Chapter 6

Rebuilding Ohio’s Innovation Economy

Efforts underway in Ohio to spur an industrial and economic turnaround are increasingly attracting national attention. Backed by strong and longstanding support from the state government’s Thomas Edison and Third Frontier programs, Ohio’s growing resurgence reflects local and regional initiatives by small and large firms, universities, and philanthropic foundations. These developments may represent a new paradigm for innovation-driven economic growth that is particularly relevant for older industrial states and regions.

REVIVAL FOLLOWING A GENERATION
OF ECONOMIC DECLINE

During most of the first century after its founding, Ohio was a predominantly agrarian state, but it began to industrialize rapidly in the 1870s. Toledo, Cleveland, and Youngstown became centers of steelmaking; Akron, the home of B.F. Goodrich, Firestone, and Goodyear, became the “rubber capital of the world,” Dayton produced paper, cash registers, and refrigerators, and Cincinnati made railroad cars, boilers, and machine tools.1

The state of Ohio has a rich tradition of innovation. The Wright brothers of Dayton developed the first successful airplane.2 Michael Owens founded a glass-blowing company that fostered Owens-Corning and Owen-Illinois.3 Charles Kettering cofounded Delco Enterprises to commercialize his invention, the automatic starter for automobiles.4 William Proctor and James

_________________________

1“Made in Ohio,” The Columbus Dispatch August 17, 2003.

2“Wright Brothers: Faith to be the First to Fly,” Columbus Examiner December 16, 2010.

3Owens secured 49 patents, including a revolutionary bottle-blowing machine and machinery to make sheet glass and light bulbs, “Long String of Lucky Events Boosted Toledo’s Standing in Glass Industry,” Toledo The Blade April 3, 2007.

4“Kettering’s Self Starter Was More Than That,” Dayton Daily News September 13, 1997.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 111
Chapter 6 Rebuilding Ohio’s Innovation Economy Efforts underway in Ohio to spur an industrial and economic turnaround are increasingly attracting national attention. Backed by strong and longstanding support from the state government’s Thomas Edison and Third Frontier programs, Ohio’s growing resurgence reflects local and regional initiatives by small and large firms, universities, and philanthropic foundations. These developments may represent a new paradigm for innovation-driven economic growth that is particularly relevant for older industrial states and regions. REVIVAL FOLLOWING A GENERATION OF ECONOMIC DECLINE During most of the first century after its founding, Ohio was a predominantly agrarian state, but it began to industrialize rapidly in the 1870s. Toledo, Cleveland, and Youngstown became centers of steelmaking; Akron, the home of B.F. Goodrich, Firestone, and Goodyear, became the “rubber capital of the world,” Dayton produced paper, cash registers, and refrigerators, and Cincinnati made railroad cars, boilers, and machine tools.1 The state of Ohio has a rich tradition of innovation. The Wright brothers of Dayton developed the first successful airplane.2 Michael Owens founded a glass-blowing company that fostered Owens-Corning and Owen- Illinois.3 Charles Kettering cofounded Delco Enterprises to commercialize his invention, the automatic starter for automobiles.4 William Proctor and James 1 “Made in Ohio,” The Columbus Dispatch August 17, 2003. 2 “Wright Brothers: Faith to be the First to Fly,” Columbus Examiner December 16, 2010. 3 Owens secured 49 patents, including a revolutionary bottle-blowing machine and machinery to make sheet glass and light bulbs, “Long String of Lucky Events Boosted Toledo’s Standing in Glass Industry,” Toledo The Blade April 3, 2007. 4 “Kettering’s Self Starter Was More Than That,” Dayton Daily News September 13, 1997. 111

