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PANEL II INNOVATION CLUSTERS AND THE 21ST CENTURY UNIVERSITY Moderator: Carl Dahlman Georgetown University This symposium offers “a fantastic opportunity to have a lot of exchange and understand a lot of the challenges we face,” said Carl Dahlman, a former World Bank economist who has done extensive work on China and India. He said he hopes “we also will be able to come up with some very concrete things for work in the future, including very specific collaborations.” To put the panel discussion on university innovation clusters in context, Dr. Dahlman noted that a university has three big roles. Its first mission is to train high-level human capital, “which is important not only for science and technology but also more generally for managing economies,” he said. The second is advancing knowledge. The third is applying knowledge from universities, or in other words to transfer technology. China has made very rapid progress in higher education, Dr. Dahlman noted. Enrollment rates have risen from 2 percent in 1980 to 23 percent today. Now, China has more people in universities, 25 million students, than the United States, with 17 million. Forty percent of Chinese college students study math, science, and engineering. “That is a very impressive accomplishment,” he said. Dr. Dahlman also noted that many Chinese students study in foreign universities. The largest number of foreign students in the United States is from China, “so we have a lot of exchange that way,” he said. “Now we have to see how we can get more students from the United States into Chinese universities to further our understanding.” China is the world’s third-largest spender on research and development measured in terms of purchasing-power parity, Dr. Dahlman added, and may soon surpass Japan as No. 2 within five years. China also spends a greater portion of its R&D money in universities than most other nations, including the United States. 65

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66 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION In terms of transferring knowledge, China has made “dramatic progress” in setting up all kinds of science and innovation parks, Dr. Dahlman said. “I think we are very lucky to have with us one of the key people behind that,” referring to speaker Lou Jing of China’s Ministry of Education. The panel also featured presidents from two universities. Charles Vest, president of the National Academy of Engineering, also is president emeritus of Massachusetts Institute of Technology. Dan Mott from the University of Maryland, that is very active in technology transfer. The panel also includes a presentation by Ginger Lew of the Obama Administration on setting up university innovation clusters in the United States. “We are going to have a very rich discussion,” he said. He urged each of the speakers to think of concrete areas and specific projects for further collaboration. Universities, Science Parks, and Clusters in China’s Innovation Ecosystem Lou Jing Ministry of Education Universities play a very important role in China’s strategy to build an innovation society, explained Ms. Lou, deputy director of the Ministry of Education’s Department of Science and Technology. China has an “ecosystem of innovation that is diverse, stable, and self-adjustable, and flexible,” Ms. Lou said. China’s goal is to be a leading source of research and development to “promote the development of the economy and society of China and even help develop global science and technology and world civilization,” she said. Universities are an essential element in this innovation environment. Other innovation communities in this environment include the Chinese Academy of Sciences, the Chinese Academy of Social Sciences, corporate R&D departments, research institutes specializing in economics and in social development, and the Chinese research organizations of multinationals such as IBM, Intel, and Cisco. This ecosystem also includes public-service organizations that evaluate patents and provide intermediary services. Ms. Lou described this environment as a “system of innovation with Chinese characteristics.” The foundation of an innovation environment is a “knowledge innovation system that organically combines scientific research and higher education,” Ms. Lou said. “This system’s core, breakthrough point is business-based, market-oriented, and comprised of industry, academia, and research.” To produce distinct results, Ms. Lou said, the

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67 PANEL II-INNOVATION CLUSTERS innovation system must “take into account different regions’ respective characteristics and advantages.” It also needs a “socialized, network technology intermediary service system,” she said, which will “require additional effort” in China. A “national innovation system with Chinese characteristics” must be comprehensive, she said. It should include scientific innovation, technological innovation, product innovation, industry innovation, system innovation, cultivation of innovative talent, and an innovative culture, Ms. Lou said. It also should be “networked, diverse, dynamic, open, and inclusive.” Management and operation systems also are required. Ms. Lou outlined the major tasks of a national innovation system. One is to strengthen original innovation, integrate innovation from different sources, and encourage “re-innovation” by improving on technologies introduced into the country. Another task is to “create a better environment to cultivate innovative talent and leadership, especially those with special insights,” she said. “We also have to cultivate an innovation spirit and atmosphere in our entire society.” As elsewhere in the world, universities in China are assuming a greater role and mission. “We all know that in the 21st century innovation has become a driving force behind a country’s economic development,” Ms. Lou said. “Countries around the world are endeavoring to raise their ability to innovate scientifically and technologically, placing a high priority on cultivating talent and building energetic innovation.” The first mission of universities is “to serve as an engine or original source of a country’s core competitiveness,” Ms. Lou said. She noted that universities are involved in science and technology, education, the economy, and society. “Universities contribute greatly to the rise and development of a great power, and are closely connected with the country’s industrialization and modernization processes,” she observed. Elite universities are the core of China’s research establishment. They account for three-fourths of scientific theses. Of those university theses, around 75 percent come from the top 50 schools, she noted. A third role for universities is to “cultivate innovative talent,” she said. Universities have long been an essential force for innovation in China and “have solved or participated in solving major science and technology problems for China’s economy. They also are involving in transferring and transforming technologies, Ms. Lou said. “Universities’ continuous development in technology achievements brings a closer collaboration

