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GROWING CLUSTERS FOR AMERICAN PROSPERITY
OVERVIEW
While competition for innovative technologies and services is
increasingly global, the context of innovation—and the benefits it brings
in economic growth and high value employment—remains local.1
Innovation clusters are regional concentrations of large and small
companies that develop creative products and services, along with
specialized suppliers, service providers, universities, and associated
institutions. Ideally, they bring together a critical mass of skills and talent
and are characterized by a high level of interaction among these
entrepreneurs, researchers, and innovators.2 The high levels of
productivity and innovation found in many clusters are reflected in an
intensifying “locational competition” among nations and regions around
the world to attract the people, resources, and infrastructure believed
necessary to develop clusters in leading-edge technologies.3
In the United States, innovation clusters have sometimes developed
around a nucleus of government-funded laboratories and universities that
interact repetitively with the private sector; one example is the high-
technology industries that emerged and grew around the government
1
Michael Porter has observed that “the enduring competitive advantages in a
global economy lie increasingly in local things—knowledge, relationships,
motivation—that distant rivals cannot match.” See Michael E. Porter, “Clusters
and the new economics of competition,” Harvard Business Review, 76(6):77-90,
1998. For a review of current trends in the globalization of innovation and the
nature of locational competition, see Barry Jaruzelski and Kevin Dehoff,
“Beyond Borders: The Global Innovation 1000, Strategy and Business,
53(Winter), 2008.
2
For a review of the literature on the issue of innovation clusters, see J.
Cortright, Making Sense of Clusters: Regional Competitiveness and Economic
Development, Washington, DC: The Brookings Institution, 2006.
3
See Anne O. Krueger, “Globalization and International Locational
Competition; Symposium in Honor of Herbert Giersch.” Lecture delivered at
the Kiel Institute, May 11, 2006.
3
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4 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
laboratories and major universities in the Boston area.4 In other cases, for
example, Silicon Valley in California, multiple private industries
interacting with a major university, and irrigated with substantial and
sustained federal funding, created powerful developmental synergies.5 In
contrast to the relatively spontaneous emergence of these innovation
clusters, a third approach to the development of innovation clusters is
through the deliberate co-location of creative activity within the
concentrated geographical area, such as through a research park
development. The Research Triangle Park in North Carolina is a widely
cited example of such a created cluster.6
The perceived success of these and other U.S. innovation clusters has
led to widespread interest in creating and encouraging the development
of new clusters as a means of creating jobs and spurring competitiveness.
To this end, local, regional and national governments around the world
are implementing programs and policies to create, develop, and
strengthen locally focused networks among businesses, universities,
research and development organizations, and philanthropic foundations.7
A recent study by the Brookings Institution documents national cluster
4
See National Research Council, Understanding Research, Science and
Technology Research Parks: Global Best Practices, Charles W. Wessner, ed.,
Washington, DC: The National Academies Press, 2009.
5
See AnnaLee Saxenian, Regional Advantage: Culture and Competition in
Silicon Valley and Route 128, Cambridge, MA: Harvard University Press, 1994,
p. 161. See also Martin Kenney, ed., Understanding Silicon Valley: The
Anatomy of an Entrepreneurial Region, Stanford: Stanford University Press,
2000. See also T. J. Sturgeon, “How Silicon Valley Came to Be” in M. Kenney
(ed.), Understanding Silicon Valley: The Anatomy of an Entrepreneurial
Region, op. cit., pp. 15-47. See also Margaret Pugh O’Hara, Cities of
Knowledge: Cold War Science and the Search for the Next Silicon Valley,
Princeton: Princeton University Press, 2005.
6
For a comprehensive history of the Research Triangle Cluster, see Albert N.
Link, A Generosity of Spirit: The Early History of the Research Triangle Park,
Research Triangle Park: The Research Triangle Foundation of North Carolina,
1995. For a seminal study of the research parks phenomenon, see, M. I. Luger
and H. A. Goldstein, Technology in the Garden, Chapel Hill: University of
North Carolina Press, 1991, p. 5. For an update of this study, see M. I. Luger
and H. A. Goldstein, Research Parks Redux: The Changing Landscape of the
Garden, Washington, DC: U.S. Economic Development Administration, 2006.
7
Robert Lucas has long argued that the clustering and density of talented people
is a key driver of innovation and economic growth. See Robert Lucas, “On the
mechanics of economic development,” Journal of Monetary Economics 22:38-
39. Richard Florida has popularized the characteristics and economic advantages
of innovative clusters. See, for example, Richard Florida, The Rise of the
Creative Class, New York: Basic Books, 2002.
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5
OVERVIEW
development programs in Japan, the Republic of Korea, and 26 nations
in the European Union.8 National development programs are also
underway in the world’s emerging economies. China, notably, has
recently constructed 54 research parks, many of them on a very large
scale, as a part of a coordinated strategy for developing innovation
clusters.9
“Silicon Valley is probably the only place on earth not trying to copy
Silicon Valley.”
Robert Metcalfe, InfoWorld, March 2, 1998
The United States has no similar coordinated national effort underway
to build new research parks or develop new innovation clusters.10
Traditionally, state and local governments and, in some cases, private
foundations and other regional organizations have singularly or in
combination sought to stimulate the development and growth of clusters.
