Category Archives: Science & Technology

UVa, Inova Partner in Research Initiative

Inova CEO Knox Singleton and UVa President Teresa Sullivan sign partnership deal. Photo credit: Washington Business Journal

Inova CEO Knox Singleton and UVa President Teresa Sullivan sign partnership deal. Photo credit: Washington Business Journal

by James A. Bacon

The University of Virginia and Inova Health System have joined forces in a $112 million partnership to launch a medical campus and a biomedical research initiative in Fairfax County. The partnership has three main components:

  • A cancer research partnership between the Inova Schar Cancer Institute and UVa. Cancer Center. The aspiration is to achieve designation by the National Cancer Institute as a Comprehensive Cancer Center, which would enhance the center’s prestige and open new avenues for research funding.
  • A regional campus of the U.Va. School of Medicine, which will enable UVa. medical students to complete clerkships and post-clerkship education at Inova hospitals in Northern Virginia.
  • A research partnership to develop the Global Genomics and Bioinformatics Research Center at The Inova Center for Personalized Health.

As part of the expanded relationship, UVa’s Darden School of Business will lead a business accelerator to speed the commercialization of medical research and the incubation of companies with innovative products.

Most of the activities will take place at the Inova Center for Personalized Health on the former Exxon Mobil campus located near Inova Fairfax Hospital, Inova’s flagship hospital.

“U.Va. is one of the most prestigious research universities in the country, and Inova is one of the largest, most successful health-care systems,” Knox Singleton, CEO, Inova Health System, said in a prepared statement. “This partnership leverages the complementary strengths of two institutions committed to providing the most advanced treatments and prevention strategies to the communities we serve.”

Twenty-eight million in funding will come from the Commonwealth of Virginia. Inova will raise another $56 million, and UVa will chip in $28 million. Dr. Richard Shannon, executive vice president for health affairs at UVa, told the Daily Progress that he did not know where UVa’s share will come from, although one possible source is the university’s new Strategic Investment Fund, which is expected to throw off about $100 million annually.

Meanwhile, in western Virginia… Virginia Tech plans to absorb the Virginia Tech Carilion School of Medicine in Roanoke within the next two years, according to Virginia Business. “Our school is a research-intensive medical school and to be able to identify that research you have to be part of the university. That was one of the drivers,” says Nancy Howell Agee, Carilion Clinic’s president and CEO.

Bacon’s bottom line: I am ambivalent about these developments. On the positive side, the UVa-Inova and Tech-Carilion partnerships could create the critical mass it takes to break into the biomedical big leagues. Both are targeting emerging fields of medicine in which they don’t have to compete against entrenched biomedical powerhouses. The potential exists to create important new drivers of economic growth in Northern Virginia and the Roanoke-Blacksburg regions, giving new impetus to Virginia’s lethargic economy.

Whether these partnerships can construct the research-clinical-entrepreneurial ecosystems it takes to be successful remains to be seen. Northern Virginia has a respectable (though modest by Silicon Valley standards) angel financing/venture capital sector which should be capable of supporting the commercialization of new technologies. Proximity to the National Institutes of Health in Bethesda, Md., is a bonus for snagging research dollars. The Roanoke-Blacksburg area, which lacks these advantages, is more problematic.

What concerns me is how these initiatives are arising from large, lumbering not-for-profit organizations — health systems and universities — that are raising their capital not from capital markets, where their deals will be subjected to close scrutiny by investors, but from their own internal resources.

Unlike private enterprises, universities and hospitals don’t pay income taxes and they don’t pay dividends. Not-for-profit hospitals extract “surplus” revenues (what for-profit enterprises would call profit) by charging patients more than they need to. Universities extract wealth by over-charging students. In other words, it can be argued that that Inova, Carilion, UVa and Virginia Tech are building their research empires on the backs of patients and students with little accountability to the public. Hospital and university boards, far from representing the interests of patients and students, are rah-rah cheerleaders for institutional growth.

Business communities and the political establishment are cheering these initiatives as well. The lack of public debate is appalling.

