ROUNDTABLE:

KEY ISSUES AND NEXT STEPS FORWARD

Moderator: Charles Wessner The National Academies

Luis M. Proenza, University of Akron William P. Kittredge, Economic Development Administration, Department of Commerce Jim Turner, Association of Public and Land-Grant Universities R. Lee Cheatham, Washington Technology Center

Dr. Wessner said he would like to encourage an open dialogue to close the symposium. He asked Dr. Proenza to begin by describing some overarching themes on the topic of innovation clusters. Dr. Proenza said that even though it is not possible to duplicate Silicon Valley, some clusters shared common elements that could provide helpful models for others. He said that his discussion of Akron had focused largely on “connectivity and relevance,” and on building on particular strengths of the region. He suggested that “when you have a $50 billion industry in your state and you add five percent to its value, that’s a much larger incremental benefit than you’re likely to get by creating a new industry that you hope will some day do something magical.” This did not mean that regions should neglect new firm formation, he said, but that existing strengths of industry and the community were the places to begin.

He also added a point to the earlier discussion about collaboration among foundations. He had seen foundations in many regions join together to form a “fund of funds.” In northeast Ohio, he said, some major foundations had joined with about 60 smaller foundations to generate an annual asset of about $30 million to enhance the vitality of a region and ensure that key segments of the community are not left behind. He encouraged more foundations to examine similar opportunities for partnership.



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ROUNDTABLE: KEY ISSUES AND NEXT STEPS FORWARD Moderator: Charles Wessner The National Academies Luis M. Proenza, University of Akron William P. Kittredge, Economic Development Administration, Department of Commerce Jim Turner, Association of Public and Land-Grant Universities R. Lee Cheatham, Washington Technology Center Dr. Wessner said he would like to encourage an open dialogue to close the symposium. He asked Dr. Proenza to begin by describing some overarching themes on the topic of innovation clusters. Dr. Proenza said that even though it is not possible to duplicate Silicon Valley, some clusters shared common elements that could provide helpful models for others. He said that his discussion of Akron had focused largely on “connectivity and relevance,” and on building on particular strengths of the region. He suggested that “when you have a $50 billion industry in your state and you add five percent to its value, that’s a much larger incremental benefit than you’re likely to get by creating a new industry that you hope will some day do something magical.” This did not mean that regions should neglect new firm formation, he said, but that existing strengths of industry and the community were the places to begin. He also added a point to the earlier discussion about collaboration among foundations. He had seen foundations in many regions join together to form a “fund of funds.” In northeast Ohio, he said, some major foundations had joined with about 60 smaller foundations to generate an annual asset of about $30 million to enhance the vitality of a region and ensure that key segments of the community are not left behind. He encouraged more foundations to examine similar opportunities for partnership. 115

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116 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY Ideas for the Developing World Joshua Mandel of the World Bank said he had attended the symposium to listen for innovation ideas that could be relevant for the developing world. He asked the panelists whether they would suggest any strategies for sub-Saharan Africa, Asia, or Latin America, all of which have little human resource capacity but a yearning for innovation and R&D as drivers of economic growth. Dr. Kittredge replied that “innovation is one of those slippery terms.” He said that Americans tend to measure it in terms of patents and other advanced markers. “But Fed Ex doesn’t have any patents,” he said. “I think that for developing countries, you want to be looking at the local competitive advantage. What does a region have intrinsically that can be developed, and how can it be extrapolated to create wealth? We have found a broad range of techniques that don’t require fancy stuff to drive this forward.” Dr. Proenza agreed that there are “a lot of things happening in developing countries that are better integrated at the national, state, and local levels into comprehensive strategies. We have done very poor job in this country at integrating federal and state agendas.” Dr. Gabriel of the Heinz Endowments followed up on the World Bank question. She noted that the strategy in Pittsburgh was to “create deliberate bridges between the communities and the innovation centers. It’s the same for the World Bank: If you have the right people on the ground who are trusted by the community, programs can work.” The World Bank Development Model Dr. Wessner commented that the basic World Bank development model had not been as successful as anticipated in some countries, notably in Asia, where some countries had ignored most Bank advice while achieving rapid economic success. He said that in some countries of Eastern Europe, the Bank is playing a more catalytic role, bringing best practices to bear, as the Inter-American Development Bank is doing in Latin America. He suggested that the Bank might profitably follow the innovation concept used in the SBIR and TIP approaches, where the innovation comes bottom-up from small companies rather than specified through programs organized in Washington. He added that bottom-up partnership policies had had a direct impact on Finland, Sweden, the Netherlands, Taiwan, Korea, and India. Mr. McNamara agreed, but suggested another angle. “The question is how third-world countries can benefit from the knowledge economy sector. I suggest that the entrepreneurs there could take advantage of the entrepreneurs there, and vice-versa, whether they are working in alternative energy, biofuels, or pharmaceuticals,” he said. “Bring them along with us. I would say that connecting entrepreneurs can do more good than any policy.”

