Dr. Stephen Fuller is speaking at the Potomac Officer’s Club‘s May 14 Post-Sequestration Summit as one of a group of premier thought leaders from academia, government and industry on the direction of the government contracting industry in the upcoming period of flat to down budgets.
In anticipation of the event, he shared some thoughts with Executive Mosaic, parent company of the POC and publisher of ExecutiveBiz and GovCon Wire, on how the mix of federal spending and private sector activity has and will continue to shape the Washington regional economy.
In this segment, he goes into more depth about the regional economy’s fundamental characteristics, its medium-to-longer term driving forces and how businesses and government are working to spur growth.
Governments and Contractors Plan Ahead
This shock that we've gone through, which probably is bigger psychologically than actually, has forced local governments to think about economic development differently.
It has forced businesses to think about their futures sooner, and be more aggressive and strategic about repositioning their service, consumer and customer bases to reflect future opportunities.
That's maybe put us out in front of other places that are still looking backwards.
Federal contractors have been repositioning their workforce and their business lines to focus on private sector orientations in the DC and international markets, so they have not had a proportional job loss to the decline in federal contracting.
This adaptability of our federal contracting workforce is probably epitomized by what SAIC is doing by breaking itself into two companies. Other firms are also doing this and maybe laying off some workers, but hiring others to make sure they have the human resource base they need for the future.
Roots of An International Business Hub
Fairfax County has done an excellent job of attracting foreign companies. It's been one of their targets to diversify the economy and it is now home to more than 300, according to the Economic Development Authority.
It's easy to start doing business internationally by being in Washington, both for international companies and for domestic companies.
Dulles Airport and the services it provides to other world capitals and to other markets around the world is going to be increasingly important. The region is going to be a global business center and Dulles Airport is going to be critical to achieving that.
The pharmaceutical sector and biotech has international scope. This is an area that will grow dramatically.
Just as London and Tokyo have a very strong business bases, as well as the national central government, Washington is going to tend towards that sort of model over the next 50 years. It's going to take a while, and New York will siphon some of that business base off, but that's the direction we're headed in.
That connectivity and travel and information flow in the foreseeable future is going to make us a big place where foreign companies will have to be and national companies as well.
DC as Benchmarked Against Other Metro Areas
I've benchmarked the Washington area against other major metropolitan areas that are performing strongly, such as Atlanta, Dallas, Houston, New York, Los Angeles, Chicago, because they are bigger than we are.
We have 14 business subsectors that are the source of growth in all of these areas and we're performing best in half of them.
But, we are underperforming in the other half, so we don't have the diversification that other major metropolitan areas have.
Our tradeoff is we have the federal government, which pumped $165 billion into the economy last year. Thirty-eight percent of our economy comes from taxpayers and federal spending that doesn't come from here. It's a big export sector and nobody has that dominance or the wage structure that comes with it.
But, there are some downsides to that too.
Room to Grow
We've pushed out some of the business space that we need to rebuild or build for the first time here to give us a better transactional framework that you could find in a city like Chicago.
We don't have the distribution center that Chicago has, but we could. There's no reason we can't do more distribution through airfreight. We totally underutilize the airfreight capacity of Dulles and our rail system. Not that rail is our future, but it is an opportunity.
We have good medical services here, but we don't have the teaching hospitals here to the extent you can find in Boston. We have great educational facilities here, but they are not of the quality of the Boston region, which is one of their advantages.
We're not going to be a manufacturing center and that isn't an enormous growth area. DC certainly won't be a petrochemical center that Houston is, but they have one of the largest health medical centers in the country, much bigger than we have here.
The Washington region needs to diversify its economy and our peer metropolitan areas offer us some direction in how to accomplish this.
However, the key is to build on our strengths and not to try building an economy that mirrors others but rather recognizes our federal base and extends it into the private sector resulting in the emergence of a global business center wrapped around the world’s governmental focal point.
The Washington area economy will be different than any other in the US in this regard and will lead the nation’s growth as it becomes increasingly tied to ideas and knowledge. This is what we are good at, now we need to learn how to sell these services worldwide.