Virginia Tech Makes Big Bet on Big Data


Virginia Tech’s Pamplin College of Business

by James A. Bacon

Virginia Tech wants another $70 million of your tax dollars. That’s a lot of money, but give Tech credit for thinking big. Its audacious plans for a $225 million Global Business and Analytics Complex could be the next big thing that elevates the university to ever greater heights of prominence. Of course, it also could represent a massive bet on a passing intellectual fad. But one way or the other, it’s BIG.

Here’s the idea: Tech wants to expand its Blacksburg campus to accommodate four new buildings — two academic and two living-learning residential communities for about 700 students. The academic buildings would become the new home of the Pamplin College of Business and house research space in Tech’s data analytics and decision sciences destination area.

“We believe that Virginia Tech can become an international leader in the complex nexus of data and decision making; where people, communities and policy meet big data analytics to produce solutions that improve the human condition,” said Executive Vice President and Provost Thanassis Rikakis, as reported by the Roanoke Star.

The dorms are expected to cost $73.5 million, which university officials say could be financed by state bonds. The academic buildings would cost about $140 million, half of which Virginia Tech would raise and the other half officials hope will come from the state.

Virginia Tech is infusing data and decision sciences into every corner of its teaching, research, and outreach, says Naren Ramakrishnan, director of Tech’s Discovery Analytics Center. “We are preparing students to be data-literate and empowering them to use the methods of data science to complement their disciplinary work. Our data analytics and decision sciences planning group draws members from engineering, sciences, business, liberal arts, humanities, and the natural resources.”

Tech’s long-term goal includes developing a health analytics complex at its Roanoke campus and a technology-focused complex in Northern Virginia.

Bacon’s bottom line: No question, Tech is tapping into a powerful economic trend. Big Data is one of the most all-pervasive forces at work in society today, and the harnessing of Big Data is one of the great challenges of government and industry. Someone has to teach this stuff — why not Virginia Tech? If Tech is an early entrant in this educational field, it could be very successful. Moreover, the economic benefits of hiring more professors and teaching more students — a lot of economic activity — could be leveraged many times over if Virginia businesses hire Pamplin graduates to reinvent their enterprises and become more globally competitive.

But that’s a lot of “ifs.” Tech wants roughly $70 million from the state to make this happen, and it will compete with Virginia’s other public universities, all of which have grand schemes of their own, for scarce funds. It doesn’t help that the General Assembly will be cutting spending, not adding to it, in the current budget cycle.

Here are some of the issues legislators need to consider:

  • How else could the state invest that $70 million? That sum is larger than the $60.8 million allocated in 2017 to economic incentive funds for industrial recruitment, small business, brownfields, enterprise zones and movies put together. Those funds, incidentally, largely benefit working class Virginians and/or economically depressed communities.
  • How much direct economic activity will the Global Business and Analytics Complex create in added payroll and other spending?
  • What will be the indirect impact, in terms of improved competitiveness of Virginia business enterprises? Is that question even possible to answer?
  • Where will the students go? If Virginia taxpayers are going to invest a massive sum in human capital, can we be assured that most graduates of this program will subsequently work for Virginia companies, enhancing their competitiveness? Or will out-of-state companies recruit them, meaning Virginia taxpayers are effectively subsidizing the human capital of our competitors?
  • How many other higher ed institutions are pursuing similar strategies? Is this the next higher-ed empire-building fad in which everyone is hypes Big Data in order to bamboozle money from alumni and taxpayers? Are Stanford, MIT, Michigan State, Georgia Tech and a dozen other prestigious institutions all pursuing the same angle? Or does Virginia Tech really, truly have a unique idea?

This is just a start. I’m sure the list of questions can be refined. The payoff is potentially very big. But Tech is asking for serious money. Legislators need to give the idea serious deliberation.

For All Its Problems, the State IT Contract Is Functioning Like It Should

Virginia state server farm in Chesterfield County. Photo credit: Richmond Times-Dispatch

Virginia state server farm in Chesterfield County. Photo credit: Richmond Times-Dispatch

by James A. Bacon

The relationship between the Virginia Information Technologies Agency and Northrup Grumman is getting nasty as the two bang heads over the alleged breaches of the $1.3 billion, 13-year contract to provide IT services to Virginia state government.

