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Chapter 7
Clusters and Regional Initiatives
Clusters foster the collaboration needed to develop new ideas and bring
them to market. In this way, successful clusters significantly improve the return
on public investments in R&D and provide global leadership in key
technologies. Recognizing this impact, both advanced and emerging economies
are making investments and promulgating polices to encourage cluster
development.
This chapter explores several ways in which U.S. regions are rising to
the challenge, focusing on Regional Innovation Cluster initiatives and new types
of science and research parks. In this chapter, we explore a sample of some of
the more interesting regional innovation cluster initiatives underway in the
United States. The second part of this chapter assesses new strategies for
developing research parks, both in the United States and abroad.
THE INNOVATION CHALLENGE
U.S. regional economies face mounting global competitive challenges.
No longer do U.S. states and cities primarily compete among themselves for
talent, investment, and entrepreneurs in technology-intensive industries. They
also compete against national and regional governments that are executing
comprehensive strategies that seek to create innovation clusters in many of the
same important, emerging industries. National and regional governments in
Europe, Asia, and Latin America are backing up these strategies with heavy
investment in universities, public-private research collaborations, workforce
training, early-stage capital funds, and modern science parks.1 They are further
1
Francisco Grando, Brazil’s Secretary of Innovation, and Alberto Duque Portugal, State Secretary
for Science, Technology and Higher Education of the Brazilian state of Minas Gerais presented a
review of initiatives underway in Brazil at the National Academies conference on Clustering for 21st
Century Prosperity, Washington, DC, February 25, 2010.
431
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432 RISING TO THE CHALLENGE
Michigan: Advanced
Batteries
North East Ohio:
Flexible Electronics,
Renewable Energy
¤
¤
¤
¤ New York:
Nanotechnology
West Virginia:
Biometrics,
¤ Energy
¤
New Mexico:
Information Technology,
Aerospace, Bioscience South Carolina:
Automotive Technology,
Advanced Materials
FIGURE 7.1 U.S. regional innovation clusters discussed in Chapter 7.
reinforced by strong policy focus from top leaders. National and regional
governments also can offer investors financial incentives that state governments
cannot, such as exemption from all corporate taxes.
In a number of Asian clusters, most notably Taiwan’s Hsinchu Science
Park, research and manufacturing functions are tightly linked, an entire industry
chain is present within the cluster to manufacture and commercialize the
technologies emerging from the laboratories. While this phenomenon is
observable in many U.S. clusters, a number of the clusters featured in this study,
have seen U.S. developed technologies2 manufactured outside the United States
because so much of the value chain is located there.
John A. Matthews, an Australian academic who has extensively studied
the cluster phenomenon in Asia recently noted the actual and prospective advent
2
In nanotechnology, a specialty of a number of U.S. clusters, a number of U.S. firms that have
originated promising new technologies have outsourced the manufacturing to Asia. In 2011, U.S.-
based Nova Centrix entered into an agreement with Japan’s Showa Denko pursuant to which the
latter would manufacture and sell nanoparticle inks developed by Nova Centrix. An industry journal
commented as follows: “Nova Centrix is one of several nanomaterials suppliers working with
Japanese and other Asian partners to support production and commercialization of their technology.
Experience of industrialized production methods can be leveraged as these technology developers try
to commercialize their technologies, and much of the world’s display and electronics manufacturing
occurs in Asia.” “Nanomaterials firms turn to Asia for Commercial Opportunities” Plastic
Electronics (April 15, 2011).
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CLUSTERS AND REGIONAL INITIATIVES 433
of research and industrial clusters in China and India and commented that “”the
success of these emerging industrial giants of the 21st century cannot be
understood without reference to the industrial cluster phenomenon that is
embedded within them, housed within such institutional settings as Special
Economic Zones and science-based industry parks. All the intellectual
machinery developed to understand the rise of clusters in the advanced world is
now going to have to be applied in order to make sense of this same
phenomenon in the developing world, but in a new context defined by
globalization and the emergence of global production networks and global value
chains”.3
POLICIES TO FOSTER INNOVATION
The new competitive landscape is prompting state and regional
authorities around the U.S. to take creative, comprehensive, and proactive
approaches to developing innovation-led economies. Indeed, just as foreign
governments have absorbed lessons from successful U.S. innovation zones such
as Silicon Valley and Research Triangle Park, U.S. economic-development
officials have studied the strategies and experiences of other nations. The
growing global challenges also have prompted fresh discussion of and
experimentation with closer collaboration between federal agencies and state
and local bodies to improve innovation capacity and boost industrial
competitiveness.
REGIONAL INNOVATION CLUSTERS
Communities across the world have long tried to mimic the success of
innovation hot spots such as Silicon Valley and Boston’s Route 128. Only in the
past decade or two, however, have innovation clusters become a matter of
serious public policy in the United States. Today, a growing number of state and
regional governments are developing comprehensive strategies to nurture new
concentrations of growth industries.
No longer is regional economic development merely a competition
among states for corporate investment on the basis of tax breaks and subsidized
land and labor. State development officials also know that it takes more than
funding for university research and building science parks for high
concentrations of innovative companies to take root in a given region.4 It
3
John A. Matthews. “The Hsinchu Model: Collective Efficiency, Increasing Returns and Higher-
Order Capabilities in the Hsinchu Science-Based Industry Park, Taiwan”. Keynote Address, Chinese
Society for Management of Technology, 20th Anniversary Conference, Tsinghua University,
Hsinchu, Taiwan, December 10, 2010.
