Episode 49. May 20, 2020 CLP Topic Category: US Economic Growth Policy The U. S. Covid Economic Recovery Plan.

Our podcast today begins with an alternative to the conventional political view that the U. S. economy will “bounce back” to pre-lockdown levels.
We tend to abstract from the conventional economic wisdom that “bouncing back” to the economy that existed prior to March 17, 2020 is a great idea.
The economic structure in America was already deeply flawed and damaged from 20 years of economic integration with the rest of the world and particularly China. (Vass, Laurie Thomas, U.S. National COVID Economic Collapse and the Collapse of the U.S. Dollar. (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3575761).
The rate of private capital investment had already begun to decline in the last two quarters of 2019, primarily due to the structural weaknesses in the economy that limited capital investment opportunities in small, high tech ventures.
Nondurable goods manufacturing decreased 3.1 percent in the 4th quarter, primarily reflecting a decrease in food and beverage and tobacco products manufacturing.
Durable goods manufacturing decreased 2.4 percent, which was more than accounted for by a decrease in motor vehicles, bodies and trailers, and parts manufacturing.

The last two quarters of 2019 economic performance would not represent the kind of economy that would be desirable to “bounce back” to, and while we do not dwell on the logic or reality of the arguments supporting the “bounce back” view, we disclose our ideological predisposition that the entire notion of “bouncing back” is wildly naïve and Pollyanna optimistic.

We argue that the 70% of the U. S. economic structure that was locked down resembles the shambles of the German economy after May 8, 1945.
Part of the German economy that was connected to large global corporations was still functioning, but the domestic economic structure in Germany had been reduced to rubble.
The full extent of the U. S. economic damage has not been experienced yet, because the economic damage to the commercial rental market and the mortgage loan market have not yet been reflected in the data on the number of citizens who no longer have an income to pay rent or mortgages.
We argue that the domestic spending part of the U. S. GDP has been reduced to rubble by the covid lockdowns, but that 30% of the corporate crony capitalist economy that is connected to the global economy is still functioning.
Something like the Marshall Plan is required for the U. S. economy, to repair the economic damage caused by the lockdowns. The goal of the covid economic recovery plan is to build a free enterprise, new venture creation, entrepreneurial economy in each metro region that operates independent of the global crony corporate capitalist system.
One mission of the Marshall Plan was to prevent the spread of Communism in Europe.
We argue that the contemporary U. S. covid recovery plan must also prevent the spread of Chinese communism, which entails a policy response to limiting the damage caused by the promotion of the China trade deals by crony corporate capitalism, such as the members of the Business Roundtable and the U. S. Chamber of Commerce.
The political power of global corporate crony capitalism is responsible for implementing the trade deals with China, which weakened the industrial diversity of the U. S. domestic economy, leading to a bifurcation between a global corporate part, and a domestic consumer spending services sector part.
As a result of the bifurcation, the domestic services sector accounted for 70% of all GDP, and 80% of total civilian employment. The economic effect of the lock down was worsened because of the lack of economic diversification in the U. S. economic structure.
The economic recovery plan aims to restore a balance in the GDP between domestic investment in manufacturing and consumer domestic spending. Private domestic annual investment in manufacturing should be increased from around 12% of GDP to about 25%, as a result of this plan.

Components of gdp

Total private employment in the services sector should drop from around 80% to around 60%, or to about 50 million workers.
Total manufacturing employment in both direct production and indirect supply chains should increase from around 12 million workers to around 20 million workers, or to around 16% of total private employment.

