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32 BUILDING THE OHIO INNOVATION ECONOMY
Panel I
The Ohio Innovation Economy in the Global Context
Moderator:
Richard A. Stoff
Ohio Business Roundtable
Mr. Stoff began by thanking the meeting organizers, recognizing in
particular Glenn Brown, whom he called “the first true science advisor to a
governor and a distinguished scientist and industrialist. He started us on the
march in science and technology in the public sector in this state,” he said.
He described the Ohio Business Roundtable as a partnership of chief
executives of major businesses that is “committed to working with public
leaders to build a stronger Ohio.” He said that the organization was selective in
the issues it addressed, advocating “public policies that foster vigorous and
sustained economic growth and an improved standard of living for all the
citizens of this state.”
Mr. Stoff emphasized his organization’s commitment to “major system
change,” and their efforts to serve as a catalyst for change over the last two
decades. The Roundtable acts in the belief that knowledge and innovation are
the “keys to global competitiveness, and certainly the foundation for economic
strength and prosperity.” He noted that several years ago the Federal Reserve
Bank of Cleveland, under leadership of Sandra Pianalto, conducted a
comparative analysis of the states’ economic strength over the previous 75
years, as measured by relative per capita income growth. The analysis identified
two basic variables that differentiated the wealthy states from the less-wealthy.
One was innovation, as measured by the pace of technological advance and the
strength of commercialization engines. The other was talent, as measured by
citizens’ level of education. The Cleveland Fed’s analysis, he said, might be
expressed by the equation “innovation plus talent equals prosperity, or I + T = P,
with Ohio stuck firmly in the middle of the pack then.”
“At the Business Roundtable,” he continued, “we have used this
research over the last several years as our central organizing device.” In
developing talent, the group has helped shape statewide education reforms,
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primarily in grades K-16, including the “nationally acclaimed” Ohio STEM
Learning Network.
Mr. Stoff said that the Roundtable had also “played a major role” in
building statewide bipartisan support for the Ohio Third Frontier, which he
called the premier public-private innovation platform in the state and a model
that has been replicated by many other states. He reiterated the good news
mentioned earlier by Dr. Proenza—that the program was significantly extended
shortly before the symposium by “a successful bipartisan effort to secure
another $700 million for an additional five years of support. I think the real
headline of the story is that in the face of a crippling recession and a time of
government distrust, Ohio voters overwhelming approved the Third Frontier
bond renewal measure by 62 to 38. The voters acted on their belief that Ohio
needs to continue to invest in building its innovation economy.”
Mr. Stoff said that the Third Frontier results have been “impressive.”
An independent analysis sponsored by the Roundtable and performed under the
direction of the CFO of Cleveland-based Eaton Corporation, found that the
investments produced a leverage ratio of 8.5 to 1, , generating some $6 billion in
venture funding from venture capital, the private sector, and the Federal
government. It reported a return on investment of 22 percent per year, and
creation of 68,000 jobs with average salaries of $65,000. Some 650 companies
had been created, capitalized, or attracted. “We’ve now set the bar even higher,”
he said, “as the Third Frontier enters its next phase.”
Mr. Stoff concluded by noting that this encouraging news was to some
degree offset by significant challenges, which would be described by panel
members at the symposium. “But that tension is stimulating and thought
provoking,” he said, introducing the first speaker and the topic of relative state
performance across the country.
CHALLENGES AND OPPORTUNITIES FOR THE OHIO
INNOVATION ECONOMY
Ross DeVol
Milken Institute
Mr. DeVol, then executive director of economic research at the Milken
Institute, said he would describe recent findings of Milken’s State Technology
and Science Index (STSI), which annually compares technology innovation
activities in all 50 states. 1 He said that according to the index, begun in 2002,
innovation is becoming steadily more important in determining state and
regional economic success.
He said that many of the factors that determine national economic performance
also affect regional growth. The regions, however, do not face the same
1
Ross C. DeVol, Kevin Klowden, and Benjamin Yeo, “State Technology and Science Index 2010,”
Miliken Institute, January 2011. Access at .
