What Hong Kong can learn from the rebirth of Pittsburgh

May 03, 2016 16:35
Hong Kong can take some lessons from Pittsburgh (right), which reinvented itself as a city of advanced industry after the iron and steel industry that had been its mainstay went into decline. Photos: CNSA, Wikipedia

I argued in an earlier article that Hong Kong may face a worse economic downturn, because the four pillar sectors of its economy are under threat.

Hong Kong is like the city of Pittsburgh, Pennsylvania, which enjoyed rapid economic development in the late 19th and early 20th centuries because of its geographical location and other features.

The rise of Pittsburgh is linked to the Industrial Revolution and the takeoff of the US economy.

Back then, western Pennsylvania and Ohio were the “locomotive” of the US Industrial Revolution, because they had rich resources of coal and iron ore.

Huge demand from infrastructure projects and a convenient transportation network soon made Pittsburgh the iron and steel center of the United States.

Hong Kong also enjoyed explosive growth during an overlapping period.

Like Hong Kong, Pittsburgh spawned many billionaires, including steel magnate Andrew Carnegie and banker Andrew Mellon.

The two renowned universities in Pittsburgh are Carnegie-Mellon University, which has specialties in computer science and robotic studies, and the University of Pittsburgh, which is famous for its medical and social science studies.

The tycoon families contributed a lot to those universities, which strongly supported the rebirth of the city when the iron and steel industry faded in the latter part of the 20th century.

During the tough years, many moved out from Pittsburgh, but the elites refused to surrender to changing economic circumstances.

Pittsburgh was repositioned as an environmentally friendly city with high-tech and high-value-added industries.

A lot of private money supported the transformation, and much of it was put into the education system.

Now the city has five major industries: advanced manufacturing, energy, finance and commercial services, information and telecommunication technologies, and healthcare and medical services.

These are all research-and-development-intensive industries that require long-term planning and huge inputs.

Although Hong Kong is not yet in a crisis, it needs to adjust the structure of its economy.

At present, the city has business incubators like Cyberport and the Science Park, which provide government-funded subsidies.

But is this enough?

We can see clearly that the small and micro technology startups in Hong Kong lack access to financing.

In a vicious circle, investors don’t know how to invest in those small businesses, because there’s no proper financing platform.

If Hong Kong wants to devote itself to becoming a technology-driven city, it is necessary to build more financing channels for startups and an appropriate system for early investors to exit from the firms once they become successful.

This article appeared in the Hong Kong Economic Journal on May 3.

Translation by Myssie You

[Chinese version 中文版]

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adjunct professor in the Department of Finance at HKUST Business School