When Uncle Sam Says “Adios”
What can the City of Knowledge teach us about incubators, BRAC, Creative Class Theory and Politics?
D.E. “SAM” LEIVA
ABSTRACT
The former site of Fort Clayton in Panama is home to the 296-acre technology cluster known as the "City of Knowledge.” Since 2000, it has operated under a private, nonprofit foundation with the emphasis on emerging technology companies growing to purportedly 185 tenants, including American universities, biotechnology firms and international nongovernmental organizations. In many respects, it has been considered a model for redevelopment of closed military bases leading to the question of how can the successes of the Panamanian base closure experience benefit future U.S. regions experiencing closures. A series of economic development approaches ranging from cluster theory to new growth theory to the creation of the creative class offer the framework for some explanation as to the Panamanian success. Nearly 129,000 civilian and defense jobs were lost in 73 different locations nationwide during the 1988, 1991, 1993, and 1995 Base Realignment and Closure Commission closures, but officials said nearly all of those jobs were replaced by the private sector. Federal officials contend that the redevelopment of base property is widely viewed as a key component of economic recovery for communities experiencing economic dislocation due to jobs lost from a base closure. The closure of a base makes buildings and land available for use that can generate new economic activity in the local community. But, few closures had such a question mark on the future of an entire nation as did the closure of all military bases in the country of Panama, where thousands of buildings and nearly 100,000 acres of land was left behind by the U.S. military under a 1977 treaty that returned the Panama Canal to Panama and withdrew U.S. troops at the turn of the century. At the time, the U.S. Southern Command estimated its presence in Panama contributed about $370 million a year to the economy, about 8 percent of the country's GDP. Naysayers said the Latin American country would crumble. Twelve years later, few can recall a time when the Latin American country was a laboratory for testing on nerve agents and depleted uranium. And while, many communities in the United States have seen similar relative successes, few have been able to do it outside the context of a strong national economy and the ultimate safety net provided by the federal government. Understanding base closures is important because it shifts the government's economic stimulus to the private sector, turning into a "complex nexus" of public-private negotiations and entities and the different means of calculating value: government's job creation versus the private sector's return on investment. But, not all that shines is gold. Officials from the City of Knowledge declined repeated requests for interviews, and it remains unclear whether the tenants claimed to be on the organization’s Web site are up-to-date or actually on the campus. In fact, the City of Knowledge is not mentioned in the country’s Strategic Plan or by industry and banking leaders although officials said this redevelopment was the most significant things to happen in Panama since the invention of the canal. Efforts to reach American universities and nongovernmental organizations, such as Florida State University, the University of Virginia and the U.S. Peace Corps, who have signed collaborative educational exchange agreements with the City of Knowledge, also give little insight. But perhaps, this unwillingness to be forthcoming is merely the Panamanian way. More telling, though, are the classified dispatches of Panamanian politics written by the previous U.S. ambassador, which were embarrassingly revealed on the secret-spilling WikiLeaks, depicting a country that places its best foot forward for international public consumption while hiding a multimillion dollar scheme of drug smuggling, human trafficking, corruption, and shady political figures involved in almost every facet of the economy.
I.INTRODUCTION
The City of Knowledge’s success can be attributed to three economic development approaches: cluster theory, new growth theory, and creative class theory.For the purpose of the comparison with a similar American entity, a discussion on the Base Realignment and Closure Commission history, process, and examples are mentioned, though, they do not particularly relate to the City of Knowledge’s direct accomplishments.
Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions—such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations—that provide specialized training, education, information, research, and technical support. (Porter, 1998)
New Growth Theory emphasizes economic growth from within the community coming from the increasing returns associated with new knowledge. Spillovers occur because knowledge is non-rival and not completely excludable so that more people benefit than the original inventor. In the aggregate, these increasing returns drive the growth. (Romer, 1986)
Creative Class Theory helps explain how globalization and technology advances have allowed the most talented and educated people “whose main economic function is to create new ideas, new technology and new creative content” to forgo moving where companies are located. Instead, this group of scientists, engineers, writers, poets, graphic designers, architects, and performers prefer to find other equally talented people to congregate and collaborate with. (Florida, 2002)
Economic development is fundamentally about enhancing the factors of productive capacity – land, labor, capital, and technology – of a national, state or local economy. By using its resources and powers to reduce the risks and costs which could prohibit investment, the public sector often has been responsible for setting the stage for employment-generating investment by the private sector. (U.S. Department of Commerce –Economic Development Administration, 2002)
Regime Theoryrelates to the informal yet relatively stable group with access to institutional resources, and which has a significant impact on local policy and administration. (Stone, 1989)
Growth Machine Theoryrefers to individuals or institutions directly benefit from economic development activity. (Cox & Mair, 1989; Logan & Molotch, 1988)
Base Closure Law is the provisions of Title II of the Defense Authorization Amendments and Base Closure and Realignment Act (Pub. L. 100-526, 102 Stat.2623, 10 U.S.C. S 2687 note), or the Defense Base Closure and Realignment Act of 1990. (Pub. L. 100-526, Part A of Title XXIX of 104 Stat. 1808, 10 U.S.C. S 2687 note)
“BRAC" is an acronym which stands for base realignment and closure. It is the process the Defense Department has used to reorganize its installation infrastructure. The process aims to more efficiently and effectively support its forces, increase operational readiness and improve business practices. (Defense Department, 2005)
Redevelopment authority is the entity, including state or local government, recognized by
the Secretary of Defense as the entity responsible for developing the redevelopment plan with respect to the installation or for directing the implementation of such plan. (Defense Department, 2005)
Redevelopment plan is the term used to when an installation will close or be realigned that (A) is agreed to by the local redevelopment authority with respect to the installation; and (B) provides for the reuse or redevelopment of the real property and personal property of the installation that is available for such reuse and redevelopment as a result of the closure or realignment of the installation. (Defense Department, 2005)
For the context of this paper, it is important to note the U.S military budget because it is the reason for studying Panama’s success with the “City of Knowledge.” While much of the media reporting on the 2013 Defense Department cuts numbering about nearly $500 billion over a decade focuses on troop reductions and putting off equipment purchases, Defense Secretary Leon Panetta in January alluded to other measures to save money. The following month, defense officials indicated that it would request two new rounds of base closures in 2013 and 2015. (Defense Budget Priorities and Choices, January 2012) Still, it remains dominating.
Just months after President Obama delivered his2012 State of the Union address, the U.S. Conference of Mayors assembled a task force in April to deal with one major aspect of Obama's policy -- the eventual drawdown on the wars, and, subsequent, cut of U.S. troops. Last month, Phoenix Mayor Greg Stanton, the task force chair, said in a press release thathe will "work hard with mayors across the country to ensure that if cuts to the Defense budget are made, they are done so in a thoughtful manner that protects jobs and our nation's security."
While much of the media reporting on the 2013 Defense Department cuts numbering about nearly $500 billion over a decade focuses on troop reductions and putting off equipment purchases, Defense Secretary Leon Panetta in January alluded to other measures to save money. The following month, defense officials indicated that it would request two new rounds of base closures in 2013 and 2015. (Defense Budget Priorities and Choices, January 2012)
“Make no mistake: the savings that we are proposing will impact on all 50 states and many districts, congressional districts, across America,” Panetta said in a Pentagon briefing. “This will be a test, a test of whether reducing the deficit is about talk or about action.”
An example of how BRAC previously impacted communities nationwide is below.
Panama’s population of 3.5 million people has experienced a 10 percent growth in GDP, up to $30.6 billion, in 2011, making it the fastest growing country in Central America, although, not everyone has benefited since 30 percent of the population lives in poverty, though it was reduced by 10 percent since 2006, and unemployment down to 3 percent. In 1990, the country disbanded its military, rather, establishing a national police force, at a cost of less than 1 percent of GDP. Instead, Panama's dollar-based economy rests primarily on operating the Panama Canal, logistics, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism. The canal’s expansion is expected to be completed by 2014 at a cost of $5.3 billion, and will double the canal's capacity. (CIA Factbook)
However, the good times may be coming to a halt. During the first quarter of 2012, the country’s foreign direct investment fell by 15 percent, according to the country’s Comptroller office. (La Prensa, 2012)
Further, Japanese-based investment bank Nomura Securities sounded the alarm in June noting that while Panama’s economy grew by nearly 10 percent during the first quarter of 2012, leaders are showing little prudence in public expenditures, and off-books accountings mask the deteriorating fiscal accounts. Nomura has recommended an “exit strategy.” “We recommend zero exposure to Panamanian sovereign bonds. While this positioning might be relatively premature, we prefer to recommend it now in expectation of a sharp rise in fiscal spending for electoral reasons next year,” said analyst Boris Segura in a research note on Panama published in June. “For those that are currently involved in this credit, wethink it may be opportune to begin executing an exit strategy.” (Segura, 2012)
In January 2010, Panamanian President Ricardo Martinelli ushered in a new era bent on turning the small Latin American country into an international financial player. With the ongoing expansion of the Panama Canal, Martinelli set the sights for the country's trajectory even higher when he unveiled a 223-page strategic plan that outlined the goals of his administration for the next five years to achieve economic growth, poverty reduction, and ensure a better wealth distribution. The plan was “the first time that an administration, at the beginning of its term, presents a set of documents which will constitute its roadmap, a guide for the performance and execution of its economic, social, financial, and investment actions.” Even, the World Economic Forum was echoing the new tide, consistently listing Panama in the top-10 spots for banking, foreign direct investment, and port infrastructure in its2011 GlobalCompetitivenessReport. Long gone were the days of military Dictator Manuel Noriega and the ugly images of a country with little history and no apparent destiny.