4
For the perspectives of state economic development officials from Ohio, Pennsylvania, Virginia,
Kansas and Washington state, see National Research Council, Growing Innovation Clusters for
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434 RISING TO THE CHALLENGE
requires an entire ecosystem in which high densities of talented people—
researchers, entrepreneurs, and investors—collaborate to develop and launch
new products and companies.5 As Michael Porter observed, to secure
competitive advantage against other regions, communities must be able to fully
exploit knowledge, relationships, and motivation that “distant rivals cannot
match.”6
Early U.S. innovation clusters such as Silicon Valley and Greater
Boston emerged from the interaction between the private sector and major
universities that received substantial federal research funding,7 but with little
government design. By contrast, Research Triangle in North Carolina is the
result of early, substantial, and patient public and private support. In recent
decades, however, economic development agencies across the U.S. and around
the world have devised policy strategies to stimulate the rapid development of
regional innovation clusters.8 Governments are investing in universities, public-
private research partnerships, skilled workforce training, shared prototyping
facilities, and early-stage capital funds for entrepreneurs. Innovation America
President Richard Bendis describes the conceptual shift of the past decade as
going from “technology-based development” toward “innovation-based
economic development.” 9 Egils Milbergs of the Washington Economic
Development Commission contends that “a new model of economic
development for states” has come to the fore, one that focuses on talent,
infrastructure, productivity growth, open innovation systems, and global
connections.10
American Prosperity, Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The
National Academies Press, 2011.
5
See Robert E. Lucas, Jr., “On the Mechanics of Economic Development,” Journal of Monetary
Economics 22, 1988, pp. 38-39. Richard Florida has popularized the characteristics and economic
advantages of innovative clusters. See Richard Florida, The Rise of the Creative Class, New York:
Basic Books, 2002.
6
Michael E. Porter, “Clusters and the New Economics of Competition,” Harvard Business Review,
76(6), pp. 77-90, 1998.
7
See AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route
128, Cambridge, MA: Harvard University Press, 1994, p. 161. Also see Martin Kenney, ed.,
Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, Stanford: Stanford
University Press, 2000.
8
Regional cluster development policies are proliferating so fast that rigorous assessments of their
effectiveness are lagging. As one researcher has summed it up: “Cluster policy has not only surged
ahead of cluster potential, it has also outpaced our theoretical and empirical understanding of the
cluster phenomenon.” Matthias Kiese, “Cluster Approaches to Local Economic Development,” in
Uwe Blien and Gunther Maier, eds., The Economics of Regional Clusters: Networks, Technology
and Policy, Cheltenham: Edward Elgar Publishing, 2008, p. 290.
9
Presentation by Richard Bendis of Innovation America in National Research Council, Growing
Innovation Clusters for American Prosperity: Summary of a Symposium, op. cit.
10
Presentation by Egils Milbergs of the Washington Economic Development Commission in
National Research Council, Growing Innovation Clusters for American Prosperity, ibid.
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CLUSTERS AND REGIONAL INITIATIVES 435
Until very recently, U.S. federal agencies have done little to support
state and regional innovation cluster initiatives. This is not the case abroad.
Clusters have been embraced globally as effective vehicles for mobilizing and
coordinating public and private activities to spur economic growth. The growing
movement among governments around the world to shift from outright subsidies
to companies and poor regions to investing in public goods that enable industry,
universities, and communities to compete represents “a new paradigm in
regional policy,” according to Mario Pezzini of the Organization for Economic
Co-operation and Development.11
Andrew Reamer of the Brookings Institution noted in 2009 that 26 of
31 European Union nations have cluster development programs at the national
level and the EU even operates a European Cluster Observatory that maps
clusters across the European continent12. A number of Asian and Latin
American nations and regions have also promulgated cluster strategies. A few
examples—
• Brazil: Minas Gerais, a Brazilian state with 20 million people and a
territory roughly the size of France, is investing $300 million in
emerging clusters in micro-electronics, bio-fuels, and software. Minas
Gerais also has identified hundreds of “poles of excellence” in
traditional industries scattered across the state that it hopes to develop
further. Sistema Mineiro de Inovação (SIMI), the agency coordinating
the campaign, is promoting development of science parks, incubators,
and training programs.13
• Hong Kong: Realizing that it needed to diversify its industry base
after the 1997 Asian financial crisis, the Hong Kong government
launched an initiative to develop innovation clusters in fields that
leverage its technology strengths, its reputation as a world-class
business environment, and its strategic location on the doorstep of
mainland China. Some 250 companies in electronics, green technology,
information and communication technology, precision engineering, and
11
Presentation by Mario Pezzini of the Organization for Economic Co-operation and Development
at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC,
February 25, 2010. See also “National Innovation Systems,” OECD, 1997
http://www.oecd.org/dataoecd/35/56/2101733.pdf.
12
The OECD examined 26 cluster programs in 14 countries. Notably, the programs examined for
the United States were state programs – the Georgia Research Alliance and the Oregon Cluster
Network. OECD, Competitive Regional Clusters: National Policy Approaches, Paris: OECD, 2007.
13
Presentation by Alberto Duque Portugal of the Minas Gerais Secretariat for Science, Technology,
and Higher Education, op. cit. SIMI also is encouraging research organizations and entrepreneurs to
consolidate their activities into hubs in locations strong in particular fields so that they can achieve
greater scale and draw more foreign investment.
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436 RISING TO THE CHALLENGE
biotechnology clusters are based in the new Hong Kong Science and
Technology Park (see below).14
• Canada: As part of its goal of developing at least 10 internationally
recognized technology clusters,15 Canada has established a network of
17 Centers of Excellence since 2008 in fields such as brain research,
optics, and theoretical physics16
• Singapore: Singapore is investing billions of dollars in comprehensive
strategies to expand innovation clusters in biomedicine, digital media,
and high value-added manufacturing, including microelectronics and
new materials (see chapter 3).17
• France: The Grenoble region is rising fast as one of Europe’s premier
hubs for micro-electronics and nanotechnology companies, and is a
showpiece of the French government’s pôles de croissance initiative to
develop globally competitive innovation clusters.18
• Taiwan: Taiwan’s Industrial Technology Research Institute (ITRI)
already has helped establish some of the world’s most successful
clusters in notebook PCs, digital displays, and semiconductors. Now
ITRI and other government agencies are working with industry to
develop promising clusters of manufacturers in solid-state lighting,
14
Now Hong Kong is focusing on developing innovation clusters in areas like thin-film photovoltaic
cells, environmental engineering, and energy management for buildings. Presentation by Nicholas
Brooke of Hong Kong Science and Technology Parks Corp. in National Research Council,
Understanding Research, Science and Technology Parks: Global Best Practice: Report of a
Symposium, Charles W. Wessner, editor, Washington, DC: National Academy Press, 2009.
