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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.
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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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“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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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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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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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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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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