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34 BUILDING THE OHIO INNOVATION ECONOMY
constraints as the national economy. An example is that labor is much more
mobile between regions than between countries, with individuals able to move
more quickly toward job opportunities. In addition, regional migration trends
can affect growth for long periods. Any explanation of regional growth patterns,
he said, must recognize these factors.
There are also barriers to the flow of economic activity across state
borders. Regions actively compete for new and expanding businesses, and
depend on the growth of industries that produce “exports”—goods and services
sold beyond their borders. The manufacturing sector is one of the most export-
intensive activities, he said, and the output of manufacturing circulates and
multiplies within a regional economy to create a large “ripple effect.” Health-
care services is also an export sector in some regions, including northeast Ohio.
This sector both attracts patients from throughout the Midwest, based on the
reputation of the Cleveland Clinic and other facilities, and acts as a magnet in
attracting firms engaged in biotech, pharmaceuticals, and medical devices. Such
firms commonly act as engines of economic growth.
Many factors create disparities in growth among regions, he said,
factors which interact in complex and dynamic ways. “The existing industrial
structure can determine growth for a number of years. Each region inherits its
industrial structure from historically determined factors, especially the costs of
doing business, including tax rates, capital costs, wage rates, real estate prices,
energy costs, and health care costs.” Increasingly important, he said, are “labor
force skills, access to markets, access to capital, research and development,
innovation capacity, and “quality of place” issues.” In the future, he predicted,
new factors are likely to emerge.
A Review of the Milken S&T Index
The most recent index had been released a few months earlier, using
five composite categories with a total of 77 individual components. For
example, the research and development composite had 18 components,
beginning with Federal R&D, Industry R&D, and Academic R&D. The 50 states
were ranked in “tiers” of 10 by colors on a map of the U.S. Those in the top tier
were portrayed in green, the second tier in yellow, the third in orange, and the
fourth in red. He said that many of the region’s leading the R&D category were
clustered together by region “because knowledge is generated, transmitted, and
shared more efficiently in close geographic proximity.”
“To build a new industry cluster, the research and innovation capacities
of a region are critical,” Mr. DeVol said. “You can start a new cluster by
importing firms that have commercialized technology elsewhere, but those
regions that have the basic research and development activities have an
advantage in building a cluster than can hold together over the long term.”
The R&D composite, he said, measured type of R&D funding as well
as how funds are spent. Also, everything was calculated on a per capita basis.
He noted substantial strength in the Northeast, New England, the Mid-Atlantic
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states, and in the West. The good news for Ohio, he said, is that it had moved up
to the 20th position in the 2010 index in the R&D component from 28th two
years ago, and from the third tier to the second tier.
In the R&D composite, Mr. DeVol noted “pockets of strength,” but
found the low “NSF funding”—in which Ohio ranked 44th—“troubling,”
because it suggests “less than a full-strength innovation pipeline.” Ohio had seen
a noticeable improvement in Academic R&D, rising from 30th to 21st place, and
had moved up five places in Industry R&D to 19th. Some strengths in the state
included R&D Expenditures on Engineering, where it ranked 10th, and
Biomedical Sciences, where it ranked 14th and Life Sciences, ranking 19th.
Improvement in STTRs and SBIRs was notable, both rising from the 2007 and
2008 positions.
“So Ohio is in the upper tier of most indicators,” he said, “including the
very good news that Ohio was in the top 10 in Phase I and II SBIRs. So there is
some evidence of improvement in the R&D pipeline.” He called its ranking of
9th and 10th in Phase I and II SBIRs “a dramatic improvement” from eight years
ago, when the index was first released.
Improvement in Access to Capital
Turning to the composite for risk capital and entrepreneurial
infrastructure, Mr. DeVol said that “if you want to be successful over the long
term, a state needs capable entrepreneurs and the risk capital that fuels growth
and allows them to convert research to commercially viable technology products
and services. We think this [composite] does a fairly accurate job of capturing
that.” He added that a new conceptual framework recognizes the role of
entrepreneurship in determining the economic growth of states and regions. The
index included entrepreneurial activities influenced by training and support from
both private and public sectors and availability of early stage financing. “But we
really need to measure the intensity of the entrepreneurial activity through the
extent to which individuals recognize opportunities and have the skills to exploit
them. This determines the number of new startups, how many grow to be
successful firms, and ultimately the jobs that are created.” He noted that Ohio
has moved up rapidly to 20th from 40th two years ago in this indicator,
indicating “significant improvement in entrepreneurial activities in the state of
Ohio.”