15
Each center is based at a university and receives a mix of government and private industry funding
for collaborative research and commercialization programs. The centers are credited with creating
more than 100 spin-off companies, training 36,000 personnel, and attracting $71 million in private
investment. Industry Canada, Achieving Excellence: Investing in People, Knowledge and
Opportunity—Canada’s Innovation Strategy, 2001. (http://dsp-psd.pwgsc.gc.ca/Collection/C2-596-
2001E.pdf.
16
Networks of Centers of Excellence, “About the Networks of Centres of Excellence,” accessible on
the Web at http://www.nce-rce.gc.ca/About-APropos/Index_eng.asp.
17
The initiative, led by the Agency for Science, Technology, and Research (A*STAR), includes
development of several multibillion-dollar science parks, recruitment of top international scientists, a
training program for 1,000 Singaporean science and engineering Ph. Ds, revamped university
curriculum, and a $275 million program to support technology entrepreneurs with start-up capital
and incubators. National Research Foundation, “National Framework for Innovation and
Enterprise,” Prime Minister’s Office, Republic of Singapore, 2008,
(http://www.nrf.gov.sg/nrf/otherProgrammes.aspx?id=1206).
18
Gilles Duranton, Philippe Martin, Thierry Mayer, and Florian Mayneris The economics of clusters.
Lessons from the French experience. Oxford: Oxford University Press, 2010. The cluster is centered
around MINATEC, a 3,000-student campus that represents a €3.35 billion investment by the national
and local government (see Science Park chapter). Minatec has brought together public-private
research collaborations involving four universities and has spawned start-ups in optoelectronics,
biotechnology, circuit design, motion sensing, and other fields. From presentation by David Holden
of MINATEC in Understanding Research, Science, and Technology Parks, op. cit.
OCR for page 437
CLUSTERS AND REGIONAL INITIATIVES 437
flexible displays, thin-film photovoltaic cells, medical devices (see
chapter 3).19
Cluster Dynamics
Industrial clusters have been the subject of study since the pioneering
study of Sheffield’s cluster by the British economist Alfred Marshall in the late
19th century.20 He identified three basic advantages of clusters which are still
acknowledged and have come to be known as “Marshall’s trinity”. They are: 1)
a pool of skilled labor; 2) knowledge spillovers; and 3) inter-firm linkages.
These factors are widely recognized to convey benefits to enterprises located in
a cluster, but the benefits have proven difficult to quantify.21In addition to the
traditional sources of cluster advantages cited by Marshall, a number of
contemporary analysts, notably Michael Porter, have argued that highly clusters
localities in which intense competition for ideas occurs are more conducive to
innovation.22
19
Presentation by John Chen, Industrial Technology and Research Institute of Taiwan at the
National Academies Conference on Flexible Electronics for Security, Manufacturing, and Growth in
the United States, September 24, 2010 in Washington, DC.
20
Alfred Marshall, Principles of Economics, London: Macmillan, 1920. The first edition of
Marshall’s classic textbook appeared in 1890. While the analysis of the spatial concentration of
economic activity goes back to Marshall’s analysis of the localization of industry it was given more
recent attention by Paul Krugman, Geography and Trade, Cambridge: The MIT Press, 1991 See also
W. Brian Arthur, “Industry Location Pattern and the Importance of History,” in W. Brian Arthur,
Increasing Returns and Path Dependence in the Economy, Ann Arbor: The University of Michigan
Press, 1994. Arthur examines the relationship between two different theories of spatial
concentration, agglomeration economies and the historical accident/path dependence viewpoint.
Recent empirical work by Delgado, Porter and Stern find significant evidence for cluster-driven
agglomeration. Mercedes Delgado, Michael E. Porter and Scott Stern, “Clusters, Convergence, and
Economic Performance,” March 11, 2011, submitted for publication, accessible at
http://www.isc.hbs.edu/econ-clusters.htm.
21
Paul Krugman, who popularized Marshall’s thinking in the late 20th century, observed that
“technological spillovers leave no paper trail.” Stephern Klepper, “Nano-economics, Spinoffs, and
the Wealth of Regions”, Small Business Economics (2011) 37: 141-154.
22
Michael Porter, “Location, Competition, and Economic Development: Local Clusters in a Global
Economy”, Economic Development Quarterly (2000); Eric Y Cho and Hideki Yamawaki, “Clusters,
Productivity, and Experts in Taiwanese Manufacturing Industries”. (University of Michigan
Quantitative Analysis of Newly Evolving Patterns of Japanese, U.S. and International Trade:
Fragmentation; Off-shoring of activities; and vertical intra-industry trade, October 16th, 2009). See
also the empirical analysis by Walter Powell et al. of the emergence of life sciences clusters. The
authors point out that "necessary conditions are a diversity of for-profit, nonprofit, and public
organizations, a local anchor tenant, and a dense web of local relationships. These features make
possible cross-network transposition, whereby experience, status, and legitimacy in one domain are
converted into ‘fresh’ action in another. The argument does not hinge on specific types of
organizations or ingredients; indeed, it is general enough to accommodate multiple pathways.”