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117 SUMMARY OF PRESENTATIONS “Throwing Money at Planning Grants Doesn’t Work” A participant asked another question of Mr. Mandel of the World Bank. He said he had worked with the United Nations in Ghana and Senegal for the past five years, trying to evaluate the potential benefits of science parks in Accra and Dakar. A small amount of money was available for planning, but when the funds were exhausted, there was no local matching money or commitment to sustain the project. “When you fly in experts, hit the ground, and then leave, you need to turn it over to people living there and working on a full-time basis. Throwing money at planning grants does not work.” Lee Cheatham of the Washington Technology Center followed up on Mr. McNamara’s comment about inviting more people to the conversation. He said that Washington State holds an Innovation Summit each year, which in 2008 included a group from central Africa. While the group at first seemed to want only to visit, their interest had grown so rapidly that at this year’s Summit a whole day will be set aside for conversation with them. “We should not underestimate,” he said, “how little things like that might get things started and lead to initiatives we’ve been describing.” Dan Berglund of SSTI asked how the $50 million planned for a national network of incubators would be spent. He said that he had heard from many people who thought that money should go not to physical infrastructure but to operating capital. He also asked whether the $100 million for the EDA budget could get through Congress, given that the amount would be coming out of an existing pool of money for which there was already a built-in constituency. Small Amounts for a Large Impact Dr. Kittredge of EDA said that the questions had not been resolved, although he said he saw the two programs as conceptually integrated. The fate of the $50 million program, he said, would depend heavily on which EDA program it is appropriated to. If it was appropriated to the public works program, it would be limited to infrastructure projects. If it was appropriated to the economic adjustment assistance program, it could be used for infrastructure, planning, feasibility studies, or revolving loan funds. With respect to the $100 million program, he said, his office regarded it as part of the overall EDA program. Dr. Wessner added that the country does need spending for infrastructure. “And our work,” he said, “suggests that relatively small amounts of federal funding have a very large catalytic impact.” Dr. Kittredge continued that the major theme he had heard during the symposium was “government, innovate thyself.” Opportunities for innovation, he said, included coordinating among government programs, implementing collaborations with local innovators, and learning how to

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118 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY sustain those collaborations beyond changes of political administrations. More broadly, he said, economic development measures have to go beyond dollars spent or jobs created. They need to consider whether the measures are producing “places we want to live and the quality of life we expect.” Mr. Turner said his lesson for the day was that “all money is not created equal.” Traditionally, he said, in federal research grants, the bias against picking winners and losers has been so strong that securing matching funds has been viewed as stretching federal funds and regarded as a success regardless of where the money came from or how it is spent. When a local program receives money from the state, by contrast, the purpose is local economic development and it needs to “pick a winner with that money” if it expects additional support and needs to solicit and invest matching funds accordingly. Measures of success should include not just total dollars gained for a project, but should also include metrics on how those dollars are matched and spent to achieve actual community goals. Leadership from the Local Community Dr. Cheatham said that Washington State was still working on the best strategy to shape federal-state partnerships, but that experience had shown the value of a local lead partner. “If we liken federal programs to the anchor tenants, we might say that SBIR and TIP are the Nordstrom and Macy’s of our mall. But we don’t ask Nordstrom or Macy’s to run the mall. We put in people from the local communities to do that. The innovation-based economic organizations and local organizations are the places where that coordination can happen. This helps federal programs remain true and accurate to what they need to provide, and allows local color to work its way in for just a small investment. What we’ll see is something like a one-stop shop, but different depending on where you stop, and it must be different.” He also said that in Washington and the Pacific Northwest generally, innovation does come from large national labs and universities, but it also comes from groups that had not been adequately discussed at the symposium—nonprofit research institutes. In the state of Washington, he said, only two of the largest five or six research institutions are universities; one is a national lab, and the rest are nonprofits. “We heard this morning that clusters require three things: collaboration, workforce, and innovation. Let’s take the first one, collaboration, to heart, and design mechanisms to include everybody in this.” Dr. Proenza recalled the statement that some 250 federal programs dealt with the broad arena of cluster development. He urged the Small Business Administration to help advance a framework that allowed all those programs to collaborate and leverage each other’s resources for both better deployment and better decision making. He offered the

