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Johansson: Economy is turning around — just not fast enough

While poised to lead the economic rebound, Maryland has holes in its game it must shore up if the state is to retain its front-running role in a global economy driven by high-tech innovation, the state’s top economic development official said.

Maryland was shielded from the worst of the recession by its highly educated work force and the federal dollars that flow into its government facilities and colleges and universities. The unemployment rate, however, remains high, at 7.4 percent. Corporate profits and individual incomes, while heading in the right direction, are still well below pre-recession levels.

“When you look at the numbers, it is turning around. We are better positioned than the others [states] in the key areas, but it’s not turning around as quickly as we’d all like it to,” Business and Economic Development Secretary Christian S. Johansson said in a wide-ranging interview with reporters and editors of The Daily Record. “We fundamentally need to get our small businesses going. Any recovery is dependent on small businesses.”

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Maryland’s economy is also dependent on federal spending that pays federal workers, contractors and researchers. Some 261,000 Marylanders are federal civilian employees and another 25,000 are members of the military.

Johansson, who was appointed to his post Jan. 30, 2009, said the state is trying to better take advantage of that federal presence, but acknowledged a long-term reduction in spending, or even a short-term budget stalemate, would cost the state jobs crucial the fragile recovery.

“We pray it doesn’t come to a government shutdown,” he said.

On Wednesday, President Barack Obama signed a stopgap measure to fund the government until March 18. He also called on Congress to come up with a spending plan that ends the possibility of a federal shutdown.

Johansson said the Department of Business and Economic Development is working to leverage the state’s competitive advantages in the private sector, with a focus on high-tech fields like biotechnology, cyber security and aerospace.

“You cannot be all things to all people,” said Johansson, 38.

Maryland needs to jump-start the commercialization of research that comes from its research institutions, Johansson said.

“They are phenomenal at innovation, but often much of that stays there,” he said.

Under Gov. Martin O’Malley’s top economic proposal this year, DBED is seeking legislative approval to auction premium tax credits to insurance companies to fuel a $100 million venture capital fund.

The program, called Invest Maryland, would target early-stage, high-tech firms to commercialize the discoveries being made at research institutions in Maryland, which receives more research funding per capita than any other state.

“That’s unbelievable,” Johansson said. “But we’re 42nd when it comes to start-ups. There’s a gap, and venture capital plays a critical role.”

‘Cultural’ deficiency

The secretary attributed that deficiency to a “cultural” focus on the front-end research at the expense of finding commercial applications for them. Johansson said that imbalance is changing, including a “very rapid” shift at the Johns Hopkins University, the national leader in federal research dollars.

Johansson touted the state’s success with the Maryland Venture Fund, which was founded in 1994 and returned $63 million on an initial allocation of $25 million. Primed with $50 million — the rest of the money raised by auctioning tax credits would be invested by private venture firms on the state’s behalf — the fund would invest between $50,000 and $1 million per company.

Johansson said that out of 10 investments, he expects five to fail, three to fare well enough to survive, and the remaining two to return enough profit to make the venture worthwhile.

“Innovation, since 2000, hasn’t slowed down. It’s speeded up. It looks like a logarithmic curve if you look at patents and other things,” he said. “Capital has pulled back substantially for a wide variety of reasons, much of it having to do here with the recession.

“Usually, when you have a pullback in capital, but an increase in innovation, that’s a good environment to be investing in.”

The program is now in the hands of lawmakers, some of whom were skeptical at hearings last month of the plan to gamble with $100 million in state funds when they are charged with bridging a $1.6 billion deficit this year.

“We believe we can create thousands of jobs. We believe we can unlock millions, if not billions, of dollars of private capital to join state money in these innovative companies,” Johansson said. “The goal is to create the next Under Armour, the next MedImmune, the next Google, right here in Maryland.”

Education instrumental

Education, a key component of that innovation equation, was also instrumental in warding off the worst the recession had to offer.

In 2008, 15.4 percent of Marylanders held advanced degrees, a greater share than in every state save Massachusetts, according to the U.S. Census Bureau.

“Education paid off big time in this recession,” Johansson said. “A lot of states pay lip service to it, but how educated your populace is and what you do to move the needle in that, that was a major differentiator in terms of how states performed.”

The state’s public education system has been ranked best in the country for the past three years by Education Week magazine. A renewed focus on science, math, technology and engineering will produce the workers required to make the high-tech businesses hum, Johansson said.

Maryland will need even more of them soon as the federal government relocates military and intelligence units to Maryland installations, namely Aberdeen Proving Ground and Fort George G. Meade. The military shift, called Base Realignment and Closure, and the establishment of U.S. Cyber Command will bring up to 75,000 jobs to the state.

“The biggest constraint we’re having is we don’t have enough people to meet the demand,” Johansson said.

Stepping up outreach

Johansson said DBED has stepped up its outreach efforts, both to potential visitors and corporate citizens, and businesses already located in the state.

Maryland added 11,100 leisure and hospitality industry jobs last year and is gearing up for another big push this summer. The first event in the bicentennial celebration of the War of 1812 will be held in June, with ships from the navies of 40 countries in the Inner Harbor.

Johansson likened the series of planned events to the 18-month celebration of 400th anniversary of the founding of Jamestown, Va., in 2007. That generated $1.2 billion in spending, 20,600 jobs and $28.4 million in state and local taxes, according to a study conducted by Chmura Economics & Analytics.

“We believe we can do the exact same thing here with the War of 1812,” Johansson said.

The state has re-established the Maryland Economic Development Commission to advise the DBED secretary and created the Federal Facilities Advisory Board, Governor’s International Advisory Council and Small Business Advisory Commission to keep a finger on the pulse of different segments of the state’s business community.

“Business needs to have a seat at the table and they need to be a part of the agency in a way that they perhaps weren’t before,” Johansson said.

The marketing push has also raised private money to brand the state as a hub for cyber security and show off the state’s other strongest sectors.

“It isn’t enough for us to know we’re good at something, we have to articulate and tell the world that we’re world class, that we’re good at these things,” Johansson said.

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