Walter W. Powell, Kelley A. Packalen, and Kjersten Bunker Whittington, “Organizational and
Institutional Genesis: The Emergence of High-Tech Clusters in the Life Sciences.” In John Padgett,
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438 RISING TO THE CHALLENGE
John Matthews, who has extensively studied Taiwan’s Hsinchu
technology cluster, cited data from the Hsinchu Science Park to the effect that
firms located in the park were 66 percent more productive than firms located
outside of the park.23 He attributed that fact in substantial part to the existence of
“inter-firm linkages”, cited by Marshall, which facilitated the establishment of
highly efficient industry chains based on specialization by individual
companies.24 If Matthews’ productivity estimate is anywhere near accurate, the
implication is that companies’ presence in a successful cluster gives them a
major cost advantage relative to other companies, regions, and countries. A
further implication is that current trends, with see U.S.-originated designs bring
manufactured in Asia, could be at least partially offset through the establishment
of local manufacturing industry chains in U.S. technology clusters.
The Taiwanese production chains which operate in and around the
Hsinchu cluster include many of the companies which originated as spin-offs
and start-ups. The fact that venture capital was available to such companies in
their initial stages was an important aspect of their subsequent success25. In U.S.
Innovation clusters, the creation of comparable spin-offs and start-ups will
depend in significant part, to the availability of early stage funding.
An Emerging U.S. Cluster Strategy
Compared to the national cluster-development initiatives of other
nations, U.S. federal programs have tended to be “siloed” and
“uncoordinated.”26 Ginger Lew of the White House National Economic Council
Walter W. Powell, eds., The Emergence Of Organization And Markets, Princeton: Princeton
University Press, 2012. Chapter 13.
23
Matthews (2010). Op. cit. p. ii.
24
“Firms that form part of a network have access to many more resources than would be available to
them individually and such firms can contract with third parties to accomplish many more activities
than would otherwise be under their control [and] the scope for specialization and intermediation
grows. Matthews (2010) op. cit p. ii. Ding Yuan Yang, founder of Winland Electronic Corporation,
located in Hsinchu Park, described this dynamic as follows: “Taiwanese companies may not
coordinate well enough, but each company clearly defines its own focus. And [they] break down the
PC industry into parts. Each company does what it does best. Some do the keyboards, some do the
monitors, some do the motherboards, and some do the casing. That is what I call the ability to
innovate.” Interview with Ding-Yuan Yang, recorded February 23, 2011 (Computer History
Museum, 2011).
25
The government has contributed directly and indirectly to making Taiwan one of the world’s
largest sources of venture capital. “Taiwan—A Growing Model for Startup Companies” Central
News Agency (November 27, 2011); “Fund to Invest in Venture Capital Firms” Taipei Times
(March 19th, 2009); “Cabinet Inks Deal with Israeli Fund” Taipei Times (October 19, 2004).
26
See presentation by Andrew Reamer of The Brookings Institution in Growing Innovation Clusters
for American Prosperity, op. cit. Stockinger, Sternberg and Kiese examine differences between the
“liberal market economy” approach of the United States and the “coordinated market economy”
approach of Germany. Dennis Stockinger, Rolf Sternberg and Matthias Kiese, “Cluster Policy in
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CLUSTERS AND REGIONAL INITIATIVES 439
agreed that state and regional efforts have been “occurring on an ad-hoc basis
without a formal U.S. policy.” 27
The federal government has become far more engaged in the past few
years. Concerns that the U.S. is ceding global leadership in technology and
innovation competitiveness in the wake of the National Academies’ Gathering
Storm report have prompted Congress to address clusters in legislation such as
the America COMPETES Act.28 Cluster building took on greater urgency in the
wake of the financial crisis of 2008 and deep recession that followed. The
departments of Energy, Commerce, Defense, Agriculture, Labor, and Education
now all have programs devoted to regional innovation clusters.
Congress allocated substantial financial support for clusters such as
advanced batteries through the American Recovery and Reinvestment Act of
2009, and the Obama Administration’s budget for fiscal year 2011 included
more than $300 million in new funding for federal agencies to assist regional
innovation cluster initiatives. The Administration also developed a strategy to
coordinate programs of various federal agencies to support “holistic, integrated
solutions to building regional economies,” according to Ms. Lew of the National
Economic Council.29 New federal programs include—
• The Energy Regional Innovation Clusters (ERIC) program, in which
the DOE is leading six other federal agencies to help U.S. regions
develop innovation zones. Regions compete for funds.30
• The Energy Innovation Hubs program, also led by the DOE, provides
funds for multidisciplinary teams to deploy new clean-energy
technologies at scale.
• The Economic Development Agency of the Commerce Department
received $50 million under the Recovery Act to map cluster activities
Co-Ordinated vs. Liberal Market Economies: A Tale of Two High-Tech States,” paper presented at
Copenhagen Business School Summer Conference 2009, Denmark June 17-19, 2009.
27
Presentation by Ginger Lew of the White House National Economic Council at the National
Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25,
2010.
28
Sec. 603 of The America Creating Opportunities to Meaningfully Promote Excellence in
Technology, Education and Science Reauthorization Act of 2010 (P. L. 111-358) , known as the
America COMPETES Act, provides for the Department of Commerce to provide competitive grants
to regional innovation clusters and create a research and information program on regional innovation
strategies.
29
Lew presentation, op. cit. The Taskforce for the Advancement of Regional Innovation Clusters
(TARIC), under the auspices of the National Economic Council, is overseeing the development and
implementation of interagency clusters efforts. The TARIC was chaired by Ginger Lew until her
retirement in June 2011.
30
A public-private consortium led by Pennsylvania State University won the first grant of up to $130
million to form an innovation hub focusing on energy-efficient building technologies. For an
explanation of the Energy Regional Innovation Clusters program, see Lew presentation, op. cit.
Details on the announcement to fund the Energy Innovation Hub in Philadelphia can be found in the
DOE press release of Aug. 24, 2010 at http://www.energy.gov/news/9380.htm.