Mr. DeVol added that the index uses the term “access to risk capital”
to refer to “the smart money,” to angel investors and venture capitalists whose
connections are part of dynamic ecosystems with links to management talent
where it is needed. “So it’s about the skills, the connections they help establish
in an area.” Ohio had improved quickly in the availability of venture capital,
moving to 11th position. It had also risen sharply in the number of companies
receiving VC investments, moving from 39th to 11th. He added that of all the
indicators he reviewed for the index, the most encouraging was the jump in
business startup rates to 15th on a per capita basis, up from 49th two years ago.
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36 BUILDING THE OHIO INNOVATION ECONOMY
“This was a tremendous increase in early-stage startups,” he said. “And the state
also scored very high in VC investments in clean technology.”
Less Progress in Human Capital
In the composite for investment in human capital, however, he found
less progress. Mr. DeVol said that concentrations of talent today are more
important than “industry agglomerations” in attracting firms to states. “They
both matter,” he said, “but the key is really the ability to attract talent.” Among
the indicators he described were “stock,” the percentage of a population with a
bachelor’s degree or above, and “flow,” recent graduation rates in STEM fields.
U.S. states cannot compete on a low-cost, low skill basis, he said; they must
compete on the ability to generate ideas in the global marketplace and, more
importantly, in the new products and markets that accompany productivity
growth. “You have to understand the importance of harnessing the knowledge
that’s generated locally and importing it where necessary to be successful in the
long term to fuel economic growth,” he said. Ohio ranked just 35th in the 20
indicators in the Human Capital Investment Composite. Generally, Ohio’s best
rank was 17th in the stock measures for Students in Science, Engineering, and
Health as a percentage of the adult population. The ranking of 37th in the
number of Bachelor’s Degrees Per Capita “is not an encouraging sign.” Another
unfavorable statistic is State Appropriations for Higher Education, where Ohio
ranks 40th.
Mr. DeVol saw some strength in the number of Doctoral Science and
Engineering Degrees Awarded and the number of Doctoral Engineers, at 19th
and 22nd. “But when you look across the indicators, Ohio is typically in the
middle tier of most of these human capital measures.”
Attracting Talent
Mr. DeVol turned to the Technology and Science Workforce, which he
called “a little different” because it describes the ability to attract talent from
other places in terms of “intensity.” “Regions with a high concentration of
skilled technology and science workers,” he said, “have the advantage of being
able to pool intellectual capital with labor force skills specific to those sectors.
As design engineers, programmers, and microbiologists migrate from one region
to another, they reinforce the initial advantages of a region and bring new
comparative advantages from people outside the region.” This is because young
people who are highly mobile and geographically discriminating are “the most
important labor assets a state can have.” At 23rd, Ohio scored a little better in
this category, he said. The 18 occupational categories were divided into
computing, information sciences, and life sciences. The states that have above-
average scores in these categories, he said, are typically highly dependent on
technology and high-value-added industries. Massachusetts has been number
one on the index since it was created, while Ohio is in the middle of the pack in
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most of these indicators. Its best score is for Biochemists and Biophysicists, at
9th, and Database and Network Administrators, at 13th. He also reported “fairly
strong rankings for Physicists and for ‘Other Life Sciences,’ both at 7th,” and
for the catchall category Other Engineers, at 9th. “These are the occupational
categories that are critical for Ohio moving forward,” he said.
The last major category is the Technology Concentration and
Dynamism composite, which measures technology “as it is deployed on the
ground.” Indicators include payroll, employment, and net business formation,
“all pointing to the success of a region as its tries to move forward.” Mr. DeVol
called this “more of a measure of technology outcomes, as opposed to the
innovation pipeline as it flows through.” Most states that score well here, he
said, have a diverse technology background and composition of industry
clusters. Entrepreneurism plays a large role here, too, “because it’s about new
companies being started in the technology and science areas, and about your
ability to grow them.” Unfortunately, Ohio scored 44th in this category. He said
that part of the reason for the low score was that part of the data came from
2008, the depths of the great recession, which hit Ohio harder than many other
states. But even adjusting for this, he said, did not do much for Ohio’s scores,
which were typically 30th or 31st. The best score was in the Number of Inc. 500
Companies per 10,000 Establishments, where Ohio was 19th.