TABLE B 29 Employees on non ag

We argue that the U. S. covid economic recovery plan has the following policy goals:
• Target private sector capital investment in the 280 metro regions with a population over 150,000, the minimum size for self-renewing, self-generating entrepreneurial economic growth.
• Target private sector capital investment to new product technology commercialization and new venture creation, within those 280 regions.
• Integrate the current Trump economic opportunity zones policy into an advanced technology cluster strategy in each metro region, so that technology firms that like to located close to each other can trade with each other and share tacit knowledge.
• Integrate the existing Trump advanced skill training apprenticeship program into the advanced technology cluster strategy so that future new ventures, in each metro region, have a consistent supply of highly trained technology workers.
• Provide each region’s private commercial real estate consulting firms with new econometric models developed by the Bureau of Economic Analysis to order to target capital investment to the development of regional industrial value chains and inter-industry supply chains that service the new technology clusters.
• Modify the existing SEC crowdfunding rules for raising private capital by broadening the scope of the existing Reg D Rule 506, and creating new forms of regional closed end funds that target capital to the region’s new and existing firms in the emerging technology clusters.
• Implement an explicit system of regional tacit technology knowledge creation and diffusion using blockchain technology to share regional technological knowledge among investors and entrepreneurs.
The great economic benefit of the U. S. covid economic recovery plan is that it is private-sector driven, allowing private financial and business interests in each region to select the policy approach best suited to that region.
By fixing the regional economies in 280 metro regions, the nation’s economic weakness of over-dependence on consumer spending, and inadequate business investment would be fixed. In addition, the rate of capital investment in small, high tech firms would increase, leading to a recovery in America’s technological superiority, that would not be easily stolen by the Chinese Communists.
In other words, we argue that this plan does not require much Federal government oversight, regulations, or increased federal taxes to implement.
The Federal government’s role is to collect the economic data, and organize the data into regional econometric models that can be used by citizens interested in promoting regional economic growth in each metro region.
This introduction is a part of a much longer podcast, available for free, for one week, at www.clpnewsnetwork.com.
The other sections of the longer podcast include:
Section 1. An Economic Policy Dispute With the Neo-classical Productivity School.
Section 2. Re-Envisioning Regional Economies as the Blockchain Knowledge Creation Engines of Economic Growth.
Section 3. Using BEA Models to Target Regional Capital Investment to High Growth Technology Clusters.
Section 4. Commercial Real Estate Regional Industrial Technology Parks and the Regional Geographic Scope of the Economic Recovery Plan.
Section 5. Regional Capital Market Infrastructure.
The entire historical archive of all CLP News Network podcasts are available for an annual subscription of $30.
I am Laurie Thomas Vass, and this is the copyrighted CLP podcast for May 20, 2020, and is titled, The U. S. Covid Economic Recovery Plan.
Section 1. An Economic Policy Dispute With the Neo-classical Productivity School About the Cause of Economic Growth.
We begin by describing the current economic weakness of the U. S. macro economic structure. Our term “economic structure” refers to the income and employment relationships among different sectors of the economy.
When the relationships are strong, changes in output in one sector stimulate increased income in other sectors, which is commonly called the multiplier effect.
When the economic structure is weak and unbalanced, the income multiplier effect is truncated, and does not transmit growth to other sectors.
For example, in the current weak U. S. economic structure, fiscal stimulus by the Treasury and the Fed do not have the intended economic effect of increasing aggregate economic demand because the multiplier effects, today, do not function to transmit growth.
The $2 trillion covid stimulus, based upon Keynsian economic policy, would have worked in the economic structure, prior to 1985. After the China trade deals, in 2001, the covid fiscal stimulus was wasted because the industrial supply chains that transmit growth had been moved to China.
The economic effect of the stimulus did not increase aggregate national demand.
Our economic policy, and theoretical dispute, is with general equilibrium economists who continue to argue in favor of fiscal stimulus, knowing that the U.S. economic structure is damaged by global trade and unrestrained immigration.
The entire theoretical paradigm of neo-classical equilibrium is flawed due to its over-reliance on productivity increases to create the conditions of economic growth.
Typical of this productivity school of thought is James Pethokoukis, of the American Enterprise Institute, one of the think tanks that promoted both open immigration and the trade agreements with China, in 1999.
In hs May 7, 2020, article about the covid lockdowns, Pethokoukis argues that more immigration will increase productivity, and thus, stimulate the U. S. economy.
He writes,
“Before the COVID-19 collapse, economists from Wall Street to Washington were forecasting the long-term U.S. growth rate at a bit below 2 percent… With fewer new workers, the ones we have will need to be more productive, at least if future growth is going to be anywhere near as strong as past growth…Immigrants account for nearly half of the U.S. workforce with a science or engineering doctorate. In Silicon Valley, 64 percent of engineers are foreign-born. Indeed, more than half of U.S. startup “unicorns” have at least one immigrant co-founder.”
The flaw in his analysis is that increased productivity does not improve economic growth when there is no aggregate economic demand in the economy.
As he knows from his analysis of Solow’s work in the 1950s, the only factor that increases economic growth is technology innovation, which creates new ventures, which create new future markets.
An important economic policy goal of the covid recovery plan is the creation of new future markets, created five years in the future, from capital investments in new ventures, today.
Productivity improvements increase efficiency of existing firms, in the 2 – 3 year current period, but do nothing to create new future markets, which is the only policy remedy to fix the U. S. economy.
The AEI’s advocacy of moving the American supply chains to China, in 1999, permanently damaged America’s initial factor endowment of individual ingenuity and innovation, and had the economic effect of damaging America’s comparative advantage by making the U. S. economy look just like Europe’s economy, a long-held goal of global corporatism.
The neo-classical productivity school acted as the scholarly cheerleaders for trade with China. Twenty years later, the citizens have no way to hold those organizations accountable for the damage they did to the economy because the crony capitalist lobbying system is not transparent.
When John Haltiwanger, et.al., was trying to find the sources of national economic growth, in 2017, he cited the role of small high growth innovative firms. (CARRA Working Paper, Growth Young Firms: Contribution to Job, Output and Productivity.)
He wrote,
“Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to startups and young firms that are small… In a typical year, startups account or about 10 percent of firms and more than 20 percent of firm level gross job creation…about 17 percent of continuing firms have net employment growth in excess of 25 percent accounting for close to 60 percent of gross job creation for continuing firms. Startups contribute disproportionately to employment and output growth.”