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440 RISING TO THE CHALLENGE
across the country, develop evaluation metrics, and spread best
practices.31
• The Small Business Administration is supporting efforts to develop
robotics clusters in Michigan, Virginia, and Hawai’i with the help of
state agencies and the Department of Defense.32
• The Department of Agriculture proposes a Regional Innovation
Initiative in its FY 2011 budget. The agency would set aside 5 percent
of the funding from around 20 programs, or about $280 million, would
be granted on a competitive basis to pilot projects for regional planning
in rural areas to create new industries.33
• The i6 Challenge program, announced by the Department of Commerce
in May 2010, announced a $12 million partnership with the National
Institutes of Health and the National Science Foundation to award
grants to six teams around the country with the most innovative ideas to
drive technology commercialization and entrepreneurship.34
• The Department of Labor proposes to use part of its FY 2011 budget
request for a Workforce Innovation Fund pursuant to which states and
regions would compete for funds by demonstrating a commitment to
transforming their workforcesa program which will support cluster
initiatives such as ERIC.
• The National Science Foundation plans to invest $12 million to
promote “NSF Innovation Ecosystems” that support regional
innovation clusters by helping faculty and students to commercialize
innovations, form industry alliances, and launch start-ups.
Most of these new federal cluster initiatives are too new to assess.
Provided they are funded, however, and taken together with growing activity at
the state and regional level, they mark a clear new direction for U.S. economic
and innovation policy.
31
The EDA is requesting $75 million to continue such activities.EDA, along with the Institute for
Strategy and Competitiveness at Harvard Business School, has launched www.clustermapping.us the
U.S. Cluster Mapping Web site. EDA sees this website, which creates a national database of cluster
initiatives and other economic development organizations, as “a new tool that can assist innovators
and small business in creating jobs and spurring regional economic growth.” See EDA Update,
October 6, 2011, “U.S. EDA Announces Registry to Connect Industry Clusters Across the Country.”
32
The SBA also proposes to use $11 million to train and advise small businesses on how to
participate in clusters For explanation of Small Business Administration cluster activities, see the
summary of remarks by SBA Administrator Karen Mills in National Research Council, Growing
Innovation Clusters for American Prosperity, C. Wessner, rapporteur, Washington, DC: The
National Academies Press, 2011.
33
U.S. Department of Agriculture Fiscal Year 2011 Budget Summary and Annual Performance Plan
http://www.obpa.usda.gov/budsum/FY11budsum.pdf).
34
National Science Foundation press release, May 3, 2010.
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CLUSTERS AND REGIONAL INITIATIVES 441
“Regional innovation clusters have a proven track record of getting
good ideas more quickly into the marketplace,” Commerce Secretary Gary
Locke explained at an NAS symposium. “The burning question becomes, ‘How
do we create more of them?’”35 The best ways to create sustainable clusters and
the appropriate role of public policy remain subjects of extensive debate.
Perhaps what experts do agree on is that there are no standard recipes to develop
new clusters. Strategies and public policies that are successful in some U.S.
regions may not be appropriate in others. “If you attempt to replicate what was
done in Silicon Valley, it just will not work,” said Arizona State University
President Michael Crow.36 “You need to learn from them, draw on their lessons,
and then work out your own solution.” Andrew Reamer of the Brookings
Institution warns that too many states have attempted to launch clusters in the
same industries, such as biotechnology, regardless of whether they have any
compelling competitive advantage. Economic development agencies also tend
to jump onto fads. “Today, clusters have that danger,” he said. “They’re the next
magic bullet.”37Wholesale attempts to transport successful Asian strategies,
where governments often dictate where clusters are to be located, also would be
problematic in American regions, not least because clusters are “complex, self-
organized, and composed of a broad patchwork of people and institutions,”
noted Maryann Feldman of the University of North Carolina. The role of
government in the U.S., she said, is to provide incentives.38
To assess the wide range of experimentation at the state, regional, and
federal level, the National Academies STEP Board has hosted wide-ranging
dialogues over the past few years on how to stimulate innovation clusters. These
symposia explored the role that clusters play in promoting economic growth, the
role of government and universities in stimulating clusters, and specific
strategies in place around America and abroad. The aim was to identify
institutions and programs that can be leveraged to grow and sustain clusters.
Several common themes emerged from this extensive dialogue
regarding guidance and best practices for state, federal, and regional
policymakers. To maximize chances of success, regional innovation clusters
need to—
• Leverage local strengths: Regional innovation cluster initiatives
should be built upon existing knowledge clusters and comparative
strengths of a geographic region. Government should promote proven
35
Presentation by Commerce Secretary Gary Locke at the National Academies conference on
Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.
36
From remarks by Arizona State University President Michael Crow in Growing Innovation
Clusters for American Prosperity, op. cit.
37
Reamer presentation, op. cit.
38
From presentation by Maryann Feldman of the University of North Carolina at Chapel Hill in
Growing Clusters for American Prosperity, op. cit.
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480 RISING TO THE CHALLENGE
Washington, DC and important nearby research institutions such as the
American Center of Physics.
M Square will cover 138 acres and have more than 2 million square
feet of space when fully built out. It has attracted some $500 million in private
investment and is expected to employ 6,500 people.204
The research park has helped the University of Maryland, which
already had important institutes for physics and telecommunication sciences and
the Center for Advanced Study of Languages, land a cluster of research centers
tied to federal national security organizations205. The University of Maryland has
set up other innovative research parks to extend its global reach. The UM-China
Research Park, established in 2002, hosts 10 Chinese companies and offers
services provided by the university’s engineering and business schools. Another
11 Chinese companies have set up operations at the university’s special
international incubator, Dr. Mote noted, including a developer of software for
the construction industry that raised $2 billion in a stock offering valued at $20
billion within six months. Another “international research park” affiliated with
the university serves as a “foothold” for foreign companies in Maryland. The
park “shows what universities can do on an international scale to build
enterprises,” he said.
Purdue’s Regional Approach
A science park initiative need not be limited to one area. The Purdue
Research Parks is a network of parks launched a decade ago by the Purdue
Research Foundation, a nonprofit set up in the mid-1990s. In addition to the
725-acre park near Purdue’s main West Lafayette, Indiana, campus, there are
campuses in Indianapolis, Merrillville, and New Albany, all aimed at helping
students and faculty commercialize technology to enhance the Indiana economy.