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68 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION between academia, industry, and research institutes and demonstrates their potential for leadership,” she said. China’s economic transition and modern technology trends makes contributions from universities even more important. Ms. Lou explained that China has growing demand innovative talent, new technology, and new knowledge. “The cycle of transforming knowledge into commodities has shortened,” she said. “The relationship between science and technology innovation and national demand will be even closer, while demand will be higher.” Cultivating top research talent has become “our major task” in the past few years, Ms. Lou said. The goal is to “continuously provide innovation—not just fast but outstanding achievements,” she said. Universities also provide technology transfer, strategic consultation, and other services. She noted that the 17th Party Congress called for establishing research bodies of high standards in universities to support a national innovation system that will increase China’s competitiveness. “We want very concrete results,” she said. Universities are major repositories of high-level Chinese innovation talent, Ms. Lou observed. They employ 562 faculty that account for 40 percent of members of the Chinese Academy of Sciences and the Chinese Academy of Engineering. Universities also have 902 recipients of support from the National Science Fund for Distinguished Young Scholars1 program, accounting for 63.3 percent of total. Universities host 73 “outstanding national innovation communities,” 52 percent of the total. The Chinese Ministry of Education operates a special “high-level innovation talent cultivation program,” Ms. Lou said. The program funds 1,108 Cheung Kong Scholars,2 2,452 Outstanding Innovation Teams, 3,776 scholars classified as New Century Excellent Talents, and 126 innovation bases. “These figures show we are enhancing the cultivation of innovative talents and have seen some positive results,” she said. 1 The National Science Fund for Distinguished Young Scholars provides four- year grants of 2 million RMB to scholars, focusing on those under the age 45, who have made “outstanding achievements in basic research.” Recipients select their own research direction. The goal is to “foster a group of prominent academic pacemakers in the forefront of world science and technology.” 2 The Cheung Kong Scholars program was established in 2005 by the Li Ka Shing Foundation and the Ministry of Education. It awards stipends on top of regular salaries and benefits to outstanding scholars in China, Hong Kong, and Macau.

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69 PANEL II-INNOVATION CLUSTERS The nation’s research infrastructure is heavily concentrated in universities. Sixty percent of “national pilot laboratories” are on campuses, for example, as are 140 “national key laboratories,” 63 percent of the national total, Ms Lou pointed out. Chinese universities also house 26 national engineering laboratories and 110 National Engineering Research Centers. There are 76 national university science parks with connections to more than 110 universities, she said. “We are promoting science parks to become important test beds for our talent to receive better training before they enter the work market,” Ms. Lou explained. Universities play a central role in national innovation tasks, Ms. Lou said. Universities are in charge of around 80 percent of research under the National Science Foundation’s general programs, for example, including the major of “key” and “major” programs. Universities also run 40 percent of national high-technology research and development programs and 30 percent of research programs dedicated to “tackling key industrial problems of generic technology,” she noted. Universities also are becoming more important sites for applied technology. Ms. Lou noted that funding for converting research results into practical business applications is growing by 20 percent annually, and that approximately 40 percent of all university scientific research funding now come from business. In terms of research results, universities generate more than 35 percent of patents, 60 percent of papers published in Chinese-language periodicals, and 80 percent of published papers in science and engineering journals, Ms. Lou noted. Universities receive more than half of all National Science and Technology Awards. To develop China’s innovation system, the government is putting a high emphasis on the continuity of scientific research, Ms. Lou said. It is taking into account the fact that technological innovation is developing exponentially and that emerging industries are becoming more concentrated. The government also is focusing on the interaction between science, technology, and policy. Ms. Lou presented the following guiding principles of China’s innovation strategy: To accurately position cultivation of talent and scientific research that serves society, to take into account the different advantages and characteristics of different universities so that they can collaborate, to boost original innovation by providing support for core technologies, and to combine, consolidate, and integrate activities to more efficiently allocate resources. The country also needs a more interdisciplinary approach to innovation, she said.

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70 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION The government wants to better position Chinese universities, Ms. Lou said. One of the top objectives for the next five years is to establish a “schools-of-higher-education innovation system that fits in a socialist market economy and technological development patterns,” she said. Another is to “markedly raise competitiveness and the quality of schools of higher education.” Universities and the U.S. Innovation System Charles Vest National Academy of Engineering Dr. Vest’s presentation focused on the fundamentals and key historical points of the development of American universities and the U.S. innovation system. Three years—1862, 1945, and 1980—were pivotal turning points, he said. In the midst of the American Civil War, Dr. Vest explained, the federal government passed the Land Grant Act of 1862.3 This legislation allotted a parcel of land to each state, the income from which was to be used to establish public universities to teach agriculture and “mechanic arts,” or engineering. “This was the beginning of a great system of public universities that gave access to education and research-and-development work to a vast number of young U.S. men and women,” he said. The second major turning point came nearly a century later, in 1945. Until then, Dr. Vest noted, private industry funded almost all R&D at universities. The federal government was a “relatively small player,” funding a modest amount of research in engineering, agriculture, and medical schools. “World War II changed everything,” he said. Science and engineering played a major role in the allied victory in the war. As peacetime approached, President Franklin D. Roosevelt wrote a letter to Vannevar Bush, a former engineering professor and entrepreneur who had played a major role in Washington mobilizing scientists, engineers, and industry for the war effort.4 President Roosevelt 3 The Morrill Act of 1862 (7 U.S.C. Sec. 301), also known as the Land-Grant College Act, gave each state 30,000 acres of federal land to establish colleges. 4 Vannevar Bush (1880-1974) was director of the Office of Scientific Research and Development during World War II and is regarded as the architect of post- War U.S. science and technology policy. Dr. Bush maintained that the federal government should invest in basic scientific research, but that converting science into technology and commercial products was the role of private industry.

