Rebuilding Buckeye Business

While the nation endures its second year of recession, residents in much of Ohio might be asking themselves one question: When was the last economic upturn?

Ohio lost more than 350,000 jobs from 2000 to 2008. Only Michigan shed more jobs over that period. And Ohio is the only state to have two locations — Cleveland and Cincinnati — on the U.S. Census Bureau’s list of the 10 most-impoverished major American cities.

Yet the state’s long-running experience with economic decline — and the aggressive approaches taken by philanthropic leaders here over the past five years to reverse that trend — has made Ohio a leader in defining how grant makers can revive a regional economy.

Some 60 grant makers and donors, including the Cleveland Foundation and the Akron Community Foundation, have contributed more than $60-million to the Fund for Our Economic Future, an organization that examines the workings and weaknesses of northeast Ohio’s economy and develops ways to bolster its competitiveness.

Since its founding in 2004, the group has assisted more than 70 companies that have attracted more than $805-million in venture capital.

While the philanthropic collaboration largely measures its success in the number of jobs created and the amount of follow-up investment brought to the region, it has another gauge as well: a much-improved ranking on Entrepreneur magazine’s “Hot Cities for Entrepreneurs” list.

The list, compiled with the National Policy Research Council, a Washington think tank, ranks American metropolitan areas based on small-business development and growth.

From 1990 to 2002, the Cleveland-Akron metropolitan area was often ranked No. 61 out of 61 cities; it never appeared higher than 57.

In 2006, the most recent year the Hot Cities list was compiled, however, the region captured the No. 23 slot.

‘Market Failure’

Like other regions dominated by industries that are stagnant or contracting, northeast Ohio’s economy has suffered as the steel and auto industries and other heavy manufacturers there have seen declines.

“For most of the country, the recession that began in 2001 was very short,” says George Zeller, an economic research analyst for Cuyahoga County, which includes Cleveland. “Here in Ohio, we never really recovered. The downturn has been continuous.”

The obvious solution has been to seek out industries based on newer technologies that have greater potential for growth, says Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University, in Cleveland. “The problem is that that’s often really, really difficult to do,” he says.

One of the biggest obstacles to making the transition has been the region’s lack of investment capital for new companies, says Mr. Shane, who describes the situation as a classic example of market failure.

Entrepreneurs, he says, have been reluctant to start businesses in the area because they thought they could not find the investment they needed. Potential investors, on the other hand, were not pooling their money to invest in new projects because they didn’t think there were any opportunities.

The only way to break the impasse, says Mr. Shane, was to start a group, like the Fund for Our Economic Future, to set up a system to nurture and provide money for new companies.

Foundations were in a better position than local governments to step in because they were able to look at the region as a whole, rather than just one municipality, says Mr. Shane.

“There’s no government for northeast Ohio,” he says. “Regions are economic entities, and they’re not political entities. That’s a mismatch that makes it really hard to get resources into the region.”

The Fund for Our Economic Future began as a series of informal meetings among leaders at a handful of regional foundations concerned about the area’s sliding economy.

“Somewhere along the way the idea came up to pool money for the issue,” says David Abbott, president of the Gund Foundation, in Cleveland, and chairman of the collaborative. “This could send a powerful message to the larger community, make it easier for nonprofits to get access to grants, and build collaboration among the funders who were going to share the process of due diligence.”

Regional Footprint

To determine the fund’s boundaries, a team of economists was hired to study how the overall economy functioned, examining such things as the flow of goods and services and local commuting patterns. Another important consideration was to have a critical mass of research institutions, medical centers, and universities within the defined geographic area that could serve as sources of new concepts and technologies with the potential to be commercialized into new businesses.

“The regional footprint of the effort is a big departure for us,” says Christine Amer Mayer, chief operating officer at the GAR Foundation, in Akron, which has given more than $3-million to the fund. “A lot of participating foundations, GAR included, have historically focused on the narrow geography of where they’re based or were founded. This effort considers how our economy operates, which is much broader.”

