Panel IV
Innovation in Illinois: A Regional Case Study
Moderator:
Daniel Biss
Representative, 17th District
State of Illinois
Mr. Biss introduced himself as a state representative for the state of Illinois. He said that regional innovation was “pretty much my favorite topic,” and said that his introduction would be very brief in deference to the distinguished panelists to follow. He introduced Robert Easter, President Designate of the University of Illinois, Eric Isaacs of Argonne National Laboratory, David Miller of iBIO, and Dan Berglund of the State Science and Technology Institute.
THE ROLE OF ILLINOIS UNIVERSITIES
Robert Easter
University of Illinois
Dr. Easter thanked Representative Biss for his efforts in the legislature not only to advance innovation in science in Illinois, but also to resolve some very difficult issues around pension reform, which is “critical to the future success of our public universities,” and other issues.
He said that he had a vision that perhaps 20 or 30 years from now, someone would write a case study titled “Innovation in Illinois: A Regional Case Study.” It would be a study of success, and of how a region came together to advance the economic well-being of the entire region and state. Illinois has invested enormously in both public and private universities, he said, and they have built considerable reputations for their world-class research and educational programs. He said he was proud that the University of Illinois is one of only about 60 members of the American Association of Universities (AAU),
a century-old organization that supports about 60 percent of the federally funded research of all universities. He said the university owed much of its own reputation to the quality of its science, as well as to the quality of the students it attracts, “and I do take pleasure as I travel around the world when I see technologies that I realize came from a lab at the University of Illinois or another Illinois institution. I believe we have much to bring to the conversation about innovation, and how innovation can lead the development of a state’s economy.”
He said that the word innovation is an interesting one because it describes not only a discovery or intention, but a technology that been developed to the point where it has value to humanity. “I’m glad the word innovation is being used in proper context today, because I think it’s what we have to do to translate discovery science into products that have value.”
He said that the past week had been a good one, because he had spent the first three days of it in Washington to celebrate the 150th anniversary of the passage of the Morrill Act, passed by Congress in 1862. The Act granted federally owned land to each of the states. The land could then be sold and the proceeds from the sales used to build public universities. One mandate for these universities was to educate the “industrial classes.” “In other words,” he said, “there was a realization that America was emerging as an industrial society, and needed to go beyond educating the elite to include all the potential intellectual capacity of the nation.” The Congress saw that education could allow the sons and daughters of all classes to make contributions to the growing nation—to build railroads, factories, and the technologies involved in factories.
“And as the nation industrialized,” he said, “there was a great need to liberate people from subsistence-level farming by increasing the efficiencies of agriculture and allowing more people work in the factories that became the powerhouses of the industrial revolution. It was a great success story.”
Much of this success in the Midwest, he said, could be attributed to innovations developed between the 1860s, when the great land grant universities were established, and the mid-1900s, when the nation began to industrialize. “Now once again the nation is looking to both the public and private universities across the landscape to foster economic development, and I think that’s a reasonable expectation. We can provide the training that creates the kind of workforce needed. We can provide mentorship for small business and especially for our students who aspire to become entrepreneurs.” He recommended a recent report by the National Academies that assessed the status of research universities in the United States.40 “It begins with the thesis that innovation is the driver of economic development, and that innovation is very often the result of basic research. But research doesn’t get done without public funding, which has been an American tradition since the 1940s.”
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40National Research Council, Research Universities and the Future of America: Ten Breakthrough Actions Vital to Our Nation’s Prosperity and Security, Washington, DC: The National Academies Press, 2012.
With World War II, he said, the federal government discovered the power of universities to do research. And some of the basic science behind the Manhattan Project was generated “just down the road” at the University of Chicago. “As a consequence of that,” he said, “after WWII, as we went through the Cold War, the nation invested very heavily in research, and at some point during the 1960s was spending more than 2 percent of our GDP on federally funded research in the labs around the United States. We landed the Apollo spacecraft on the moon as a consequence of that, and generated many technologies. “One could argue that science-based innovations led to economic growth and opportunity for our nation. But with the end of the Cold War, that priority declined, and since the fall of the Berlin Wall, our investment as a nation has been modest—around 1 percent of GDP.”
By contrast, he said, other nations are investing even more in innovation. China, Taiwan, South Korea and others are increasing their research investments about 10 percent each year, and those investments are yielding “technologies and concepts that are world class.” He said that his university had been invited a decade ago to build a relationship with Singapore, and “we were impressed by the way that nation has organized its priorities around economic development. They create opportunity not only for their business sector but for employment of their citizens in very high-quality jobs. That is driven by innovation and development of new technologies.”