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71 PANEL II-INNOVATION CLUSTERS asked Mr. Bush how the scientific community could work in peacetime to secure the nation’s economic vitality, health, and security. Bush produced a famous report called Science: The Endless Frontier.5 It made four primary recommendations that “seem very simple today, but were actually very radical in 1945,” Dr. Vest said. The first recommendation was that the federal government should view universities as the primary source of basic research in science, engineering, and medicine. Bush believed the government “should not start something new,” Dr. Vest explained. The concept was that the government gets two things in return for each dollar spent on university research: The results of that research and financial support for “educating the next generation of scientists, engineers, and doctors,” he said. The Bush report suggested that federal research grants be awarded based on competitive merit. “It was to create what I would call a marketplace of ideas,” Dr. Vest said. The report also recommended establishing the National Science Foundation, “which in its current form is one of the most important funders of basic research in U.S. universities,” he said. Under the system envisioned by Bush and his committee, federal funding of scientific research contributed to economic development through a “linear progression,” Dr. Vest explained. Basic research led to applied research, which was followed by product development and then the introduction of goods and services into the market. The vision is dated, however. “Today’s world is more complicated,” he said. Bush also believed in a laissez faire economic approach. “Support basic research, and the marketplace would decide which ideas are important and good. Private industry would move them toward products and services,” he explained. The third milestone in the development of the U.S. innovation system was the Bayh-Dole Act of 1980,6 Dr. Vest said. This legislation allowed universities to own the intellectual property resulting from federally funded research in most cases. The U.S. government always gets free use 5 See Vannevar Bush, Science The Endless Frontier: A Report to the President, Office of Scientific Research and Development, July 1945, Washington, DC: United States Government Printing Office, 1945. 6 The Bayh Dole Act of 1980 (PL 96-517, Patent and Trademark Act Amendments of 1980), or the University and Small Business Patent Procedures Act, (PL 96-517, Patent and Trademark Act Amendments of 1980), gave universities control over their inventions stemming from federally-funded research.

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72 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION of such intellectual property. By allowing universities to license and patent inventions, “this started a very different and increased relationship of universities to the private sector,” Dr. Vest explained. What does all this mean in practice? Dr. Vest stressed that the two primary missions of both public and private universities in the United States are education and research. “They have a third mission, which we broadly define as service to society,” he said. “I think of all three of these mean that universities create opportunity—opportunity for graduates, opportunity for states and regions, opportunity for the world.” However, “the role of service to society, particularly in economic development and technology transfer, definitely comes third,” Dr. Vest stressed. The so-called U.S. innovation system that evolved in this environment “frankly is not really a system,” Dr. Vest said. “It is not designed or planned very explicitly.” Nevertheless, the government, universities, and industry work together, he explained. “They create new knowledge and technology through research, educate young women and men, and create the next generation of knowledge and technologies,” he said. “The marketplace then plays the role of moving these new ideas into the world as new products, processes and services.” Historically, this process has been a very decentralized, very loosely organized, and highly entrepreneurial system,” Dr. Vest said. “Therefore, our innovation ecosystem has tended to vary from city to city and region to region, but always with these three components.” In balance, the U.S. system has been a great success, Dr. Vest said. Some economists estimate that more than half of America’s economic growth in the past 60 years has been due to technological innovation, he noted, much of which came out of universities. Some of the most important innovations that have come largely out of universities include computing, the laser, the fundamentals of global positioning systems, numerically controlled machines, the organization and deployment of the World Wide Web, concepts of financial engineering, the genetic revolution, and much of modern medicine. These were “big, earth-shaking changes and innovation, all of which had huge economic impact,” he said. “But none were explicitly planned or envisioned in advance. So the role of fundamental research, freedom, flexibility, and entrepreneurship plays out in often-unexpected but very important ways.” Two other ingredients must be added to make the U.S. innovation system work, he said. The first is venture capital. “This risk-taking entrepreneurial approach to funding new ideas and new people to try to