OCR for page 111
112 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Gamble of Cincinnati built their company around a gentle, inexpensive floating soap they named Ivory.5 Albert Sabin developed the first oral polio vaccine in Cincinnati. In 1900, Cleveland ranked eighth out of all U.S. cities in total patents granted to residents, and fifth with respect to patents deemed by official examiners to have made significant contributions to the industrial art of the period.6 However, in the second half of the Twentieth Century, Ohio experienced a dramatic economic decline as traditional industries like steel, automotive, glass, and rubber were buffeted by foreign competition and in some cases began to move offshore. Average incomes in Ohio fell from 11 percent above the national average in the 1950s to 6 percent below by 2001.7 Ohio was “mired complacently in what has been labeled the old economy, characterized by production-line manufacturing” but was lagging the nation in knowledge- based areas such as information technology, biotechnology, and business and professional services. As David Morgenthaler, a venture capitalist with deep roots in Cleveland, has noted: “In 1950, Cleveland was king of the world. We had world-class manufacturing facilities. … We had 50 of the Fortune 500 headquarters, and were one of the leading manufacturing centers of the world.” However, Cleveland was slow to respond when change came. The area had a powerful economic driver in the automobile, from 1900 to 1960, “and unfortunately the region rode it for another 40 years without recognizing that we had missed two new industrial revolutions, the electronics revolution and the biotech revolution.”8 The Columbus Dispatch observed in 2003 that Ohio ranked 36th in per- capita R&D expenditures at doctoral granting institutions. It concluded that “despite some notable exceptions, Ohio’s economy is stuck in the past while the world is changing—fast!”9 Lavea Brachman, Executive Director of the Greater Ohio Policy Center, commented in 2010 that the extent of Ohio’s economic decline was “unparalleled” and that the cities had “emptied out,” leaving high concentrations of poverty, with Cleveland falling from a population of 900,000 in 1950 to 400,000 in 2010 and Cincinnati dropping from 500,000 to 300,000 in 5 “In 1879, P&G Floats Idea for Soap,” Akron Beacon Journal January 6, 2003. 6 Naomi, Lamoreaux, “The Decline of an Innovative Region: Cleveland, Ohio in the Twentieth Century,” Paper prepared for the 2008 Annual Meeting of the Economic History Association, September 12, 2008. 7 “Legislators Badly Weaken State Colleges,” The Columbus Dispatch, November 25, 2001. 8 See David Morgenthaler, “Welcome and Introduction,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013. 9 “State of Stagnation? Bold investment in Human Capital Can Rejuvenate Ohio’s Economy,” The Columbus Dispatch August 10, 2003.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 113 the same period.10 She observed that Ohio had an unusual diversity of regional economies, with a half dozen metropolitan areas specializing in different industries—Dayton in autos, Toledo in glass, Youngstown in steel, and so on. The state’s historical innovation culture was seen by some observers as having eroded in the latter Twentieth Century. Roy Church, President of Lorain County Community College in northeast Ohio, recalled in 2002 that a hundred years previously, Lorain County was a place where “people were starting companies in garages, second bedrooms, and basements.” That same year Stephen J. Gage, president of the Cleveland Advanced Manufacturing Program, complained that “the region lacks innovation…Ohio goes after branch plants— more of the old—rather than something new.” Gage said that he saw more innovative ideas every four months when he was in charge of a seed money fund for entrepreneurs in Indiana than he had seen in 11 years in Cleveland.11 Notwithstanding a substantial erosion of its manufacturing economy, Ohio remains a major manufacturing state. The sector continues to employ about 600,000 people, or 14 percent of that state’s workforce, and is the seventh largest U.S. exporter of manufacturing goods, selling around $34 billion in goods to other countries. The state ranks first, second, or third among U.S. manufacturers in 84 categories of manufacturing based on the North American Industry Classification system.12 State business and political leaders cite a number of challenges Ohio confronts in engineering an economic turnaround. James Griffith, CEO of northeast Ohio-based Timken Company, contends that the state is heavily taxed, ranking 46th among states in business tax environment.13 This partially reflects the profusion of governmental entities in the state—86 percent of U.S. states have fewer governmental organizations per square mile than Ohio.14 “Someone has to pay for those entities,” Griffith says, and because of the profusion of governments, it is “confusing to do business here.”15 10 “Several of Ohio’s cities have emptied as completely as medieval Europe when it was ravaged by the bubonic plague…within three years of graduation, one-third of Ohio’s university alums have left the state.” “Amid Migration, Ohio Offers Lessons for Texas,” Dallas Morning News January 2, 2011. 11 “Biosciences: The Next Big Thing or One of Many?” Cleveland, The Plain Dealer February 17, 2002. 12 Eric Burkland, ”The State Manufacturing Challenge,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 13 James Griffith, “Stimulating Manufacturing in Ohio: An Industry Perspective,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 14 Lavea Brachman, “Clusters and the Next Ohio Economy: What is Needed,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. Brachman points out that even if a consensus existed that mergers of some governmental units was desirable, they would not be permitted under state law.” Communities Discuss Hurdles of Regionalism: Many at Wednesday Summit Agree merged Government Worth Consideration” Dayton Daily News, June 9, 2011. 15 James Griffith, “Stimulating Manufacturing in Ohio: An Industry Perspective,” op. cit.