Haltiwanger noted that when he went looking for the most important part of the American small, high technology firms, he could not find them.
He explained,
“High tech sectors have greater high growth firm activity in terms of both output and employment. The latter is consistent with the view that employment gains from high growth firms in the tradable sectors have largely been off-shored during our sample period.”
In other words, the AEI advocacy of open borders and global trade with China, improved production efficiency for large global corporation, because they benefitted from the slave labor in China, but the trade deals succeeded in devastating the small high tech firms that are the most important factor of economic growth in America.
As Haltiwanger shows, those crucial small technology firms no longer exist to any great extent in the domestic economy because they moved to China, along with the interindustry supply chains.
Clayton Christensen, et.al., summarizes the theoretical flaws of the productivity school of thought in his recent article, The Third Answer: How Market-Creating Innovation Drives Economic Growth and Development. Christensen contrasts the productivity school with the innovation school of economic growth.
He writes,
“Two schools of thought have dominated the theory of economic growth over the past half-century. The first and predominant philosophy—associated with Paul Romer, holds that ideas drive economic growth.”
In contrast to the competing productivity theoretical paradigms on economic growth, Chistensen posits a third approach, the market-creating theory, which we use as the basis of our economic recovery plan for the U. S. economy.
Christensen writes,
“In the place of these two conjectured fundamental drivers of long-term economic growth we promote market-creating innovations…they create new markets. But these are not just any new markets; they are new markets that serve people for whom either no products existed or existing products were not accessible for a variety of reasons, including cost or a lack of the expertise required to use them.”
Christensen cites the new blockchain technology as a tool to help promote economic growth, and we extend and modify his idea to include regional blockchains that go from idea creation to private securities exchanges for transactions for private regional technology stocks.
Christensen writes,
“Blockchain is a public, decentralized, distributed digital ledger that is used to record electronic transactions. Each “block” in a Blockchain contains specific information that cannot be altered, due to the distributed nature of the technology. In a Blockchain-based economy, the market-creating innovation and the institution governing it are fundamentally intertwined.”
Our economic recovery plan uses the blockchain tool to target the capital investment in regional technology firms because those initial capital investments will re-create intermediate demand markets that were destroyed by global trade with China.
We rely on the research of Thomä and Zimmermann, to argue that the focus on small technology firms is the best strategy for creating regional economic growth. (Non-R&D, Interactive Learning and Economic Performance: Revisiting Innovation in Small and Medium Enterprises, (September 6, 2019). ifh Working Paper No. 17/2019. Available at SSRN: https://ssrn.com/abstract=3449094)
They write,
“The innovation strategies of smaller firms are often characterized by attributes that extend beyond R&D (see e.g. Baldwin and Gellatly 2003; de Jong and Marsili 2006). when SMEs closely interact with their customers and exploit certain advantages associated with a smaller firm size. According to classical theoretical literature on small firm innovation (see Rothwell and Zegveld 1982; Rothwell 1989; Noote-boom 1994), such advantages of non-R&D-performing SMEs are largely behavioural and closely related to informal interaction within and outside the firm.”
Their research on the economic benefits of small new venture creation suggests that small businesses contribute tacit knowledge to the technological innovation process in a distinct metro region, while at the same time, strengthening the income multipliers in that region.
Section 2. Re-Envisioning Regional Economies as the Blockchain Tacit Knowledge Creation Engine of Economic Growth.
Prior to the 2008 invention of the blockchain technology, an earlier version of regional innovation economics had been occurring, on a limited application, in several metro regions.
The earlier versions of regional innovation economics featured quarterly venture capital forums, sponsored by regional entrepreneurial groups, where technology companies seeking capital would make presentations to investors and the professional service providers who facilitated the capital investments.
The earliest regional innovation forums occurred along Route 128, in Boston, and in Silicon Valley, in California.
Later metro entrants to this model of regional economic growth included Littleton, Colorado, Austin, Texas, and the Research Triangle of North Carolina. (Vass, Laurie Thomas, Industrial Recruitment and the Path of North Carolina’s Economic Development to the Year 2000: A Public Discussion Paper for North Carolina’s Project 2000 – Advocating the Creation of the NC Council for Entrepreneurial Development (CED) (May 1, 1982). Available at SSRN: https://ssrn.com/abstract=1325810).
Regional crowdfunding, after 2012, supplemented the venture capital supply of capital in the capital market forums.
The first application of regional crowdfunding occurred much earlier in history, right after the Civil War. Local towns and counties in North Carolina raised capital to build their own local manufacturing plants. (Vass, Laurie Thomas, The Origins of Southern Equity Crowdfunding: The Rise of the Textile, Tobacco, and Furniture Industries in North Carolina after the Civil War (December 28, 2013). Available at SSRN: https://ssrn.com/abstract=2372595.)
This covid economic recovery strategy is partially based upon that earlier history of how North Carolina re-created its economy, after being reduced to rubble in the Civil War.
The innovation economic theory of technological innovation would predict that the regions with the greatest rate of tacit knowledge exchange would experience the highest rates of economic growth.
And, concomitantly, regions with very low rates of knowledge creation would be expected to experience the lowest rates of economic growth, which can endure for decades, until the dynamics of regional knowledge creation resume.
Local economic growth caused by technological commercialization occurs when technological knowledge diffusion occurs in close geographical proximity to a supply of local private capital that invests capital in the new ideas.
In the logical chronology of economic events, knowledge creation and diffusion occurs first, then capital investments, then market commercialization of new products.
Blockchain technology supplements the earlier in-person forums by providing an internet tool that facilitates tacit knowledge creation and knowledge diffusion among a community of parties interested in promoting regional technology innovation.
In other words, blockchain technology tends to formalize the knowledge creation process, but does not replace the essential in-person face-to-face forums of the older innovation model.
The older regional innovation strategy was defined by a chronological sequence of events, from deal mapping, to deal creation, to deal funding to deal exit. The older model was heavily dominated by venture capital firms, and was commonly called the VC model of innovation.
Regional economic developers and staff of the entrepreneurial associations had a number of economic and financial tools to assist them in managing and administering the regional quarterly forums.
Diagram 2 is a simplified model of the 4 steps in the older regional innovation model.
Diagram 2. Overview of the Covid Economic Recovery Small Business Deal Creation Pipeline™

