforce that can support that type of growth. That is why we landed on that.

I never really knew that Phoenix already had an industrial base. What does that look like?

In our region, we specialize in aerospace and defense, semiconductors and electronics. These are industries that were established in the 1950s. The history of these sectors is that early companies came here and set up operations around research and development; at the time, there was a lot of work around technologies geared around defense. Those businesses grew into large companies like Honeywell or Intel.

Now, what we're seeing is that some of these companies are looking at other kinds of new technology areas. So if you look at research and development investments in our region, you see that a significant portion of our total research and development is in private industry. Intel, for example, made huge investments here. We're also seeing a significant amount of companies that are software or information technology companies that support, not just consumer products, but also manufacturing and other kinds of industries. We're beginning to see that kind of information technology and production get better integrated into the new type of business model.

Do you consider this a makeover for the Phoenix area?

I wouldn't say it is a makeover. I would say it's an acceleration of what we already have and building upon those capabilities. I think "makeover" implies that we're trying to do something entirely different. If you look at other regions and places, if you try to do that and you're not holding on to what you already have, the likelihood of succeeding will be very difficult. We're building on what we already have and then adjacent industries like software and information technology are actually growing out of it.

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