At the GAR Foundation, as with other grant makers in the fund, economic development was not previously a big priority.

“We did a little bit here and there,” Ms. Mayer says, noting that the foundation traditionally supported arts, education, and social services. However, officials began to see that job losses were causing problems for those causes.

“With the economic strains on our community, we are seeing more and more ‘asks’ in the health and social-services area, and we viewed the fund as a really high-impact, systemic way to address some of the economic factors that drive the demand in other areas,” Ms. Mayer says.

Each organization that gives a minimum of $100,000 annually to the fund gets one vote on how the pool of money is spent.

To date, the fund has:

• Awarded more than $15-million to two Cleveland charities — JumpStart and BioEnterprise — that work to attract and support high-tech businesses, sometimes by direct investment in entrepreneurial start-ups. At least 1,500 new, high-paying jobs for the region can be traced to their efforts, along with as much as a billion dollars in new private investment in fledgling local firms.

• Organized a series of public meetings attended by more than 20,000 Ohioans to discuss the region’s sagging economy. Called “Voices and Choices,” the meetings developed the Advance Northeast Ohio economic-action plan, a blueprint for the region. Now some 80 government, education, and civic groups have joined the fund’s philanthropic members in support of the plan.

• Spent at least $600,000 on research, including the annual Northeast Ohio Dashboard of Economic Indicators reports, which track the region’s economy and compares it to more than 100 other metropolitan areas.

• Commissioned a $100,000 study on the costs associated with the region’s fragmented and duplicative government entities that led the Northeast Ohio Mayors and City Managers Association to discuss revenue sharing and other efficiency reforms. To further spur cost-saving government collaboration, the fund’s new EfficientGovNow program is essentially a contest that will award up to $300,000 for as many as three government-collaboration proposals. The public will use the Internet to vote on the best three proposals this summer.

Since its start, the fund’s leaders have provided advice to nonprofit officials in other parts of the country, including northern Indiana and southeast Michigan, on how to spread the idea as a way to expand high-paying jobs in a given geographic area.

The fund’s effort to persuade grant makers (including some new to supporting economic development) to work together, its emphasis on supporting entrepreneurs and increasing private investment in new companies, and its focus on a region rather than a single city or county are key to its strength, participants say.

The New Economy Initiative for Southeast Michigan — which started two years ago and is based on Ohio’s approach — has raised $100-million from 10 national and local foundations to spur economic growth in seven counties that make up the Detroit metropolitan area.

‘Courage’ Required

As the national recession has continued, the backers of the Ohio effort have vowed to stay the course.

Though many foundations are facing shrinking endowments and rising calls to support social-service needs, none of the grant makers involved in the collaboration have opted out.

“Amid a pretty intense cyclical downturn, you have to have the courage to see through to the future,” says Paula Ellis, vice president for strategic initiatives at the John S. and James L. Knight Foundation, in Miami, which has given $2-million to Ohio’s Fund for Our Economic Future and $10million to the New Economy Initiative in Michigan.

“This is very painful now, but we need a long-term, systemic view, which is what these two economic efforts are about,” says Ms. Ellis. “To address these issues at any type of scale, you need the money and time and the talent of a committed partnership.”

The New Economy Initiative plans to have organizations similar to JumpStart and BioEnterprise operating in Michigan within a year, says John Austin, the group’s executive director. The national economic downturn makes his group’s work all the more urgent.

“A lot of people are losing their jobs, particularly in the auto-supply food chain,” Mr. Austin says. “If there’s any sort of upside, it is that it makes it a little easier for people to both understand and realize that the economic base needs to change in Southeast Michigan.”

“Our fundamental working premise is that it’s all about the economy and always has been,” Mr. Austin adds. “The communities that have the richest arts and cultural life are also places that are more dynamic in terms of economic attractiveness. The funding community must shed any presumptions that all of these things are separate.”

Nicole Wallace contributed to this article.