Is St. Louis the Most Innovative City in America?

By Ryan Santacrose
July 15, 2013
General Foundation

A bottom-up approach, focused on startups and entrepreneurship, could be the key to economic growth in cities.

This idea, notes Ben Casselman in a recent Wall Street Journal article, is driving fresh economic development efforts in St. Louis. A group of local business and government leaders recently announced a new public-private partnership to raise $100 million over the next five years to be invested in local startups. The seed fund will play a key role in the area’s attempts to revive its economy through entrepreneurship and build “the next generation of businesses from the ground up.” St. Louis Mayor Francis Slay even went as far as to call the announcement of the fund a “pivotal moment in our history.” 

Marked by its iconic arch, the “Gateway to the West” was once known for a risk-taking and entrepreneurial spirit. It was a city that sponsored Charles Lindbergh’s historic flight across the Atlantic and served as the launching point for the expedition of Lewis and Clark. The city also saw local businesses, such as Anheuser-Busch, develop into major global firms.

However, the economy grew to rely heavily on the brewing company and other large corporations, including Trans World Airlines and aerospace giant McDonnell Douglas, as essential sources of productivity and vitality. Concurrent with the rise of big business in the metro area, the entrepreneurial spirit of St. Louis underwent a good degree of change. In the past two decades, many of these large companies have been sold to out-of-towners, leaving scars on an economy that had been known for these global powerhouses. McDonnell Douglas was sold to Boeing, Trans World Airlines to American Airlines. In 2008, the sale of Anheuser-Busch, its most iconic brand, perhaps signaled the end of an era of big business. 

Faced with an economic identity crisis, St. Louis has zeroed in on startups as a means to remake itself and drive growth. This focus on small business as an engine of growth has been supported by some noted economic research.  Harvard economist Edward Glaeser, who has done extensive research on metropolitan economies and entrepreneurial activity, found that areas with “High levels of entrepreneurship are closely correlated with regional economic growth,” and that an abundance of startups translates to faster income and employment growth. In a decades-long study, Glaeser and other economists gathered data showing that “The one-fifth of American counties with the smallest establishments in 1977 saw employment grow three times faster by 2007 than the one-fifth of counties with the largest establishments.” Furthermore, a “20 percent increase in a metropolitan area’s average establishment size in 1982 correlated with 12 percent less job growth over the next two decades.” 

Glaeser’s research has led him to conclude that investing in small businesses and startups is better policy for a metro area than a focus on attracting large firms through incentives such as tax breaks. This bodes well for St. Louis and its ongoing policy reorientation. 

If St. Louis is truly on track for the “entrepreneurial boom” that Casselman says it is, there is certainly still a long ways to go before it will ever be compared to the likes of Silicon Valley. However, St. Louis has already begun making progress towards building itself as a startup hub, particularly a tech hub. Efforts by groups such as the IT Entrepreneur Network   and Innovate St. Louis have produced notable success.  IT salaries are up 13% and tech job openings grew 25% over the past year, making St. Louis the fastest growing city in the U.S. for technology jobs.

 

Steve Case, co-founder of AOL and founder of Startup America, notes that ten years ago many of these tech startups in St. Louis and other cities would have felt Silicon Valley and Boston were the only places that would help them get off the ground. Things have changed since then.  Nowadays, due to an increasing availability of knowledge, tools, and most importantly, capital, entrepreneurs don’t have to leave. The emergence of startup friendly environments that present alternatives to Silicon Valley is what Case dubs “the rise of the rest.”

St. Louis certainly hopes to be a part this “rise” and play a role in redefining what entrepreneurs view as startup hubs. The $100 million seed fund mentioned earlier is a big step in that direction. 

Also crucial to the effort in St. Louis is a focus not only on growth, but on sustainability as well. The new program aims to provide enough capital to get started, but also to allow the companies to stay in St. Louis as they develop.  A spokeswoman for the St. Louis County Economic Council, a supporter of the fund, noted that “the idea is to grow the resources here to keep the companies here.”

If business and government leaders can accomplish this and provide a fertile, sustainable environment for new companies, St. Louis could rebrand itself and have a very bright economic future.  Look out for St. Louis in years to come as an emerging startup hub on the national and maybe even global level.