Del. John O’Bannon III, R-Henrico, called the relationship between the two “a whirlwind courtship, short honeymoon, rocky marriage, and now we’re heading to an ugly divorce,” reports Michael Martz with the Richmond Times-Dispatch.

Martz’s article details disputes regarding Northrup Grumman’s alleged lack of operational support for a messaging services contract assigned to a third party, licensing and maintenance support for the state’s IBM mainframe service, an increase in Microsoft licensing fees, and charges for unneeded capacity on a Unisys mainframe system. Northrup Grumman has its own beefs, claiming the state owes it $10 million. As the contract expires, the contractor has signaled its intention not to participate as prime contractor after the current expires next year.

Some might wonder if privatizing the state’s IT services, one of the major achievements of the Warner administration, was a bad idea. In actuality, the disputes simply show how incredibly complex it is managing a massive government IT operation that cobbles together legacy systems such as IBM and Unisys mainframe computers with state-of-the-art desktops and servers. Enforcing the contract makes visible issues that otherwise would have remained submerged and very possibly might have gone unaddressed.

Indeed, the system is now working as it should. The state is acting as overseer of the contract, holding Northrup Grumman accountable for living up to its terms and conditions. Under the old arrangement, there was no one to hold accountable. State IT operations were dispersed between fragmented IT fiefdoms. Responsibility was diffused; no one had effective charge. The system was antiquated, inefficient, subject to disruption and vulnerable to security breaches. The system operated by Northrup Grumman, while less than perfect, is vastly superior to what it replaced.

The big question now is what comes after the Northrup Grumman contract? Does the state look for a single vendor, or does it seek competitive bids for different chunks of state business? One huge change between 2017 and 2004 is the emergence of the Cloud. Instead of maintaining its own server farms in Chesterfield and Russell counties, the commonwealth could consider contracting out its data storage business to any one of half dozen highly competent providers — all of which have server farms here in the state. A counter-balancing consideration is the need to ensure inter-operability between different providers.

A concern I have is whether the state can afford to pay the salaries it takes to recruit the top talent to effectively manage oversight of the state’s IT architecture. The IT industry pays top salaries for the brightest minds and dangles rewards like bonuses and stock options. Who would want to work for the state, where salaries are uncompetitive and pay raises are contingent upon state budget conditions? When it comes to managing a $135 million-a-year contract (a sum that could jump to $200 million a year), a few hundred thousand dollars a year in senior executive salaries is chump change. But state law makes it impossible to hire the best people we can find.

How to Stop Worrying and Learning to Love the Nuke

Keel-laying ceremony for nuclear attack sub U.S.S. Delaware in April. Huntington Ingalls, owner of the old Newport News Shipbuilding shipyard, is one of the world's leading experts in small nuclear power plants. The ship's crew began extensive training in operating the nuclear reactor long before construction of the ship was complete.

Keel-laying ceremony for nuclear attack sub U.S.S. Delaware in April. Huntington Ingalls, owner of the old Newport News Shipbuilding shipyard, is one of the world’s leading experts in small nuclear power plants. The ship’s crew began extensive training in operating the nuclear reactor long before construction of the ship was complete.

by James A. Bacon

I don’t know what kind of future the nuclear power industry has in the United States, but whatever it is, Virginia wants to grab a piece of it.

The Virginia Nuclear Energy Consortium (VNEC) and the Center for Advanced Engineering and Research (CAER) have announced a plan to join forces to bring more nuclear research dollars into Virginia and create more nuclear workforce opportunities, reports Virginia Business magazine.

VNEC was created in 2013 by the Virginia General Assembly as an independent authority with the goal of making the Commonwealth a global leader in nuclear energy. CAER’s mission is to increase competitiveness for  core, high-wage industries in the Lynchburg area around a knowledge-based research hub.

The two organizations agreed to pursue initiatives related to researching new nuclear technologies, education and training programs, and bringing nuclear-related businesses into Virginia,

“This agreement will help us ensure government, academic institutions, and private commercial entities make the most of Virginia’s capabilities for contributing to the next generation of nuclear technology and education, opening doors for additional research funding, creating opportunities for new jobs, and launching new businesses in the commonwealth,” Sama Bilbao y León, director of nuclear engineering programs at VCU and chairman of VNEC, said in a statement.