‘A Definite Improvement’ for Ohio
Putting together the five composites and their 77 indicators, Mr. DeVol
said, gave Ohio a rank of 29th, which he called “a definite improvement from
where it was a few years ago.” At the top of the list, Massachusetts was number
one, Maryland had moved to second place, Colorado had moved ahead of
California on a per capita basis to third place, California scored fourth, and Utah
had risen rapidly to fifth, “now nipping at California’s heels.”
Despite Ohio’s position of 29th, he said, the state tied for the biggest
increase from the previous index, having moved up seven places. This was
propelled by significant improvement in the risk capital infrastructure and
business startup rates. “So you’re starting to see from many of the early
indicators that Ohio’s moving in the right direction. But it must continue to
improve on many of these, especially in human capital area and success in
commercialization.”
One of the clearest barometers of a state’s economic standing, Mr.
DeVol said, is the per capita income of the working age population. About
three-fourths of the variation in per capita income can be explained by how well
the states score on the 77 indicators of the State Technological and Science
Index. “But we think the most dominant of these explanatory variables are the
human capital measures, including the talent and the entrepreneurial indicators,
which are growing increasingly important.”
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38 BUILDING THE OHIO INNOVATION ECONOMY
DISCUSSION
Mr. Stoff asked what it would take for Ohio, at best a second-tier state,
to move into the first tier. Mr. DeVol said that he had argued for years that
universities are the most important assets of an innovation economy. Among
high-tech clusters, those most successful in building a regional economy have
universities that recognize that role. Whether they are effective is most often
determined by the leadership of the president or chancellor. “I would argue that
the most important thing any region can do is see that universities, especially
public universities, do have a role to play. Many times that just means being
willing to work with industry, allowing them to have access to some of the top
research, or arranging a formal licensing arrangement.”
Such relationships are essential for attracting new firms, he added.
“When you look around the country, a key factor that firms look at is whether
the universities are engaged with the private sector. Do they have the research
capacity, the will, and the support to allow scientists to interact with the private
sector?” He said that while an active university is necessary, it is not sufficient.
“You also need incentives to encourage entrepreneurism—not only in the
universities but also in the private sector. I would say a key challenge for Ohio
and other states in the Midwest is the historical assumption among those
entering the labor market that you’re going to work for someone else, typically a
medium or large company, and that entrepreneurship is not an option for you.
This cannot be changed overnight, but it must be part of a relearning process.”
Dr. Wessner commented that other states are making substantial
investments to enhance the innovation potential of their universities. He said that
Texas is investing in two new research universities, partly to reduce the outflow
of top graduate students. “They also recognize that if you have research
universities, you have the potential to receive substantial R&D funding from the
Federal government.” He also asked about the increase in VC activity detected
by the Milken index, asked whether it represented a trend or merely the impact
of a few large deals. Mr. DeVol said that the index included not just the total VC
dollars but also the number of deals, but that it was too early to tell whether the
rise represented a trend. While VC investments in Ohio were encouraging, he
said, it was essential to “follow through to make sure startup companies that
have been funded actually grow to become medium-sized firms that create
jobs.”
MEETING THE GLOBAL INNOVATION IMPERATIVE
Charles Wessner
The National Academies
On behalf of the National Academies, Dr. Wessner expressed his
thanks to the co-organizers of the symposium, and expressed his admiration for
the region in generating so many agile innovation based development
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organizations that encourage cooperation among sectors. He said he was also
encouraged by the portions of Mr. DeVol’s report that indicate a firmer and
more collaborative base for innovation in northeast Ohio. “When a community
begins to understand that they can, or have to, do things differently, that is the
point when bringing in best practices from around the world can be most
helpful.”
Dr. Wessner said that the key to economic development for regions as
well as for nations in the future is a well-functioning innovation ecosystem, and
offered the following definition: Innovation means transforming ideas into new
products, services, or improvements in organization or process. What this
means, he added, is that “innovation translates knowledge into economic growth
and social well-being.” He said that while many academics and policy makers
“could debate with you for hours about the correct definition of innovation,” he
found an informal description to be useful: “Research converts dollars into
knowledge, and innovation converts knowledge back into many more dollars.”
