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LUNCHEON ADDRESS Karen Mills Small Business Administration Karen Mills, who has been an active hands-on investor in and successful manager of small businesses since 1983, began by recalling several experiences in Maine, where she was appointed to chair the state’s Council on Competitiveness and the Economy in 2007. There she focused on attracting investment to rural and regional development initiatives. She was able to help Maine boat builders win a WIRED grant to apply new composite technology to boat building, a traditional industry. She also developed support for local and regional producers of many products, from disability insurance (in Portland) to blueberries and lobsters.1 “This work gave me a passion for what you all know so well,” she said. “I understood that if you are going to create jobs, you do it from the ground up in these clusters.” Scope of the SBA In 2009, she was appointed administrator of the Small Business Administration, where her opportunities are far wider. The SBA has an extensive nationwide reach, with $90 billion of loan guarantees in direct loans, scores of chapters, and many small-business development centers that provide advice and service. The Administration now employs some 2,000 people, 1,000 of them outside the Beltway. The ideas being discussed at the symposium, she said, were finally moving to forefront of policy making in the federal government. “These ideas have been bubbling up for years,” she said, “but the federal government has been absent. The agencies have been living in silos, and with an attitude that the government doesn’t have a role in regional economic development.” Referring to the paper that she, Andrew Reamer, and Elizabeth Reynolds had written for the Brookings Institution,2 she recalled the 250 1 The Maine Technology Institute administers the state-funded cluster grant program with initiatives in boatbuilding, composite technology, food, forest products, and sustainable energy. 2 Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies,” op. cit. 89

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90 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY federal programs that had responsibilities in regional innovation. Most of these programs, she said, were in the Departments of Labor, Commerce, Energy, and the SBA, with additional elements being added by the Recovery Act. “You see how all these endeavors are designed to do the same broad thing,” she said: “Drive innovation and create jobs. We know that 70 percent of new jobs are created by small businesses. About 50 percent of the population either owns a small business or is employed by one.” An Umbrella Structure in the Federal Government She said that large companies have already found the necessity to compete globally, and to locate their assets around the world. “Who’s going to create the good-paying jobs here in America?” she asked. “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. This is the moment. The piece that’s missing is not the understanding that this will be the underpinning, but the structure that puts it there.” She concluded her brief talk by asking the participants for their input on designing a “structure that will let us turn innovation into jobs.” This is especially urgent in towns and regions hard-hit by the recession, she said. “It is not going to be a perfect structure,” she said, “nor necessarily elegant, but we have the opportunity to do a number of things that are going to bring together all of these programs in a powerful way.” Discussion Christina Gabriel of the Heinz Endowments asked about working with the SBA. She noted that the programs supported by the SBA did not always fit the small high-tech companies that were trying to grow out of universities or other companies. In particular, she said, banks and other lenders tended to label technology companies as high-risk, greatly reducing their chances of funding when compared with companies that do not have this label, such as a food franchise. Ms. Mills tried to clarify the situation by describing two kinds of small business. “There are Main Street small business, and a high-growth, high-impact small business,” she said. “They have different needs.” She said that the SBA has always had many programs that deal with “the restaurant on Main Street. It’s gonna close, it’s gonna open, and when it opens it needs an SBA loan to do the new fixtures. All of that churn we support and if we don’t, we won’t have those jobs.”

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91 SUMMARY OF PRESENTATIONS The high-growth firms rely on other programs, especially SBIR. She urged participants to write letters of support for this program, which was then up for reauthorization. She said it would probably need additional equity capital programs—“ the next-generation SBICs.”3 The SBIC was a relatively early design initiated “when you didn’t have a lot of the other tools.” She noted that the distinction between “Main Street” and high- growth companies did not mean old vs. new. Many firms of both kinds had been functioning for decades, she said; the average firm receiving SBA assistance was 24 years old. “Some technology companies have been there for generations,” she said. “They’re in every sector, and we need to be there for them as well as for Main Street.” Jane Muir of the University of Florida said that the technology licensing office had helped start about 10 companies a year based on university technology. She asked whether the SBA might create additional programs to help new firms survive the rigors of pre- commercialization development. Ms. Mills said that her agency had “a placeholder pilot in the budget,” but that the effort was “very much in the initial stages.” Reauthorizing the SBIR Program Dr. Wessner referred to earlier comments about the importance of using existing programs to aid the economic recovery, rather than starting new ones. He asked whether Ms. Mills favored an expanded Phase III (the commercialization phase) for the SBIR program. She responded by first thanking the National Research Council for its recent analysis of the SBIR program. This analysis, she said, allows the SBA for the first time to go into the reauthorization process with a “fact-based analysis. This is very powerful and positive for us.” She said that SBA’s present priority was reauthorization, using a lot of the NRC recommendations, and in using the current program to its full potential before thinking about expansion. Mr. Milbergs, referring to the regional economic development plans of the state of Washington, asked advice on how to integrate the components of the state innovation economy across multiple agencies. Ms. Mills said there was no single model, but that the President placed high priority on integration among agencies—on using taxpayers’ money efficiently. Her agency worked closely with the Department of Commerce and the U.S. Trade Representative, she said, to integrate export activities. “There’s no point in having five different voices,” she 3 Small Business Investment Companies (SBICs), with their own capital and with funds borrowed at favorable rates through the Federal Government, provide venture capital to small independent businesses, both new and already established. .

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92 GROWING INNOVATION CLUSTERS FOR AMERICAN PROSPERITY said. The administration was also working to coordinate health care across agencies and with OSTP. “Entrepreneurs in Residence” Gregory Horowitt of the University of California and T2 Venture Capital said he wanted to create a national “entrepreneurs in residence program,” partnering with the Kauffman Fellows Program, “somewhat of a Peace Corps for the venture industry.” This would deploy underutilized people from Silicon Valley, Boston, and other places and redeploy them to work with research institutes. The program would combine the activities of a venture fund, an educational institution, and the translation of science from research institutions. He asked whether U.S. agencies would be interested in collaborating. Ms. Mills answered that certainly the Department of Energy would be interested, along with the White House institute being developed. “We are very much interested in partnering,” she said, “and have begun to do that with a lot of you.” She concluded on a note of optimism. “If you look at the initiatives out there,” she said, “you get the feeling we are going to be successful. We are not Amsterdam; this is not the end of a golden era. We are going to reinvent ourselves as a new golden era because we have this spirit of entrepreneurship, the entrepreneurial know-how, the capital, the rule of law—and now we have the federal government interested in partnering with state and private institutions, focused on this issue of turning innovation into jobs. This crisis has helped us remake our foundations in favor of competitiveness. “The past is not coming back,” she predicted. “I believe that small business is going to be a core underpinning in the future. We have to find a way to take all this innovation, create clusters of small companies, and turn them into the foundation stones of America’s competitiveness.”