'Brain Belts' and the Revenge of the Nerds

SMITH BRAIN TRUST — Economist and former World Bank official Antoine van Agtmael coined the term “emerging markets” 35 years ago, but now says the trend behind the concept is shifting. In a new book co-authored by Fred Bakker, The Smartest Places on Earth, he writes about “brain belts” — cities reinventing themselves with new technology in the economically depressed rustbelt of North America, like in Akron, Ohio (an emerging center of polymer research), plus overseas in Oulo, Finland and Eindhoven, Netherlands. These represent places where opportunity costs are low and companies pool basic research or tap into public universities for manufacturing based on robotics, 3D printing and Internet-connected devices.

The trend “appears to have unambiguously positive long-run implications for the U.S. economy,” writes Executive-in-Residence William Longbrake at the University of Maryland’s Robert H. Smith School of Business in his April 2016 Longbrake Letter, starting at page 25. Longbrake says van Agtmael in 1981 foretold a low labor cost advantage of emerging market economies spurring outsourcing in addition to outright relocation of manufacturing facilities to those markets. But now, this “competitive advantage has shifted back to knowledge-based economies in North America and Europe as demand shifts increasingly from cheap commodity products to customized, complex, smart products.” 

Consider shoe manufacturing. A simple scan of a foot plus sophisticated developments in materials technology can produce a high quality, durable, comfortable fit. 3D printing subsequently enables inexpensive customized production of the style chosen. Under Armour CEO Kevin Plank demonstrated the product during the recent Cupid’s Cup entrepreneurship competition at UMD when he lifted his foot to show a new pair of 3D printed shoes — perhaps a signal, says Longbrake, that “Under Armour is already well along in developing a cost-effective way to grab shoe market share through cost-effective 3D printing.”

Longbrake says Plank’s Cupid’s Cup founding collaborator, the Smith School’s Dingman Center for Entrepreneurship, represents a crucial component of the brain belt ecosystem. The center “provides resources to budding entrepreneurs” and “works with UMD colleges across campus to incubate business opportunities stemming from academic research,” says Longbrake, who is working closely with Dingman-connected Doctor Up — a startup that is developing ways of connecting consumers with health care providers. “There are many moving parts; the job is complex,” Longbrake says. “It would be difficult for Doctor Up’s young CEO (a Smith undergrad) to do what he is doing, perhaps impossible, without the infrastructure and network that UMD and Smith have developed over the last 25 years.”

On a downside, “policies to support brain belts are missing in action,” Longbrake says. Congress has refused to consider President Obama’s Jobs Act and states “have provided inadequate funding” for vocational and job skills training” for smart manufacturing. “This is incredibly short-sighted” and “has contributed to the decline in productivity and the political anger that is boosting the presidential candidacy of Donald Trump.”

Nonetheless, he says, “brain belts will press on, but the benefits to the U.S. economy will be more limited” in a world that increasingly wants smart products.

Concurrently, emerging market countries will be unable to keep up with “the research and development prowess of the United States and the unorthodox open culture that fosters entrepreneurship and innovation,” Longbrake says. “This is really bad news for China which is hardly an open economy and apparently is headed in the opposite direction courtesy of President Xi’s anticorruption campaign, which is reinforcing silos and discouraging nonconformity.”