A major shift over the past several decades, he said, has been the change in research portfolios in both the private and public sectors. In the 1950s, roughly 70 percent of U.S. investment in research came from federally funded projects and 30 percent came from the private sector. “Today that situation has reversed. What’s does that mean?” He said we should learn from our heritage, by which we learned we were capable of commercializing research and maintaining global competitiveness. We did this through a formula developed more than 100 years ago: providing a public education for Americans, gaining access to all the intellectual capacity that exists within our society, continually modernizing our infrastructure, and keeping our doors open to immigrants. He urged continued investment in research and maintenance of a regulatory environment that allows the private economy to grow dynamically and nimbly.
He described several recent efforts, which he called “Sputnik moments,” at the University of Illinois. He reminded his audience that Mosaic, a technology that underlies the world-wide web and gave rise to Netscape, was developed at the University of Illinois. In the 1990s, when Mosaic emerged, the university had a limited capacity to capture technology or to foster its development toward the market place. Therefore that technology went to the West Coast, as many other technologies have done. The leadership of the university realized that something had to change. They created research, infrastructure, and facilities on each campus to support state-of-the-art science, with the state being a very significant partner. The university also established a venture fund to enable faculty to move their technology, secure licensing, and create a new company. A research park was built on the campus in Urbana in the
late 1990s which in 2011 was named the outstanding research park in the United States. “We have done quite a lot,” he concluded.” We have ambitions to do quite a bit more.”
One ambition he has for the university is to create closer partnerships between university and industry. He said that as an agriculturalist, he has been particularly interested in how other countries bring academia and agriculture together. “I’ve been especially envious of the Dutch. It seems that whenever I go to a developing country and visit a farming operation, I see a Dutch scientist there and just behind him is a Dutch businessman with an order book. The connection between the technology, the transfer of technology, and then the commercial opportunities is very close and strategic. We can learn some lessons from that.”
He also highlighted three partnerships developed at the university in recent years. One grew out of a half-billion-dollar international competition held by BP about six years ago to establish an energy bio-sciences institute. The prize is shared by the University of Illinois, the University of California at Berkeley, and Lawrence Berkeley National Laboratory to support some 70 research programs over a decade, the world’s largest project of its kind.41 “The challenge for us,” he said, “is to ensure that some of that value will stay in a commercial form in the state of Illinois, within our region. In addition, within the past year the university has signed a large agreement with Abbott Laboratories to study the nutrition of neo-natal infants. “This makes use of our capacity not only in biological sciences, but also in engineering sciences and our capacity to use imaging technologies to measure changes in the brain.” Finally, he said, a major initiative has begun with funding by the Department of Energy to explore carbon sequestration, performed jointly with ADM, adjacent to the ADM headquarters in Decatur. “Through these aggressive efforts to capture research grants,” he said, “we’ve increased our research budget by nearly 50 percent in the past decade to nearly $1 billion. Our ambition is to continue this growth, and we continue to look to our legacy to inform how we support discovery science, innovative technology, and the transfer of innovations into applications that have value to the region’s economy.”
THE FEDERAL LABORATORY CONTRIBUTION
Eric Isaacs
Argonne National Laboratory
Dr. Isaacs began by thanking Dr. Mirkin, Dr. Walsh, and the National Academies for organizing the conference—and for choosing Illinois. He said he agreed wholeheartedly with Dr. Riedel that Illinois has an excellent opportunity to be “the next great innovation hub.” He listed the region’s combined strengths
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in academics, industry, transportation, a long tradition of manufacturing, and the added abilities of government laboratories.
For Argonne, he said, he wanted to echo the previous discussion about teamwork and community, “because that’s how innovation gets done. In universities, and especially in places like Argonne and even in industry, the idea that the single inventor, like the image some people have of Thomas Edison, does things on his own. They have a dream, they create the thing, and all of a sudden we have a product which spreads across the globe.”
He said that in some cases it is indeed true that basements or garages are great places for innovators to start. “And it is a fact that Edison himself liked to burnish this image and make the public think it was all about him. In fact, that’s not true. Even Edison, at his first major lab in Menlo Park, New Jersey, had over 40 scientists working on his ideas, including the light bulb.” He read a quote from Edison: “I tested no fewer than 6000 vegetable growths and ransacked the world for the most suitable filament material.” That testing, said Dr. Isaacs, was not done by Edison alone in a lab, or anyone else alone. “His research was much, much more sophisticated than he would let on,” he said. “We have to get beyond that image. In the end, the products that make a difference come from much larger networks of people.”