Deal Mapping To Find Ideas To Convert Knowledge to Small Business Ventures and New Products Deal Creation To Bring   the New Ventures or Product Ideas to the Market Deal Funding To Find Capital To Fund The New Ideas Into Commercial Ventures Deal Exits to Reinvest the Capital Gain Profits From the First Generation of Ideas Into The Next Generation of Innovation


Diagram 3 shows the four chronological stages of this older model, with the addition of the function of the business social networks involved in the regional innovation model.
The right hand side of Diagram 3 describes the essential in-person networking events that will continue under the new blockchain model.

Diagram 3 Episode 49
The blockchain model tends to expand the number of potential entrepreneurs in a regional economy that could take part in the regional innovation strategy. In the older model, certain financial criteria and professional credentials tended to exclude non-wealthy citizens from the process, as a barrier to participation.
At the end of the old model, the influence of the venture capital firms to take an early profit exit limited the application of the model as a tool for regional economic development.
Many firms with promising potential for creating future economic markets were terminated by the venture capital firms because the internal financial projections of capital gain were not attractive to the VC firms.
The newer blockchain model can accommodate the creation and growth of small technology firms, all the way from deal mapping to creating a private regional stock exchange to facilitate exits among early investors.

Diagram 4 begins to explain the difference between the older VC model and the newer blockchain model.
The entrepreneurial association in each metro region manages and administers the regional innovation blockchain, and provides membership entry to the blockchain for computer-users who want to participate in the innovation strategy.
The regional entrepreneurial association continues to sponsor the quarterly capital investment forums for members of the blockchain computer network, so that users can meet each other in face-to-face events.

Diagram 4. Regional Blockchain Knowledge Creation Model.
Metro Regional Knowledge Creation Blockchain for Deal Mapping

Metro Regional Knowledge Creation Blockchain for Deal Mapping


Every computer on the regional computer

node can access the new knowledge and

add new blocks





Metro Regional Knowledge Diffusion for Deal Creation




Every computer on the node can access the history and add new blocks.


 Metro Regional Capital Market Deal Funding




Every computer on the node and access the history and make an anonymous investment transactions

Metro Regional Venture Performance Reporting







Select computers on the node can access venture data

Metro Regional Capital Market Deal Exit











Select computers on the node  can enter bid and ask prices for ventures and access all market data


Blockchain Deal Mapping.
The first block in the block chain is the organizing tool to bring this set of potential entrepreneurs together to collaborate on new venture ideas.
Because tacit knowledge is based upon personal human interaction, it tends occur in distinct geographical areas, leading to the creation of distinct regional technological knowledge. Vass, Laurie Thomas, Exploiting Knowledge: The Importance of Regional Allegiance and Territorial Loyalty in Implementing a Regional Small Business Innovation System (February 25, 2009). Private Capital Market Working Paper No. 09-01-01. Available at SSRN: https://ssrn.com/abstract=1349351.).
As Saviotti notes,
“…there is evidence from a number of studies to suggest that many of the important scientific ideas in the life of an innovation come from outside the innovating company, via these channels of professional scientific communication.” (Rod Coombs, Paolo Saviotti, Vivian Walsh, Economics and Technological Change, Totowa, NJ: Rowman and Littlefield. 987).
According to Rogers in Diffusion of Innovations, the,
“…communication channels, time and social structure are the key components in the diffusion process.” (E. M. Rogers, “Diffusion of Innovations,” cited in Rajeev K. Goel (Ed.),Economic Models ofTechnological Change: Theory and Application, Westport: Quorum Books, 1983).
The first block in the block chain facilitates communication among potential entrepreneurs who did not previously know each other. The communication in the first block supports and supplements the in-person, face-to-face networking events that currently occur in the entrepreneurial and angel capital forums.
Entrepreneurs come from the personnel ranks of existing production units. Entrepreneurs have been involved in a number of collaborative relationships with their peers about how things work, and how to make things work better.
The entrepreneurs are a part of a social-business network, whose participants communicate with each other to discuss and refine ideas.
Entrepreneurs leave the old production units to create new ventures, using the knowledge they gained about how things work, and with ideas about how to make the new venture more productive than the older units.
Ideas that gain community traction among participants in the first block are gated through to the second block for further processing into more definitive new venture ideas.
The technology innovation function is served by the network of blockchain computers by allowing digital information to be distributed but not copied.
The digital information contributed by any user in the blockchain is a time-stamped series of immutable records of contributions creating not just a unique record, but a unique record with a unique history, of the individual who made the contribution.
Falsifying a single record would mean falsifying the entire chain in millions of instances.
The contributions made by each user in the regional blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by multiple users in the region, the tacit technology creation and diffusion is accessible to anyone on the regional blockchain.
Each “block” in a blockchain contains specific information that cannot be altered, due to the distributed nature of the technology.
As a result, the blockchain technology has the potential to reduce uncertainty around ownership of new venture ideas and intellectual property rights and other property claims by providing verified records, and thereby strengthening private capital market institutions.
At the stage of raising private placement capital for a new venture, the likelihood of corruption, misunderstanding, and administrative errors is significantly reduced when a transparent, distributed, and immutable system is used to manage the transfer of assets from one party to another.
Tacit knowledge is created and diffused because each additional block of data builds upon the previous contribution. The user’s identity is logged and is permanent.
Every computer in the regional network receives a copy of each new contribution, and every user can comment and add to the prior contribution.
One of the barriers to communication in the older VC model regarding protection of intellectual property of technology ideas is reduced by the blockchain technology.
Blockchain users can copyright and protect their ideas because the blockchain creates a permanent record of the user’s identity, which follows them as the blockchain knowledge is diffused.
As the blockchain works its way down the time sequence of new venture creation, moving towards the sale and exchange of ownership units in the new ventures, buyers and sellers can meet each other online, in the regional private stock exchange and offer bid and buy quotes on new ventures.
Market data on all transactions is stored on the blockchain for easy access by all users. New ventures can continually update users on their financial progress, much like the current SEC reporting function of public firms.
Robert Merton wrote,
“For example, one seminal study suggests that if some investors have incomplete information and are not aware of all firms in the economy, risk sharing is incomplete and inefficient. Information that makes investors aware of the existence of these firms and enlarges the investor base leads to improved risk sharing and lower cost of capital. (Merton, Robert A. Simple Model of Capital Market Equilibrium with Incomplete Information, Journal of Finance 483 (1987).
Blockchain Deal Creation
The professional product development community calls the deal creation component of technology commercialization, the “fuzzy front end.”
The fuzzy front end is a very confusing time for most technology entrepreneurs, and the most recent data from the Panel Studies of Entrepreneurial Dynamics (PSED) indicates that up to 35% of all entrepreneurial ventures get stuck in the fuzzy front end for up to four years, trying to launch their venture.
Obviously, a great social benefit could be provided by economic developers in managing the deal flow pipeline if they would just rescue the poor entrepreneurs from wandering around for four years in the fuzzy front end.
Blockchain technology creates a coherent new venture business community that efficiently converts ideas into ventures that were ready to go to the capital market.
In blockchain deal creation, both new ventures and regional suppliers can use the blockchain to record the origins of materials and the price of supplies.
Any user could use that supplier data to confirm the build-out on new inter-industry intermediate demand in the regional economy. The data in the blockchain would serve to identify more new ventures that could be created to service and support the main new venture.
Users interested in regional economic development, in contrast to venture capital firms, could contribute ideas on gaps in the emerging regional supply chains, given an initial set of econometric projections of changes in the regional economic structure, caused by capital investment in new ventures.
In shifting to the deal creation blockchain, from the older model, professional advisors who give advice to companies on how to issue securities and raise capital would have explicit data on what new ventures would need their professional assistance. (Vass, Laurie Thomas, The Crowd Funding Business Bonanza for Lawyers, Accountants and Consultants: Professional Business Advisors about to Surf a Financial Tsunami of New Crowd Funding Business (April 11, 2013). Available at SSRN: https://ssrn.com/abstract=2248729.).
Tacit Knowledge vs. Codified Knowledge.
Codified knowledge is in the form of books, and manuals, or other documents, where the knowledge has been written down, or “codified.”
In contrast to tacit knowledge having a geographical component, codified knowledge is geographically ubiquitous. As soon as an article is published by a professor, it is immediately available any place in the world for all the other professors to read and criticize.

