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IBM venture a jump-start for catch-up in Info Age

There’s more to the plans to bring IBM Corp. to a new information technology center than the 500 software, engineering and data jobs that Big Blue promises to bring to downtown Buffalo.

In the big picture, it’s the state’s attempt to jump-start the sputtering high-tech sector here, which has been woefully weak even as the Information Age has spread like wildfire across the country.

Here, the technology sector has been about as hot as a flickering candle, and we all know that those flames aren’t nearly warm enough to stop you from snuffing one out with a pinch of your bare fingers.

“We haven’t had a lot of tech growth here,” said Gary Keith, an economist at M&T Bank in Buffalo. “That’s been one of the growth areas for most of the country.”

In broad terms, our technology sector packs a little more than half the economic punch that the industry does across the country. It’s also less robust than the tech sector in Rochester, Syracuse, Utica and Albany. And it’s about 13 times smaller than it is in the nation’s technology hotbed, Silicon Valley.

“We never did ride that wave up or down,” said George Palumbo, a Canisius College economist. “Maybe this is a way for us to get in.”

Those are sobering figures, and they are important because it means that the Buffalo Niagara region has been missing out on the growth opportunities that come with one of the hottest industries of the 21st century. Those growth opportunities mean jobs – good-paying jobs – and I don’t have to tell you and all the talented young people who have moved away over the last few decades how badly we need those.

“If we are creating jobs here, people have a reason to stay here,” Gov. Andrew Cuomo said during his stop in Amherst on Monday to unveil the state’s plan to invest $55 million in a new technology hub in Buffalo, with IBM as its first tenant. “We’re just starting. We’re putting the pieces together.”

Several of those pieces are based on the Albany model that built a nanoscience industry in the Capital District by creating a state-owned facility with expensive, state-of-the-art gear that companies are willing to set up shop nearby just to use. It is the concept that the state is using to try to build a clean energy hub on the old Republic Steel site in South Buffalo, as well as an innovation center for manufacturers and a genomic medical complex tied to the supercomputer at the University at Buffalo. IBM also has agreed to become the first corporate technology member of the $100 million genome research partnership in Manhattan and Buffalo.

“It’s a very, very big deal,” Cuomo said. “It means jobs, and that’s why I also think it has great potential for advancement in medicine with the genomic medical center.”

The common thread running through those initiatives, all part of the state’s Buffalo Billion economic-development program, is that they are focused on 21st century industries that have the potential to grow far faster than the overall economy.

That’s exactly what Buffalo Niagara needs, because our economy has long been a laggard, growing at an average annual pace of just a little more than 1 percent since 2001, while the country was growing by closer to 1.6 percent a year.

One of the reasons for that slower growth is the transition that the local economy is going through, as its old factory base shrinks and our service sector grows, especially in areas such as back-office financial services, where our costs are lower than in places like Wall Street. But another part of the story is our lack of fast-growing New Economy industries, including technology.

In Buffalo Niagara, this fast-growing sector that spans information, communications and technology accounts for only 2.7 percent of the total economy, according to federal data for 2011, the most recent available. That’s a little more than half the national average of 4.7 percent, according to data from the federal Bureau of Economic Analysis. In Silicon Valley, that sector makes up 35.1 percent of the regional economy.

The information sector, which includes data processing, has expanded here by just 2.6 percent from 2009 to 2012, an average annual growth rate of less than 1 percent.

It is more difficult to quantify technology jobs locally because they tend to be spread across a handful of job classifications, and statistics aren’t available for many of those detailed categories. But even with that caveat, the trends are still apparent. If you just look at the information sector, which captures only a segment of the technology economy, Buffalo Niagara gets just 1.3 percent of its jobs from the information sector – a total of 7,500 positions, according to state Labor Department data. That’s less than the 2 percent share nationally.

The federal government projects that employment in computer systems design and related services will grow at an annual rate of 3.9 percent during the current decade. That’s 50 percent higher than the expected 2.6 percent annual increase in professional, scientific and technical services jobs and three times the 1.3 percent increase for all industries, according to the U.S. Bureau of Labor Statistics.

Technology jobs pay well, too. The median salary for computer systems analysts, programmers and software developers ranged from $72,000 to $94,000 in 2011, according to the federal data. That’s more than double the median wage of just under $35,000 at that time.

Keith said he thinks that Buffalo Niagara’s relatively low wage base, especially compared with technology havens such as Silicon Valley, could work to our advantage if the tech sector manages to build the critical mass it needs.

“I’ve got to believe that software engineers in Buffalo will be paid well, but maybe not as well as in other high-cost areas,” Keith said. “So there may be a cost advantage there.”

Palumbo agrees. He thinks the cost advantages could be comparable to those that helped build the region’s solid back-office financial services over the last two decades.

“Just as we were half as expensive in wages as New York City in financial services, we could be cheaper than the East or the West Coast in software,” he said. “We have a relatively skilled labor force that is willing to take entry-level positions” at wages that are lower than they are in the technology hotbeds.

Erie County Executive Mark Poloncarz thinks the state’s initiatives, which include commitments for California-based solar panel manufacturer Silevo and LED lighting-maker Soraa to become the first tenants in the RiverBend clean-technology hub, are starting to turn the tide.

“This is not the Old Economy that it once was. We’ve got companies like IBM, Silevo and Soraa, and we’ve got all the growth that’s going on at the Medical Campus,” Poloncarz said. “But nothing happens overnight. The jobs aren’t going to be there quite yet. It’s going to take some time.”


of economy

Albany 3.4%

Buffalo Niagara 2.7%

New York City 4.1%

Rochester 4.2%

San Jose, Calif. 35.1%

Utica 3.5%

United States 4.7%

SOURCE: U.S. Bureau of Economic Analysis, 2011 data