Understanding this, he said, is essential to understanding what the national labs can do, which is to bring a bigger mission focus to the basic science we all do. Even the biggest of those labs, unfortunately, still romanticize a certain view of the way we design and fund science.
When we look at research challenges today, he said, American scientists and American engineers are facing problems of staggering difficulty—far beyond the capacity of individuals or even small groups. “Of course I'm going to give you the DoE perspective,” he said. “Those challenges include questions of enormous complexity: how do we create a solar cell that costs something like a nickel per kilowatt hour? How do we do things like get the cost of an automobile battery down to 1 cent per mile? How do we cost-effectively capture carbon, store it for thousands of years, and ensure that it doesn’t come out? These are all big-mission problems and global problems. Scientists will need to help solve them in large groups, or they won’t be solved.”
In the past, he said, we had many more corporate laboratories labs to help tackle such questions. A few effective corporate labs remain, such as those of Baxter, but the very large facilities of IBM, Xerox PARC, AT&T Bell Labs, and others were attuned to mission-driven science. “We don’t have those anymore,” he said. He said that he worked at Bell Labs for 15 years, and it was his favorite. “It was a place where we did great basic science,” he recalled. “I was attracted there entirely because of that. I did fundamental magnetism, but in the end, it was mission driven; there were projects, but there was also a bigger vision. The world’s top scientists were there, working on the transistor, the laser, UNIX, C language, and so on. But I do want to say that Bell Labs, great as it was, never had to be as efficient as we have to be today. Bell Labs was all under one roof. You had scientists, engineers, product units, businesses making
telephones. So even though these great investments occurred there, the dirty little secret is that it was never very efficient it getting things from the bench top to the telephone, or from the bench top to the transistor to the computer.
“In fact,” he said, “today that kind of lab ecosystem is blown apart in many ways. Even Baxter has to rely on universities and outside labs. The question is, how do we put that ecosystem back together? Particularly in this country, where there’s a bit of an allergy to public-private partnerships, how can we have today an innovative vision that Bell Labs used to have, in an intelligent way?”
He said he would make the argument that some places, such as Argonne, are beginning to do that. He reviewed the history of Argonne, which began in 1942 during the Manhattan Project. It grew out of the success of Chicago Pile-1, the first artificial nuclear chain reaction, supervised by Enrico Fermi in an abandoned rackets court beneath Stagg Field at the University of Chicago. After the experiment, the facility had to be moved because Hyde Park “was not the place to do experiments in nuclear energy,” he said. Argonne was chosen as a safer alternative, in open fields 25 miles from the Loop. By 1946, it had become the first national lab. The goal was to “take all that energy wrapped up in a nucleus and figure out how to use it for power and for electricity. So mission-driven science was how Argonne started, and mission-driven science is what we still do.” Today the lab has the world’s third-fastest computer, he said, capable of eight petaflops, which is the fastest computer for non-defense science.42 Many of the Argonne facilities, such as its advanced photon source, are used by Baxter and other private companies, and such public-private partnerships have become a more important part of the national labs’ mission.
“The question to ask in the context of this ecosystem discussion,” he said is, “how can we get the universities, the DoE labs like Argonne, and companies to work closer together at the very beginning.” For start-up firms, he said, which will not get funding from venture capital, how can the national labs help their early development in a mission-driven environment? “How do we get discovery scientists to work with engineers and then with the industry people who ultimately have to make something and commercialize it.”
He said he would try to give a sense of how the Argonne lab is “starting to move toward mission-driven fundamental science—but in a mission-driven environment.” He chose the example of battery technology, which is a large effort around the world, but one area where Argonne has a key lead. He showed a phase diagram representing an interesting discovery started in a lab by “one bright scientist,” Michael Thackeray, who was thinking about how he could
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42In computing, FLOPS is an acronym for floating point operations per second. A petaFLOP is 1,000 teraFLOPS or 1015 FLOPS. The ranking of the world’s fastest supercomputers changes often and brings brief bragging rights to the leader, which is currently the IBM Sequoia at Lawrence Livermore National Laboratory. In second place is Fujitsu’s K Computer at the Advanced Institute for Computational Science in Kobe. The great speed of some U.S. computers is needed to simulate nuclear weapons tests for older weapons that have been stored in the U.S. arsenal.
store as much energy per volume of battery as possible, or how much weight he could store in a material. He ended up with a brand-new material.