It wasn’t clear what resources will be applied to the initiative, although the article did allude to “the historical support” of the General Assembly and the Virginia Tobacco Regional Revitalization Commission as possible sources of financial backing.

VNEC has endorsed the use of nuclear power in Virginia’s electricity generation mix, stressing the need for zero CO2-emissions baseload capacity to offset the intermittent generation of solar and wind. But VNEC’s main thrust is to bolster the economic prospects of key players in the nuclear power industry including AREVA Inc. North America, a Lynchburg-based subsidiary of the French nuclear construction and services company; Babcock & Wilcox, a Lynchburg-based nuclear service firm; and Huntington Ingalls Industries, the Newport News-based builder of nuclear-powered submarines and aircraft carriers.

Bacon’s bottom line: Nuclear power has had a bad image in the United States ever since the Three Mile Island episode, not to mention the Chernobyl and Fukushima disasters. Moreover, the massive safety redundancies built into nuclear power plants make them incredibly expensive. But the industry is working on new technologies that might bring down costs and alleviate safety concerns, the most promising of which is a new generation of smaller reactor.

Virginia has had a good experience with nuclear. Dominion Virginia Power’s nuclear facilities in North Anna and Surry have among the best tracks records in the country. The U.S. Navy in Norfolk has operated nuclear-powered warships without incident for decades. Why not embrace the industry? Why not benefit from other peoples’ unfounded fears?

The Future (Shock) Is Now

future_shockby James A. Bacon

I love my  Microsoft Surface tablet but the darn thing doesn’t take a charge anymore, so it has been rendered useless. I can no longer access my email account and, thus, I’m out of touch with the world for the duration of my beach vacation. My apologies if communications go unanswered.

I borrowed my son’s laptop to use in blogging, but now that wretched contraption won’t take a charge! (I’m now using my wife’s laptop, which means I’m blogging on borrowed time.) Meanwhile, Facebook stopped accepting my password. When I tried to re-set the password, the security screen asked me to identify the faces of various Facebook “friends.” As it happens, I know only a small fraction of the people who have friended me, so I failed that test miserably. An in an apparently unrelated phenomenon, my gmail account booted me out as well! Aargh. I think I’ll just go work on a puzzle.

These irritations all transpired within the space of a single day, which left me gnashing my teeth and temporarily unfit for beach-time companionship. My petty travails are inconsequential to anyone but me, but they seem symptomatic of a larger malaise: Stuff just doesn’t work like it’s supposed to. We’ve got this incredible technology, and it’s  so cool that we can’t live without it, but then… it suffers from incessant glitches. Sometimes, I feel like society is headed toward one giant, Obamacare rollout-style breakdown.

Security issues are a part of the problem. Viruses, malware, spam and phishing are omnipresent threats, which means we’re required to continually update and patch our computer security. The problem gets worse over time as new technologies emerge without supplanting all of the  old ones, requiring systems to be kludged together. As the Internet of Things becomes a reality, the number of connected devices grows exponentially from billions to trillions, providing more access points and vulnerabilities for infiltrators to exploit.

Another problem is the increasing complexity of IT systems. Just as hardware is kludged together, so is software. When programs have millions of lines of code (or is it billions of lines now?), there’s more stuff to go wrong. When someone tries to link incompatible systems, the complexity — an potentially for fatal conflicts — increases exponentially.

Then there’s the human factor. I’m willing to invest time learning how to use PCs, laptops, tablets, iPhones, email, and WordPress blogging software. But there comes a point when I’m tired of learning new stuff. I don’t want  to have to learn my car’s IT interface, much less that of my stove, refrigerator, lights and front door lock. I just want to flip on the lights or turn on the ignition and have stuff work. I realize that young people have a bigger appetite for novelty than old guys like me, but there are millions of other old guys who think that the incremental improvement to our lives is just not worth the effort. There are limits to technology ubiquity that humans are cognitively capable and temperamentally willing to absorb, and I fear we’re bumping up against them.

According to Singularity theorists, advances in computing power and artificial intelligence are supposedly advancing so rapidly that mankind is capable of solving all these problems. But I don’t see it. While technology and IT are progressing at a geometric rate, I would argue that kludging, complexity, and capabilities of the malevolent are hurtling along at a slightly faster rate.