“It’s a virtuous cycle,” he said. “Why is there an imperative to
innovate? Because we have no alternative; if we want to grow our economy,
maintain our place in the world, provide a future for our children and
grandchildren, it is imperative that we innovate.”
‘Innovation Policy is Not a Hobby’
Adding urgency to the debate in the United States, he said, is the fact
that countries around the world are working hard on their own innovation
strategies. “Innovation policy is not a hobby,” he said. “It is not something you
do when you have done everything else on your day-to-day policy agenda. It is
the main game, the job of government at macro and micro levels. You need to
support funding for research, and you need to convert that research to something
we can use—not just another publication.”
Virtually all U.S. trading partners, Dr. Wessner said, have placed
innovation high on their list of national priorities. Leading countries and regions
are providing a high-level focus on growth and strength, sustained support for
universities, consistent funding for research, imaginative support for small
businesses, and support for government-industry partnerships that bring new
products and services to market. “They’re committed, they’re focused, and
they’re willing to spend.”
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40 BUILDING THE OHIO INNOVATION ECONOMY
The rapidly growing R&D expenditures of the Asia-8 economies (China, India, Japan,
Malaysia, Singapore, South Korea, Taiwan, Thailand) surpassed those of the EU-27 in 2003.
SOURCE: National Science Board, Science and Engineering Indicators 2010, Arlington, VA:
National Science Foundation, 2010.
FIGURE 1 Asia’s surge: Global R&D—Measuring commitment to innovation.
SOURCE: Charles Wessner, Presentation at the April 25-26, 2011, National
Academies Symposium on “Building the Ohio Innovation Economy.”
Dr. Wessner singled out the case of China, which is doubling its R&D
investments, building out R&D infrastructure and facilities, creating world-class
universities, and investing in education at all levels to enhance its economy and
national security. He cited President Hu Jintao’s Report to the 17th National
Congress of the Community Party of China: “Innovation is the core of our
national development strategy and a crucial link in enhancing the overall
national strength.” He also cited Mu Rongpin of the Chinese Academy of
Sciences, who wrote in the 2010 UNESCO Science Report that China’s goal is
to become an “innovation-driven economy” by 2020.
The payoff of this commitment in China and in Asia more broadly can
already be seen, he said, pointing out that the rapidly growing R&D
expenditures of the Asia-8 economies (China, India, Japan, Malaysia, Singapore,
South Korea, Taiwan, and Thailand) surpassed those of the EU-27 in 2003 and
were poised to overtake those of the U.S.2 “If these trends continue,” he asked,
2
National Science Board, Science and Engineering Indicators 2010, Arlington, VA: National
Science Foundation, 2010.
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“how can we be ahead of the rest of the world? How can we even stay where we
are if we don’t make these investments in research and development?”
The Fallacy of the Low-wage Argument
Dr. Wessner also added that the U.S. can no longer use the excuse that
it can’t compete with China because of its low wage structure. “Germany is a
high-wage, highly-regulated economy,” he said, “with high welfare costs and
government health insurance programs. But German companies do well in
sending products abroad because they understand that technological capacity
matters. They know that this is what produces jobs and trade surpluses.” He
added that the Germans understand the importance of the manufacturing sector,
and have created the institutional structure necessary to maintain it, including
investments in job training and worker retention; support for raising productivity
to offset high wages; assistance to small manufacturers in global marketing; and
energy and transportation policies that have fostered an edge in manufacturing.
This structure includes the Fraunhofer Gesellschaft—a network of 59 institutes,
17,000 employees, and a budget of about 1.6 billion euro—that conducts
focused, product-based research in partnership with private firms. Dr. Wessner
noted that this focus on advanced manufacturing and exports is paying off for
Germany: “Germany has learned to send products to China and cooperate with
the Chinese on standards. It has now almost balanced its trading account with
that country.” German exports have jumped 17 percent this year, driven in large
part by a 55 percent rise in exports to China.