Some of these initiatives, including the development of a nano-
technology cluster near Albany, New York, have reported significant
8
See Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters and
Competitiveness: A New Federal Role for Stimulating Regional Economies,”
Washington, DC: Brookings Institution, April 2008.
9
China’s research parks vary in size and mission, but many are very large in
scale. For example, the Zhongguancun Science Park in Beijing hosts over
20,000 enterprises, employs nearly a million people, and has earned about $ 124
billion in income in recent years. See National Research Council,
Understanding Research, Science and Technology Parks: Summary of a
Symposium, op. cit. The Chinese government is seeking to develop technology
clusters through large investments in research parks. See Justin Tan, “Growth of
industry clusters and innovation: Lessons from Beijing Zhongguancun Science
Park,” Journal of Business Venturing 21(6):827-850, November 2006. See also
Cheng-Hua Tzeng, “Managing innovation for economic development in greater
China: The origins of Hsinchu and Zhongguancun,” Technology in Society
32(2):110-121, May 2010.
10
The United States currently has no legislatively authorized programs
specifically dedicated to comprehensively supporting cluster initiatives. Many
of the Department of Labor’s WIRED (Workforce Innovation in Regional
Economic Development) projects are cluster-focused, but WIRED is not solely a
cluster initiative program. See the Department of Labor WIRED website at
.
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6 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
11
achievements. In many cases, however, state and local efforts lack
critical mass in terms of funding and facilities and may also lack the
sustained policy support needed for success. To address this apparent gap
and to adjust to the changing international competitive environment,
some advocates have called for the federal government to play a more
active role in supporting the development of local innovation clusters.12
Speaking at the National Academies symposium on “Growing
Innovation Clusters for American Prosperity,” Susan Crawford, then of
the White House Office of Science and Technology Policy, said that the
Obama Administration is “committed to the idea of regional economic
clusters and their role in economic growth and innovation.” She noted
that innovation “cannot happen top-down alone, or bottom-up alone,”
suggesting instead that the federal government’s role may be to provide a
“kind of trellis” that supports the growth of entrepreneurial offshoots in
the nation’s states and localities.13
This volume is based on the National Academies symposium on
innovation clusters. The symposium included discussions on the nature
of clusters, descriptions of the experiences of several states in cluster
development, and views on the role of the federal government in
supporting clusters. It also included perspectives on the role that public-
private partnerships can play in supporting the growth of robust
innovation clusters. This workshop summary has been prepared by the
workshop rapporteur as a factual summary of what occurred at the
workshop. The planning committee’s role was limited to planning and
convening the workshop. The statements made are those of the
rapporteur or individual workshop participants and do not necessarily
represent the views of all workshop participants, the planning committee,
or the National Academies.
I. UNDERSTANDING THE CLUSTERING OF INNOVATION
Although there are numerous ongoing efforts around the world to
build new innovation clusters, the nature of these clusters and how they
evolve remains in many ways an enigma. Clusters have been described
11
For an account of the role of the state of New York in the creation of this
cluster, see the presentation of Pradeep Haldar, in the Summary of Presentations
section of this volume.
12
See Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, op. cit. See
also Jonathan Sallet, Ed Paisley, and Justin R. Masterman, “The Geography of
Innovation, The Federal Government and the Growth of Regional Innovation
Clusters.” Science Progress, September 1, 2009.
13
See the presentation by Susan Crawford in the Summary of Presentations
section of this volume.
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7
OVERVIEW
as a “combination of geographically co-located private sector producers
of R&D, related manufacturing and services industries, linked or related
suppliers and producer services providers, leading research universities
and teaching institutions, and government sponsored labs and technology
programs.”14 But there is more to the phenomenon of clusters than this
static description. Reflecting the non-linear and interactive nature of
innovation, successful clusters exhibit a culture of entrepreneurship
emerging from dense networks of trust and cooperation that reaches
across multiple organizations.15
Cooperation, Culture, and Clusters
As Professor Maryann Feldman of the University of North Carolina at
Chapel Hill noted at the National Academies symposium, this culture of
innovation can emerge when face-to-face interactions enhance localized
networks of trust, reciprocity and cooperation.16 Cooperation improves
further when innovators develop a common vocabulary and a grammar to
communicate with each other. Professor Feldman noted that this
knowledge, and the language associated with it, grows as it is shared
within a community. These network effects, in turn, lead to increasing
returns and greater productivity from economic activity.
14
See Edward Feser, “Industry Cluster Concepts in Innovation Policy: A
Comparison of U.S. and Latin American Experience,” in Interdisciplinary
Studies in Economics and Management, Volume 4, Vienna: Springer, 2005.
15
As Tödtling and Trippl note, “innovation should be seen as an evolutionary,
non-linear, and interactive process, requiring intensive communication and
collaboration between different actors, both within companies as well as
between firms and other organizations such as universities, innovation centers,
educational institutions, financing institutions, standard setting bodies, industry
associations, and government agencies.” See Franz Tödtling and Michaela
Trippl, “One size fits all? Towards a differentiated regional innovation policy
approach,” Research Policy 34, 2005.