The codified knowledge is easier for large global firms to control, than tacit knowledge, because the elites can control who has access to the codified knowledge.
The exclusive reliance on codified knowledge, inside the global corporation, acts to limit the diffusion and commercial application of new technology, even if a boundary-spanner, or some other source of knowledge, happened to find its way into the firm.
Reliance on codified knowledge leads to regional economic “path dependence” because the application of codified knowledge constrains the choices of technology and the choices of people to imagine new venture opportunities.
Section 3. Using BEA Models to Target Regional Capital Investment to High Growth Technology Clusters.
The U. S. Covid Economic Recovery plan has five easy-to-understand premises.
First, the plan is based upon the premise that regional economic growth is caused by regional capital investments in technology firms.
The second premise is that successful commercialization of new technology products creates both direct future markets and new future technology clusters.
Third, new future markets create new indirect and induced flows of regional income and employment, that did not exist before the innovation investments had occurred.
Fourth, new flows of income and employment create a global competitive advantage for a region built on the unique factor endowments related to creating new products. Regional economies that do not continually invest in innovation will die economically. There is no such thing as economic equilibrium status quo in economic development.
Finally, the plan is based upon the premise that sustained regional economic growth is caused by the re-investment of capital gains (profits) from the first generation of successful product commercialization into subsequent rounds of innovation.
In order to implement the plan in each metro region, regional commercial real estate consulting firms will need to perform three essential tasks.
First, the firms must use a modified econometric model, created by the BEA, to predict the most likely path of technology innovation, given a range of possible capital investments in the existing set of industrial clusters in the region.
Second, the commercial real estate firms must identify the most likely geographical location for industrial parks for each type of technology industrial cluster, and combine that location search with the policy provisions of Trump’s economic opportunity zones to fund the creation of the industrial parks.
Third, the commercial real estate firms must incorporate on-site apprenticeship training facilities tailored to meet the skill requirements of the technology cluster in the industrial park. The classroom facilities supplement the on-the-job skill training in the new ventures located in each industrial park.
The BEA currently produces a national input-output model that would require modification to be used by the regional commercial real estate firms in 280 metro regions.
The BEA produces make and use input-output models for the entire national economy.
The make table is a matrix that describes the amount of each commodity made by each industry in a given year. Industries are placed in the rows and commodities in the columns.
The use table is a matrix that describes the amount of each commodity used by each industry in a given year. In the use table, commodities are placed in the rows and industries in the columns.
The BEA data offers users a comprehensive picture of the inner workings of the U.S. economy, showing structural production relationships among industries and commodities.
The BEA input-output data are updated each year and provide information on 71 industry categories. Detailed benchmark input-output statistics, produced roughly every five years, are further subdivided into 405 industries.
Parts of the national economic industrial structure occur in each metro region, but no region has a sample representation of all 405 industrial sectors.
The existing national BEA models would need to be modified, or “regionalized” for each of the 280 metro regions, so that the commercial real estate firms could manage and administer the projections from the models.
In addition to regionalizing the data, the BEA would be required to perform additional statistical modifications to the data to convert the data from the existing 405 industrial sectors into industrial technology clusters.
The data from the modified industrial cluster models would be used by the real estate firms to target the location of firms within a cluster who like to be co-located close to other firms in the industrial cluster.
The premise of the national covid economic recovery plan is that, if the firms in the regional technology clusters are buying and selling intermediate goods with each other, then they probably have sales staff, engineers and technicians that are talking to each other.
If they have a community of professionals talking to each other, they are creating and diffusing technological knowledge, specific to that metro regional economy.
The statistical modifications to the existing BEA make and use models were developed by Professor Edward Feser, affiliated then, with the University of North Carolina. (1997).
Feser’s modifications can be used by commercial real estate firms to target the location of industrial sectors in the industrial parks. (Vass, Laurie Thomas, Using Feser’s Input-Output Model of Technological Affinities to Target Innovation Investments to Regional Industrial Value Chains (December 1, 2008). Available at SSRN: https://ssrn.com/abstract=1309750.).
Feser’s modification added the step of factor analysis to the BEA national input output tables in the technical coefficients matrix, commonly called the A matrix.
The additional step of factor analysis allowed for the discovery of underlying technological affinities in manufacturing and production technology that exist between different industrial sectors.
Feser’s method results in the discovery of technological affinities that do not, on first glance, appear to be in obviously related industrial sectors.
When Feser’s additional modification of factor analysis is applied to the new A matrix, new sets of industrial clusters would be evident that shared knowledge, or technological affinities, that had not been obvious in the earlier, non-modified, A matrices.
As Feser explains,
“…it is not just the size of the district alone, but social, cultural, and political factors, including trust, business customs, social ties, and other institutional considerations…the clusters represent distinct technological groupings of sectors or product chains…Although the conduits of interdependence between firms extend well beyond supplier linkages, input-output flows provide the single best uniform means of identifying which firms and industries are most likely to interact through a myriad of interrelated formal and informal channels.
As Feser explains the significance of the BEA modifications for the targeting of commercial real estate firms,
“By grouping those firms that are most likely to interact with each other, both directly and indirectly, the clusters reveal relative specializations in the economy in terms of extended product chains (buyer-supplier, import replacement, and entrepreneurship based strategies) as well as technology deployment and cross firm networking initiatives.” (Feser, Edward, J., and Bergman, Ed., “National Industry Cluster Templates: A Framework For Applied Regional Analysis,” Regional Studies, (Vol. 34 #1), 2000. Feser, Edward, J., and Sweeney, Stuart, “A Test For the Coincident Economic and Spatial Clustering of Business Enterprises,” Journal of Geographical Systems, (2, 4), 2002.).
Interindustry supply chains.
Feser’s basic hypothesis is that co-located businesses that are in the same regional technology production chain, share similarities in intermediate input consumption, technology or worker skill mix and are related through other intermediary institutions or informal means.
The intermediate demand structure serves a double duty of describing both the production technology of the economy, and the institutional social class structure of market relationships.
Jakob Schmookler, in Invention and Economic Growth, (1966), explained the essential function of the intermediate supply chains. His insight was that innovations performed in one technological environment could affect technological innovations in other technological environments.
He stated that the technological innovations were “embodied” in intermediate goods purchased by the sector. The purchase of intermediate goods transmitted “knowledge” to industries purchasing their products.
F. M. Scherer, in Inter-industry Technology Flows and Productivity Growth, (1981), described an “interindustry technology flows” matrix along the lines suggested by Schmookler.
Scherer’s research on technology innovation provided empirical support for Schmookler’s thesis that “imported” or “embodied” R&D, transmitted through the interindustry supply chain, is an important determinant of productivity growth.
Feser’s modified regional interindustry matrix, as it changes over time, is a reflection of how new knowledge is created, diffused and, contingently, commercialized in the form of a new product, commercialized by new or existing firms in the region.
The blockchain technology, used in conjunction with Feser’s modified input-output models, allows the staff of firms that share some common financial or economic interest to communicate.
In many cases, the staff of the firms do not know of the potential relationships with other firms. The blockchain technology and the regional models are used to reveal these affinities, and the entrepreneurial quarterly forums are used to allow the staff to meet each other in face-to-face events.

