George Bush received less than one out of every 10 votes in the nation's capital, and also lost most of the surrounding suburban counties, but he has proved very, very good for the Washington region. At a time when other big East Coast cities have been idling, the D.C. region has been racking up some of the most impressive growth numbers in the country.
Led by northern Virginia, No. 11 on our list, the region's economy has become so strong that even long-troubled Washington, D.C., has a respectable No. 28 ranking, far above almost all other major eastern cities. The key to this rise, suggests George Mason University economist Stephen Fuller, lies in the remarkable ramp-up of spending for both defense and homeland security.
Between 2001 and 2003, federal procurement in the region jumped to more than $42 billion from $31 billion. Nearly all the increase, Fuller says, is attributable to defense and homeland security spending. Today the Washington area receives more procurement dollars than the entire state of California. This massive transfusion of debt-financed money helped the local economy recover from the aftermath of the dot-com collapse. The IT sectors of San Jose, Boston, and San Francisco are still in a deep swoon, but the Washington area has recovered virtually all its industry employment.
The rise of government spending has done much to stimulate entrepreneurial development. As Fuller points out, much of the expansion in government programs takes place among the so-called "Beltway bandits," companies that contract out with the federal leviathan. The expansion of defense and homeland security spending has been a godsend for these firms. Many of them are headed by and staffed with people coming directly from the armed forces, the CIA, and the FBI, and they come complete with the security clearances that are required for so much of the work.
Harry "Pete" Howton, a Naval Academy grad and founder of Virginia's Gray Hawk Systems, which stood 184 on last year's Inc. 500 list, doubts he could staff his 500-person firm, now growing by 15 to 20 people per month, in any other part of the country. Ninety-five percent of Gray Hawk employees have security clearances. "You have a labor force here you can't get anywhere else," Howton says. "You are working with a lot of guys from the service who know each other and like each other. You draw on people's friends."
Some of those friends, Howton adds, are still inside the bureaucracies that hand out the big contracts -- another advantage to staying in the D.C. area. Proximity still matters in the procurement world. Alexandria, where Gray Hawk is based, is a quick hop from the Pentagon, just across the river from the Capitol, and a 30-minute drive from CIA headquarters in Langley, Va.