16
Using controlled laboratory experiments, Elinor Ostrom and her colleagues
find that face-to-face communication has a major effect on building trust,
reciprocity and cooperation. For a recent review of the findings, see Marco A.
Janssen, Robert Holahan, Allen Lee, and Elinor Ostrom, “Lab Experiments for
the Study of Social-Ecological Systems,” Science 328(5978):613-617, April
2010.
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8 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
“Cluster formation is a process predicated on the actions of
entrepreneurs and their symbiotic relationships with their local
environments. The cluster and its characteristics therefore emerge
over time from the individual activities of the entrepreneurs and the
organizations and institutions that evolve to support them.”
Maryann P. Feldman and Johanna L. Francis, “Homegrown
Solutions: Fostering Cluster Formation,” Economic Development
Quarterly, 18(2), May 2004
“When we look at firms in that context,” Professor Feldman noted,
“we realize why they benefit from strategic location. This doesn’t mean
firms that are attracted to a jurisdiction for a while and then move out. It
means that firms have deep roots and deep social connections.”17 In this
light, she said, it is logical that cluster formation reflects the local
qualities of the place where it forms. Given that clusters are based on
interactions rooted in the language and culture of a particular time and
place, it also follows that replicating a successful cluster model
elsewhere can be highly elusive.
No Simple Formula
While there is no ready formula for recreating an innovation cluster,
analysis of the creation of clusters indicates some broader principles at
work. Typically, some triggering event, coupled with an entrepreneurial
spark, in the context of favorable framework conditions, seem necessary
in order for industry clusters to emerge and enter a sustainable growth
trajectory. In their review of the genesis of clusters, Feldman and
Braunerhjelm note that “clusters are born and develop on the basis of
specific combinations of capabilities, incentives, and opportunities.” 18
The presence of capabilities—including the presence of localized
knowledge, a skilled workforce, and the availability of capital—creates
opportunities for entrepreneurship and collaboration, where these
opportunities can be realized in the presence of appropriate incentives.
17
See Pontus Braunerhjelm and Maryann Feldman, Cluster Genesis: Technology
based Industrial Development, Oxford: Oxford University Press, 2006.
18
Ibid, p. 5.
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9
OVERVIEW
A Role for Public Policy
Public policies can play a role in developing the necessary
capabilities, opportunities, and incentives for the development of
clusters. In the United States, state and local governments have a leading
role in supporting the development of clusters. Complementing state and
local efforts, the federal government can play an important role in
strengthening cooperative linkages within local innovation ecosystems.
Public-private partnerships, along with other institutional intermediaries,
help shape the incentives needed to foster cooperation among scientists,
research administrators, entrepreneurs, financers, and other participants
within an innovation cluster.
As we see next, the National Academies symposium examined a
variety of initiatives underway among U.S. states to stimulate the
emergence and growth of innovation clusters. It also reviewed the role
that the federal government and private foundations can play in
supporting these efforts.
II. SUPPORTING CLUSTERS: THE ROLE OF THE STATES
In the United States, industry cluster strategies have chiefly been a
concern of states, regions, and metropolitan areas. Participants at the
National Academies symposium examined how a number of states—
New York, Pennsylvania, Virginia, South Carolina, Kansas, Ohio,
Washington, California and Arizona—are experimenting with policies to
encourage the development of industry clusters.19 These initiatives can
be seen as ongoing experiments that can yield valuable insights on the
role and limits of public policy in encouraging cluster-based economic
growth and employment. (See Box A.)
Drawing on presentations at the June 2009 symposium on innovation
clusters, this overview illustratively contrasts the circumstances
associated with the formation of the regenerative medicine cluster in
California and the nano-technology cluster New York—two large states
with diversified economies—with steps taken by Kansas and South
Carolina—two smaller and traditionally rural states—to encourage
cluster development.
19
See the presentations my Michael Crow (Arizona), Pradeep Haldar (New
York), Rebecca Bagley (Pennsylvania), Richard Bendis (Kansas and
Pennsylvania), John Matheisson (Virginia), Egils Milbergs (Washington), David
McNamara (South Carolina), Ed Penhoet (California) and Luis Proenza (Ohio).
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10 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
Box A
Policy Experimentation in the U.S. Federal System
“There must be power in the states and the nation to remold, through
experimentation, our economic practices and institutions to meet
changing social and economic needs…It is one of the happy incidents
of the federal system that a single courageous state may, if its citizens
choose, serve as a laboratory; and try novel social and economic
experiments....”
Justice Louis Brandeis’ dissent in New State Ice Company v.
Liebmann, 1932
Clustering in California
Home to Silicon Valley and Hollywood as well as agricultural
clusters, California’s innovation economy benefits from a strong system
of state-supported universities, major research centers, and leading
national laboratories. The state is also home to a large pool of talented
people and a vibrant entrepreneurial culture. In his remarks Dr. Ed
Penhoet observed that “talented people live everywhere, but for
innovation, you need people with the courage to start a new business, and
an environment that supports this. (See Box B)
Box B
A Key Role of States: Creating a Climate for Entrepreneurial
Activity
According to Ed Penhoet, state governments can play a central role
in creating a climate for entrepreneurial activity, he said, by
following some common-sense guidelines.a These may include:
• Put all the pieces together. Make R&D investments part of a
coordinated innovation strategy.