Even, U.S. officials were quick to acknowledge the impressive track record. Then-U.S. Ambassador Barbara Stephenson told members of the Florida Chamber of Commerce in August 2009 that Panama’s economy was taking a contrarian approach. “In the middle of a worldwide financial crisis, Panama has managed to show positive economic growth, and projections are for growth of two-three percent next year,” she said. “Panama is weathering this storm because it adopted good macro-economic policies over the last 10 years, and successive governments have taken steps to keep the country’s fiscal house in order.” (Stephenson, 2009)
However, to members of the American Chamber of Commerce in Panama, she took a more lecturing tone two months later when she told business and industry leaders that the judicial system neededsignificant improvement for the Latin American country to improve its competitiveness rankings. “Panama’s ability to continue to attract and retain foreigndirect investmentwould be bolstered by having an independent, impartial and efficient judicial system. In the Embassy, we will continue to be advocates for a strong judiciary, for adherence to the rule of law, and we hope you will as well.” (Stephenson, 2009)
In classified cables to her bosses at the U.S. State Department, Stephenson was more candid, painting a picture of a corrupt government and its chief executive bent on dismantling some of Panama’s most powerful families, the Mottas and the Waked, a notion that was widely reported later.(Jackson, 2012) In even earlier dispatches intended for American officials only, Stephenson went so far as to call out Martinelli by name. "His strong personality, his lack of commitment to the rule of law, his exaggerated presidentialism and its popularity can be damaging to democratic institutions in Panama," she said in dispatches after he was elected. (WikiLeaks, 2011)
In surprising chilling detail, Stephenson said the tax free zones and many of the expansion projects in Panama, namely the $80 billion effort at Tocumen International Airport and Panama Pacifico, a $10 billion redevelopment of former Howard U.S. Air Force Base, were alleged fronts for other notorious acts, such as drug smuggling, money laundering, human trafficking, highway armed robberies of tourists carrying large amounts of cash, and tax evasion for drug cartels.
Panama's geographical advantages and open business climate have spurred Tocumen's growth. However, those same advantages have also facilitated a culture of corruption which has accompanied Tocumen's physical and commercial development. Money laundering, alien smuggling, and narcotics trafficking are proliferating. (WikiLeaks, 2011)
She even named the sitting tourism minister as being involved in drug trafficking, and Martinelli’s own cousin, Ramon Martinelli, as part of a four-man operation that moved $30 million per month through the Tocumen airport. Stephenson’s documents became an open secret once they were posted on WikiLeaks. She has since been appointed deputy chief of mission in London. Martinelli is said to have visited the United States several times, but his first invitation to the White House came just last year before the Free Trade Agreement was signed.
The ambassador is not alone in the concern of the sitting administration. In a research note on Panama, Boris Segura, the analyst from Nomura Securities, said that it would be very likely that Martinelli might be able to seek a second term in 2014, dismissing the law that does not allow consecutive reelection by stacking the sitting judiciary with his influence. These new magistrates would very likely reinterpret the Constitution in Martinelli’s favor. “If President Martinelli indeed runs for re-election in 2014, we think thatPanama’s political environment willdeteriorate fairlyquickly,” Segura wrote. (Norma Securities, 2012)
Twelve years after the United States handed over all military bases in Panama, few can recall a time when the Latin American country was a laboratory for testing on nerve agents and depleted uranium. Now, the former site of Fort Clayton is home to the 296-acre technology cluster known as the "City of Knowledge," which houses the world-class ecological facility Smithsonian Tropical Research Institute, along withfamily residences, business office space and educational symposiums. While, many communities in the United States have seen similar relative successes, few have been able to do it outside the context of a strongnational economy and the ultimate safety net provided bythe federal government.(City of Knowledge)