Section 4. Commercial Real Estate Regional Industrial Technology Parks and the Co-location of New Technology Ventures.
Recent research by Xuan Tian, conducted at the Kelley School of Business, Indiana University (2009), suggests that most new ventures raised capital within 25 miles of the company.
While his research was more focused on the legal structure of the terms and conditions of capital investment, his findings are relevant to the work that commercial real estate firms in each metro region perform in locating technology cluster industrial parks.
What Tian found was that local investors tended to have greater loyalty and allegiance, with closer geographical proximity and that the legal structure of the offering tended to be “company-friendly,” the closer the company was located to the investor.
The national covid recovery plan posits a relationship between the loyalty and allegiance of local investors and the creation of tacit knowledge in a defined geographic region.
The act of building trust was one important reason why venture capitalists and angels placed such a big priority on face-to-face presentations.
In the older VC model, the venture capitalists would always say that the management integrity of the new venture was the most important factor in their decision to invest. What they meant was that the issue of trust in the integrity of management was important to the investors obtaining their reward in the future.
In other words, the trust exchange is a precursor condition that happens before the capital investment exchange. Nothing about the blockchain model has changed this part of human behavior in private capital market relationships between investors and companies.
In his recent discussion of regional innovation systems (RIS), Philip Cooke outlines the two starkly different interpretations of regional innovation systems. (Regional Innovation Systems, Asymmetric Knowledge and the Legacies of Learning, Draft 2007).
He notes in his review,
“Clearly, there are two kinds of regional innovation occurring in these examples. The first is geographically proximate, the second is functionally proximate.”On one side of the philosophical divide about interpreting the exploitation of knowledge are economists and politicians who embrace the benefits of an integrated world economy that features an alliance between multinational corporations (MNC) and metro regional governments.”
In Cooke’s functional interpretation of regional innovation, the potential new knowledge in a metro regional economy can be organized to feed directly into the multinational corporate global value chains.
Our language for this same concept is global corporate cronyism.
Cooke contrasted this “globally competitive” functional perspective, with the second perspective that he called the “market geographical perspective.”
In this second conception of regional innovation, small firms “co-locate” in a metro region and benefit from “knowledge spillovers obtained from interindustry regional value chain transactions.”
Cooke mentions the logical chronology of events related to exploitation of knowledge that ends up as commercial ventures. As he noted, the knowledge
“must pass iteratively through similar stages of production from ‘discovery’ through invention or realisation of the hitherto unrealised experimental form, to a testing process that establishes its reliability and validity, to a state where it has created demand, either market or social.”
Cooke explains that regions achieve economic growth when small firms commercialize that knowledge in the form of new products. The commercialization of knowledge requires several important ingredients, including technology industrial clusters with companies located in close proximity, business social networks that create and diffuse knowledge, and a mysterious condition called regional allegiance to small business development.