The major risk for the U.S., Dr. Wessner suggested, is complacency—a
belief that the U.S. can expect economic leadership without working very hard
for it. “One of the myths we have,” he said, “is that U.S. workers can
outcompete anyone in the world on a level playing field. There are two problems
with this myth. First, the whole world works hard to make sure we’re never on a
level playing field.” Second, he said, studies by the OECD’s Program for
International Student Assessment (PISA) show that U.S. workers are less well
educated than those of U.S. trading partners. In addition, Americans are
increasingly spending more on current consumption rather than on investments
in R&D as previous generations did and as other nations do. Since the late
1950s, federal spending on research and development as a percentage of GDP
has been declining.3
The Power of Public-sector Investment
While, some argue that private investment in R&D is more than makes
up for the decline in Federal investment, Dr. Wessner said that this private
investment is limited largely to market-stage applications rather than to basic
3
KPCE; National Science Board, Science and Engineering Indicators 2008, Arlington, VA: National
Science Foundation, 2008.
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42 BUILDING THE OHIO INNOVATION ECONOMY
research. In many cases, privately funded R&D builds on technology platforms
developed through substantial federal investments. He cited a comment by a
leading venture capitalist, Mary Meeker of Kleiner Perkins, who noted: “Private
investment may have given us Facebook and Garmin, but public sector
investment gave us the Internet and GPS.” He stated that government investment
in technology, education, and infrastructure, which has been a strong tradition
since the late 18th century,4 will be a key part of addressing the challenge of
innovation.
Ohio, Dr. Wessner said, can learn from the diverse approaches taken by
other states to grow their innovation economies. New York, for example, has
started a major nanotechnology initiative—despite having limited previous
semiconductor industry or nanotechnology expertise. The state drew in what it
needed, finding major partners in IBM and other global-scale firms. It attracted
SEMATECH, then located in Texas and secured funding from investors in Abu
Dhabi. Funding from the New York state government, which committed $2
billion to the effort, helped build a new College of Nanoscale Science and
Engineering. To date, the this effort has yielded more than $5 billion in private-
firm investments, and new jobs in manufacturing and other high-value fields.
For example, one of America’s only green-field silicon wafer fabrication plants
is being built near Albany by Global Foundries at a cost of $5.6 billion,
providing 1,400 new jobs. Dr. Wessner said that the lessons from the New York
initiative include: addressing emerging technological needs; concentrate
resources; encouraging innovative management, allowing universities freedom
from restrictive rules; and creating strong connections between universities and
the private sector to identify needs and attract funding.
Turning to Ohio, Dr. Wessner suggested that the state does stand out in
making a “remarkable multi-institutional effort, which in itself ought to be one
of the Milken categories.” He also said that the state has invested well and has
made substantial progress in growing more than 400 advanced energy
companies. It has also promoted development of new clusters for flexible
electronics, photovoltaic manufacturing, and polymer-based technologies. He
encouraged the state to seek more partnerships in Washington, capitalizing on
new federal commitments to innovation and the bipartisan support for the kinds
of initiatives Ohio has already launched.
4
In 1798, for example, Eli Whitney received a government grant to produce muskets with
interchangeable parts, leading to the first machine tool industry. In 1842, Samuel Morse received a
federal award to demonstrate the feasibility of the telegraph. In 1903, the Wright Brothers fulfilled
the terms of a U.S. Army contract by demonstrating the first flying machine. More recently, many
platforms of the modern economy, including radar, computers, jet aircraft, semiconductors, the
Internet, nanotechnology, flexible electronics, and solar technologies, have been built on
government-funded research and public-private partnerships.
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The Financing Needs of Early-stage Firms
Dr. Wessner urged a greater focus on small businesses, which make
multiple contributions to a region. They create jobs, new products, increase
market competition, generate taxable wealth, create welfare-enhancing
technologies, and, over time, transform the composition of the economy.
Equally important, they have the potential to become the “new big businesses.”
A key impediment to the growth of small innovative businesses, however, is the
‘Valley of Death,’ the popular term for the phase of development where firms do
not yet have sufficient revenue to grow on their own but lack the revenues
demanded by VC investors. “It’s hard to attract VC funding,” said Dr. Wessner,
“because new ideas are new, and no one can know what they will ultimately be
worth.” He recalled that the Larry Page and Sergy Brin of Google had difficulty
raising early-stage funding because no one could foresee the value of their
particular search engine. “It’s not always clear at first,” he said. “You need that
capital to get across the valley and demonstrate value.”
