SolarCity is the new Erie Canal

In his 2012 State of the State address, New York Governor Andrew Cuomo announced the Buffalo Billion economic develop plan to revitalize and redevelop the once mighty and still proud industrial city of Buffalo, New York. The purpose of the billion-dollar bet was to turn around a long-suffering city that once was a bustling community. To accomplish this goal, the development plan outlined the following Call To Action:

“We will invest in high-growth areas and the key economic enablers— innovation/entrepreneurship, human capital, revitalization—required to help them succeed. We will meet the challenge to attract additional capital at a 5:1 ratio. To achieve this, we will need institutional capacity, civic will and investment capital. Fortunately, our region has all of this, and more.”

This sentiment is laudable and we at the Kauffman Foundation believe investment in the above areas should result in equitable economic growth. However, upon execution of the plan, the share of the billion that went to those proven economic catalysts was relatively small compared to the massive corporate largess that went to the solar power systems company, SolarCity.

Double down

Buffalo Billion invested $750 million ($350 million from Buffalo Billion, $150 million in Buffalo Billion tax credits, and $250 million from other state funding) to develop the 88-acre high-tech manufacturing facility that will house SolarCity in South Buffalo. Tying this much money to the success of one firm or one industry means that this company must succeed, and continue to succeed, for a long time in order for the investment to realize a return. Buffalo wants to be known as the solar city in the snowy north and that might be the problem.

Buffalo’s growth and prominence in industry through the second half of the 19th century and the first half of the 20th century was beholden to geographic luck and almost totally reliant on the Erie Canal. When the St. Lawrence Seaway opened in 1957, the Erie Canal became obsolete and so too did Buffalo’s single-most important advantage. What followed in Buffalo was unfortunately predictable as it happened in many other cities—decline, white flight, race riots and stagnation. Even the Buffalo Billion Investment Development Plan states:

“Economists attribute much of [Buffalo’s] decline in the region’s performance to the loss of manufacturing firms and jobs. More than 78,000 jobs have been lost since 1980 and employment grew at less than a quarter of the national rate (9.5% vs. 43%).”

The New Erie Canal

New York has elected to make a big bet to pull Buffalo out of the current trajectory, but the bet should be hedged across a number of options—most of which will fail and a few will succeed. Instead, Buffalo has bet big on one firm in one industry. SolarCity is the new Erie Canal.

I have confidence in Elon Musk’s ability to produce incredibly successful firms—the serial entrepreneur deserves the benefit of the doubt. I even believe that Buffalo will enjoy an immediate economic shot in the arm due directly from the sheer size of this investment. But despite the McKinsey & Company’s rosy prediction of the solar energy market, the unforeseen will occur. It is inevitable that either the solar market or SolarCity will experience a shock. Case in point, mired in a federal corruption investigation, state officials postponed approval of nearly $500 million for the project and in the meantime, SolarCity has watched its stock price “plunge over the past year.” Is Buffalo prepared for that moment or are they doomed to repeat the same cycle of decline due to over dependence on one economic asset?

Now, my intent is not to bash the Buffalo Billion. I personally love bold initiatives, and to be fair, the Buffalo Billion development plan funds innovation, workforce development and human capital to the tune of a little less than $100 million. The problem is not the investments made, but the ratio in which they were made. Entrepreneurship received merely $1 million for a pitch competition. This severely underfunds the very function that will enable Buffalo to survive the inevitable decline of SolarCity. It is entrepreneurship and human capital that affords a community to respond and pivot when faced with economic crises. Vibrant entrepreneurial ecosystems like Silicon Valley and Austin, Texas were born after defense contracts dried up and the community had to adapt to a new reality.

Buffalo should intentionally promote start up creation, loosen regulations that repress knowledge spillovers and labor fluidity, and, broadly speaking, it should take this opportunity to promote a vibrant entrepreneurial ecosystem, an effort that requires far less money and far more leg work. When New York looks to replicate the Buffalo Billion in other communities—perhaps the Rochester Revival—make a big bet, but bet on entrepreneurship as a whole, not a single entrepreneurial firm.

1Buffalo Billion Investment Development Plan
2McKinsey was a consultant on the development plan for the Buffalo Billion.
3A Tangle of Interests Behind Cuomo’s Buffalo 1 Billion Boon for Buffalo 


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