• Make the right bets. Each region has its own strengths, and a
regional strategy should build on them. “You do have to choose
winners,” he affirmed. “But this is not the same as creating them.
People often ask how to build a biotech industry, as though there
is a secret formula. They fail to understand that what is required
is the fertile ground to plant the seed.” There has to be a reason
to think the business will thrive where you put it.”
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11
OVERVIEW
• Innovate for the real world—globally and locally. Research
must be relevant to industry and the community. The issue is not
so much ownership as where you actually locate economic
activity.”
• Invest in collaboration. Innovation needs partners from
universities, industry, and government.
• Listen to the smart people. “There are hard decisions in this
process, and you will need the best advice. Too many groups
have tried to act in isolation.”
• Be consistent while embracing change. Innovation needs both
flexibility and sustained effort.
• Make sure you get what you want, but be patient. It will take
time to accomplish long-term goals, but measuring short-term
gains is critical to getting there.
a
Excerpt from the remarks made by Ed Penhoet of the STEP Board and
summarized in the Summary of Presentations section of this volume.
Dr. Penhoet noted that in addition to what many see as a positive
climate for innovation, the State of California also engages in direct
efforts to transform its investments in knowledge into commercial
products, new firms, and additional employment through large and
sustained investments in the research and development of emerging
technologies and public-private partnerships.
In addition, California has created a number of large innovation funds
including the University of California Discovery Grants, which offers
seed grants to move projects out of the university laboratory and into
early-stage development. The California Institutes for Science and
Innovation provide another means to spur partnerships between
university research interests and private industry that could expand the
state economy into new industries and markets and “speed the movement
of innovation from the laboratory into peoples' daily lives.”20 These
institutes have received a total state investment of $1.2 billion, equally
distributed among the four research centers.
Dr. Penhoet, who also serves as a vice chair of the California Institute
of Regenerative Medicine, described a state initiative to develop a new
medical cluster in the state. This story began, he said, when California
voters approved Proposition 71 in 2004 to establish the California
Institute of Regenerative Medicine to regulate and fund stem cell
research. This proposition was passed at a time when the federal
government did not support stem cell research. The measure was paid for
by issuing $3 billion in state general obligation bonds, which was the
20
State of California, Governor’s Budget summary 2001-2002.
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12 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
first time a state has raised that much money for a specific kind of
research.
Proposition 71 had two explicit goals. One was to find cures for
disease using stem cells as a therapy or tool. The second was to enhance
California’s competitive position as the world’s leading biotech region.
Taking advantage of the hiatus in federal funding for stem cell research,
funding for the state’s stem cell initiative has established in California
the most robust regenerative medicine program in the world, he said,
attracting numerous scientists from within and outside the United States.
“So it has had a positive effect.”
New York’s Nano Initiative
Dr. Haldar, of the New York Energy and Environmental Technology
Applications Center, described the rapid evolution of a high-technology
cluster near Albany that is reversing the economic fortunes of the region.
The effort began in the 1990s, when much of upstate New York was in
an “economic shambles.” Manufacturing jobs were disappearing from
every region: steel mills from Buffalo, high-tech Xerox and Kodak jobs
from Rochester, the gas turbine division of General Electric from the
capital. Traditional industries, such as textiles, shoes, and typewriters had
long since moved offshore.
The State Government Role. This situation began to change in the
1990s, said Dr. Haldar, as a result of energetic state leadership. Governor
George Pataki assembled a diverse group of stakeholders to develop a
strategy to revive the economic fortunes of the Upstate region.
Subsequently, the state of New York provided grants, tax breaks, and
other subsidies of more than $1 billion to encourage big-company
investments and foster the birth of small start-ups. To sustain the
momentum towards the development of a high-technology cluster, the
state also sought to integrate research and development, education, and
business strategy around Centers of Excellence, anchored by the State
University of New York.
Technology Focus. New York’s strategy identified nanotechnology as
a main area of focus, launching in 1993 a Center for Advanced
Technology. This was joined in 1997 by a NanoFab facility, and the
following year the Semiconductor Industry Association (SIA) chose the
site for a National Focus Center Consortium. Accelerating this trend,
IBM in 2001 decided to build its new Nanoelectronics Center of
Excellence in Albany, along with a consortium of partners. This news
was followed in 2002 by the announcement that SEMATECH would
establish a new research center there, called International SEMATECH
North. In 2002 a TEL R&D Center was added, and in 2003 a NanoFab
300S, and in 2005 an ASML R&D Center.
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13
OVERVIEW
University Research and Workforce Development. These new
enterprises all needed a highly trained workforce. At the time, the
Albany campus of the State University of New York had no engineering
department. Starting from scratch, the state established a College for
Nanoscale Science and Engineering (CNSE) in 2004, which has since
seen remarkable growth. By 2007, Small Times Magazine ranked CNSE
as the number one college in the world for nanotechnology. Today CNSE
has 48 faculty members and 150 graduate students. An undergraduate
program is scheduled to begin in 2010.