In 1970, Alvin Toffler wrote a book, “Future Shock,” arguing that too much change was occurring too rapidly for people to adapt. That was 46 years ago. Now we’re experiencing Present Shock. It can’t end well.

Free the Data!


by James A. Bacon

I’m not sure if this idea will lead anywhere but it’s worth a try: The Commonwealth of Virginia has released an open data set of job postings in the state with the hope that someone will come up with innovative ways to use it.

The initiative arises from an executive order by Governor Terry McAuliff establishing the Commonwealth Center for Advanced Research and Statistics that, according to the Washington Business Journal, aims to improve labor market, workforce and education data.

“The data is available, and now we are gearing toward finding ways to make insights,” said Kim McKay, a research and policy analyst at the Council on Virginia’s Future, one of the program’s sponsors. “It’s important to note that this is a early stage pilot program.”

“This is the first time any state has taken online job postings and curated it for public use,” said Aneesh Chopra, co-founder of Arlington-based Hunch Analytics and a former secretary of technology of Virginia. “The governor made the goal to make the labor market work better … and this is a down payment on the idea.”

Chopra hopes that businesses will start finding uses for the data, just as the weather forecasting industry created applications that fed off government-compiled weather data.

Bacon’s bottom line: I’m not smart enough to imagine how the data, comprised of public and private job listings dispersed across multiple job sites, can be used. Maybe someone will come up with a brilliant idea, maybe nothing will come of it. In either case, state government is spending next to nothing to make the data available. It’s worth a try. Perhaps this initiative will lead to the liberation of other data sets and spark the creation of entirely new information products.

How One Gas Plant Can Save Billions

Dominion Virginia Power's gas-burning plant in Brunswick County opened this year. The Greensville power station, scheduled to open in 2018, will be even more cost efficient.

Shown here: Dominion Virginia Power’s state-of-the-art, gas-fired generating plant in Brunswick County. The company’s Greensville facility will be even more cost efficient.

There’s more to the natural gas boom than fracking. Technology deployed at Dominion’s Greensville power plant will squeeze more electricity out of a BTU of gas than ever before. 

by James A. Bacon

Last month Dominion Virginia Power commenced construction of the $1.3 billion Greensville County Power Station. When it opens in late 2018, the facility could well be the most efficient gas-burning electrical power plant in the world. That one facility will save Dominion customers $2.1 billion over its 36-year lifetime, the company says, even as it emits less carbon dioxide per kilowatt hour than other gas power plants and only 40% of that of a coal-fired plant.

Even if stretched out over 36 years, $2 billion represents a significant savings from a single power station. The average savings of $59 million a year compares to $7 billion annually paid by Dominion’s Virginia and North Carolina rate payers.

Rate payers might wonder: How does Dominion calculate that $2 billion in savings. The station will save $2 billion compared to what? Those questions seem all the more germane in light of commonly heard arguments that investing in massive natural gas-fired power plants instead solar panels and wind turbines is a bad idea when the price of gas will only rise in the future and the cost of renewable energy will steadily decline.

“We see the potential for a lot of stranded costs to be put on consumers as emissions of carbon pollution and greenhouse gas emissions continue to be ratcheted down,” says Kate Addleson, director of the Sierra Club-Virginia chapter. Solar is not just non-polluting but in many parts of the country it’s the lowest-cost energy source. As solar technology improves and the cost per kilowatt hour continues to decline, solar could become the low-cost option in Virginia, too. While natural gas might look like an attractive option today, it may not be as gas reserves are depleted and prices rise. Says Addleson: “Dominion is pointing to the benefits of gas because that’s what they see as the best outcome for their profit margin.”

Dominion defends its commitment to natural gas as the best deal for rate payers. The Greensville County Power Station will save money two ways: (1) by extracting more energy value from each BTU of gas, and (2) by using its access to two pipelines to purchase cheaper gas.

Greensville will be the third “three on one” Combined Cycle plant in Dominion’s generating fleet, using waste heat from three gas-burning turbines to power a traditional steam generator. Incorporating the most advanced Mitsubishi Hitachi Power Systems turbines, Greensville will squeeze more electricity from 1,000 BTUs of natural gas than ever before.