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73 PANEL II-INNOVATION CLUSTERS create new products, processes, and services has played an enormously important role, particularly in the last few decades,” Dr. Vest said. Clusters of innovation also have been very important. Dr. Vest explained that there essentially are two types of clusters—those that evolve naturally and those that are planned. The two most famous innovation clusters are Silicon Valley and Boston’s Route 128. Neither was planned, he noted. “They came about because groups of bright people around universities and industry came together,” he said. “The idea of venture capital developed, and great success ensued.” More recently, several planned and strategic innovation clusters have been created, Dr. Vest explained. Research Triangle Park in North Carolina is a good example. These clusters often began when large companies were attracted to a park to conduct research and development. These investments spawned smaller, more specialized companies in the area, “usually with one or more universities engaged,” he said. One feature of the U.S. innovation system is that every decade or so there seems to be a change in the way innovation works, especially from the perspective of large companies, Dr. Vest observed. In the 1970s, for example, innovation was dominated by central corporate research labs such as ATT’s Bell Labs. In the 1980s, as the U.S. lost competitiveness in manufacturing, “big companies reworked the way in which they did R&D and transformed it into a new kind of product development,” Dr. Vest explained. In the 1990s, companies were performing better and were good at incremental improvements but realized they were not coming up with enough new ideas, he recalled. “So companies began purchasing their innovation by acquiring small start-up companies, frequently coming out of universities,” he said. In the first decade of the new millennium, companies moved to the “open innovation” model, “which recognized, among other things, the global nature of innovation,” he said. What will be the new innovation system in the next decade? Dr. Vest said he doesn’t have the answer, but had some observations. Life sciences and information systems “clearly will play a driving role in innovation in the next 20 or 30 years,” he said. Another observation is that “we are going to be challenged in both of our countries to understand how to adapt our innovation system to large-scale challenges such as energy, climate change, food, and water.” The future of venture capital also is unclear, Dr. Vest said. “It is getting too risk-averse in the United States and is aggregating too much in a small number of large venture-capital firms.” Another question is

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74 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION whether there will be a new disruptive technology to approach large issues such as energy, he said. The most important question, Dr. Vest said, is “whether there will be a new enabling technology that will come along in the same way that information technology came along in the last century to change everything.” A final question: “What does the globalization of research and development, of education, and a highly educated and innovative workforce mean for all of us?” Dr. Vest said he would leave all of these as questions for discussion. Universities as Drivers of Growth in the United States C. D. Mote, Jr. University of Maryland, College Park The University of Maryland at College Park illustrates the role American universities play in economic development, said Dr. Mote, the school’s president and an engineering professor. He stressed, however, that education and research remain the university’s primary missions. To offer of a glimpse of the university’s economic impact, Dr. Mote presented a few “factoids” that he said are “fairly typical” of U.S. universities: • For every dollar the University of Maryland at College Park spends on faculty salaries, these faculty raise $3 in external research funding. • Every dollar the state spends on the university generates $8 in economic activity. • For every state dollar invested, the university raises $35 in development resources for small Maryland businesses. • Every dollar in state investment has generated $200 worth of goods and services produced by university-supported companies over 25 years. “You can see fairly quickly that the economic impact on the state by major research universities is very high,” Dr. Mote said It also is important to understand that American universities are “independent and free to engage in research and economic activity without permissions and without controls,” Dr. Mote said. “This is true for private universities and for public universities too. For instance, a president of a U.S. university can to go the Ministry of Science and

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75 PANEL II-INNOVATION CLUSTERS Technology in China, meet with the minister, and arrange agreements that do not violate U.S. law without permission from the board of the university, or the governments of the state and the nation.” This independence is a “fundamental contributor to the success of U.S. universities,” he said. A range of programs on the University of Maryland campus exemplify how “the spirit of entrepreneurship is embedded into the infrastructure of the university,” Dr. Mote said. For instance, the Hinman CEOs program is a residence hall based program reserved for student entrepreneurs who want to start companies. In an average year, 17 companies are spawned in the dorm. The Hillman Program campus works with Prince George’s Community College to nurture entrepreneurs who tend to be older, in their 30s or even 40s, and have returned to college to help them to start businesses. “They come through the community college and transfer to the university to become entrepreneurs. They have ideas,” he said. The ASPIRE program, by contrast, helps engineering students who want to get jobs in private industry after graduating. ASPIRE, which is run by the A. James Clark School of Engineering and the Maryland Technology Enterprises Institute, gives students scholarships to work on real-world, faculty-supervised engineering projects with companies. The university’s Smith School of Business, meanwhile, offers a business plan competition called Cupid’s Cup. Students compete for resources to support starting their own companies by submitting business plans to veteran entrepreneurs serving as judges. The university also participates in the Solar Decathlon, a competition administered by the U.S. Department of Energy. Twenty universities from around the world are invited to build solar houses on the National Mall in Washington, D. C. The University of Maryland team developed its “Leaf House” that operated off the electricity grid for eight days, including providing power for an electrical vehicle, “and had do a few other things to make it a little more of a challenge,” Dr. Mote explained. Companies launched through the University of Maryland include Alertus, a developer of emergency-warning systems. Another is Squarespace, a company that offers an environment for creating and managing Web sites and blogs. The university also offers services to the surrounding community. For 25 years the engineering school has run the Maryland Technologies Enterprise Institute (MTECH) and the business school has operated the Dingman Center for Entrepreneurship. The two programs work together to create enterprises and offer services for new and existing companies.