“This particular material, discovered by one or two people in a lab very quickly, actually took 15 years to develop into something patentable in early 2003 and again in 2004 for use in an automobile. The reason I mention this story,” he said, “is that even though the material was invented in a lab, the innovation after that invention occurred in collaboration with Northwestern, the Energy Frontier Research Center, the University of Illinois, and different kinds of companies. It started with small startups, and in this particular case, the battery material now is in the Chevy Volt. Even though it is still too expensive and too big to transform transportation, we still work on the technology.
“The next question we can ask is about the development time. Between the original invention around 1992, and when it was first placed into an automobile was 19 years. Is that too long? Can you make that 10 years? Or five years? I think the answer to this question is absolutely yes. But we’re not there yet. It didn’t happen in five years at Bell Labs, either, if you look at the transistor.
“But there are examples of faster development. The charge-coupled device was also invented at Bell Labs, and it took only five years to go from there to a spy satellite, and another few years to go into telescopes. Now, of course, we pull a phone out of our pocket and it’s got a charge-coupled device in it. So how do we make sure innovation in the lab is tightly coupled to the ideas and companies outside the lab.”
He showed a complex figure from the University of Chicago of a regional innovation ecosystem that emphasized the “idea side” or “push side” rather than the industry side. He said first that any ecosystem is complex, and no one can simply sit in a room and figure it out. “You can draw lines of connectivity, and so on,” he said. “We all know that. But ecosystems are more complex than that.” At Argonne and at the University of Chicago, he said, some bright scientists are studying this, and the challenge is to “link them up,” and link them with early-stage funding. One of the challenges from the perspective of DoE and Argonne, he said, was to keep those scientists in the community. “We have 300 postdocs at Argonne, and they mostly go to universities or companies on the coasts if they don’t stick here. How do we get this ecosystem to look appealing to our 20- and 30-somethings? It’s fine that our technology is used in California, but we want to reinvigorate Illinois as well.”
He suggested that this has started to happen in Chicago in the field of digital media. He gave the examples of Groupon and GrubHub, which he said “are doing an impressive job of getting kids to stick or even come here from the coasts because they’re so excited about working there.” He asked if the region could do the same thing in pharma, and in other areas of IT that are not digital, and in materials science and molecular engineering.
He ended on the issue of funding, and the scale of funding required by fast-growing young firms. He used the image of a lion, which require not funding but prey in order to grow and reproduce. Lions are capable of capturing
mice, one after the other. But if a lion tried to live exclusively on mice, it would eventually die; it takes more energy to capture the mice than the lion gains by eating them. A lion needs to find antelope, or buffalo to serve its needs.
Similarly, while small start-ups in Illinois can often find small grants and seed money of various kinds, they need to generate larger programs on the scale of the International Nanotechnology Network to ready themselves for antelope-scale funding. “Where we’re really struggling,” he said, “is with these efforts at larger scale, focused on outcomes, not just focused on blue-sky research. For the really complex technologies, like batteries, it will take the whole community of institutions working together.”
EARLY-STAGE FINANCE AND SUPPORT IN ILLINOIS
David Miller
Illinois Biotechnology Industry Organization (iBIO®)
Mr. Miller said that much of the work of iBIO43 was influenced by reports of the National Academies, including its “Gathering Storm” materials. He said the goal and mission of iBIO is help Chicago, Illinois, and the surrounding Midwest region become “one of the top biotech centers on the planet.” In many ways, he added, “we already are.” But because biotechnology itself is still early in its development, much of what iBIO does “is still ground-floor stuff.”
iBIO functions at several levels. The “parent” organization, iBIO itself, promotes sound public policy at the local, state, and federal levels and on “improving our region’s ability to create, attract, and retain businesses.” PROPEL® and EDUCATE™—Centers within the iBIO Institute—“orchestrate industry involvement to help solve America’s math and science education crisis.”
To gain some perspective on how an industry develops, he said, he had looked up another transformative technology—electricity—to discover what had been accomplished when electricity was at a similar stage of development as biotechnology is today. He found it was comparable to when the first rudimentary electrical devices were being used—a large, ungainly ironing machine, for example. The electrical clothes washer had also been invented, but not the electrical clothes dryer. “So if you think of all the electrical products that followed, about radio, and TV, and all the computer applications that followed, that is about where we are in biotechnology. Some great medicines have been developed, and some great ecological and agronomic discoveries made in agriculture, but we’re really at the ground floor here, so this is a very important mission.”