OCR for page 111
114 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 6-1 Edison Seed Grants The Edison seed grants required projects to involve small or mid-sized businesses conducting research in collaboration with Ohio colleges or universities. The products developed were required to be produced in Ohio or benefit Ohio-based employment. The industrial partner was required to match state funding with in-kind or monetary contributions, appoint a liaison to interact with university researchers and provide periodic reports on research progress. An example of an Edison-supported seed project involved collaboration between the University of Dayton and Dayton-based inventor Joseph Singleton, which developed a hydraulic cleaning system to soak, wash and rinse semi-tractor trailers in a single quick stop, cutting the time required to wash a rig from 40 minutes to 10 minutes. George Roth, supervisor of experimental and applied mechanics at the University of Dayton commented that “[w]e were able to serve as the company’s engineering team. We were able to [review] the design and analyze the reliability and durability on paper, thus reducing cost and saving time.”16 STATE GOVERNMENT INITIATIVES The Thomas Edison Program: In 1983 Ohio’s legislature created the Thomas Edison Program, a state-funded initiative to encourage universities to cooperate with businesses to link research and technology with start-up companies and other business initiatives. The Edison program supported the establishment of nine business incubators, seven technology centers, and “seed development fund projects” across the state.17 By 1990 The Columbus Dispatch was characterizing the Edison program as an “unqualified success,” citing the fact that the “Ohio corporate community has taken ownership of the Edison program.”18 The most visible manifestations of the Edison program were the thematic Edison technical centers, which fostered university-industry collaboration emphasizing applied research leading to incremental but very practical improvements in processes and products—“small improvements that over time result in big advantages”— 16 Bright Ideas—Edison Program Helps Inventors Find Their Wings,” The Cincinnati Post August 27, 1990. 17 “Effort to Aid Business Draws Praise,” Akron Beacon Journal January 21, 1986. 18 “Edison Program is Success—State is Seen as Beneficiary,” The Columbus Dispatch April 2, 1990.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 115 in areas such as welding, metal-forming, materials, polymers, industrial systems, and biology.19 The Third Frontier Program Ohio’s Office of Technology Investments administers the Ohio Third Frontier program, which provides funding to state-based, technology oriented companies, universities, and non-profit research organizations to create new companies, industries, products, and jobs. Third Frontier was created in 2002 and extended in 2010 through 2015 with a budget of $2.3 billion, making it the largest development initiative ever undertaken in Ohio.20 The Third Frontier is designed to support early-stage research and development efforts “from which the private sector often shies away, the payoff likely too far in the future.” 21 Amendments to the state constitution approved by Ohio voters in 2005 and 2010 lifted a longstanding constitutional ban on state investments in private business with respect to the Third Frontier program (but not other programs).22 An assessment of the program in 2012 concluded that while the Entrepreneurship Signature Program (ESP)23 had received 30 percent of Third Frontier funding, they accounted for 56 percent of the positive economic impacts.24 The Third Frontier program has been the largest contributor to the Ohio Research Scholars Program, which funds university collaborations “so they can woo researchers and their federal research grants and staff members to Ohio.”25 In 2008, the Third Frontier committed $72 million to this effort, augmented by $50 million allocated by the Ohio General Assembly from university endowment funds and $28 million from the state’s universities in the form of foregone operating money. This effort was aimed at establishing 26 new endowed faculty chairs at universities in the state. As of mid-2007, the Third Frontier program had invested nearly half of its total grants—$300 million—in northeast Ohio institutions, organizations, and 19 “Edison Program Lights the Way—Centers Help Industry Compete With the Latest Technology,” The Columbus Dispatch, May 12, 1991. 20 Akron Beacon Journal, "Snapshot of the Region—Northeast Ohio Has Inched Forward in the Knowledge economy, Now it Must Pick Up the Pace.” May 22, 2009. 21 The Third Frontier also sponsors Wright projects, which underwrite capital equipment to commercialize research results that will serve entrepreneurial purposes and contribute to the education and training of the work force. Wright funding is awarded in response to proposals in the fields of alternative energy; instruments; controls and electronics; biomedical; advanced materials; and advanced propulsion. “Initiative Seeks Top Researchers: $143 Million Goes to Universities for Cutting Edge Solutions,” Cleveland, The Plain Dealer May 21, 2008. 22 “JobsOhio May Run Afoul of the Constitution,” The Plain Dealer, February 2011. 23 See the website of the Ohio Development Services Agency at . 24 “Basics of the Third Frontier—the Idea Wasn’t to Launch a Venture Capital Firm,” Akron Beacon Journal September 23, 2012. 25 Mary Vanac, “State initiative seeks top researchers to rebuild Ohio's economy,” Ohio Plain Dealer, May 21, 2008.

