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CENTERING RACIAL EQUITY AND INCLUSION IN PITTSBURGH’S INNOVATION ECONOMY

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Research Report


CENTERING RACIAL EQUITY AND INCLUSION IN PITTSBURGH’S INNOVATION ECONOMY

Tonantzin Carmona and Peter Rezk Monday, April 3, 2023


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In recent years, there’s been no shortage of headlines positioning Pittsburgh as
the next Silicon Valley. These aspirational narratives are built on the success
of the region’s advanced manufacturing, life sciences, and autonomous systems
clusters, which rose out of close collaboration and strategic investments from
public, private, nonprofit, and academic sectors dedicated to Pittsburgh’s
turnaround.


TONANTZIN CARMONA


DAVID M. RUBENSTEIN FELLOW - BROOKINGS METRO

Twitter Tonantzin_LC


PETER REZK


RESEARCH AND PROJECT ASSISTANT - BROOKINGS METRO

Such innovation comes with many benefits and competitive advantages for a local
economy. But in the case of Pittsburgh, it’s worth asking: For whom is this
“turnaround” intended? And given Silicon Valley’s reputation for maintaining
white-majority and exclusionary workplaces, vast wealth inequities, and a
housing crisis, should Pittsburgh really follow its example?

To ensure Pittsburgh does not fall into this same trap, inclusion cannot be an
afterthought, and racial equity concerns need to be viewed front and center. Our
colleagues previously looked at the opportunities and shortcomings of
Pennsylvania’s innovation economy, including imbalances across race and
geography. Building on that work, we focus our efforts on the Pittsburgh region,
which has received federal support through the Build Back Better Regional
Challenge as one of the state’s key technology hubs.

Fortunately, several things are working in Pittsburgh’s favor to ensure its
leaders do not make the same mistakes as other tech hubs. In addition to the
city’s Roadmap for Inclusive Innovation, the region also hosts several convening
bodies, conferences, apprenticeship programs, and other initiatives devoted to
strengthening diversity in STEM education and workforce pipelines. There are
also incubators, accelerators, and hubs that help diverse entrepreneurs start
and build their companies through education, mentorship, and co-working
communities.

But even with these initiatives in place, an inclusive innovation economy in
Pittsburgh is not inevitable. A concerted effort is necessary to move beyond
data, planning, and one-time or siloed initiatives, and toward a city and
regional commitment to racial equity and inclusion.

Moreover, given the region’s history of racial inequities, deconstructing
structural racism should be a central goal and mission for all of Pittsburgh’s
leaders, regardless of sector or industry. Many of the organizations in the
region’s decisionmaking apparatus hold significant power—so much so that they
spurred economic growth via sizeable investments to specific industries and
communities. Yet many of these organizations may be majority-white-led and
insensitive to issues of diversity while perpetuating inequities—necessitating
examination of how existing power dynamics can be altered.

This report describes how local leaders can ensure Pittsburgh develops as an
inclusive tech hub and avoids the inequities of other hubs. From creating a
shared vision dedicated to inclusion, to investing in Black tech entrepreneurs,
to addressing bias and discrimination head-on, the ideas presented here should
serve as a conversation starter for local leaders.


MOVING TOWARD A SHARED VISION CENTERED ON RACIAL EQUITY AND INCLUSION

Pittsburgh has been the subject of many reports highlighting both disparities
and upward trends. Plans have been made, meetings have been held, and
initiatives have been launched to address inequities in the region’s tech
industry and wider economy. Yet inequities persist.

According to Brookings Metro analysis of the Census Bureau’s Annual Business
Survey and American Community Survey, of the Pittsburgh metro area’s 42,396
employer businesses, only 6.96% have nonwhite owners, with 1.03% being
Black-owned and 0.61% being Latino or Hispanic-owned. And despite a
1.21-percentage point growth in the number of minority-owned businesses since
2017, that rate is less than half of the percentage of total minority residents.
The case is worst for Black-owned businesses, which have declined steadily since
2017 and now equate to roughly one-eighth the rate of Black residents’
representation within the metro area population. (Ownership rates among people
of color within professional, scientific, and technical services are not
publishable due to “high sampling variability, poor response quality, or other
concerns about the estimate quality.”)

To move from data and research to action, local leaders should ask the following
questions:

 * Where is power concentrated within organizations, convening bodies, and
   decisionmaking tables in the Pittsburgh region?
 * Where are resources, investments, and capital flowing to and not flowing to?
 * What can be done to reframe our understanding of who is part of Pittsburgh’s
   innovation economy (and its economy as a whole), so that it centers Black and
   brown communities?

To address these questions, stakeholders across sectors should come together
with the goal of not only answering them (and others) but also creating a shared
vision for Pittsburgh centered on racial equity and inclusion. These
stakeholders should then develop an action plan with measurable, public goals
and other accountability mechanisms.