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76 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION The university also runs the oldest small-business incubator in the state and a “bioprocess scale-up facility.” The latter unit “takes bench- top bioprocesses and turns them into commercial production-line processes,” Dr. Mote explained. The state of Maryland funds both facilities. The university works with industry as well. Maryland Industrial Partnerships is a program in which faculty are funded to work at companies to help commercialize their products. “Essentially, it is a state-subsidized consulting arrangement that has been extraordinarily successful and is being replicated around the United States,” he said. Plus, there is a “venture accelerator,” an organization that helps students and faculty speed up development of commercial products and companies. They receive training, introductions to financial backers, and mentoring. The university also runs a “technology start-up boot camp.” This is a weekend camp for people who want to start companies. Typically, these “boot camps” draw 500 to 600 participants from outside the university, Dr. Mote said. They teach “the good news and bad news of starting companies,” including how to raise resources, why companies go bankrupt, and surviving the Valley of Death. To help develop a pool of start-up capital, the university’s business school has organized an “angel network.” Angels provide early-stage funding, before good ideas achieve venture support. “It is a way for the business school to connect aspiring entrepreneurs with angels,” he explained. And there is a business counseling program called Pitch Dingman, where the Dingman Center hosts a two-hour session where anyone can come, present ideas for new ventures, and receive feedback from experts who will then introduce them to angel investors if their ideas pass muster. Dr. Mote estimated that all of these services and activities have generated $20 billion in economic activity over the past quarter century at a total cost to the state of approximately $88 million. The university has launched or assisted a wide range of businesses. For instance, MTECH has helped develop commercial products with companies as diverse as toolmaker Black & Decker, the Quantum Sail Design Group, Hughes Network Systems, and engineering services firm Navmar. Companies that have emerged from the university’s incubator include two billion dollar companies: molecular diagnostic company Digene Corp.; Martek Biosciences Corp., a developer of nutritional products; plus the life sciences research firm NovaScreen Biosciences Corp. “They

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77 PANEL II-INNOVATION CLUSTERS went through the incubator right at the beginning and used all of the services I described,” Dr. Mote said. The M Square Research Park, which is next to the university campus has received $5 million in state funding and $500 million in private investment, and will have about 2 million square feet of space and 6,000 jobs when built out. In terms of the national domain, the University of Maryland interacts with federal laboratories, such as those owned by the Department of Energy. Its proximity to Washington, DC, also means the university is involved in a range of federal research initiatives and missions. Dr. Mote said the school gets around $500 million in federal research funding a year. Federal partners include the National Institutes of Health, the Smithsonian Institution, the National Aeronautics and Space Administration, and the National Security Agency. In some cases the university helps with government missions. Other times, the government supports university missions. “In other cases we work together on somebody else’s mission,” Dr. Mote said. The National Oceanic and Atmospheric Administration is establishing a national center for global climate-change and weather-predication in the university research park. The DoE’s Pacific Northwest National Laboratory, NASA, and the university’s Earth System Science Interdisciplinary Center also are involved. Graduate and undergraduate students work in the center, which includes experts in geography, public policy, geology, and atmospheric and ocean sciences. Dr. Mote noted that the climate-change center also has worked with the Chinese Academy of Sciences and recently sent a team of 10 researchers to China. Yet another federal partnership is with the National Institute of Science and Technology and is devoted to quantum physics. The agency is contributing some construction funds for a new physical sciences building on campus, and NIST scientists will work at the center. The campus also is home to an Energy Frontier Center and Physics Frontier Center. “These are ways in which the Department of Energy, National Science Foundation, and the university come together on research initiatives that are going to have great impact,” Dr. Mote explained. The university is also is engaged in a range of global activities. It has an “international incubator,” for example, that has helped develop companies from Canada, Bangladesh, the United Kingdom, Russia, and other nations. There also is an “international research park,” which is only available to international companies “to come and establish a foothold in the state of Maryland,” Dr. Mote explained. The state contributes funding for the park.

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78 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION The school has extensive relationships with China. There is the Institute for Global Chinese Affairs, for example, which trains Chinese executives. The first executives from China to visit the United States after the Cultural Revolution, a group from Suzhou, attended programs at the institute, Dr. Mote said. Some 3,000 Chinese executives have participated in the training programs, which last from two months to one year, he said. The university’s Executive Master’s in Public Administration program, meanwhile, gives one-year degrees in public management to Chinese executives. The program was arranged with Secretary Liang Baohua of Jiangsu Province, and has trained 160 executives in five groups at Maryland’s School of Public Policy. The executives finish their degrees after three months of additional study in China. The university is home to a Confucius Institute, a Chinese program teaching and promulgating understanding of Chinese language and culture. The University of Maryland served as the pilot for the program in 2004, making it the oldest Confucius Institute in the world. There now are now 240 Confucius Institutes in 96 countries, including 74 in the United States. “It is a soft power, good feeling program, where each institute is free to set its own independent agenda and operation,” he said. Eleven Chinese companies have set up operations at the university’s international incubator, Dr. Mote noted. Glodon Co., a developer of software for the construction industry, has been particularly successful. Formerly known as Beijing Grandsoft, the company went public, raising $2 billion. Within six months it was valued at $20 billion, he said. Other Chinese companies in the incubator have included Wuxi TocaTek, DaSol Solar Energy Science and Technology, and Dimetek. Shandong Province set up a liaison office at the incubator. “The university has a role to play in facilitating this interchange,” he said. “It shows what universities can do on an international scale to build enterprises.” In 2002, the Chinese government and Maryland set up a joint research park near the campus. When the park opened, Chinese Minister of Science and Technology Wan Gang travelled to the campus to attend the ribbon-cutting ceremony. Many Chinese companies with operations in the park were recruited through a series of meetings in Beijing, Shanghai, and Guangzhou, Dr. Mote said. The University of Maryland has many other foreign partnerships, Dr. Mote noted. In Sierra Leone, for example, the university is involved in a health initiative. A Maryland graduate who now is a professional football player donated $2 million to set up a center to facilitate work.