OCR for page 111
116 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES TABLE 6-1 Ohio Third Frontier Performance Metrics—2012 As of June 30, 2012 State funds expended $907,910,178 Leveraged dollars $8,048,717,740 Leverage ratio (goal: 3:5/1) 8.9/1 Direct Jobs Created 15,945 Direct and Indirect Jobs Created 95,510 Companies created, capitalized, or relocated 882 SOURCE: Ohio Third Frontier Annual Report—2012. companies. Of that total, 55 percent went to projects involving biomedicine and bioscience.26 Third Frontier support has been critical to the operation of the specialized nonprofit technology-oriented economic development organizations that have driven northeast Ohio’s economic turnaround.27 In 2012, the Third Frontier reported that since its inception it had expended roughly $900 million to leverage other investments of over $8 billion, had fostered the creation of nearly 100,000 direct and indirect jobs, and facilitated the creation, funding, or recruitment of 882 companies. NEW INITIATIVES IN NORTHEAST OHIO Luis Proenza, President and CEO of the University of Akron, observed in 2011 that a dozen years previously “northeast Ohio largely lacked entrepreneurial drive, risk tolerance, and innovation capital.”28 A 1997 survey of northeast Ohio observed that “look under the hood…and this is what you’ll see: a lot of companies that make some pretty basic stuff. Stuff like metals, paint, cement, oxygen tanks, and electric motors.”29 In 2002, three economic development experts told the Akron roundtable that “Northeast Ohio companies are good at making stuff. But they need to get better at innovating new stuff…Northeast Ohio is weak in innovations in products.”30 Proenza summarized a series of public and private initiatives since the early 2000s that led him to conclude that “today while all the pieces are not yet in place, there is little doubt that the region is moving in the right direction.” He noted as positive developments the launch of the Ohio Third Frontier Program in 26 “Granting Our Wishes: State’s Third Frontier Program Has Invested About $300 Million in NE Ohio Technology Efforts,” Cleveland, The Plain Dealer July 22, 2007. 27 Ray Leach, the chief executive of JumpStart, (a northeast Ohio initiative to provide intensive assistance to entrepreneurs) commented in 2007 that “if the Third Frontier didn’t exist, JumpStart wouldn’t exist as we know it today. It would be smaller and dramatically less capable than it is today.” Ibid. 28 Luis Proenza, “Keynote Address,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 29 “Manufacturing Still Drives Region’s Economy,” Akron Business Journal June 22, 1997. 30 “Innovation Key to Region’s Economic Development,” Akron Beacon Journal January 18, 2002.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 117 2002 and a 2010 decision to expand the program’s funding, state legislation allowing university faculty to become stakeholders in startups commercializing their research findings, and the economic development efforts of charitable foundations and nonprofit organizations in northeast Ohio.31 Today, northeast Ohio is the site of robust new clusters forming in biomedicine, advanced materials, and chemistry.32 As of mid-2011, Cleveland’s economic recovery ranked 10th among 50 U.S. metropolitan areas. Rebecca Bagley, President and CEO of NorTech, a nonprofit development organization, founded in northeast Ohio cites recent developments as evidence of a longer-term economic transformation and commented that “the fact that we have this growing innovation ecosystem has become extremely important in sustaining this momentum.”33 Upgrading Universities Proenza became President of the University of Akron in 1999, and quickly launched a $200 million effort to remake the University, including upgrading its physical plant, doubling the amount of open space on the campus, and transforming the student base from one dominated by commuter students to one based on resident students, who were more likely to remain in school and graduate. From the inception of his tenure, Proenza emphasized how states and educational institutions could drive economic development.34 Among other things, he pointed out that polymer science at the University of Akron was the only science program in the state of Ohio ranked in the top five nationally, and that “the program can be an engine for the regional economy.”35 In 2001, the university established the University of Akron Research Foundation (UARF), a not-for-profit organization to facilitate the transfer of 31 Luis Proenza, “Keynote Address,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 32 “Can One Region Jumpstart the Entire US Economy?” The Lawson Constitution June 26, 2011. 33 Rebecca Bagley, “The Role of NorTech: Promoting Economic Development,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 34 “A New Era at the University of Akron: The Proenza Plan,” Akron Beacon Journal October 10, 1999; “Ohio’s Success Linked to Schools, Proenza Says: UA President Touts Research at Roundtable,” Akron Beacon Journal December 17, 1999. Between 2000 and 2010 the University made a $500 million investment in a ‘New Landscape for Learning,’ establishing 20 new buildings, 18 major additions and renovations, 34 acres of new, green space, 30,000 trees and bushes, and walkways, plazas, and terraces. Run-down neighborhoods near the campus were revitalized as University Park, a 50-block upscale mixed residential and retail area. Summary of remarks of Luis Proenza, “Universities and Economic Development: Lessons from the ‘New’ University of Akron,” National Research Council, “Building the Hawaii Innovation Economy: Summary of a Symposium.” January 13-14, 2011; “Projects Blossom in Area Near UA,” Akron Beacon Journal April 26, 2006; “Building Blocks for 50 Blocks—The University Park Alliance Reaches a New Level,” Akron Beacon Journal October 28, 2011. 35 “Angels for Akron—The Region Wants to Fulfill the Promise of Polymer? Start With Concrete Plans and a Little Money,” Akron Beacon Journal June 3, 2002.