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43The mission of iBIO Institute, established in 2003 by the Illinois Biotechnology Industry Organization (iBIO), is “to orchestrate business leadership in delivery of world-class educational programs and job-creating new technology ventures.” <http://www.ibioinstitute.org/about-us.html>.
To highlight the diversity of iBIO’s activities, he described his own agenda for the previous day. He started the day with the EDUCATE program,44 leading a group of Chicago Public School teachers in a program called Stellar Girls. “The idea is to get more girls involved in math and science in grade school, middle school, and high school,” he said. “This was a group of about two dozen ‘on-fire’ teachers who were learning how to do problem-based learning. I told the teachers: Let’s imagine that I’m standing in front of a group of funders—how would you convince them to invest in these programs? One said, This program is teaching us how to be creative and get our students really jazzed about math and science.”
Then he returned to his office to write an article about important legislative victories over the previous week, including renewal of FDA programs for prescription drugs and for medical devices that were critical to iBIO’s members and partners. That legislation also makes the FDA’s procedures more speedy and transparent, and gives the agency better access to outside expertise. He concluded by visiting a program of Chicago Innovation Mentors that keeps helps mentees attract helpers by making the volunteer community aware of commercializable research. “So it was a very rich day and I came home all aglow.”
A significant feature of iBIO’s methodology, he said, is the teamwork between the public, private, and academic sectors. He said that essentially everything of value accomplished by the association and Institute had come about as a result of partnerships between and within those three sectors.
He defined biotechnology as “the use of what we know about biology to improve life on the planet.” One regional feature that supports the work of iBIO is Illinois’ unusual strengths in every sector of biotechnology, including strong companies and start-ups in medical, agricultural, and bioindustrial areas. The bio-industrial space is particularly healthy, he said, because the region significant resources through the entire value chain, from growing biomass all the way to the business end users of new bioindustrial products, which include fuels, chemicals, resins, and solvents.
Biotechnology itself has great importance to the region, generating some 82,000 jobs in companies engaged in producing biotech products and services. That figure does not include research at universities or federal labs. When indirect jobs are included, he said, the total employment outcome is about “1/3 of a million jobs,” plus direct and indirect biotech jobs from universities and federal labs.
The problem, he said, is that although the region has always been strong in generating research, it has lacked a corresponding ability to translate that research into companies that are born, grow, and remain in Illinois. This problem has historically amounted to “a gigantic corporate giveaway to other states,” he said. Before Illinois initiated the programs described earlier by Dr.
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44The mission of iBIO Institute’s EDUCATE Center is to deliver industry-led science and math programs for teachers and students. <http://www.ibioed.org>.
Riedel, he said, these companies used to leave not only for the coasts, but for Wisconsin, Indiana, Michigan, and others. These states, he said, thereby acquire more jobs, a good tax base, greater wealth creation, and more excitement.45
Another reason for the small-company exodus, he said, is that the state has historically relied on a big-company strategy. “I compare this to trying to win a baseball game by hitting only home runs—or, to make the example more dramatic, by hitting only grand-slam home runs. The findings are published in multiple studies year after year, and these findings are depressing, particularly because we’re pretty good at recruiting large firms.46 The Illinois Department of Commerce and Economic Opportunity (DCEO) and the City of Chicago’s World Business Chicago, he said, “are very good, without using a lot of resources, at using all the natural advantages of the region to persuade firms to locate their expansions and their new locations here. But it’s a risky strategy to count on just established companies, and what we’re looking for is a more diversified economy that includes a small business strategy.”
“Our view,” he continued, “is that we don’t need any more studies about what we need. If talking about this problem would solve it, we would have been problem-free long ago. Changing this situation is a top priority for Illinois.” As a new strategy, he said, iBIO likes to be guided by a “theory of action”—and that theory is: the most important way iBIO can help is by assisting the discovery from the gleam in the eye of the researcher to a series A preferred (venture capital) round, where good management and real money can attach to it. He said that during the 1990s technology boom, many venture capital companies invested in Chicago companies. However, many of those business propositions were as unsound as their counterparts on the West Coast, and many failed quickly. “The point is,” he said, “that when the money thinks there is something here to invest in, the money comes. So that’s part of our theory of action. We believe that you need to create a supportive ecosystem, including what the Brookings Institution calls ‘catalytic organizations,’ and a modest amount of state assistance. With all the advantages here, we don’t need the biggest, richest, fattest set of investments. We just need to be competitive.”
