Published in the current issue of Inside Memphis Business.
Innovation in Memphis is often viewed the same way we see our music: in the rearview mirror.
Just as we know the names of the Sun Records’ Million Dollar Quartet and the legends of Memphis’ unique brand of soul music, we know the stories about Fred Smith, Pitt Hyde, Abe Plough, Kemmons Wilson, Clarence Saunders, Wallace E. Johnson, and Robert Church.
And yet, like our music, innovation is very much a thing of the present, a fact proven again with this year’s Inside Memphis Business Innovation Awards.
These role models of innovation could not come at a better time. After all, we live today in an innovation economy in which economists calculate that about 50 percent of U.S. GDP growth is attributed to innovation.
In its last City Vitals report, CEOs for Cities defined innovation by measuring patents, entrepreneurship, venture capital, and small business. In a ranking of the 130 largest MSAs, the Memphis region ranked #118 in small business, #117 in entrepreneurship, #60 in venture capital, and #67 in patents. In the ranking of just the largest 51 regions, Memphis trends toward the bottom, which speaks to the importance of celebrating current innovations and innovators whose success can inspire others.
The good news is there is renewed emphasis here on creating an ecosystem that breeds innovation and startups, particularly those technology-based ones that have an outsized impact on economic growth; however, it calls on us to be honest about the price we pay for our reliance on low-wage jobs.
Looking across all occupations, Memphis has a mean salary of $42,940, which is 78 percent of the mean salary in Minneapolis, 80 percent of Chicago, 85 percent of Atlanta, and 94 percent of Nashville.
“Usually, this would be represented as good news: you can move your business to Memphis, pay lower wages, and be more profitable, but the opposite may be true,” said David Ciscel, economist emeritus for University of Memphis’ Fogelman School of Business. “The lower salaries here – with a tradition of very low salaries for African American workers – will have the impact of thwarting economic development. The low salaries result in business sluggishness, the lack of need to innovate and invest to make a profit.
“Could it be our fate that Memphis salaries are just too low to inspire innovation and development in the local economy? Low wages do not inspire new capital investment. Business finds that using old technology is sufficient to make a good return – in the present. But without development, the future is very uncertain. The spurt that logistics clearly gave the local economy did not last, and part of the factor of regional stagnation may have been that Memphis wages, not just in logistics but throughout the local economy, were just too low to inspire large investment in innovative and labor-saving improvements to the regional economy.”
With our region’s historic reliance on agriculture and commodities and small margins for error, the focus was long on cheapness – cheap labor, cheap land, cheap utilities. In that environment, banks were timid with capital, especially venture capital, and the emphasis on cheapness in turn attracted more companies drawn by low costs and low wages.
The irony of our long-time mantra about a cheap place to do business is that some of the most expensive places in the U.S. with the highest wages and highest taxes are succeeding the most. That’s because they are investing in a culture of entrepreneurs and innovations. The kinds of companies that we are attracting to Memphis – and why people like FedEx executive and Greater Memphis Chamber chairman Richard Smith say we have to “up” our game – are those which avoid these economically dynamic cities.
Portland economist Joe Cortright, who has spoken in Memphis several times and understands its economy, said the environments of those cities drive innovation, because it is key to survival and success.
The opposite is also true: low cost locations like ours may actually insulate businesses from the need to be innovative. When costs are low and labor is low paid, mitigating risks, reducing human capital costs, and putting training on the back burner are priorities. Meanwhile, research suggests that cheap housing tends to attract and retain low-skilled workers, and as a result, low cost housing markets have lower skilled labor forces.
It is a vicious cycle. We have built a model of competitiveness that suggests low cost is always a winner, but in a rapidly changing innovation economy, it is the ability to create new breakthroughs, new products, and new businesses that are more and more the winning strategy.
In maintaining the labor force of the past, we ultimately weaken our ability to compete in the future. That’s why innovators matter so much. They are pointing us toward a better economy for Memphis.