Combustion at higher temperatures also releases less carbon-dioxide into the atmosphere. The Greensville plant will emit 780 pounds of CO2 per megawatt hour (MWh), an incremental improvement over the 790 pounds for the Brunswick plant and 2,100 pounds for a typical coal-burning plant. Mike Dowd, director of air quality for the Department of Environmental Quality (DEQ), noted that the air permit sets the limit at 813 pounds per MWh, the toughest ever set on a combined cycle, natural gas power station. Environmental groups claimed credit for the “stronger pollution protection” they lobbied for. But the real enabler of the stricter environmental standards was the same combustion technology that makes the facility so economical to run.

Glenn Kelly, director of Generation System Planning, walked me through Dominion’s methodology for calculating the cost savings. If Dominion did not build the Greensville plant, he said, the company would have to purchase the megawatts from wholesale electricity markets maintained by PJM, the regional transmission organization of which Dominion is a part. “PJM market is always an option. We can always buy energy and capacity there  – that’s our benchmark. ”

In the PJM wholesale market, utilities purchase capacity (the right to draw electricity, if needed) and energy (the actual electricity consumed) in day-before and same-day auctions. Prices vary by season, time of day, weather conditions, and other factors such as the volume of electricity being bought and sold at any given point of time and the ability of transmission lines to deliver the electricity to the consumer in different parts of the country. In all likelihood, Greensville’s replacement electric power would come from a mix of gas-fired, solar, wind, and other energy sources — whatever other utilities and merchant providers are willing to put on the market.

How does Dominion know what PJM will charge Dominion years in the future? It doesn’t. It relies upon its economic consulting company, ICF, to make realistic assumptions. ICF assumes that prices will fluctuate around the long-term cost (including a reasonable corporate profit) of generating the electricity, and that the cost of burning gas or building a solar panel can be estimated with some degree of reliability. “Gas prices are very volatile short-term,” says Kelly. Right now prices are depressed, running between $2 and $3 per million BTUs. ICF projects gas prices will likely climb to about $5.11 per million BTU by 2025. “We have it going up pretty fast.”

Many people are familiar with the fact that the cost per KWh of solar energy has gone down as solar panels get more efficient at converting sunlight into electricity, but few are aware how the cost of generating electricity from gas has gone down — and not just because of the fracking revolution that has flooded the market with gas. State-of-the-art power stations extract more electricity from the same amount of gas.

The G Class turbines installed in Dominion’s Brunswick County power station, which opened this year, are more efficient than the previous generation, says Bill Newsom, executive vice president-new generation systems with Mitsubishi Hitachi Power Systems Americas. They are about 59% efficient; that is, they extract about 59% of the energy value from the natural gas. The rest goes up the smokestack or is lost as waste heat. Continue reading

Learning from the “Fat Hypothesis” and the Intersection of Science and Politics

Image credit: The Guardian

Image credit: The Guardian

by James A. Bacon

Ian Leslie has written a long piece for The Guardian, a left-wing English newspaper that to the best of my knowledge is not funded by the Koch Brothers. He chronicles how the medical hypothesis blaming fat and cholesterol for heart disease became ensconced as scientific orthodoxy in the United States and Great Britain in the 1970s. He shows how that orthodoxy was suborned by government, how it was used with the best of intentions to alter the dietary habits of the two nations, and how it created the obesity epidemic that has shortened the lives of millions. Nearly fifty years later, that orthodoxy is being overthrown as  blame for heart disease increasingly shifts to processed sugar.

At a time when some in Washington, D.C., cite a “consensus” regarding climate change and call for the federal prosecution of climate change “deniers,” the article is worth quoting at some length, for it shows how badly science in the hands of politicians can go off the rails. Leslie does not himself note a parallel between the debates over fat and climate change, but such a comparison is inevitable. Perhaps the article will instill some humility among those tempted to revamp large sectors of the economy based on the latest scientific fashion. At the very least, it should discourage people from snuffing out dissenting scientific voices with threats of criminal prosecution.