The Kansas Experience
States like Kansas have also adopted focused strategies, albeit
drawing on more limited budgets but leveraging existing capacities and
strengths to develop industries deemed to have the highest potential for
growth. Richard Bendis, a former president and chief executive officer of
the Kansas Technology Enterprise Corporation (KTEC), described
efforts in Kansas to develop high-technology clusters.
The State Government Role. The state of Kansas established KTEC as
a public-private partnership to promote the state’s technology-based
economic development. With funding determined yearly by the state
legislature, KTEC manages a portfolio of programs, investments,
subsidiaries, and affiliates that support the development and
commercialization of new technologies developed by Kansas
entrepreneurs and technology companies.
Mr. Bendis noted that KTEC’s plan recognizes that Kansas is a
“flyover state,” which means that Kansas cannot expect to benefit at the
outset from top-tier research institutions or the presence of a large
venture capital community. To overcome these limitations, Mr. Bendis
underscored that “we had to link our strategic plan to local and national
opportunities that matched the capacities in the region.” “We developed
a Strategic Assessment Framework to see how Kansas ranked against
national and global opportunities, based on the capacities it had at the
local level.” The assessment found that Kansas had high capacity ratings
in four areas: human biosciences, agriculture and agricultural
biotechnology, information and communications technology, and
aviation.
Technology Focus. KTEC decided, in consultation with the state’s
four major universities, that biotech and biosciences sectors were the
strongest candidates for the development of innovation clusters, followed
by information and communications technology sector. Interestingly,
while the state has a significant agricultural sector, it was not seen to
have the potential for strong future growth. Likewise, based on long-term
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18 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
stronger national economy.”25 Drawing from a paper coauthored with
Karen Mills and Elisabeth Reynolds, he suggested three principles to
guide federal participation:
• Bottom-up. First, federal programs should be flexible, bottom-up,
and collaboration-oriented, rather than top-down, prescriptive, and
input-focused.
• Incentive-based. Second, the government should use a kit of diverse
tools to improve market information and incentivize
entrepreneurship though the selective use of grants.
• Appropriately funded. Third, a federal effort should be funded at a
level appropriate to need.
Dr. Reamer concluded by saying that the federal effort should build
and rely on the capacity of state and regional organizations so they can
serve as effective local catalysts. Federal policy should also link,
leverage, and align existing federal programs that support regional
economic development.
Box E
Making Cluster Support a Federal Priority
“Who’s going to create the good-paying jobs here in America?
They’re going to be innovation-driven companies that grow to be our
new foundation for competitiveness. We have to think, “Where in the
federal government is that initiative going to live?” The answer is that
it is going to live in multiple places, so we need to create an umbrella
structure that will make that a priority. That initiative is now in
formation.”
Karen Mills, SBA Administrator
Putting $100 Million to Work for Clusters
Jonathan Sallet of the Glover Park Group stated in his symposium
presentation that clusters are part of national competitiveness strategies
in most countries except for the United States. This, however, is
changing. In the FY 2010 budget, President Obama has requested $100
million in appropriations to support regional clusters and associated
business incubators.
25
See Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters
and Competitiveness: A New Federal Role for Stimulating Regional
Economies,” op. cit.
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OVERVIEW
To use this budget successfully, Mr. Sallet suggested that the federal
government deploy its existing mechanisms more effectively. As a first
step, he suggested a more explicit involvement of the Economic
Development Administration (EDA) with cluster development. Because
the EDA is in the Department of Commerce, he observed, it is well
positioned to complement other relevant Commerce programs, including
the Technology Innovation Program, Manufacturing Extension
Partnership, export assistance from the International Trade
Administration, and infrastructure funding from National
Telecommunications and Information Administration and NOAA.
He suggested that a federal program to support clusters should have
three key features: competitive grants, a program of information
exchange, and coordinated delivery of expert assistance. The grants
program, he said, should be competition-based and flexible to maximize
efficiency and should be matched by industry contributions. These grants
could be used for business incubators, training programs at universities,
and technology transfer for small and medium-sized firms. States have
little or no money available for such programs now.
The federal government can also provide data on cluster formation,
performance, and composition from a national information center.
Participants within the cluster can benefit by knowing what businesses
are located there, or have filed patent applications, which suggests the
level of expertise. Also, clusters have much to teach other clusters, which
“is a fundamental aspect of what we ought to be trying to achieve here.”
Finally, Mr. Sallet noted that the delivery of federal assistance could
also be facilitated by a “one stop” delivery mechanism that draws
together the expertise from existing Department of Commerce programs
related to infrastructure, trade, and technology; programs of the Small
Business Administration; the WIRED26 program of the Department of
Labor; and other business-generating efforts with a regional focus.
IV. PARTNERSHIPS AND THE INNOVATION ECOSYSTEM
Public-private partnerships can play an instrumental role in fostering
technology clusters. They encourage collaboration among industry,
government, universities, and foundations in research and development
26
The Department of Labor’s Workforce Innovation in Regional Economic
Development (WIRED), was initiated in 2005. According to its website, it “goes
beyond traditional strategies for worker preparation by bringing together state,
local and federal entities; academic institutions (including K-12, community
colleges and universities); investment groups; foundations; and business and
industry to address the challenges associated with building a globally
competitive and prepared workforce.” .