In all, Purdue is a partner in at least 10 Indiana science parks, a half dozen of
which are doing quite well, according to Victor L. Lechtenberg, Purdue’s vice
provost for engagement.206
204
A new 38-acre mixed-use University Town Center under development will allow researchers and
entrepreneurs to both live and work at the park. Key tenants for climate and weather research include
the National Oceanic and Atmospheric Administration, which will occupy 10 acres, employ 800, and
partner with the university and the NASA/Goddard Space Flight Center. A climate change institute
run jointly by the university and the Pacific Northwest National Laboratory and a $25 million center
for earth systems modeling also are at M Square. Data from M Square Web site at
http://www.msquare.umd.edu/about/um-research-park.
205
They include the Intelligence Advanced Research Project Activity, a new government program
that consolidates high-level, forward-looking intelligence research. Tenants relating to food research
include facilities for the U.S. Department of Agriculture, the Food and Drug Administration, and the
university’s own Center for Food, Nutrition, and Agriculture policy. M Square also houses a number
of start-ups incubated at the university, ranging from developers of medical devices and Internet
security software to nutritional products.
206
From presentation by Victor Lechtenberg of Purdue in Understanding Research, Science, and
Technology Parks.
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CLUSTERS AND REGIONAL INITIATIVES 481
The West Lafayette park has nearly 100 high-tech businesses and
entities and the nation’s largest incubation program, covering 259,000 square
feet and housing 57 start-ups. Some $121 million in venture capital has been
invested in businesses. The park’s 2,800 employees earn an average of $58,400
each.207 Combined, the research parks have 214 companies in fields such as life
sciences, information technology, advanced manufacturing, digital imaging,
agri-science, and engineering.208
A second Purdue initiative is Discovery Park. Founded in 2001,
Discovery Park is a network of integrated research centers at the Purdue
campus, each dedicated to large-scale, interdisciplinary research in topics such
as biosciences, nanotechnology, advanced manufacturing, energy, oncology, and
healthcare engineering. Discovery Park also includes a $25 million Hall for
Discovery and Learning Research. Discovery Park has 113,000 square feet of
laboratory space, has raised nearly $150 million in research funding as of mid-
2010, and recruited 300 faculty.209 The Lilly Endowment is a major contributor.
Discovery Park’s mission is to help “redefine” the academic culture for
research and discovery.”210 The park has a number of project-based centers
sponsored by different funders and that are affiliated with the core research
centers. One major project is developing systems to predict the reliability of
micro-electromechanical systems (MEMS) used in security, defense, and space
applications. Scientists at Purdue’s Bindley Bioscience Center work closely with
engineers at the Birck Nanotechnology Center to pioneer new cancer treatments
using tiny micro-sensors implanted into tumors to allow doctors to monitor
radiation. Other R&D projects study processes to convert biomass into energy
and develop low-cost diagnostic tools to detect the AIDS virus. The park is also
home to the George E. Brown, Jr. Network for Earthquake Engineering
Simulation (NEES), which is housed in Purdue University's Discovery Learning
Research Center in Discovery Park. Led by Purdue University, NEES connects
research equipment sites and the earthquake engineering community from
universities and research centers across the country. NEES is supported by a
$105 million grant from the National Science Foundation.211
Seeding and nurturing start-ups by blending different disciplines is a
major objective of Discovery Park. It has helped launch 30 companies so far, as
well as six start-ups initiated by students. Discovery Park also has helped Purdue
207
Details on Purdue Research Parks from Lechtenberg presentation, ibid.
208
A current list of companies in the parks are found on the Purdue Research Web site,
http://www.purdueresearchpark.com/companies/index.asp.
209
Data from Purdue University Discovery Park Web site, http://www.purdue.edu/discoverypark/.
210
Discovery Park Web site, op. cit.
211
See Peter Folger, Earthquakes, Risk, Detection, Warning and Research, Congressional Research
Service, September 2, 2011. Access this CRS report at
http://www.fas.org/sgp/crs/misc/RL33861.pdf
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482 RISING TO THE CHALLENGE
raise more research funds, which surged to $342 million in the 2008-2009 fiscal
year.
Spurring Entrepreneurialism at Sandia
As at many national laboratories engaged in weapons research, the
technologies developed at Sandia National Laboratories in Albuquerque, N.M.,
did little through most of its history to stimulate civilian industries in the
surrounding area. That began to change in a big way in 1999, when Sandia
became the first national laboratory to open an industrial park next to its
compound. The motive was not only to spur development of science-based
companies in New Mexico, but also to enable the laboratories to share costs and
expertise with industry so that their scientists can keep pace with the latest
technological innovations.212
Today, the Sandia Science and Technology Park has 18 buildings
housing 29 companies and more than 2,000 employees, who earn an average
annual salary of around $70,000.213 The park also has plenty of room to expand:
More than two-thirds of the 240 acres of land reserved for the park have yet to
be developed.
Sandia was founded as part of the Manhattan Project in the late 1940s
as a spinoff of Los Alamos National Laboratories, also located in New Mexico,
in order to manufacture weapons for the U.S. nuclear stockpile. Owned by the
DOE and managed by Lockheed Martin, Sandia subsequently broadened its
mission to meeting other national needs, such as technology for homeland
security and renewable energy. Sandia’s core technological strengths include
computer science, micro systems, materials, engineering sciences, and
biosciences.214 Sandia also is strong in fields such as solar power, a legacy of its
decades of work developing power systems for spacecraft.