The strategy today, he said, and the objective of iBIO is to build a strong regional ecosystem. iBIO was the driver in creating an angel tax credit, and has helped push legislation to re-fund the Technology Development Account, which, along with the Illinois Advantage Venture Fund provide
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45He cited a recent study by the National Center for Higher Education Management (NCHEMS), which concluded: “While the Illinois economy is stronger than those of many upper Midwestern states, it has some clear weaknesses. Particularly noticeable is the region-to-region variation and the dependence on established companies, rather than emerging companies, for its economic vitality… Illinois is very much in the middle of the pack with regard to innovation assets… Illinois universities are in the top 10 states in all major fields with regard to research and development expenditures, with particular strength in math and computer science… This has not translated into entrepreneurial activity that is driving a revitalized economy.”
46He said that studies by the Brookings Institution, Ernst & Young, the Milken Institute, and PriceWaterhouseCoopers had arrived at the same conclusions.
startups with early stage capital. As the ecosystem has strengthened, it is attracting more interested investors. When Horizon Pharma was approached by nine venture capital firms from the West Coast, for example, it accepted the investment—on the condition that it would remain in Chicago. The company succeeded in going public and now has 140 employees.
iBIO launched the PROPEL program in 2007 with funding over the years from iBIO, grants from leading companies, Searle Funds at the Chicago Community Trust, Illinois DCEO, and the City of Chicago. PROPEL offers coaching, professional services, networking, CEO roundtables, business plan competition, and PROPEL Connections, a semi-annual publication of PROPEL company snapshots for the life sciences investment community.
In addition, iBIO has been co-founder of Chicago Innovation Mentors, which sponsors team mentoring of healthcare entrepreneurs with mentors from the large universities. “This is something that we jumped on right away, and even though it wasn’t in our budget when it started, with the board’s support we threw money into it and a lot of time. It includes Northwestern, University of Chicago, University of Illinois, the iBIO Institute, and now Argonne.”
PROPEL currently works with 44 active companies and over the years has served 67. PROPEL firms raised more than $24 million in 2011, and more than $60 million in capital, grants, and loans since joining. In 2011, 42 U.S. and international patents were issued and more than 145 patent applications were filed. Chicago Innovation Mentors currently has 27 active teams, including those serving eight PROPEL companies, and CIM has 78 active mentors. “What the program has done in only about a year and a half is phenomenal, especially in bringing entrepreneurial expertise to people.”
He said that the Chicago region now has the “essential outlines of a critical mass,” and that its task now is to “shore this up and bolster it.” Several years ago iBIO became involved in macroeconomic issues in the state because it realized that “unless some of the macro issues got solved for the state, we had no hope of making this one of the top life sciences centers of the world.”
“The principal concern is the State of Illinois’ fiscal problems,” he said. The cost associated with pensions is crowding out the state’s ability to secure new sites and expansions. Payments on pensions and debt service are taking up funds for economic development and causing reductions in agency staffs. He said that CEO magazine ranked Illinois 48th of the 50 states in “business climate.”
“However,” he concluded, “I believe that we will fix these problems. The assets we have here—these amazing resources, these treasures, these research centers—they’re not going to get up and walk away. We’re so strong in agriculture and our great climate and soil, and these are not going to change. I believe that there will come a time when people will say, you know, top innovation centers like Boston, San Francisco, and Chicago. That will happen, and it will happen in our lifetime.”
TECHNOLOGY-BASED DEVELOPMENT IN ILLINOIS
Dan Berglund
State Science and Technology Institute (SSTI)
Mr. Berglund said that the SSTI is a national non-profit organization, based in Ohio, but that he himself was born in Illinois, as were many of his relatives. “So what I’m going to say to you today is based on love and affection and hope.” He said he would take a broad look at industrial research and development in Illinois, and also address the more specific advantages of the SBIR program in supporting start-up companies.