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20 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
and provide the positive incentives necessary for entrepreneurship, thus
helping to foster a robust innovation ecosystem.
In a comprehensive study of federal innovation partnerships, the
National Research Council found that appropriately structured
partnerships contribute to national missions in health, energy, the
environment, and national defense, as well as to the nation’s ability to
capitalize on substantial R&D investments. 27 Successful partnerships
tend to be industry initiated and led, with public commitments limited in
time and defined in scope. At the same time, partnerships are not a
panacea; the high-risk, high-payoff nature of innovation research and
development assures that not all partnerships will be successful.
Participants at the National Academies symposium discussed the role
of federal innovation awards and S&T research parks—two important
types of partnerships—in the development of innovation clusters and the
role universities and foundations play in encouraging the development of
clusters.
The Role of Innovation Awards—The Technology Innovation
Program
“Imperfections in capital markets can sometimes pose major
challenges to small firms seeking to bring their innovations to market.”28
Programs like the Technology Innovation Program (TIP) of the
Department of Commerce provide competitively awarded grants that can
help innovative firms secure early-stage funding.
Marc Stanley, then the program’s director, described TIP’s three key
features. First, it emphasizes societal challenges that are not being
addressed and that have potential benefits that extend significantly
beyond the proposed project. Second, because of its location at NIST, the
program has exceptional scientific and technical ability to review and
support high-risk, high-reward research. Third, the program has strong
potential to advance research, contribute to the U.S. science and
technology base, and help the nation deal with major societal challenges.
“What I’m interested in,” he said, “is investing in disruptive
technologies.” In particular, Mr. Stanley noted that the TIP program is
focused on early-stage basic research and investment in areas of critical
national needs. Only small and medium-size companies were eligible to
27
For a review of best practices among federal partnerships, see National
Research Council, Government-Industry Partnerships for the Development of
New Technologies, Charles W. Wessner, ed., Washington, DC: The National
Academies Press, 2003.
28
National Research Council, Government-Industry Partnerships for the
Development of New Technologies, op. cit., p. 11.
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participate, and the majority of joint ventures are being led by
universities.29
He said that the TIP looks for ways to support clusters and other state
programs that share this spirit of adventure. TIP could do so, he said, by
bringing federal R&D dollars and helping retain or develop high-tech
industries located in different parts of the country. This has the effect of
bringing and maintaining high-tech jobs to those regions, increasing local
revenues.
The Role of Research Parks
“Research parks are a type of public-private partnership that fosters
knowledge flows—often between park firms and universities and among
park firms—and contributes to regional economic growth and
development. These partnerships enhance both formally and informally,
the efficiency of innovation within park firms, universities, and national
laboratories.” 30
Speaking at the symposium, William Kittredge of the Economic
Development Administration cited a recent example from Fargo, North
Dakota. Recognizing that its competitive advantage lay in the high
number of students graduating from its engineering school, North Dakota
State University (NDSU) drew the University of North Dakota, along
with the EDA, state and county governments, entrepreneurs, and people
from the community, together to form a successful technology park
adjacent to the NDSU campus. “This is not a traditional place, or a
Silicon Valley,” Dr. Kittredge said. “It started with existing assets,
brought everyone together, and came out of ideas on how a local
competitive advantage might be exploited.”
Science and technology research parks are seen increasingly as a
“proven tool to create successful new companies, sustain them, attract
new ones—especially in the high-technology sector—and make existing
companies more successful using R&D. Today, countries as diverse as
China, Singapore, Mexico, and France are among those undertaking
substantial national efforts to develop research parks of significant scale
and scientific and innovative potential. In many cases, these research
parks are expected to generate benefits that go beyond regional
development and job creation. Indeed, to the extent that research parks
and the clusters they engender are effective, they have the potential to
29
Large companies may participate as joint venture members that fully fund their
participation, as contractors, or as informal collaborators.
30
See National Research Council, Understanding Research, Science and
Technology Parks: Global Best Practices, op. cit., pp. 11-12.
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22 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
shift the terms of global competition, not least in leading technological
sectors.” 31
The Changing Role of Universities
The role of universities has evolved tremendously over the past two
decades. In today’s knowledge economy, universities are recognized
increasingly not only as centers of learning but also as focal points of
regional growth and employment.32
Today’s science-driven industry increasingly draws upon university
research for new ideas for improved products and processes, while
university researchers frequently draw ideas from commercial trends to
explore new veins of scientific inquiry.33 Support of university research
by industry is also a common source of funds for equipment and research
assistance for university laboratories.34 Such partnering between
university and industry contributes to innovation and growth in the
United States and is expected to remain an indispensable element for
future economic growth.35 This recognition, in turn, is focusing new
policy attention to strategies that grow new technology-based companies
and growth clusters and the role that universities can play in this regard.36
31
For a review of selected national and local investments around the world to
develop research parks, see National Research Council, Understanding
Research, Science and Technology Parks: Global Best Practices, op. cit.
32
See Roger L. Geiger and Creso M. Sá, Tapping the Riches of Science:
Universities and the Promise of Economic Growth, Cambridge MA: Harvard
University Press, 2009. See also Federal Reserve of Chicago, “Can Higher
Education Foster Economic Growth?—A Conference Summary,” Chicago Fed
Letter March 2007.