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79 PANEL II-INNOVATION CLUSTERS To conclude, Dr. Mote noted that innovation has become a growing theme around the world. He cited Chinese President Hu Jintao, who in 2007 said that “the worldwide competition of overall national strength is actually a competition for talents, especially for innovative talents.”7 The key to succeeding in innovation is leadership, Dr. Mote said. “Every innovative environment needs an innovation leader. Without a leader, and the ability to innovate within the infrastructure of an organization, it can never work. Leadership is everything.” U.S. Initiatives for Building Innovation Clusters Ginger Lew National Economic Council The Obama Administration launched its regional innovation cluster initiative in the past year, explained Ms. Lew, a senior counselor to the White House and Small Business Administration on small-business issues. She acknowledged that the cluster concept itself is not new. “In Europe and Asia, regional innovation clusters developed with more of a top down process driven by government entities,” she said. “The development of regional innovation clusters here in the United States has been much more on an ad-hoc, organic basis.”8 Ms. Lew described cluster initiatives as consortia in which city and state governments and business, community, and educational leaders “come together to engage in smart economic growth strategies for a region.” In the United States, she said, the process begins when a region assesses its local assets such as industry strengths, workforce skills, university research, and align those interests with future goals of key stakeholders. One of the primary reasons for focusing on clusters as tools for economic planning and spurring innovation “is that businesses are no longer looking to locate in just one city,” Ms. Lew said. “Rather, businesses are looking for the talent, infrastructure, and research capabilities that may be concentrated in a region that allows them to access what we call a more vibrant supply chain of vendors, services, and workforce.” Another factor is that employees in the United States “no 7 See October 2007 speech by Hu Jintao to the 17th CPC National Congress. 8 For further explanation of U.S. innovation cluster policy, see presentation by Ginger Lew in upcoming book, Charles W. Wessner, Clustering for 21st Century Prosperity, Washington, DC: The National Academies Press, forthcoming.

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80 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION longer work within defined boundaries,” she added. “We are mobile. Sometimes we work virtually. And we certainly work across city lines and county lines.” A number of communities across the United States have undertaken efforts to develop innovation clusters, Ms. Lew explained. One major reason is that “economic studies have shown that clusters lead to higher paying jobs, more innovation, and more robust regional economies,” she said. Austin, Texas, which has focused on attracting a robust semiconductor industry, is the hub of one such regional cluster, Ms. Lew noted. Kansas has developed a strong regional aviation industry. Other communities have leveraged historical strengths to build new clusters. Ms. Lew cited Corning, New York, which parlayed its historical strength in glass into a fiber-optics industry. Seattle took advantage of its strong university system to develop a thriving bio-sciences cluster. To illustrate the diversity of U.S. regional clusters, Ms. Lew displayed a map of the country by Harvard Business School’s Institute for Strategy and Competitiveness.9 The clusters on the map included oil and gas in Wichita, Kansas, entertainment in Los Angeles, and processed foods in Chicago. “When we talk about innovation, we oftentimes think about high-tech, such as nano-science, fiber optics, or whatever,” she said. “But when you look at the map, you can see that you can have regional cluster activities in a broad range of industries.” The success of Kansas in commercial aviation is a good case study, Ms. Lew said. This industry employs 17.8 percent of all Kansas manufacturing employees and contributes 26 percent of manufacturing wages. What’s more, the average annual wage of workers in the aviation cluster is $63,000—more than 50 percent above the average industrial wage in the United States. Between 2004 and 2014; the aviation industry is expected to create 4,450 net new jobs in the state.10 “More importantly, it has increased the education level of the workforce,” Ms. Lew said. “A number of the jobs now require a bachelor’s degree and even a master’s degree.” 9 The Institute for Strategy and Competitiveness, led by Michael Porter at Harvard Business School, has a project to map industrial clusters around the world. See . 10 See Center for Economic Development and Business Research, “Kansas Aviation Manufacturing,” W. Frank Barton School of Business, Wichita State University, September 2008.

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81 PANEL II-INNOVATION CLUSTERS The Obama Administration is interested in innovation clusters because “we really see them as a way to encourage regional entities to collaborate to create new businesses and jobs,” Ms. Lew said. “It also is a way to leverage federal programs.” The United States has many federal bureaus and agencies that work in their own “silos,” she explained. “But we are finding that activities across many agencies can be very complimentary.” One example of overlapping interests by federal agencies is clean energy. The Environmental Protection Agency has programs in clean water, for instance, that can be critical to efforts to develop alternative energy industries is certain regions. The EPA, DoE, and other agencies can work together. “This idea of leveraging federal dollars to be more impactful is a critical outcome we are seeking with regional innovation clusters,” she said. “We are seeking what we call a multiplier effect.”11 Unlike many regional cluster strategies in Europe, the U.S. model is very “bottoms up,” Ms. Lew said. “We are looking to promote activity at the core regional level.” Agencies in Washington, therefore, work with states that have comprehensive development plans. “We are looking for holistic, integrated solutions to building regional economies,” she said. Programs the Obama Administration has launched over the past year to promote regional clusters include: • Energy Regional Innovation Clusters (ERIC): Led by the DoE, federal agencies such as the Small Business Administration, the Department of Education, the National Science Foundation, and the Department of Labor are contributing funds and working with regional partners to develop innovation clusters in clean energy.12 • Competitive Grants: The U.S. Department of Agriculture, for instance, has launched a program to award planning grants to 12 regional bodies. The grants aim to “encourage rural communities to 11 For elaboration on the philosophy of federal coordination on clusters, see Jonathan Sallet, Ed Paisley, Justing Masterman, “The Geography of Innovation,” Center for American Progress, 2009. Also see Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies,” Metropolitan Policy Program at Brookings, April 2008. 12 The first Energy Regional Innovation Cluster is to focus on clean-energy technologies used in buildings. For details, see the Funding Opportunity Announcement for Fiscal Year 2010 on the DoE Web site. See .

