Centering racial equity and inclusion in Pittsburgh’s innovation economy

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.

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.