He said that the SSTI had assembled a variety of statistics and indicators for Illinois, and that several of these stood out in importance. One was that Illinois ranked fifth in the nation in population, “so that any time you see a ranking in some other category lower than five, it should be a red flag.” He noted that there were “lots of numbers lower than five.” One basic measure used for the general health of a state’s economy, he said, is per capita personal income. From 2006 to 2011, Illinois dropped from 11th nationally to 14th in that measure—“a fairly significant drop.” The good news, he said, is that the state is still above the national average, which is about $41,000; the figure for Illinois is $44,000.
“The very bad news,” he said, “is that in 1998, Illinois ranked 7th in per capita personal income. That is a huge decline in 13 years.” In per capita federal extramural R&D, Illinois ranked 30th. “Obviously,” he said, “if you’re going to have a strong technology economy and a strong innovation ecosystem, you need to have that federal R&D money coming into the state.” A situation he found interesting, however, is the dichotomy between where that federal R&D money is going and where the state ranks. In 2008, Illinois ranked 8th, with federal R&D money going to universities and colleges—“a fairly strong showing.” But it ranked 42nd in federal R&D going to industry. “So that’s a huge caution for the state.” Among other indicators, in NIH grants and contracts, the state ranked 9th in total funding in 2011. In industrial R&D intensity it ranked 14th. This was also below the national average, and a decline for the state overall.
The indicator for academic R&D expenditures from industry, he said, could serve as a key to understand how closely industry is actually working with the universities in a state. The ranking of 15th nationally was “not too bad,” but again, at 3.3 percent, it was significantly below the national average of 5.8 percent.
Good news for Illinois, he said, lay in the next two indicators, “both of which are incredibly important for having an innovation-based economy.” In the percentage of population with a bachelor’s degree, Illinois now ranked 12th in 2010. In 2002, the state ranked only 17th, “so that is a significant increase and progress.” Second, “business churning” is a statistic that reflects the rate of business creation and death in a state. “The more churning you have, according to theory, the more entrepreneurial is the climate in the state. This ranking
surprised me, 24th. It doesn’t sound great, but in the early 2000s, Illinois ranked 42nd. Almost all of the Great Lakes/Great Plains states have stayed in the bottom 40s. So we looked to see if this was just a statistical anomaly. But there has actually been a steady progression from the 40s up to the mid-20s, so that’s significantly good news.”
Finally, he said, we come to the indicator that measures how Illinois does on SBIR awards. Overall, from 2007 to 2011, the state ranked on average 15th, which is “significantly below where you would hope and expect to see this state. I think the state does need to spend some time to understand why this is so. Why is industry in Illinois doing so poorly in receiving federal R&D money? We need to inventory who is receiving what from whom, where the money is going, and what is working. We need to look at the overall trends, try to characterize the state’s industrial communities, and get a sense of their openness to working with federal government, universities and each other. There is some indication of industry’s openness to work with universities, but that needs to be understood.”
He said that Illinois has had an uneven record of general support for technology-based economic development programs, which ebbs and flows. This unevenness is evident in SBIR assistance in particular, he said. A common approach in response to this problem is to provide proposal development assistance and federal R&D support, encouraging the pursuit of federal R&D. Another approach is to focus on successful Phase II conversion or Phase III commercialization—“really working with those SBIR companies that have received Phase II awards and should now be ready for commercialization.” He said that that kind of intensive assistance in commercializing is likely to be beneficial for Illinois. “The fact that the state, given its size, ranks so low in SBIR awards is an indication that there may not be broad understanding either of the program or of how to submit a winning proposal.”
In closing, he offered several questions for his colleagues to consider: Do you believe that the data accurately reflect Illinois’s standing? Does Illinois have the high-level leadership in all sectors to move the state forward? “One of the lessons we’ve learned in the 16 years that SSTI has been in existence,” he concluded, “is that committed, high-level leadership from all sectors must agree that innovation is a high priority.”
Discussion
Mr. Biss, the moderator, asked the panelists if there was any relationship between the state’s lag in per capita federal support for research by industry and its historic strategy of supporting large companies. He also asked if there was a connection between those two indicators and Argonne National Laboratory’s relationship with industry.
Dr. Isaacs of Argonne agreed that it is important to understand how much federal funding goes to which sectors, but questioned whether the flow of federal dollars to industry is the right indicator for the health of the innovation
ecosystem. “Ultimately,” he said, “you want the outcome, which is innovation and economic growth, not the input, which is the federal dollars. We want to be able to measure how much innovation gets done in Illinois rather than just measure the federal dollars going to industry and cranking that through.” He said that Mr. Miller had effectively characterized a way for pharma companies to access the innovations of academia, and suggested that the relevant objective is “a much more fluid communication between universities, government labs, and industry.”