Pier Saviotti describes why the supply of entrepreneurs in a distinct economic region is so important to the process of technical change. (Technological Evolution, Variety and The Economy, 1996).
Saviotti writes,
“The knowledge of engineers, scientists, managers, technicians, etc., involved in the implementation of the technology becomes specialized around the process, technical and service characteristics used.”
In other words, within the existing social-business network of skilled individuals, there is a shared specialized knowledge about production processes and markets.
This specialization in knowledge creates networks of communication and power relationships which reinforce the allegiance to the status quo.
Each case of learning occurs within a network of social-business relationships, some of which occur on the floor of the production unit working with machines.
Saviotti notes that innovative firms,
“…tend to cluster in those (areas) that were already innovating countries…this specificity cannot be explained by factor endowments, but is more likely to be caused by specific institutional configurations, and by the cumulative, local and specific character of the knowledge that the institutions possess.
The accumulation of technological knowledge, and the pace of technical change, are contingent outcomes of the social and political institutional structure of a metro region.
Commercial real estate firms are the most knowledgeable enterprises in any metro region for understanding the social and political structure of their own region.
The 50-Mile Envelope of Trust.
In the case of re-envisioning regional economies as the blockchain tacit knowledge creation engine of economic growth, it is necessary to combin financial and economic factors with the 50-mile envelope of business trust.
Most of the communication between knowledge-bearers and venture capitalists also takes place in bars and on the golf course, usually located with 50 miles of where the knowledge-bearers work and commute every day.
The 50-mile envelope affects the most hidden and misunderstood component of the local capital marketplace that contributes to deals getting funded. Funding an uncertain technology innovation takes a large amount of faith and trust that an investment made today will pay out profits in the future.
The investor must trust the company to be remunerated in the future, and the company must trust the investor to fulfill the capital commitment to make an investment.
The moral value of trust in a capital market exchange requires face-to-face communication over an extended period of time allowing both parties to build up confidence and trust to do the deal both before and after the investment is made.
The 50-mile envelope for both trust and capital is related to tacit, or in-person, communications before and after a capital market exchange. Before the exchange, in the older model, the investors needed to “see” the entrepreneur in person to determine the “trustworthiness” of the CEO.
After the capital exchange, the investor needed to be able to easily drive to the company to observe and verify the ongoing trustworthiness of the investment.
Section 5. Regional Capital Market Infrastructure.
The regional capital market infrastructure, that funds regional technology innovation, functions in the same way that roads, bridges, and sewer lines functioned in the older industrial recruitment economic strategy.
Like that earlier infrastructure, metro regional economies which implement the new capital market infrastructure will gain an enduring competitive advantage over communities that do not have an adequate capital market infrastructure to fund technology innovation in small technology companies. (Vass, Laurie Thomas, Do Cities Still Matter? The Economic Strength of Cities and the Economic Failure of Globalism in Promoting Regional Technological Innovation and Economic Prosperity (April 20, 2013). Available at SSRN: https://ssrn.com/abstract=2254343.).
One important function that the entrepreneurial associaltion that manages and administers the blockchain network is doing the upfront work in organizing a regional closed end capital growth fund that targets new ventures, existing businesses, and the down stream merger and acquisition funding that keeps home grown companies at home when the bigger players come calling to recruit them. (Vass, Laurie Thomas, Creating the Private Capital Market Infrastructure for Sustainable Innovation Economics (October 2, 2008). Available at SSRN: https://ssrn.com/abstract=1277417.).
In other words, the new capital infrastructure for each region combines both direct investments by wealthy individuals, commonly called “lone wolves,” and a new form of SEC-regulated mutual fund that aggregates capital from many sources, and tends to reduce the investment risk of an individual investor.
The most important function of the new type of regional closed end funds is to re-invest the profit generated in the “exit” event of those earlier ventures serves, as the source of capital for later ventures.
The regional capital market infrastructure would resemble the functions of the defunct New York Private Placement Exchange (NYPPE) to provide a wide variety of liquidity solutions for interests in private funds, special purpose vehicles, trusts etc. (e.g. buyout, venture, funds of funds, distressed debt, leveraged loans, real estate, natural resources, hedge funds etc.), unregistered securities in private companies and their respective derivative instruments.
Deal Funding
During the time that a new venture or new product is moving towards the marketplace through the fuzzy front end, the firm or entrepreneur is trying to identify the best sources of capital investment to fund the idea.
In other words, in the division of labor involving blockchain innovation, the most important job of the regional entrepreneurial association is to implement a comprehensive regional capital market infrastructure that contains all of the components of the entire capital market. (Vass, Laurie Thomas, The Nexus of Financial and Political Interests between Crowd Funders and Regional Economic Development Professionals: The New-New Innovation Economics (July 8, 2013). Available at SSRN: https://ssrn.com/abstract=2291198.).
Deal Exits
It is the responsibility of the regional entrepreneurial association to create a platform a capital market infrastructure so that profits from one generation can stay in the regional economy and can be re-invested in the next generation of innovation. (Why Does Economic Growth Occur in Some Cities and Not Others? The Importance of Small Amounts of Capital for Small Businesses Innovation, The Private Capital Market, February 4, 2010).
The regional entrepreneurial association organizes and promotes a deal exit professional association of investment banking firms to engage in mergers and acquisitions of local new ventures.
As noted above, the blockchain innovation model has a different end goal, and different public mission of economic growth than the older venture capital model. (Why Exits Matter for Future Innovation Investments, The Private Capital Market, Private Capital Market Working Paper No. 08-10-01, May 9, 2008).
In the fifth, and final blockchain, in Diagram 4 above, private investors could place bid and ask prices for the venture and transact secondary market exchanges.
If, and when, there was some type of exit event, the existing investors would be eligible to participate in the event. The capital profits from the exit events continued to be deployed in new venture creation, creating a self-renewing, self-sustaining rate of economic growth.
In the case where there is no exit event, the investors can continue to monitor the performance of the venture, and continue to trade their ownership interests, in the closed, private stock exchange, much like they currently do in the pink sheets.