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82 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION find new ways to draw on their core industries to attract more value- added business opportunities,” Ms. Lew explained. • Small Business Loans: The Small Business Administration will announce a competition to support ten regional initiatives across the United States to commercialize new technology. • i-6 Challenge Grants. The Department of Commerce in May said it will award $12 million in grants administered by the Economic Development Agency to six teams across the United States with “the most innovative ideas to drive technology commercialization and entrepreneurship. The NIST also will contribute funds.13 • 2011 Federal Budget: President Obama’s budget for Fiscal Year 2011 includes more than $300 million in new funding for agencies such as the Department of Labor, the SBA, and the Economic Development Agency to assist regional innovation cluster initiatives.14 • America COMPETES Act: The most recent version of legislation to boost America’s competitiveness in science and technology includes provisions for promoting regional innovation clusters.15 Ms. Lew outlined the structure of typical regional innovation clusters. At the core, she said, is the industry that a region or community identifies. Around that industry are suppliers, customers, and support industries. The rest of the ecosystem includes universities, community colleges, technical schools, federal agencies, labor groups, and non- government organizations, she explained. In summary, the regional innovation cluster strategy of the Obama Administration has three core principles, Ms. Lew said. One is to 13 See Announcement of Federal Funding Opportunity for i6 program at . 14 See Budget of the U.S. Government, Fiscal Year 2011, p. 20, . For a brief analysis, see Mark Muro and Sarah Rahman, “Budget 2011: Industry Clusters as a Paradigm for Job Growth,” Brookings Institution Metropolitan Policy Program, June 10, 2010, . 15 The America COMPETES Reauthorization Act of 2010 (H. R. 5116) passed the House of Representatives on May 28, 2010. It revises the original America COMPETES Act (P.L. 110-69). Despite being enacted on August 9, 2007, funding was never appropriated.

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83 PANEL II-INNOVATION CLUSTERS “encourage extensive collaboration at the regional level with business, university, and community leaders in public-private partnerships.” The second core principle is to “encourage the collaboration and coordination of federal dollars.” The third is to “cultivate an ecosystem to support the type of innovative, entrepreneurial clusters that will lead to new industries, new technologies, and new ways of doing things,” she said. Every county has its own approach to support innovation, Ms. Lew observed. The Chinese government supports the university systems. “The achievements (China) has achieved in a very short time are amazing,” she said. The U.S. approach is more bottom-up with strong involvement from universities and some involvement at the federal level. “I think we can learn from both approaches,” she said. At the end of the day, however, “innovation resides in the mind of creative, smart individuals,” Ms. Lew said. “They have to have the tools and skills. And they have to have the ecosystem to support that. But it only takes the curiosity of one person to come up with the next Baidu. That one person can launch a new industry.” As one small example of how individual curiosity drives innovation, Ms. Lew recalled her grandfather, who grew up in a small village in China. When he was young, her grandfather’s job was to herd the family’s ducks with a long bamboo pole. One of his favorite ducks sometimes strayed from the flock, and her grandfather had to find it. After straying several more times, the duck found a new source of food. So her grandfather allowed the duck to continue exploring to satisfy its curiosity. “Not only did it find additional new sources of food, but new sources of water as well,” Ms. Lew recalled. The responsibility of the federal government, university presidents, or the National Academy of Science “is to provide the type of support, skills and ecosystem that allows individuals to thrive.” Discussion Moderator Carl Dahlman asked for further elaboration on several points made in presentations by the panelists. One is “the differences between the Chinese system, which is more top-down, and the American system, which is more bottom-up,” he said. Another point is the “tremendous importance of having open systems.” He asked Lou Jing and Charles Vest to comment on lessons that can be learned from each others’ systems. Dr. Dahlman also observed that toward the end of his presentation, Dr. Vest suggested the U.S. system may be a little dated given the new competition. He asked him to explain. Finally, Dr. Dahlman noted that