Mr. Berglund said he did not disagree, and that federal dollars to industry should be only one indicator. “But I think the other indicator, showing industrial R&D intensity at 14th in the nation in 2009, down from 11th in 2000, is an indication that something is not right with industry in Illinois. I don’t know exactly what that is, but I think the state needs to figure it out, because it is probably affecting the other measures that are even more important for the health of the economy. So much of the Great Lakes region is focused on big, existing companies, rather than helping to build the ecosystem for entrepreneurial startups.”
Mr. Miller commented on the state’s ranking of 15 in SBIR funding. He recalled that when he joined iBIO in late 2002, the state’s ranking was 36th in SBIR funding, “so this current rank of 15 is actually a big step forward.” He also made the point that the state had been doing hard, detailed work to lay the groundwork for future improvements. “We’ve been so successful with our big-company strategy over the years,” he said, “that I think it’s made us a little blind to the other things we have to do. These are not glamorous and not sexy—they are like blocking and tackling and flossing your teeth. But they are the kinds of things we need to keep doing to build our innovation economy.”
Dr. Mirkin said that the worry about how much money the state is getting for various sectors may be the wrong worry. “In the end,” he said, “if we have good ideas, we’re going to get money. Perhaps we’re not focusing enough on generating those ideas, whether they are from small or large companies. My concern is that we’re not working closely enough together.”
He added that the question of metrics can be equally misleading. “Every part of the ecosystem requires different metrics, he said, “because we’re all different in the way we function. A fungus and a tree is a good example of symbiosis. They depend intimately on each other, but have very different needs and ways of judging success. In the same way, academics are judged by publications for getting tenure in a university, while industrial engineers may be judged for delivering a product. Our challenge is to put these sectors together to get the good ideas, not measure how we do it. We need to ask what the drivers are. In some cases it’s federal funding, in others it has nothing to do with federal funding—it’s getting ahead of the federal funding and defining where it should be. We’re not very good at that yet. At Stanford, for example, there is more communication like that—a Baxter would be in there talking to a Chad Mirkin regularly. That churn has to happen, and we’re a little afraid of that here.”
Dr. Wessner commented that the debates over metrics and policies can be a distraction from the overarching need for action. “The rest of the world is not fighting with their federal government,” he said, “or underfunding their R&D budgets. They’re investing heavily in their research universities and in their small companies. Here at home, the states with the most vibrant economies, with the most venture capital, are the same ones that get the most SBIR awards: California, Massachusetts, New York, Maryland, Virginia, and Colorado. The lesson is not to argue the metrics, but make a concerted effort to get more federal funds and then to match them.
He recalled a comment by Gordon Moore, co-founder of Intel, who remarked, “You can never get well on the technology. When your sales fall, you buy new equipment.” That is difficult in this budgetary environment, he said, but it must be done. “Instead, our current strategy is to borrow money from our children and grandchildren to pay our current expenditures. That is not a successful strategy for the long term.”
Mr. Miller agreed that current national policy gives little importance to building innovation ecosystems. He said that numerous practices interfere with serious investment in innovation, including expenditures on foreign wars, programs of “nation building,” the use of securities whose actual value is almost impossible to understand, programs of health care reform that do not include lifestyle and dietary reforms. “We talk about how we compare to Maryland, California, and Maryland, but the relevant comparisons are with China, Finland, and Singapore.”
A questioner asked whether a regional innovation policy could help Illinois be globally connected and attract international investments. Mr. Miller answered in the affirmative, saying that Chicago is “the easiest place in the world to get to or from,” it has leadership in every sector of biotechnology, and “for the developing countries, we can make a strong case to firms that want to locate in North America.”
Matthew Small, a graduate student at the University of Illinois, said he had come to Illinois because it is one of the top-tier research institutions of the country. “But we have highly educated people, and they’re leaving the state. Why? I know a lot of people who would love to stay in the Midwest but don’t find something that overlaps with their skill set.”
Mr. Biss replied that Illinois needs a more balanced portfolio in its economic development strategy. Until recently, it has focused on just the large companies. “The challenge,” he said, “given limited resources, is to look at the whole spread of companies. Plenty of states are doing that. Michigan, for example, is reorienting their strategy from large-company recruitment to an ‘economic gardening’ approach. The question now is will the leaders of the three sectors in Illinois have a common vision to do this and then will the commitment stick?”