Though this may seem daunting, Pittsburgh’s leaders have collaborated on
projects of this magnitude before, when they transformed the region’s economic
landscape from a Rust Belt relic to an emerging tech hub. Through their
concerted efforts, they generated higher-paying jobs and induced capital inflows
from different parts of the country. Over the last 10 years, more than $10.5
billion has been invested in Pittsburgh tech companies. Additionally, the
federal and state government played critical roles in providing grants to
research universities and seeding funding to entrepreneurs in the technology
fields.

Unfortunately, many Black Pittsburghers were not included in these gains. If
Pittsburgh’s leaders can collaborate to build an inclusive tech ecosystem with
the same intensity as it did in transforming the region’s industry base, more
people can reap its benefits. Consider, for example, what the Pittsburgh
region’s Black-majority communities would look like 10 or 20 years from now if
multiple stakeholders joined forces to make transformative investments in
underinvested communities with the same concerted effort.

Given this context, leaders should carefully consider who is participating in
these conversations and what goals should be pursued to ensure the success of a
project of this magnitude. Because the region already has networks and convening
bodies, it would be easy to continue convening the same parties and
stakeholders. Yet inviting the people who are not typically included in these
bodies is crucial, as is ensuring that enough participants have deep ties to
Black and other underrepresented communities and businesses. Philanthropy can
play an important role in providing the resources and incentives for diverse
stakeholders and those who have historically been excluded from decisionmaking
spaces to participate.

The group may focus on tackling wealth concentration and prioritizing funds for
underinvested entrepreneurs, workers, and communities. Other objectives could be
to close communication gaps within the tech ecosystem and build trust between
communities or sectors. Shared objectives may also include issues not
necessarily associated with innovation economies, but related to them, such as
improving quality of life, lowering barriers to financial inclusion, and
increasing housing affordability. For example, stakeholders could consider many
of the recommendations highlighted by 17 Asset Management and the Riverside
Center for Innovation, which detail the ways strategic capital can address
issues around BIPOC entrepreneurship, tech-adjacent supply chains, and economic
development more broadly.


INVESTING IN BLACK AND OTHER UNDERREPRESENTED TECH ENTREPRENEURS

Without inclusivity in Pittsburgh’s innovation economy, whole sections of the
region’s population are barred from opportunities for upward mobility, wealth
building, and influence. Meanwhile, the region is limited in its access to
diverse talent and is not able to maximize its economic growth. Brookings Metro
researchers have noted that enhancing inclusion in innovation economies requires
growing a more inclusive entrepreneurial ecosystem. Among their recommendations
was the provision of additional state funding for the Diverse Leaders Venture
Program of the State Small Business Credit Initiative (SSBCI), which would
provide loans to venture capital (VC) firms with diverse owners investing in
businesses owned and controlled by diverse populations. The program is
relatively small—the estimated total state funding ($17 million) is about as
much as one large VC deal. Additional state funding would allow a larger number
of diverse VC organizations to participate and increase the resources they
deploy to diverse entrepreneurs and startups.

Part of this state-level work should also include moving beyond loans and
providing investment capital to diverse-led venture funds and firms when
traditional VC firms do not. Local firms such as Black Tech Nation
Ventures—which funds and supports emerging Black tech talent—and the firms they
serve would be example beneficiaries.

Initiatives like these are an important component for ensuring Black
entrepreneurs receive the capital they need to launch and grow their businesses.
A National Bureau of Economic Research working paper found that Black-owned
startups are more likely to receive venture funding from Black partners at VC
firms, who are “leveraging their expertise, credibility, and networks to select
(high quality) underrepresented entrepreneurs.” This paper shows that the biases
of venture capitalists—the majority of whom are white—may drive part of the
Black funding gap, which has been reflected in anecdotal accounts from Black
founders and CEOs across the country.

The VC industry is largely concentrated in three areas (San Francisco/San Jose,
New York, and Boston), and more broadly, VC diversity is absurdly low. This lack
of diversity directly impacts the amount of dollars invested in women and
underrepresented founders, and white-majority-led VCs bear responsibility for
withholding capital from minority- and women-led firms. With that in mind,
Pittsburgh’s local white-majority-led VCs and other private sector partners play
an important part in ensuring venture funds reach diverse entrepreneurs. They
should examine their practices to see where they can differentiate themselves,
lest they miss out on innovations from diverse founders. There are countless
measures of the investments reaching Pittsburgh’s tech sector; starting to
include the dollar amounts flowing to Black-led and other diverse-led startups
will be crucial for assessing progress.

Meanwhile, supporting underrepresented entrepreneurs will also include investing
in the ecosystems and intermediaries within them that enable them to grow and
thrive, such as incubators and accelerators. Where the private sector does not
support the ecosystems of diverse entrepreneurs, all levels of local government
can further support nonprofit accelerators and incubators such as Ascender,
which help address the networking, education, and capital challenges these
entrepreneurs face by offering capacity building and business development
support.

Lastly, at the city level, goals can be set or expanded for contracting with
minority- and women-owned businesses based on the local disparity study
findings. City departments engaging in procurement can also be required to set
and track goals and submit written reports summarizing their procurement
activities. Meanwhile, at all levels of government, procurement systems can be
improved or streamlined with clearer processes and guidance, and requests for
proposals can be designed with equity (and the specific pain points of
minority-led firms) in mind. Local governments can also strengthen their
procurement outreach teams and assist prime contractors in bringing on
subcontractors led by underrepresented groups.