In 1980, after long consultation with some of America’s most senior nutrition scientists, the US government issued its first Dietary Guidelines. The guidelines shaped the diets of hundreds of millions of people. Doctors base their advice on them, food companies develop products to comply with them. Their influence extends beyond the US. In 1983, the UK government issued advice that closely followed the American example.

If, as seems increasingly likely, the nutritional advice on which we have relied for 40 years was profoundly flawed, this is not a mistake that can be laid at the door of corporate ogres. Nor can it be passed off as innocuous scientific error. … Instead that this is something the scientists did to themselves – and, consequently, to us.

Continue reading

Yeah, It Makes Sense for Virginia to Invest in Cybersecurity


The Mackster gives speech at Launch Lounge event in San Francisco in March 2016. Photo credit: Richmond Times-Dispatch.

by James A. Bacon

Normally, it’s a terrible idea for government to pick economic winners and losers. Politicians latch onto fads and enthusiasms arising from the private sector but allow wishful thinking to override investment discipline when it comes to allocating government capital.

Bacon’s dictum is that if “everyone” knows a sector is hot, and “everyone” is investing in it, unless you’re the smartest, best-informed guy in the room, you’re probably wasting your money.

Twenty years ago, economic developers were chasing the semiconductor and “high tech” sectors. Today, biotech and greentech are hot — and mayors and governors around the country are mal-investing hundreds of millions of dollars in those sectors in the vain hope of triggering riding the wave to economic prosperity. That’s why I cringe when I read about the City of Virginia Beach putting money into a “biomedical” office park, and I get the heebie-jeebies when the state backs Northern Virginia’s Center for Personalized Health.

I may live to regret saying so, but I think that Gov. Terry McAuliffe may be on to something with his cybersecurity initiative. His two-year budget for 2017-2018 steers $750,000 in extra funding to Virginia’s Center for Innovative Technology (CIT) to develop an “information sharing and analysis” capability to build upon CIT’s Mach37 cyber-accelerator located in the CIT building and CIT’s investments, typically about $50,000 a pop, in cyber-related start-ups. In the grand scheme of things, the money is pocket change. The real contribution that CIT provides is acting as a relationship and resource broker for aspiring entrepreneurs.

There are several reasons why I think the cyber-security initiative makes sense for Virginia.

First, business and government awareness of cyber threats has increased markedly in the past few years. The threat is real, and business and governmental organizations are spending more money to combat it.

Second, Virginia is a major player in the industry, second only to California in the number of cyber-security vendors. Companies with cyber-security capabilities have clustered in Northern Virginia to serve the Department of Defense, the Central Intelligence Agency, the Federal Bureau of Investigation and the National Security Agency, where security requirements are high. With a wealth of human capital — thousands of IT workers trained in information technology and cyber-security — the region generates lots of new security-related business ideas. The existence of an existing business cluster and innovation ecosystem makes it easier for entrepreneurs to recruit skilled employees and forge alliances and partnerships.

Third, cyber-security as an economic development ploy has not yet become a national craze. Stupid money hasn’t yet started flowing into the industry, creating a glut of too many dollars chasing too few deals. Inevitably, that will happen, and Virginia leaders need to be alert to it. But it doesn’t seem to be happening yet.

Fourth, Virginia is not throwing around a lot of money. The added sums are infinitesimal compared to what Virginia is spending on new STEM programs at Virginia universities, the Commonwealth Research Commercialization Fund, and the universities’s share of the recently approved 2.1 billion bond package. As noted above, Virginia’s main contribution to cybersecurity is identifying entrepreneurs with promising ideas and hooking them up with private-sector partners who can help them. That is a defensible, inexpensive, and value-added role for the state to play.

Finally, the potential return on public investment is high. ThreatQuotient, a Northern Virginia cybersecurity company that received $1.5 million in seed funding from local investors including CIT early last  year, raised $10.2 million in second-round financing in December, and won recognition in a cybersecurity industry conference in San Francisco as “startup company of the year.” ThreatQuotient now employs 50 people in Reston, according to the Richmond Times-Dispatch.  Reports Michael Martz:

CIT officials estimate the [Growth Accelerator Program seed] funds leverage every dollar invested by 18.5 times, using $17.9 million in equity investments to attract $331 million in private investment in companies with a total value of $798 million. They estimate those companies will create up to 9,000 jobs in Virginia over the next five years. The [state] budget allocated $3.1 million a year to the program and requires a return on investment of no less than 11 to 1.

