Chicago Fed Insights

Making Innovation Inclusive: Engaging the Public and Private Sectors to Create Growth and Opportunity for All

October 23, 2020

Innovation has been an essential driver of economic growth in Chicago. However, the benefits of that innovation have not been experienced equally across the city’s diverse population. The sustained health and economic crises caused by the Covid-19 pandemic have served as a poignant illustration of the disparities that exist between Chicago’s haves and have-nots. On October 19, Project Hometown convened thought leaders from the private and public sectors to discuss how Chicago could secure its role as a global hub for innovation in a way that will offer opportunity for all of the city’s residents.

Technological innovation has long been an engine of economic growth, a pattern that is likely to continue. Indeed, the world economy could more than double in size by 2050 due to technological-driven improvements, said Rodrigo Garcia, deputy state treasurer and chief investment officer for the Illinois state treasurer. Moreover, innovation leads to a sustained rise in living standards, Garcia noted, which helps to address poverty and hunger.

Chicago, then, stands to gain economically if it is home to industries that are engaging in sustained innovation, much as California’s Bay Area has benefited from headquartering tech giants such as Apple, Google, and Facebook. However, Chicago should not try to imitate another region’s path, advised Rumi Morales, partner and head of venture at Outlier Ventures. Rather, Chicago should drive innovation in industries that represent the city’s historical competitive advantages: 1) transportation, distribution, and logistics; 2) industrial manufacturing; 3) food and agriculture; and 4) digital “plumbing”—the technology that supports regulated industries such as legal compliance.

Chicago can promote innovation in these industries, Garcia explained, by leveraging its world class educational institutions and the two national laboratories located in its western suburbs, Argonne and Fermi. Chicago should facilitate investments in research and development to continue to increase innovation and technology that can be commercialized, Garcia said.

To sustain innovation, companies themselves also have a role to play by committing to innovation as a fundamental corporate mission and not treating it as the task of a single person or department, Morales said. This means making innovation the goal of every employee and department in the company by tying it to performance reviews and compensation.

The four industries identified by Morales as having the greatest innovative potential have another advantage, she noted: They are already some of the most inclusive industries in Chicago, with diverse workforces that draw from the city’s many communities of color. This is important because the economic growth generated by the city’s most innovative industries has not encompassed all demographic groups equally.

However, much more needs to be done, Morales continued, to ensure that an innovative Chicago is also inclusive. Chicago’s Black and Brown communities are significantly underrepresented in upper management across industries, for instance. Furthermore, the Covid-19 pandemic has shone light on a different pandemic, described by Mel Williams, Jr., chief legal officer of the Chicago Trading Company, as the Covid-1619 pandemic. This phrase, borrowed from Chicago’s Reverend Otis Moss III, captures the idea that racism is a deadly virus, too, one that has caused profound inequities.

To help address these disparities, moderator Alessandro Cocco, vice president at the Federal Reserve Bank of Chicago, asked what steps the private sector can take to make sure all the city’s residents participate in the growth that innovative industries generate. Williams emphasized three objectives. First, companies must be intentional in bringing innovation and technology to all zip codes and using it to close the gap in outcomes across Chicago’s neighborhoods. Second, Williams stated that the private sector must be transparent about where opportunity and inclusivity have fallen short. Third, companies must be accountable for improving their performance.

One way in which companies can achieve these objectives is by partnering with organizations such as The Greenwood Project, a nonprofit that helps to prepare a diverse pipeline of Black and Brown students for careers in Chicago’s financial technology industry. Bevon Joseph, co-founder and president of The Greenwood Project, pointed out that companies may not be well known in every neighborhood, and so they need to be intentional about promoting themselves to diverse populations. “Students can’t be what they can’t see,” Joseph said.

Companies also must recognize that it will take more than one recruiting cycle to build social capital among socio-economically disadvantaged Black and Brown students, who are not starting in the same place in terms of education or social networks as many of their White counterparts. Furthermore, once Black and Brown employees join a firm, companies must be intentional in their retention efforts. Many minority employees move laterally from one firm to another rather than moving upwards within a firm because they do not feel like they belong. Firms must put all their employees in a position to succeed by giving them the opportunity to impact the firm’s bottom line, Joseph said.

Public policy too has a role to play in ensuring all of Chicago’s residents have the opportunity to participate in the city’s innovative industries. “People need to be able to access technology and acquire technology skills across their entire education and work lives,” Morales advised. To make this happen, Morales suggested that that foundational courses in science, technology, engineering, and mathematics (STEM) be incorporated into the curriculum earlier on for groups that are underrepresented in tech industries.

Public policy can also help promote Black and Brown entrepreneurship, which is “a potent tool to close the wealth gap,” Garcia stated. As it stands, there are deep racial disparities in access to equity capital, which disadvantages Black and Brown entrepreneurs. Garcia reported that nationally, White entrepreneurs attract 17 times more equity capital than minority entrepreneurs. The result: In Cook County, only 8–10% of business owners are Black or Brown—yet these populations comprise 60% of the county’s total population.

Garcia said that to address this gap, the state of Illinois would soon announce a new initiative to provide equity investments on Chicago’s south and west sides. Additional state initiatives to augment business loans for Black, Brown, and low-income communities will follow. As an example of existing public support for entrepreneurship, Williams pointed to the Small Business Administration, which provides loan guarantees, offers free business counseling, and encourages government contracting for women- and minority-owned businesses.

The key strategies for sustaining innovation and promoting inclusivity will not all be identified in a single day, Cocco observed in closing, but the concrete proposals offered by the panelists are important steps toward a more inclusive society. “This is our opportunity,” Williams said. “Every action that we’re taking—where you’re hiring, where you’re sourcing your talent from, where you’re going to focus your dollars—are decisions we make as individuals and as companies as to what type of Chicago we want to have.” Intentional, transparent decision making on these matters will promote innovative, inclusive growth for all of Chicago.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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