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A Bloom Amid New England's Gloom


Economics

A BLOOM AMID NEW ENGLAND'S GLOOM

Savaged by cutbacks in defense and computer manufacturing, New England's nightmare seemed as though it might never end. Since 1989, the region's six states have contributed one-third of all U.S. job losses. Its increase in business failures outstripped all other regions in both 1990 and 1991. Layoffs in those industries continue: In the coming weeks, giant Digital Equipment Corp. is expected to add nearly 10,000 to the pile of castoffs.

But there's a surprising bloom among the gloom. Out of the ravages of recession, a fast-growing ivy of small software, communications, environmental, and biomedical companies is pulling New England out of its woe. Hiring many of the recession's casualties and moving into now-cheaper real estate vacated by fading businesses, these high-tech companies are shaping a vital new economy -- and are redefining the region's future. Massachusetts Institute of Technology researcher David Lampe, an expert on technology in New England, predicts that it "will be a niche economy built on research and advanced light manufacturing."

ROOF-RAISING. Evidence of new vigor is starting to show up in the numbers. Over the past year, unemployment in New England has fallen, even while the nation's joblessness has grown (chart). Wages, reflecting demand for skilled workers, have risen faster than the national average for the past three years. The region's battled banks have improved their balance sheets a lot. And the housing market is picking up: New housing permits are running as high as in the early 1980s, and their growth in 1992 should be among the strongest in the U.S.

Small startups -- as well as big companies new to the region -- are hiring skilled workers in droves. Apple, Hitachi, Mitsubishi Electric, and OKI Electric Industry have recently opened major software and basic research facilities. The same for drug companies: Germany's basf Group and Japan's Eisai Co. have set up biotech and drug research centers. Biotech startups in New England are drawing huge amounts of capital: about $1.4 billion in new equity since 1991.

Even as the computer manufacturers have slimmed down, software companies have taken up much of the slack. The number of software and related jobs has kept rising through the recession. Robert F. Gurwitz, vice-president for engineering at environmental software startup ConSolve Inc. in Lexington, Mass., says: "The biggest problem for people in the industry is finding an interesting job, rather than finding a job."

Most of these software companies are hiring peoples who used to work at big manufacturers. Over the last decade, Gary H. Geissler, a 47-year-old sales manager, has job-hopped among such behemoths as Computervision, Data General, and McDonnell Douglas before joining tiny ConSolve, as one of 35 employees. His outlook? "I'm more upbeat than I've been for years," he says.

BRAIN WORK. Skilled workers trimmed from once-huge computer maker Wang Laboratories Inc., now in Chapter 11, have been gobbled up by a host of high-tech startups. In New Hampshire, upstart network supplier Cabletron Systems Inc. has hired so many Wang workers that its employees now call it Wang North. Cytyc Corp. in Marlboro, Mass., developed its first product, a machine that scans pap smears for cervical cancer, with the help of an imaging expert who used to work at Wang. And after 11 years in Wang's computer service business, Fritz Brown found a spot as a project manager at Corporate Software Inc., a fast-growing Canton (Mass.) PC software sales and training company.

Its wealth of human capital is giving New England's transformation a strong start. New employers say the region's skilled work force, the most educated in the nation, offers a powerful inducement to locate there. "Already, I can show our development efficiency is better than in Japan," says Yoshihiko Kadowaki, the Hitachi Computer Products senior vice-president who manages the company's new Waltham (Mass.) software development center. The center, which was set up to draw talent from the region's computer companies, has hired 70 people, mostly during the past year, and expects to add 30 more next year.

New England defense contractors are sharing their technical skill with both small and large companies. When medical startup PracSys Inc. sought software assistance for its first product, a novel medical scanner, it received offers of free help from defense contractors looking to give their programmers experience they could apply to commercial work. And over the past 15 months, Samuel H. Fuller, DEC's vice-president for research, has trekked three times to Lincoln Laboratory, a MIT-run defense research complex, for talks on joint projects. "In the 10 years prior, I'd never been there at all," says Fuller.

New England's venture-capital ties and top-notch universities are also giving its economy a boost. Venture Founders Corp. and Zero Stage Capital Co. are both beginning new funds for small startups -- their first since 1989. And MIT's record of generating six new companies a year has not slowed since it began tracking spin-offs in 1986.

TOO SMART? There's even a silver lining to the New England office glut. Just ask Route 128 office-park magnate James L. McKeown. His West Cummings Park appeared headed for trouble after four big tenants vacated two of six buildings last year. McKeown trimmed rents, and that space and more was snapped up -- by 55 different companies. The park's occupancy rate has rebounded, to 86% now from 77% in 1989. "We're seeing a lot of activity from medical labs, biotech labs, and r&d labs," says McKeown. "Space is less expensive, and the ideas are still there."

Some economists, however, worry that New England cannot fully regain the buoyancy of the 1980s with an economy driven mainly by r&d. "New England needs to guard against the intellectual arrogance that says: 'We're so smart, we'll recover with brain power,'" argues Paul E. Harrington, associate director at Northeastern University's Center for Labor Market Studies. Manufacturing jobs in defense and computers were the biggest source of growth in the 1980s. But with wages and housing costs still high, compared with other parts of the country, companies aren't locating their manufacturing operations in New England. That may put a real cap on future growth.

Still, the lesson of New England is one that the rest of the country can learn: A strong base in skills, knowledge, and innovation is the best bet for invigorating an ailing economy.Gary McWilliams in Boston


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