The park is located alongside what Sandia Chief Technology Officer
Richard Stulen describes as an “innovation corridor.” Major facilities include
the Microsystems and Engineering Sciences Applications (MESA) complex, a
$$516 million investment by the Department of Energy, the National Nuclear
212
For an early analysis of the Sandia science park, see National Research Council, Industry-
Laboratory Partnerships: A Review of the Sandia Science and Technology Park Initiative, Charles
W. Wessner, editor, Washington, DC: National Academy Press, 1999.
213
Sandia Science and Technology Park, “Facts and Figures,” on Web site at
http://www.sstp.org/Pages/FactsFiguresPage.html Partners in the park include the DOE, Lockheed
Martin, New Mexico’s Economic Development Administration, and local governments. The park
claims to have created more than 5,400 indirect jobs in the Albuquerque area and that the $68
million in public investment as of 2009 brought in $243 million in private investment. Data are from
2009 report by the Mid-Region Council of Governments. See Sandia news release, “Report: Sandia
Science & Technology Park Fuels Economy With Jobs, Tax Revenue, Spending,” Aug 3., 2010
(https://share.sandia.gov/news/resources/news_releases/report-sandia-science-technology-park-fuels-
economy-with-jobs-tax-revenue-spending/).
214
Presentation by J. Stephen Rottler of Sandia National Laboratories at the National Academies
conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.
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CLUSTERS AND REGIONAL INITIATIVES 483
Security Agency, and Sandia.215 MESA is used for both classified and non-
classified research and is a state-of-the-art microelectronics fabrication facility
that can integrate single chips using different materials in ways not normally
available to industry.216 Some of the park’s tenants are sizeable. EMCORE, a
developer of fiber-optic transmission equipment and solar cells used in
spacecraft and terrestrial systems, employs 500 and has invested $104 million in
Albuquerque. The company licensed key laser, solar cell, and transponder
technology from Sandia. KTech, a local company that provides technicians for
the Sandia Pulsed Power Facility, also employs 500 and has invested $34
million.217 Other tenants include radar-imaging developer Microwave Imaging
Systems, the spacecraft electronics operations of Moog Inc., and Applied
Technology Associated, a small maker of devices such as sensors and testing
instruments.218
Among the biggest challenges for the Sandia science park is “keeping
the federal government engaged” and maintaining interest by government
agencies in maintaining incentives to lure small businesses, explained Dr.
Stulen. “Parks don’t just happen. They require energy, devotion, and passion
from leaders – not only of the institution but also of the region.” He said that
Sandia and other national laboratories need to improve the ways in which they
collaborate with private companies, such as by reducing red tape involved with
licensing intellectual property and meeting government regulations. “We need
more speed in working with industries, to be able to work at their pace,” he said.
Kennedy Space Center: A New Mission
The final voyage of Space Shuttle Atlantis, which landed for the last
time on July 21, 2011, in Cape Canaveral, Fla., not only marked the end an era
of American manned space travel. It also marked the beginning of a major
economic challenge for the area surrounding the Kennedy Space Center. The
end of the program was estimated to have cost up to 25,000 jobs.219
Regional officials hope that a new science park just outside the security
gates of Kennedy Space Center will help rebuild the region’s economy and
215
“DOE/NNSA to Dedicate Half Billion Dollar Microsystems Engineering Sciences Complex at
Sandia,” News Release, National Nuclear Security Administration, August 20, 2007.
216
See presentation by Sandia Chief Technology Officer Richard Stulen in Understanding Research,
Science and Technology Parks. Sandia also is home to the Red Storm, one of the world’s most
powerful supercomputers, and a Joint Computation and Engineering Lab used by corporations such
as Goodyear and Procter & Gamble to simulate complex industrial designs. Sandia is a partner in a
new Center for Integrated Nanotechnologies, a federally funded public-private research partnership.
Sandia has moved some research facilities “outside the fence,” from the highly secured laboratory
compound and into the science and technology park itself. They include the Computer Science
Research Institute.
217
Ibid.
218
Sandia Science and Technology Park Web, “Tenants.”
219
Donna Leinwand Leger, “End of Shuttle Program Slams Space Coast Economy, USA Today, July
5, 2011.
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484 RISING TO THE CHALLENGE
reposition it for the future. Dubbed Exploration Park, the campus will support
the emerging commercial space industry and new companies spun off from the
center’s research projects. Construction began in March 2011 on the first 60-
acre, nine-building phase of the 139-acre site.220 The project is a public-private
partnership involving Space Florida—the state’s aerospace economic
development organization—and real estate developer The Pizzuti Companies.
When it opens, 5,000 technicians, engineers, and administrative support
staff will transfer to the park, guaranteeing what NASA Kennedy Space Center
Director and former astronaut Robert Cabana described as “a really high-quality
workforce that will be transitioning from the end of the shuttle program to the
future.”221 The science park also is adjacent to the University of Central Florida,
which has an excellent engineering program and the third-largest enrollment of
any U.S. university. “If we can capitalize on universities, industry, and
government partnerships with the state of Florida, it is amazing what I think we
can accomplish,” Mr. Cabana said.
The federal government is providing considerable assistance for the
transition. The Obama Administration set up a $40 million transition fund and
appointed a presidential task force to promote worker retraining and economic
development on the Space Coast. The Administration also announced it intends
to invest $6 billion over five years in new NASA space initiatives that will
stimulate the space industry and that should provide new economic opportunities
in the region.222 The federal government also is allocating funds to use the Space
Shuttle as a national laboratory for experiments conducted in space and for
various technology-demonstration projects. “The question is, ‘How do we tie all
of this together, to where we can bring industry in and really make this
beneficial to everyone?’” Mr. Cabana said.223
The Kennedy Space Center began focusing more on commercializing
technology several years ago. It already opened what is to be the new park’s
anchor facility--the Space Life Sciences Lab. Currently the building is located
within the gates of Kennedy Space Center, but will move to a new building in
the park, where it will be easier for civilians to enter. The facility, built by the
state of Florida, has 25 fully equipped scientific laboratories for life-sciences
research and administrative offices. NASA will lease the space. The space
center has a number of public-private partnerships that focus on applied research
and commercialization that can create spin-offs based in the park.224
220
Space Florida press release, March 10, 2011.