33
Rosenberg and Nelson have argued that university research enhances and
stimulates R&D in industry, while Pavitt (1998) describes such research as
“augmenting the capacity of business to solve complex problems.” See N.
Rosenberg, and R. R. Nelson, “American universities and technical advance in
industry,” Research Policy 23:323-348, 1994. See also K. Pavitt, “The Social
Shaping of the National Science Base,” Research Policy 27:793-805, 1998.
34
Y. S. Lee, “The Sustainability of University-Industry Research Collaboration,”
Journal of Technology Transfer 25(2), 2000.
35
Bronwyn Hall, “University-Industry Research Partnerships in the United
States,” Kansai Symposium Paper, February 2004.
36
Some analysts point out, however, that not all universities are structured and
funded in ways that encourage commercialization. They point to university
technology transfer offices (TTOs) that are often faced with conflicting demands
of generating revenues while managing the high volume of early-stage
innovations resident and available for potential commercialization See Robert E.
Litan, Lesa Mitchell and E. J. Reedy, “The University as Innovator: Bumps in
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“It is hard to overstate the importance of a university in a cluster.”
Ed Penhoet, STEP Board
In their presentations, the presidents of Arizona State University
(ASU) and the University of Akron described how their institutions have
successfully taken on the challenge of research commercialization and
regional development. Describing the experience of Arizona State
University, Michael Crow said that his institution is taking steps to grow
and adapt with the changing needs of the rapidly growing Phoenix region
by becoming a center of knowledge creation, knowledge discovery, and
commercialization. This task, he noted, began with a restructuring of the
university seven years ago. The university’s goal, he said, was to become
a “central node of an integrated knowledge discovery and
commercialization network.” To this end, ASU has developed its own
approach to innovation, rather than following models developed
elsewhere.
This approach includes engaging with the aerospace and other extant
industries in Phoenix to reinforce existing technology clusters as well as
developing new clusters by working with the Army on flexible display
technologies and with the EPA on renewable energy technologies.
Describing the experience of the University of Akron, Luis Proenza
said that his institution has focused on opportunities, beginning with
underutilized assets and the greater flexibility of the new economic
environment. “We began,” said Dr. Proenza, “with the realization that
the university was nearing its 130th birthday. The college opened the
first rubber chemistry program in 1909, and, along with the major tire
the Road,” Issues in Science and Technology Summer 2007, pp. 57-66. Others
note that universities generally do not do not have the financial resources to
provide early-stage capital, specialized support services to the inventors,
entrepreneurs, and start ups, and a physical infrastructure and organization that
allows their research faculty and students to network with corporate partners,
investors, service providers and other entrepreneurs to help build and grow
cluster capabilities. See Diane Palmintera, “Accelerating Economic
Development through University Technology Transfer,” Innovation Associates,
February 2005. This makes it harder for university based entrepreneurs to secure
outside early-stage capital, even as angels and venture capital funds shift their
focus to larger and later stage investments. See Bo Fishback, Christine A.
Gulbranson, Robert E. Litan, Lesa Mitchell and Marisa Porzig, “Finding
Business “Idols”: A New Model to Accelerate Start- Ups,” Kauffman
Foundation Report, 4, 2007.
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24 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY
companies located in Akron, developed what is today the “largest
polymer program in the world.”
Akron also formed its own research foundation in 2001 to build on its
historical record of research. “This record is very complex and
comprehensive,” he said. “A university’s impact on its region through its
own technology and outreach is far broader than we’d recognized.” The
university began by looking at local knowledge assets. Many companies
were downsizing and could no longer manage their technical libraries.
Some of them donated their libraries to the university where they could
be managed at much lower cost. They took advantage of available space
to work more actively on industry research projects. The Ohio Research
Foundation was developed expressly to offer university services to other
institutions.
More broadly, the university began to transform itself and the region
in fundamental ways. It found that 7,000 of its 23,000 students were not
living on campus because housing had been neglected for so long. The
neighborhood around the campus had little vitality. In response, the
university launched an initiative that resulted in a virtual rebuilding of
the campus and improvements to a 40-block area around it. “The goal is
to make the whole area a nice place to live, learn, work, shop, and play,”
said Dr. Proenza.
Under President Proenza’s leadership, the University of Akron has
also launched partnerships with other industries in northern Ohio. At the
request of Proctor & Gamble, headquartered in Cincinnati, the university
also started a series of Open Innovation Seminars. Their purpose was to
promote outreach and networking among companies—to transform
corporate culture from an inward-looking, isolated model to one of open
innovation in which firms are receptive to the ideas of partners.
Another initiative undertaken by the University of Akron is the
Bioinnovation Institute, which grew out of existing local strength in
polymers. “The human body, when you take away the water and the
calcium, is basically polymeric stuff. So the concept of biomaterials
becomes an exceptional opportunity to deepen the relationship between
materials science and biomedicine. We asked the three major hospitals in
Akron, as well as a regional public medical school, to join in forming
this new entity. They agreed, and it was catalyzed by another grant from
the Knight Foundation. This initiative is dedicated to making Akron the
#1 biomaterials and orthopedic research program in the world.”