Dr. Wessner recommended several government mechanisms designed
to help small, early-stage firms, beginning with the Small Business Innovation
Research (SBIR) program. “Not enough people in Ohio know about this $3
billion annual program. It is very competitive; only about 20 percent of
companies are selected in the first round. But it provides you with an initial
$150,000, which brings validation and opportunity to explore.” A key feature of
SBIR is that it is a set-aside from existing research budgets, rather than a
program with annual budget fluctuations. He suggested that other Federal
programs, notably the Technology Innovation Program, and the Manufacturing
Extension Program at the National Institute for Standards and Technology
(NIST), and the various initiatives of the Economic Development
Administration (Department of Commerce), would all be useful in providing
support for Ohio’s innovation strategy.
Dr. Wessner concluded with the suggestion that Ohio could best
accelerate its drive for innovation through local leadership—especially support
for infrastructure, matching R&D grants. For example, “Phase Zero” grants by
the state can help small Ohio firms apply for federal SBIR funding. The state
can also offer bridging money for firms that are making the transition from
SBIR Phase I to Phase II. These and other initiatives are underway in a number
of other states, he said, as a way to encourage new businesses and promote
regional growth. Other states are also taking steps to ensure that taxes are
applied intelligently, and that regulations are not “worse than the tax structure.”
In short, Dr. Wessner concluded that the region and the state can do much more
to make northeast Ohio attractive to companies and better prepared to compete
globally.
“The question is,” Dr. Wessner said in summary, “will we make the
necessary investments in research and universities, and will we help our small
companies compete? Our companies are one of our principal assets. We need to
preserve the ones we have, and we need to grow new ones. Quite literally, the
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44 BUILDING THE OHIO INNOVATION ECONOMY
future of our children depends on what we do over the next decade. I
congratulate you on the progress you’ve made so far.”
DISCUSSION
Mr. DeVol affirmed the danger of excessive complacency in the U.S.
“One thing I find troubling when I talk to legislators and their staffs is the idea
that we have a divine right to lead in innovation. That biomedical,
pharmaceutical, biotech, and other firms are here because they deserve to be.
That we don’t have to worry about whether they are innovative or what other
countries are doing.” He asked, “How do we cut through the idea that we’ve
always been number one, and therefore we always will be?”
Illustrating the point, Anna Barker, a former deputy director for
strategic scientific initiatives at the National Cancer Institute, said that
leadership in life sciences is now moving offshore. Responding to the enormous
looming problem of lung cancer in China, a nation of some 300 million cigarette
smokers, Chinese officials told her on an earlier visit to Beijing that they were
planning a new genomic center to address this problem. When she went back a
year later, she expected to see no more than plans for the center. Instead she
found a completed institution with 2,400 people, including 1,000 in
bioinformatics. “This is a field where we are faltering,” she said. “We haven’t
trained our kids well in computational biology or computation in general. So on
every front China is driving innovation in education, in the new areas of science,
like nanotechnology. In the next 10 years we’re either going to have to partner
with China to get some of that information back, and gain from what we have
invested, or we’re going to fall very far behind. We still have a choice, but time
is running out.”
Bob Schmidt, of Cleveland Medical Devices, said that while
universities receive far more funding than the SBIR program, small firms
produce far more patents, and asked whether the SBIR should not logically
receive more money. Dr. Wessner agreed that small businesses are effective in
developing patents and, above all, products, but that the “universities are where
many of the ideas come from.” Furthermore, the distinction between universities
and small business may be blurred when “a researcher has an idea in the lab, and
then goes across the street to become a small business.” He suggested that it was
appropriate to see both activities as part of the same system. He said that in a
recent study of the SBIR program, the National Academies had found additional
resources in the SBIR program would be effectively used, but also noted the
need for expanded support for basic research, applied research, and especially
translational research to move innovations toward the marketplace.5
5
National Research Council, An Assessment of the SBIR Program, Charles W. Wessner, ed.,
Washington, DC: The National Academies Press, 2008.
