Puget Sound's tech economy: Recession-proof?
The Great Recession of 2008 delivered a massive shock to our national labor market: From an historic low of 4.7 percent in late 2007, U.S. unemployment had spiked to over 10 percent by late 2009. As of March this year, the national unemployment rate had recovered significantly, to 6.7 percent, but the painfully slow recovery has eroded household wealth across the country, driving millions of families below the poverty line, with millions more still unable to find steady work.
So how did Seattle workers fare through this dramatic downturn? And what can we do to insulate our region against future shocks?
First, the good news: As hard as the recession was for the region, Seattle and the Pacific Northwest recovered remarkably well. At the peak of the recession, Washington state suffered job losses in line with the national average, but since late 2012 the state has steadily outpaced the national rate of job growth. And while the state as a whole held its own, the greater Seattle area has produced a stronger employment climate than any other major metro in the country.
As the Wall Street Journal reported last August:
Of the nation's 49 metropolitan areas with populations over 1 million, only two — both in California — have seen their unemployment rate fall more than Seattle's over the past year. And neither of those areas has seen its unemployment rate go as low as Seattle's 5.9 percent.
Even more importantly — and counter to popular perception — Seattle’s growth hasn’t been driven by narrow strength in the tech industry. Again, the WSJ:
The secret to Seattle's success is its mix of industries — a combination of technology, service and manufacturing that have hired more readily than those other parts of the country. Seattle has added factory jobs at a rate nearly four times as fast as the rest of the U.S. in the past two years. Retail and construction jobs have grown more than twice as fast.
The strong local recovery owes much to Seattle’s ability to hold on to historical strengths in its manufacturing and maritime industries. But it also reflects the broad-based prosperity generated by the region’s growing role as a global center for life science and information technologies.
According to research from UC Berkeley economist Enrico Moretti, “for each new high tech job in a city, five additional jobs are created outside high tech in that city” in local services occupations like education, health care, construction and retail. And a quick survey of the 100,000+ jobs added to the Seattle economy since mid-2011 reflects those broad gains, with the strongest job growth appearing in non-tech sectors like business and professional services (19 percent), retail trade (16 percent), manufacturing (15 percent), leisure and hospitality (15 percent) and education and health services (14 percent).
So if Seattle was able to outperform the nation in the last recession, what are we doing to ensure that we weather the next downturn with similar aplomb?
Here’s where the story gets even more exciting.
According to the City of Seattle’s Office of Economic Development, private sector jobs account for the vast majority (83.5 percent to be exact) of local full-time employment. Many of those jobs are provided by companies — and even entire industries — that didn’t exist 20 years ago, in categories like enterprise software, e-commerce, biotechnology and cloud infrastructure.
Since individual companies come and go, the best predictor of future prosperity in the region is the breadth and depth of our local entrepreneurial ecosystem. The healthier our culture of entrepreneurial business and finance, the more likely we are to continue to produce a diverse collection of large, profitable local companies capable of employing hundreds of thousands of people at competitive wages.
And by any measure, whether the number of new company starts, financing success, survival rates, or exits and IPOs, Seattle now enjoys the most vibrant entrepreneurial economy it has ever known. Even more importantly, that entrepreneurial strength is not only in the highly visible IT sector currently dominated by Microsoft and Amazon, but also (and even more so) in the fast-growing areas of biotechnology, genetic engineering and biopharmaceuticals.
According to Crunchbase, the tech industry’s largest public database of venture financings, nearly 400 Washington-based companies have raised at least $1 million in outside financing since the Great Recession began (using January 2009 as an approximate start date), with strong growth in both the number and size of the financings from then to now.
Biotech was the largest single category of companies receiving venture capital (at 15 percent of the total), and also saw the largest individual company financings (including the $176 million Series A for Juno Theraputics, the largest first-round financing ever recorded in Washington state).
Enterprise software was the next-largest category of investment, and also saw the deepest bench of growth companies receiving strong backing from institutional investors. Local firms like Apptio, Avalara, Simply Measured, Smartsheet and Socrata have received tens of millions of dollars from venture capitalists who believe each of these companies has a shot at becoming a large publicly traded firm with a global leadership role in its respective category.
Unsurprisingly, the most active investors in the region were local firms, including Madrona Capital, Ignition Partners, OVP Venture Partners and my own firm (Founders’ Co-op). But the biggest dollars flowing into the region came from the San Francisco Bay Area, the acknowledged global center for innovation investing.
Some of these local companies will fail to live up to their promise. Others will be acquired by large incumbents in their industries (many of which are either based here, like Amazon and Microsoft, or have large-scale offices here, like Google). But those that survive and thrive will be there to pick up the slack in our local labor market, generating the broad, cross-sector economic lift we saw in the last downturn.
Our economic strength as a region lies not in any specific company, past, present or future, but in our cultural embrace of innovation, entrepreneurship and a sense of fairness that ensures that the gains from those local success stories are shared as broadly as possible. The Pacific Northwest has attracted generation after generation of entrepreneurial founders: The creators of UPS, Boeing, Nordstrom, Paccar, Starbucks, Costco, Microsoft and Amazon all chose our region as the starting point for their entrepreneurial journeys, and we now have the strongest pipeline of new companies our region has ever seen.
The companies that will carry our region through the next great recession probably haven’t been invented yet. Our shared work is to ensure that they are built here, not somewhere else, and that our local culture and political leadership takes pains to ensure that those future successes deliver tangible benefits to the broadest possible cross-section of local residents.
Crosscut's Community Idea Lab coverage is made possible by the generous support of Social Venture Partner’s Fast Pitch.