221
From presentation by Robert Cabana of NASA Kennedy Space Center in Understanding
Research, Science and Technology Parks.
222
See Presidential Task Force on Space Industry Workforce & Economic Development, “Report to
President,” August 15, 2010,
(http://www.explorationpark.com/feeds/Space_Industry_Report_to_the_President.pdf).
223
Cabana presentation, op. cit.
224
The NASA Innovative Partnerships Program provides bridge funding to help start-ups and launch
projects. Innovation Partnerships provided around $400,000 to help initiate a program called Lunar
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CLUSTERS AND REGIONAL INITIATIVES 485
In the field of lighting, the Kennedy Space Center is developing light-
emitting diode (LED) technology to help plants grow in controlled environments
such as space. It also is developing LEDs in different frequencies and colors that
have a direct influence on human performance. The technology has applications
on earth as well as space, Mr. Cabana said. For example, it could be used to
adjust office lighting during certain times of the day to help people work more
efficiently.225
Other space center collaborations with industry with terrestrial
applications include a “self-healing wire” developed for the Space Shuttle with
ASRC Aerospace Corp. The wire can detect breaks and release polymers to
repair the damage. A collaboration with PPG Industries is developing “micro-
encapsulated”226 materials that inhibit corrosion in paint, while a joint project
with Louisiana Tech University is developing biological instruments that detect
radiation damage to DNA during space travel. A partnership with Florida Power
& Light is installing a 10-megawatt solar-array system that Mr. Cabana says
could help attract solar-array companies to Exploration Park. Yet another
collaboration is with Starfighters Inc., a company that operates a fleet of F-104
jets227 that now are used for training. The company is developing a system that
can track and monitor rockets fired in test ranges, reducing the chance of human
error. 228
Mr. Cabana observed that Kennedy Space Center is a “critical resource
for our future” and added that he wants to “make sure that it is maintained so
that we have the ability to explore.” With an extensive research
commercialization program and construction of Exploration now underway, Mr.
Cabana said, “we really are doing all the right things.”
Observations on Factors in the Success of Research Parks
The proliferation of research parks, and the sheer scale of those being
built abroad, highlights the need for U.S. policy makers to better understand the
role of such parks in a nation’s innovation system. The ways in which successful
parks are structured, financed, and operated have important implications for the
Analog Field Demo of ISRU for lunar prospecting, for example. The program, a collaboration with
the Goddard and Johnson space centers, Carnegie Mellon University, and the Pacific International
Space Center for Exploration Systems run by the University of Hawai’i, uses a simulation of the
lunar surface to find and develop natural resources on the moon. ISRU standards for In-Situ
Resource Utilization. The program’s goal is to develop ways to use resources already on the moon to
establish lunar habitats and sustain human life.
(http://microgravity.grc.nasa.gov/Advanced/Capabilities/ISRU/).
225
Cabana, op. cit.
226
Micro-encapsulation is a process in which tiny particles are surrounded by a coating.
227
The Lockheed F-104 Starfighter is a single-engine supersonic interceptor jet used by the U.S. Air
Force from 1958 until 1967. NASA used F-104s for test flights until 1994.
228
Examples in this paragraph cited in Cabana presentation.
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486 RISING TO THE CHALLENGE
competitiveness of the U.S. and other nations in a 21st century global economy.
Yet despite the significant investments in such parks, there has been little
rigorous study of which practices work best or to precisely quantify their
economic impact. As a result, there is no systematic framework to understand
the dynamic interactions among the various stakeholders and participants in
research parks and the outcomes that result.229
To advance that understanding, the National Academies’ Board on
Science, Technology, and Economic Policy (STEP) made research parks a major
area of focus in its study of comparative innovation policy. The major policy
findings from the examination of research parks around the world are
summarized below.
• Successful research parks tend to have a large research university or
national laboratory at the core and support a critical mass of highly
trained knowledge workers.
• Strong public-private partnerships among government, corporations,
universities, and national laboratories are increasingly important to the
success of research parks.
• There is ample evidence that public investment in research parks have a
high “spillover” effect in terms of attracting corporate investment,
creating jobs, and forming new companies, although more work must
be done to measure such impact with precision.
• Public financial and policy support must be sustained over the long-
term if research parks are to win support from corporate investors.
Given the long-time horizons of major corporate research programs,
public commitment must be viewed as reliable.
• Research parks must be viewed as much more than real estate projects
if they are to be catalysts of regional innovation. Successful parks not
only offer corporations access to first-rate public research institutions
and talent, but also valuable services such as low-cost shared laboratory
and prototyping facilities, small-business incubators, advice on
intellectual property, and assistance in raising early-stage capital.
• Successful research parks outside of the U.S. tend to benefit from
strong government-supported programs to promote applied research as
well as basic research.
• There is substantial room for improvement in the flow of research from
universities and national laboratories to the commercial sector. This is
especially true in nations such as China, India, Japan, and some nations
in Europe, where academic cultures traditionally have not encouraged
229
See Phillip H. Phan, Donald S. Siegel, and Mike Wright, “Science Parks and Incubators:
Observations, Synthesis and Future Research,” Journal of Business Venturing, 20(2): 165-182,
March 2005.
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CLUSTERS AND REGIONAL INITIATIVES 487
entrepreneurialism, but also in the United States. Greater incentives and
reform of technology-transfer policies may be required.
IN CLOSING
As we have seen, both advanced and emerging economies are making
significant investments and promulgating polices to encourage cluster
development as a way to maximize their investments in research and
development. This chapter has explored several ways in which U.S. states and
regions as diverse as Michigan, New York, West Virginia, and South Carolina
are rising to the challenge by developing regional innovation clusters and new
types of science and research parks. In many cases, these regional initiatives
leverage federal investments to achieve scale. In recent years, federal policies
have also sought to develop a more integrated approach to supporting regional
efforts. Given that innovation clusters typically coalesce over many years, a key
issue is whether these initiatives will benefit from steady commitment over the
long term.
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APPENDIXES
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