An interesting (if somewhat tempestuous) discussion under way at BFD, one that is revealing–and, at the same time, helping to address–some of the misconceptions about venture capital and economic development.

Whille the two are not the same, venture capital and economic development share several features. Both have as their ultimate goal the creation of high-value companies in high-growth sectors (venture capitalists through direct investment, economic development groups through creating an environment and culture that supports entrpreneurial risk-taking and the risk capital it requires).

Another similarity is that neither can be judged by short-term performance. With risk comes failure as well as success. In fact, a feature both venture capital and economic development share with design is the paradox of success through failure. Since no one can know in advance what new industry or product will take hold in the market, those who work to build an entrepreneurial culture have to build failure into their models. Failing early (to minimize the cost) and often (to maximize the opportunities) is an integral part of the process for getting to success–the real risk to an economy comes in not taking appropriate risks as the markets change.

For a fascinating glimpse at the role failure plays in the making of a successful entrepreneur, read this interview with Virgin’s Richard Branson. Note in particular Mr. Branson’s change of heart about global warming and interest in alternative fuels…something he shares with many engaged in economic development in Northeast Ohio, including Ronn Richard. Never was the art of the long view more in evidence.

I missed the article but in the letters section of the Financial Times recently were two references to the curious notion westerners have that the future is something “ahead” of us and the past something “behind.” In China, apparently, the future is behind you, the past in front.

Think about it for a minute the next time you’re standing line for your morning cup of coffee: “as you reach the front, everyone in front of you has disappeared into the past; everyone behind you has yet to arrive. Behind you, therefore, lies the future.”

As I finished reading this I looked up from my paper at my daughter, who surely is “behind” me and just as surely is the future…

What an incredibly powerful way for us to think about the future of the region. Our actions today will pave the way for the future behind us.

On the heels of reports that California was forced to ask businesses to throttle back their energy use the last few days in order to avoid a blackout (California still saw its usage reach the highest peaks ever, but narrowly avoided a meltdown), today’s Financial Times features an article (available only to subscribers) that states “political shifts suggest alternative source of power are here to stay.”

Three years ago, fluctuations in the Midwest Grid led to one of the largest blackouts in history, with the failure traced back to circuits here in Northeast Ohio. While the debate still rages on alternative fuels and their ultimate sustainability in the face of cheap (but not yet clean) coal and a potential collapse of oil prices similar to the one that followed the huge price spikes of the mid-70’s, there is little debate about the poor health of our nation’s electricity grid.

In the Northwest US, groups like Climate Solutions have come up with proposals for developing and deploying “smart grids” that can serve as launch pads for “smart energy companies to build their global marketplace leadership and generate new jobs in the region.” You can find a copy of their report here.

Utilities in the Northwest have been slow to pick up on the smart grid movement, however, creating a potential opportunity for Midwest utilities to pick up the slack (the bulk of the east coast’s power comes from plants or flows through the grid in the Midwest). But the present technologies are antiquated and not optimized for use or transmission patters of today’s economy. “Information technology is beginning to infuse itself throughout the power grid. This represents the most profound electrical power revolution in a century.”

Northeast Ohio already plays a pivotal role in the creation and transmission of electrical energy across the country. There are deep pockets of tacit knowledge about legacy systems in the region, something that will be an essential component of any transformation to digital energy management.

Transfer of the digital technologies required for a new “smart” grid is, if not completely frictionless, at least comparatively easy relative to other transfers of technologies. As part of an overall advanced energy strategy, bringing these new technologies into the region and commercializing them here truly could kill two birds with one stone—improve the quality and lower the cost of electrical transmission through the region while at the same time creating high-value jobs “ensuring a two-way flow of electricity and information between the power plant and the appliance, and all points in between.”

For more on developments in Northeast Ohio’s Advanced Energy Strategy, go to the Energy section of GreenCityBlueLake.

The slow pace of fast change is hard on many people, and even harder for others to understand. Why, they wonder, when radical, disruptive change occurs in the economy, can’t we move more quickly and do more to take advantage of the promised wealth these changes are supposed to bring? Why can’t we know today—right now—what the future will be and what we need to do to see the fruits of it here? Why do these supposedly radical shifts take so damn long to pay off?

In response I’ll fall back on Robert Atkinson again, who has so brilliantly explored these issues in his book, The Past and Future of America’s Economy.

In an earlier post I referred to Atkinson’s discussion of long (50 year) economic cycles centered around different technology systems. How work gets done changes with each new system, but because these cycles don’t neatly mesh at their peaks the transition from one way of organizing work to the next is never smooth. Productivity growth—and even more importantly at the individual level, per capita income—suffer as a result.

As Atkinson points out, “The successful implementation of a new technology system and the unleashing of powerful entrepreneurial and competitive forces needed to bring about and sustain a revival of productivity growth is anything but automatic. Because it is seen as a threat to well-established businesses, institutions, regions, and even society as a whole, each new economy calls forth powerful and intense forces in its opposition. Enemies of growth and change are capable of not only significantly delaying transformation, but of structuring it so it attains only a portion of its potential.”

Examples would be the way in which the music industry fought so long and so hard against online music; the challenges the internet present to traditional phone companies and the ways in which they have responded; and, similarly, the threat print newspapers feel from online news services and the awkward models print publishers of all kinds have crafted to try to keep their old-line businesses afloat at the expense of new online opportunities.

Atkinson continues, “Throughout history, opposition, not only to technological change but to the broader social, political, and organizational transformations that accompany it, has been a recurring pattern. Some want nothing more than to protect vested economic interests threatened with ‘creative destruction’. Others, like today’s opponents of biotechnology, view a particular feature of the new technology system as abhorrent. Others simply oppose change and progress, preferring instead to remain nestled comfortably in established and well-trodden patterns of life.”

Organizations like NorTech, BioEnterprise, JumpStart, TeamNEO and the many, many others committed to the economic revitalization of Northeast Ohio try to smooth the transition between technology systems by fighting this resistance and encouraging acceptance of the changes the new economy demands. But we can’t snap our fingers and make things “right” over night. “The infamous Luddites who smashed automatic looms at the emergence of the mercantile/craft economy in the 1820’s in England are the most notorious enemies of the new,” says Atkinson, but they are hardly unique. “Economic transformations in the United States have been slowed, but not stopped by opposition. One reason is that the advantages of the new have far outweighed disadvantages of the past….Moreover, America has consistently embraced innovation. That is perhaps the major reason why the United States has led the past three economic transformations.”

And that is why NorTech has placed such an emphasis on innovation, and on aligning and leveraging the technology assets in the region to build a globally competitive economy in Northeast Ohio—one that can adapt to the emerging, yet not fully formed, new technology system that will drive productivity and change the way we organize and do our work.

The new economy is information-based. Its platform is the digital technology system. That is why NorTech puts the emphasis it does on supporting work in information and communications technologies, electronics, nanotechnology, advanced materials that support an information-based economy such as LCDs, and new information-based biotech, medical, and advanced energy platforms. It’s also why we put so much effort into reforming our educational structures and systems. But none of this work will be finished tomorrow, or even the day after tomorrow.

All we need to do is look back on our heritage with steel and see, as Atkinson does, that “[t]he enabling revolution of the steel age, the Bessemer steel process was in place by the 1870s and took 40 years for the technology to permeate the industry. The fundamental component of the digital revolution—the PC—has been available for only 20 years.”

It’s the next 20 that will be the most interesting, and the most fruitful—provided that we stop fighting change (and those who are working for change) and embrace it instead.