ADDRESSING DISCRIMINATION HEAD ON AND DEVELOPING ACCOUNTABILITY MEASURES TO
CHANGE INVESTMENT PRIORITIES

Brookings Nonresident Fellow Victor Ray has noted that organizations are not
race neutral, and race is historically and structurally built into the
workplace. “Rather than asking how to bring diversity into the workplace, a
better question is why so much power and organizational authority remain in
white hands,” he wrote. Considering Ray’s framework, below are some questions
for local leaders in Pittsburgh and other places to consider:

 * Are decisions about location, hiring, and other choices exacerbating
   inequalities?
 * Are organizations using seemingly race-neutral selection criteria or abstract
   notions of “fit,” which can exclude certain types of candidates from being
   considered, hired, and promoted?
 * Are material resources within and outside the organization flowing equitably?

Creating an innovation economy that is welcoming to workers and entrepreneurs
from underrepresented groups requires improving organizational culture,
including eliminating biases against underrepresented groups, eliminating
diversity disparities across organizations, and more critically, addressing
discrimination head on.

A growing body of research indicates discrimination—in particular, racism and
sexism—hinders innovation at every stage: during education and training, in the
practice of invention, and in the commercialization of those inventions. This
discrimination not only detrimentally impacts the people targeted, but also the
economy by limiting the country’s productive capacity.

Capital is often required to commercialize inventions and introduce them into
the economy. When it comes to non-debt funding sources for startups—such as
accelerators, equity crowdfunding, and grant programs like the Small Business
Innovation Research and Small Business Technology Transfer programs—research
indicates that the gap in capital received by Black startups versus white-led
ones exists entirely within the VC space. According to Crunchbase data, Black
startups raised about 1% of all VC funds in 2022 nationally. Additionally, other
studies find large disparities between Black- and white-owned startups in access
to capital such as bank financing both in the initial year of founding and in
subsequent years.

Much of the literature on minority entrepreneurship focuses on education,
skills, and training deficits for workers of color, or their industry-specific
knowledge gaps. However, according to findings from researchers Rachel M. B.
Atkins and April Burrage, racial and ethnic disparities in tech entrepreneurship
persist even when accounting for racial differences in educational attainment,
possession of a STEM-field bachelor’s degree, and the rate at which workers
select into tech industry employment. In other words, inequality in tech
entrepreneurship persists even among a segment of the workforce with greater
educational attainment, skills, and training. As a result, policies aimed at
solely addressing supposed skills or knowledge deficits will not completely
address these disparities.

Discrimination is critical to confront, and the onus is on institutions,
organizations, and managers to adapt. Two places to start are changing workplace
policies and crafting better public policies.

For the former, a recent report from RAND noted that an organization’s culture
affects employee recruitment, success, and retention. It recommended implicit
bias training for staff and management, as well as skills-based hiring (hiring
new employees based on skills rather than specific degrees or educational
backgrounds). Employers in the Pittsburgh region can tap into such methods
through economic development nonprofits like Vibrant Pittsburgh, which provides
diversity, equity, and inclusion (DEI) resources to local businesses and
organizations that want to attract and retain a diverse workforce.

Beyond these recommendations, something Pittsburgh leaders can begin doing
today—across sectors and industries as well as in companies, philanthropy,
economic development councils, and tech councils—is to evaluate the diversity
makeup of their management and boards. If their organization is not reflective
of the wider demographics of the region, they should evaluate why.

Companies and organizations should voluntarily report public goals and track
improvements over time, including the racial and gender makeup of their
workforce, especially of their boards and leadership. Foundations should track
where their funds and investments are going—to what individuals, organizations,
and communities—and prior to granting funds, require grantees to track and
report diversity metrics.

To encourage accountability as well as progress, public policy solutions should
be used where voluntary action by firms is not sufficient. State and local
policies can be crafted to increase diverse representation on tech company
boards and workforces; they can also require local companies report the racial
and gender makeup of their company leadership, boards, and workforces, as well
as their pay and promotion data by race and gender.

Finally, policies at the federal level can be designed to compel private sector
and academic actions by offering carrots and sticks. For example, policies could
be expanded to include equity components, where universities or other companies
seeking federal funding would first need to meet DEI requirements or write up
clear diversity action plans in their grant applications. Federal lawmakers
should also allocate more funding and resources for the Equal Employment
Opportunity Commission to increase compliance with anti-discrimination laws and
regulations.


CONCLUSION

This report is intended to spark conversation among leaders and residents in the
Pittsburgh region and beyond, as plenty of local officials across the country
grapple with ways to improve inclusivity in their innovation economies. The
ideas presented here are not exhaustive, and many can be built upon.

Pittsburgh’s leaders have always possessed imagination, vision, and mission, and
they’ve done the seemingly impossible before. Inclusion, however, was not always
a priority. At present is an opportunity to course-correct and set the region
apart from other innovation hubs by centering and prioritizing racial equity and
inclusion.

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