Region on track for economic recovery if businesses work together
By Elizabeth Marie Himchak
By creating a regional environment that promotes private sector growth, encourages start-up companies and improves employee health, San Diego can rally during the nation’s recession recovery, according to area business leaders.
Three from the innovation, health care and business sectors spoke at San Diego North Chamber of Commerce’s annual State of the Region luncheon on Feb. 15.
“Today we focus on our region’s people, the most important asset that we have,” said Ed Littlejohn, a SDNCC board member and chief operating officer at Kaiser Permanente, before introducing the speakers.
“It’s tough doing business here, but if we work together we can do better,” said Randy Frisch, president and publisher of San Diego Business Journal. “2012 will be a difficult year, but … we can improve it. It does not look to be a great year, but if we work together we can make it much better.”
Frisch said the job outlook is “not a pretty picture” and San Diego is particularly vulnerable to job cuts due to its dependence on government and service jobs, which “are susceptible to peaks and valleys.”
He said the county’s top five employers are government agencies, as are seven of its top 10. With them being financially dependent on allocation, not customers, means San Diego has lost more jobs than it should have when compared to other cities.
“We do not replace jobs as fast as other regions,” he said, adding creating a government job does not have the equivalent impact on the region that creating a private sector job has.
In addition, government rules and audits on private companies with government contracts often cost private companies money.
Two factors in San Diego’s favor, Frisch said, are this is an election year, so politicians will try to bring more funding to constituents, and pending military cuts and consolidations will mostly occur elsewhere. With the West Coast crucial to national defense, the military will likely move more resources here.
He told attendees to “remain vigilant” by supporting political candidates who want smaller government since “the private sector can pull us out of economic doldrums,” to protect manufacturing by opposing outsourcing overseas, to work with competitors so the region gains global attention, and to improve their organization’s proficiency and productivity.
Steve Hoey, associate director of business creation and development at CONNECT, said there are four key components to San Diego’s economy. Three that he referred to as trade are:
• Research innovation (i.e. technology and research universities) that provides 140,000 jobs,
• Military and its assets throughout Southern California contributing 142,000 jobs, and
• Tourism and convention traffic that adds about 170,000 jobs.
“These pull in money and talent from outside the region and … into the local economy,” Hoey said.
The fourth — and largest — component is the local economy and 780,000 jobs it creates, Hoey said.
He focused on the importance of start-up companies, which account for more than 90 percent of business growth in 2011 throughout the U.S. and critical to the San Diego economy.
He said San Diego had 91 new technology-based start-ups form in the third quarter of 2011. Last year, San Diego gained 400 new companies, which led to the creation of more than 500 jobs in the first nine months. Technology accounts for 6 percent of companies, 11 percent of employees and more than a quarter of the payroll in the county.
“We’re on track to have the strongest year … since the start of the recession,” he said. “This is very positive news in these challenging economic times.”
However, he said this trend and associated benefits cannot continue without help, such as venture capital, federal funding and government policy decisions that allow new companies to stay in the region and grow.
“One of the areas important to success is funding, which is also one of the most challenging areas in the early stages of a company,” Hoey said. In the last four years, venture funding dropped by almost 60 percent, going from $500 million per quarter down to below $200 million per quarter. Currently, it is $200 million-plus per quarter.
“The pressure is on start-up companies to obtain angel funding or funding from friends and family,” Hoey said.
Other components San Diego needs to help start-ups thrive are establishing a finance lab that focuses on early stage funding; creating an education environment that exposes students to science, math and economics, what Hoey called “building the pipeline of future engineers and researchers” and creating clusters in fields such as biotech, wireless, software and clean tech that work together not only within their field but across fields.
Addressing changes in health care and costs for employers and employees, Mary Ann Barnes, executive director at Kaiser Permanente San Diego, said there is an increasing trend for businesses to stop offering health insurance or offer plans with higher deductibles, co-pays and employee contributions.
Barnes said due to the recession, there has been a rise in Medicaid enrollment and the uninsured. Contributing factors to the “huge” insurance affordability gap are the increasing number of people with chronic diseases, obesity and a maturing population.
“Things have to change,” Barnes said.
While some health care reform measures are positive and there are implemented aspects Americans will oppose losing if the act is repealed or modified — such as adults up to age 26 eligible for their parents’ insurance and not letting pre-existing medical conditions make one ineligible for coverage — Barnes also said nationally the health care industry is not ready for the 32 million who will gain coverage in 2014.
However, regarding sufficient numbers of hospital beds, physicians, nurses and medical offices, Barnes said San Diego is better prepared than other parts of the country.
“San Diego has very well run health care and hospitals,” she said.
Key to making health care affordable, she said, is improved efficiency in the industry, in which San Diego is a leader. Examples she gave are increased electronic communication between doctors and patients, and among health care providers so tests and X-rays are not duplicated.
In addition, technology can manage health situations so a trip to the doctor is avoided, lab results can be accessed online and prescriptions ordered via the Internet.
The formation of physician groups and physicians partnerships with hospitals also helps since all involved with treatment follow the same methods.
“A decrease in variation in (treatment leads to) … better efficiency and less cost,” Barnes said.
Employers can help lower costs by promoting illness prevention; wellness activities, such as walking, exercise and healthy eating by employees; and offering wellness incentives, she said.
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