Conclusion. The Solution to The Nation’s Economic Problems Lies In Technology Innovation, Not Productivity.
We conclude that local economic growth caused by technological commercialization occurs when technological knowledge diffusion occurs in close geographical proximity to a supply of local private capital that invests capital in the new ideas.
Prior to the implementation of the global trade policies, small technology businesses hired 40 percent of high technology workers, such as scientists, engineers, and computer workers, right out of college.
The American millennials are right to complain that the current economic structure in America is not generating entry level professional career paths, as a result of the trade deals with China.
Schilling and Phelps concluded their research on small technology firms by noting,
“…interfirm relationships are important engines of innovation because they enable firms to pool, exchange, and create new information and other resources. Results of studies suggest that the structure of networks affects innovation and that a rich mix of both large and small firms benefits from the structure among firms in the network.”
Kogut, et. al., (2000) also cited small firm supply chain alliances as critical to technology innovation. They stated,
“We propose that firms embedded in alliance networks that exhibit high clustering and short average path lengths to a wide range of firms will experience greater knowledge creation than firms in networks that do not exhibit these characteristics. We find support for this.”
Morroni has described this existing set of firms in a region as,
“…a constellation of firms with a leading firm and a cluster of complementary organizations, or a network of independent firms with collaborative relationships…these collaborative co-operative linkages enable certain economies of scale to be achieved through high overall production volumes.” (Mario Morroni, Production Process, Technical Change, Cambridge University Press, 1992).
Brink Lindsey, of the Niskanen Center, (2017), aptly summarizes what has become a widespread consensus among scholars from many different fields within the economics profession:
“The long-term future of economic growth hinges ultimately on innovation. Indeed, as Sachs and McArthur have stated, “The more we think about it, the more we realize that technological innovation is almost certainly the key driver of long-term economic growth.”

As described in Diagram 4, (above) the entire process of new venture creation is envisioned to take place in a black chain network of computers, geographically located within 50 miles of the metro region.
The regional new venture creation blockchain is maintained by a peer-to-peer network. The network is a collection of nodes that are interconnected to one another. Nodes are individual computers that take in data, and perform functions that provide an output of modified data.
The “peer-to-peer network” partitions the entire regional economy to allow access by participants, who are all equally privileged, called “peers”. Computers on the node can add or modify data, with the ability to claim ownership of the new data.
The network of social relationships through which learning and diffusion takes place, is reflected by the presence or absence of technical coefficients in rows and columns of a regional econometric model.
In a type of Bayesian logic, the existing firms in the industrial structure of the region are the foundation for new venture ideas. Based upon the structure of technology in the region, the econometric model could generate predictions about possible future economic scenarios
Any computer on the node can freely contribute ideas in the second block.
The entrepreneurial culture of new venture creation would generate a more fair income distribution than any other economic system currently available in the world. (Vass, Laurie Thomas, American Millennial Attraction to Socialism, GabbyPress, 2020).
We conclude that something like the Marshall Plan is required for the U. S. economy, to repair the economic damage caused by the lockdowns.
The goal of the U. S. covid economic recovery plan is to build a free enterprise, new venture creation, entrepreneurial economy in each metro region that operates independent of the global crony corporate capitalist system.
The neoclassical productivity school offers inadequate advice to overcome the weaknesses in the U. S. economy.

I am Laurie Thomas Vass, and this podcast is a copyrighted production of the CLP News Network.