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84 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION “we are now in a system where we have much more global education, research and development, and flows of people.” He asked how countries can adapt their innovation systems to this reality and how the United States and China can collaborate in new areas. Ms. Lou disagreed that China’s approach to innovation clusters is so top-down. “We have a number of nationally funded projects,” she acknowledged. “These projects have played an important role in creating a platform at the national level.” But other models also exist, she said. Universities very actively support regional innovation clusters. “It is important to combine all participants in these regions,” she said. “We also have a more horizontal development model. We have down to up as well as up to down.” Many places in China act as core centers to promote innovation in surrounding areas, she said. Examples are the Zhongguancun and Shandi districts in Beijing, the high-tech development zone in Shanghai, and the science and technology parks and research centers at universities and in provinces around the country. Before responding to the question, Dr. Vest quipped that he had to apologize to Ginger Lew for his fondness of Peking duck. “I hope that by partaking, I don’t stomp out some of the innovation in China,” he said. Dr. Vest said he also agreed with Ms. Lew that innovation, clusters, job creation, and economic development “are not all about high tech.” Regarding cluster-development models, Dr. Vest said he is “a great believer in bottom up and open systems, by which I mean globally and regionally—not just nationally.” He said he believes that “the most fundamental, true innovation is still going to come out of unexpected places and unexpected programs of basic research, not through planning.” Nevertheless, Dr. Vest predicted that this decade will be “one of re- balancing.” The ideas of competition and cooperation on a global scale will be re-balanced, he predicted. “It also will be one of re-balancing the purpose of innovation and the nature of economic development.” Several fundamental issues will drive this change, Dr. Vest predicted. The “grand challenges” of the next century include energy, climate change, a global population that is approaching 9 billion people, and the rapid economic development of nations such as China. “These larger- scale issues that we simply have to resolve are going to affect the way that innovation works,” he said. An example of this shift in outlook is the strategy outlined by Energy Under Secretary Kristina Johnson for developing energy-innovation

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85 PANEL II-INNOVATION CLUSTERS hubs. “This is a little more of a planned approach,” Dr. Vest said. “It is a little more top-down, to define the problems we have to solve.” Universities’ approach to basic research also will continue to change. “Universities should remain focused on discovery of new scientific knowledge, new technologies, and new processes,” Dr. Vest said. “But I think they are going to be increasingly use-inspired.” Work at the interface of life sciences and engineering for medical applications and new ways of producing materials is evidence of the new focus. “People are simultaneously exploring the unknown, but with a broad end-goal in mind,” he said. There are other signs of change in innovation systems, Dr. Vest said. For example, several “very interesting” new universities are being started around the world. One is Olin College near Boston. Others are Aalto University outside Helsinki and the new Singapore University of Technology and Design. “What they all have in common is an attempt to blend engineering and design in a very broad sense, running all the way from art and architecture to industrial design, with a good dose of economics,” he said. “They all are searching for something new. I think they will be creating new kinds of people.” There also are new policy tools. In addition to the challenge grants Ginger Lew mentioned, there are U.S. inducement prizes such as those offered by the X Prize Foundation.16 “Google the X Prize Foundation and you’ll find some really interesting ways of driving innovation that are new and goal-oriented,” Dr. Vest said. In general, “we are moving into an era of what I would call brain integration,” Dr. Vest said. “Somehow, in the coming decades, people all around the world, connected by huge computing and communication power, will start innovating collectively in ways we cannot predict. But I think this is why we have to maintain, in the near term, good people-to- people contact. It also is why I very much believe in openness of systems and science and engineering communication. Something new and exciting will come out of that, but I don’t know just what it is.” Dr. Mote of the University of Maryland said he thinks leadership is one of the most important keys to innovation, even more important than the research topic itself. “In virtually every instance of successful innovation, you will find leadership in terms of inspiration, ideas, and in 16 The X Prize Foundation is a non-profit educational organization whose mission is to “bring about radical breakthroughs for the benefit of humanity.” It awards industry-sponsored prizes for innovators working on everything from genomics and automobiles to new spacecraft.

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86 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION being able to mobilize focus on a topic,” he said. “With the right leadership you can make marvelous things happen.” If one accepts that position, “you can structure innovation in the world in six layers,” Dr. Mote said. The first layer is the individual. “An individual has to have innovative personality, focus, and capability,” he said. The second layer is organizational—a company, university, or “just two or three people who come together and have an innovative idea.” Sergei Brin and Larry Page, who started Google in 1998, are examples. “They didn’t have a company, just two innovative individuals,” he said. The third level is regional—collections of organizations and individuals “that may not even have a specific focus,” Dr. Mote said. The next is the state or provincial level. There needs to be leadership at the governmental level “that has the same level of authority and, possibly, inspiration.” The fifth level is national. Leadership typically comes from the president or the presidential equivalents. Finally, there is the global level. When one goes down the list of great international challenges—such as climate change, water, terrorism, and oceans—“all involve innovation on a global platform,” Dr. Mote said. “That requires leadership on a global scale.” The United States, however, is not well positioned to participate at this level. “We are very much bottom-up,” he said. “We begin to run out of steam once we get to the regional level.” Efforts by the departments of Energy and Commerce to facilitate innovation clusters are “a marvelously good, important step,” Dr. Mote said. This kind of federal collaboration hasn’t occurred in the United States since before 1945, he noted. “At some point, the national piece will have to come into play so that we can take on these challenges. Otherwise, it cannot happen, because these things must be done through intergovernmental relationships.” Dr. Mote noted that nations with top-down innovation environments, such as China, Singapore, and Russia, “are all trying to work their way to the bottom, while the United States is trying to work its way to the top. I think the collaborations between us will help us get there, because I think the whole spectrum has to be covered for us to take on these big challenges.”