The Catalytic Role of Foundations
Private foundations can play a catalytic role in the development of
local innovation clusters. In his presentation, Dr. Bo-Linn of the Gordon
and Betty Moore Foundation described three unique roles played by
foundations. First, he said, foundations can identify “possible pockets of
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innovation and inflection points. We are not encumbered by an existing
bureaucracy. In many cases the founders are businessmen and
entrepreneurs who have long personal experience in finding and
supporting those pockets of innovation and inflection points.”
Second, he said, foundations are able to provide seed money outside
the traditional funding process. This differs from the venture capital
approach in that foundations can take longer to examine a project, pursue
a deeper due diligence examination, and support more capacity building.
With its flexibility and stature, a foundation can take risks, act quickly,
and catalyze consensus. He noted that the tradition of philanthropy was
being enriched by “a whole array of Silicon Valley entrepreneurs who
have been enormously successful, and who are putting their money into
foundations. The difference is that the living founders play a key role in
their foundations. They want to know that something’s happening, that
innovation is occurring.”
Third, the stability, resources, and freedom from political pressures
allow a foundation to stay with a project for the long run. Gordon Moore,
he said, believed that success takes about 10 years measure. “He feels
that if you want to see change, then you have to commit to it.” Once the
Moore Foundation has done its due diligence, which takes about 18 to 24
months, it usually commits several hundred million dollars for 10 to 15
years.
Foundations often focus their resources on particular localities and
themes. For the Moore Foundation, 58 percent of the foundation’s grants
from 2000 to 2009 were awarded to recipients in California ($810
million, in 938 grants) and 42 percent outside California ($981 million,
in 677 grants). Similarly, the Heinz Endowments focuses its efforts on a
geographical area—Southwestern Pennsylvania, including the city of
Pittsburgh. Christina Gabriel described how Heinz and other foundations
have joined with community development organizations and the state to
integrate the city’s dilapidated Hill District with more prosperous
adjacent zones into a new Pittsburgh Central Keystone Innovation Zone.
Dr. Gabriel foresaw that this “KIZ” would feature “direct and deliberate
bridges” to connect the Hill to the surrounding high-tech clusters.
Philanthropic foundations also often reflect a founder’s personal
history and interest. Reflecting Betty Moore’s interest in nursing, the
Moore foundation provides funds for the Betty Irene Moore Nursing
Initiative and the Betty Irene Moore School of Nursing, thereby
addressing a major need for the health care system. The primary theme
of these investments is workforce development, which is shaped by the
foundation’s conviction that more and better nursing education and
training are essential to keeping the quality of health care high and the
costs low.
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Clusters and Institutional Diversity
These symposium presentations on public-private partnerships,
research parks, universities, and foundations provide examples of how
these entities can each contribute to the creation of dense localized
networks of trust, reciprocity, and cooperation associated with robust
innovation clusters. Federal partnership programs like the Technology
Innovation Program provide competitively awarded grants that help
innovative firms to secure early-stage funding, while bringing federal
R&D dollars to help develop and retain high-technology companies
located in different parts of the country. As Marc Stanley noted, this has
the effect of creating and sustaining high-value employment in the
nation’s regions while increasing local revenues.
Research parks facilitate knowledge flows between firms and
universities—where firms can draw from university research and
students benefit from a local market for their knowledge and skills—
while helping regions develop a well-recognized brand name. For their
part, many universities are restructuring to become centers of knowledge
creation, knowledge discovery, and commercialization. As Michael
Crow of ASU and Luis Proenza of the University of Akron pointed out at
the symposium, 21st century universities are actively seeking to develop
complementarities between their own assets and expertise and the needs
of regional companies.
Lastly, as George Bo-Linn of the Moore Foundation and Christina
Gabriel of the Heinz Endowments noted, private foundations can often
leverage the strong personal interest and extensive business experience
of their benefactors to provide the leadership, resources, flexibility, and
stability needed to address missing gaps and connect firms and
universities to neighborhoods.
As Professor Feldman noted in her presentation, this institutional
diversity—partnerships, research parks, universities, and foundations,
together with state, regional, and national governments—helps create the
localized networks of trust and collaboration we call innovation clusters.
V. IN CLOSING
As knowledge-based competition intensifies, countries around the
world are making major investments in creating and encouraging the
development of new clusters as a means of creating jobs and spurring
competitiveness. Until recently, the United States had no similar national
effort underway although, as described in this report, a number of states
and regions have launched major programs to stimulate cluster
development.
However, as Jonathan Sallet noted in his presentation, recent federal
and state initiatives provide significant resources to develop regional
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centers of innovation, business incubators, and other strategies to
encourage entrepreneurship and high-tech development. This has led to
renewed interest in understanding the nature of innovation clusters and
public policies associated with successful cluster development.
This STEP symposium addressed this policy interest. The
deliberations, summarized in the next chapter, brought together senior
officials from the White House and other federal agencies,
representatives of leading state and university programs, congressional
staff and other policymakers to explore current knowledge on the role of
clusters in promoting economic growth, the state and federal
governments’ role in stimulating clusters, and the contributions of
universities and foundations to their development.
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