It goes without saying that such claims should not be taken at face value. CIT, like every other public, private or quasi-public entity in the world, is putting the best face on its performance. Still, the investment returns would appear to be orders of magnitude greater than traditional economic-development tax incentives and real estate subsidies.

There appears to be one other thing the state can do to promote this burgeoning sector. As Martz observes, thousands of cyber-security jobs are going begging in Virginia. The industry has grown faster than the ability to train people to fill the jobs. “It’s an absolute fact for our industry that the demand for talent, especially technical talent, and the supply, there’s just a disconnect,” he quotes John Czupkak, who serves on the ThreatQuotient board of directors, as saying.

As I have long maintained, state and local government can best promote economic development by doing its core jobs well: Deliver the highest quality government services at the lowest possible cost. Virginia doesn’t need to incentivize or subsidize cybersecurity to make it successful. Virginia community colleges and universities need to turn out more graduates with the skills the industry needs.

Virginia Beach on Another Wild Goose Chase


by James A. Bacon

Virginia Beach City Council voted yesterday to give 155 acres to build a biomedical park, reports the Virginian-Pilot. The Virginia Beach Development Authority will oversee the design and promotion of the property.

Virginia Beach Mayor Will Sessoms justified the initiative to lure health care and biotech companies as a way to diversify the city’s economy away from the military and tourism sectors. “You’ve got to look around the country and see what is really growing. As you know, health care numbers continue to increase,” Sessoms said earlier. “We saw that as an opportunity.”

Economic Development Director Warren Harris said the city has identified some prospective tenants, including a regenerative medicine/cancer research firm and a stem cell research firm. MedImmune, a research and development arm of British drugmaker AstraZeneca, met with city officials last month and “left very impressed,” Harris said.

Bacon’s bottom line: This cannot end well. In its pursuit of “economic development” Sessoms seems to be chasing every shiny object that someone dangles in front of him. Last night City Council also voted to sign two agreements with the state that keeps on track plans to extend Norfolk’s light rail system into Virginia Beach on the promise of the most nebulous of benefits. The mayor also supports a mega-convention complex (committing the city more deeply to a tourism-oriented economic development policy). And he supported city subsidies to jump-start redevelopment of the old Cavalier Hotel into a resort complex (another tourism-oriented initiative). As if all these city-backed projects were not enough, now he wants a biotech park.

Well, get in line. Everybody sees high-tech medicine as the next big thing, and everyone wants a piece of it. Bacon’s Rebellion has highlighted the plans of Inova and George Mason University to build a Center for Personalized Health in Fairfax County, and the ambition of Virginia Tech and Carilion Clinic to build a biotech cluster around neuroscience in Roanoke. While both those initiatives face major challenges, they at least have resources that Virginia Beach doesn’t have. The Inova-GMU project is located in the Washington metropolitan area, one of the largest biotech clusters in the country, and Inova has publicly stated its willingess to put $200 million into the project. Meanwhile, Virginia Tech is the largest research university in the state, and it is partnering with western Virginia’s largest health care system.

There is no indication in the Virginian-Pilot reporting that Virginia Beach has forced an alliance with either the Eastern Virginia Medical School (EVMS) or the Sentara Health System. Despite the fact that the Virginia Beach site is not located anywhere near EVMS or Sentara General Hospital, the region’s flagship hospital, Harris sees the park focusing on diabetes, cardiovascular disease, neuroscience and traumatic brain injury. As for supporting assets, Harris cites a branch of Tidewater Community College and the Sentara Princess Anne Hospital, which opened in 2011. Virginia Beach also has donated $1 million to fund the initiative. Really? Is this serious?

The city has many assets. Biotech is not one of them. The chances of building a high-end biomedical cluster are just about nil. For biomedical projects lower down the value-added scale, a run-of-the-mill office park will likely do. If Virginia Beach wants economic development, maybe it should persuade Governor Terry McAuliffe to stop subsidizing the relocation of Virginia Beach businesses to Norfolk. In the meantime, the city should focus on providing core government services of the best possible quality at the lowest possible cost. It’s that simple.