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119 SUMMARY OF PRESENTATIONS second point that in some parts of the country, programs were “not really focusing on productivity.” Instead, he said, they were creating ever-more facilitating agencies. “Often we have more of these agencies than we have things that need to be facilitated. This is a real danger. We can do most of what we’ve been doing with literally one funded position.” Changing the Federal Culture? Dr. Wessner said that he had been troubled by the unstated assumption that “we’re going to rationalize the federal government, or somehow change its culture. For those who hope to do this,” he said, “I wish them well and I hope they’re very young. There might be more success in efforts to coordinate programs with influential folks in the White House, which might lead to those synergies and economies we’ve discussed. Another path that could prove productive is to follow the private sector’s example in rewarding excellence, which the federal and state governments are reluctant to do.” A questioner asked how closely correlated was the locations of federal facilities or long-established universities with clusters of innovation. Dr. Kittredge said that the presence of an established facility could often be key. He cited one recent example from Fargo, North Dakota, where North Dakota State University had recognized its competitive advantage in the high number of students graduating from the engineering school. It called together the other major university in the state, the University of North Dakota, along with the EDA, state and county governments, entrepreneurs, and people from the community. Together they formed a technology park adjacent to the campus. This was termed an “overnight miracle,” which five years later is indeed producing innovation clusters. “This is not a traditional place, or a Silicon Valley,” he said. “It started with existing assets, brought everyone together, and came out of ideas on how a local competitive advantage might be exploited.” Importance of Rewarding Behavior Dr. Cheatham followed up with the example of Warsaw, Indiana, a town where some 2,000 small companies produce about 80 percent of the nation’s orthopedic hip and joint parts. He added to the point made by Dr. Wessner about rewarding excellence. The cluster analysis done by his organization, he said, had shown that it was indeed important to reward behavior. “This is so much of what drives outcomes,” he said. “The reason Silicon Valley, Boston, and San Diego have excelled is that organizational and cultural changes have emerged within their communities. Without change, collaboration is just a word. You have to align and incentivize the motivations of various groups. They come to

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120 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY the table for many different reasons, and you have to reward the desired behavior appropriately. When you do that you can build a critical mass.” Mr. Turner returned to the debate about whether the behavior of the federal government could be changed. He said that those who worked for the Obama campaign and transition teams were optimistic that it could, and recommended that STEP revisit the issue of innovation clusters after the leadership appointments process had been completed and new officials had had time to implement new policies. Some Common Themes Dr. Wessner closed with several remarks. He began by thanking the group for bringing out common themes, “especially President Proenza’s notes on continuity, relevance, and finding strength in local communities. One thing I like about this country,” he affirmed, “is that we tend to think a problem is our problem and we have to do something about it. In some other countries, there is a habit of calling a problem the central government’s problem and expecting it to be fixed immediately.” That said, he added, the U.S. government sometimes “abandons communities to their own fate.” In this regard, he suggested several ideas. First, states can be regarded as “laboratories,” which is “something we at the Academies want to understand so we can learn from each of them.” He also said it was important to learn from abroad, where there are some very good innovation models. “Other countries are helping to shape the world we’re living in,” he said. “Too often we hear economists discussing what you should do in the world, rather than what the world is actually doing.” One lesson that had emerged from the symposium, he said, was the value of closer connections with local organizations. “By looking at what local organizations are doing,” he said, “we can find out how to help them. Small amounts of federal aid can have a disproportionate impact on state and local ecosystems.” He said the same was true for the impact of foundations, which “need to think hard at this time about where they can put even more significant funds.” He reviewed comments about the federal government’s primary mechanism to promote innovation and commercialization, the SBIR and TIP awards. “Our empirical analysis shows that these awards act as glue grants,” he said. “And to a greater extent than we knew, the companies are working with universities as they evolve. We learned this through evaluation, which does help. It’s been a recurring theme here today, and it’s very encouraging to hear such a positive discussion about the importance of metrics. It’s like taking pictures of your children as they grow. We tend to forget what they looked like unless we take snapshots.” He concluded by reminding the audience how much material on innovation clusters is still to be discussed, and promised an effort to

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121 SUMMARY OF PRESENTATIONS revisit the issue. Already planned for the near future were meetings on early-stage finance, renewable energy, and international programs. “We have much to learn from others,” he said, “and major opportunities to cooperate on how to capitalize on science and technology.”

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