OCR for page 111
118 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES research results from the university to public and commercial use. UARF became a focal point of entrepreneurial activity, creating 26 startup companies in a five year period based on university-patented technology and another 15-20 companies based on patents held by others. UARF also created research partnerships with established companies and developed a regional network of angel investors.36 Finally, UARF recruits Senior Fellows and Entrepreneur Executives, individuals from the business community who function as “guerilla entrepreneurial talent,” to identify potential partners for the university.37 When Proenza took over as President of the University of Akron in 1999, the school performed about $15 million per year in research. By 2012 the annual figure had grown to $50 million.38 In 2012 the University’s Research Foundation marked a milestone with the launch of the fiftieth startup.39 In that year, Proenza unveiled “Vision 2020,” an 8-year plan to build the institution’s annual research activity from $50 million to $200 million, increase enrollment from 29,000 to 40,000, and achieve job placement of 80 percent within six months of graduation in “dynamic careers.” The plan builds on the so-called “Akron Model”: The university through its research foundation and other avenues is leveraging its talent for local companies and entrepreneurs, serving as something of a research arm or problem-solver in the regional economy.40 The Role of Foundations Another key asset in the effort to turn around northeast Ohio’s economy has been the region’s extraordinary century-old philanthropic tradition, which has made it possible to undertake multiple initiatives to promote the establishment of innovative new industries. The Cleveland Foundation, the world’s first community foundation and today Ohio’s largest grant-making foundation, was launched by Cleveland banker/lawyer Frederick H. Goff in 1912 to foster the “mental, moral, and physical improvement of the inhabitants 36 Proenza, “Lessons from the ‘New’ University of Akron,” 2011, op. cit.; “Group Puts Startups on the Right Path: Archangels Network Offers Local Ventures Feedback, Assistance Finding Investors,” Akron Beacon Journal February 22, 2007. 37 Proenza comments that “ten years ago we would never have thought of partnering with the hospitals because we didn’t have anything in common at the time. Now these Fellows have helped us to see ourselves as partners with the city and community in a broader sense.” Proenza, “Lessons from the ‘New’ University of Akron,” 2011, op. cit. 38 “All About Talent—the University of Akron Wants to be a Leader: Its New Strategic Plan Explains How it Will Do So,” Akron Beacon Journal January 22, 2012. 39 “Akron Professor Advocates Polymers for the People; Octogenarian Inventor Creates Useful Products,” Cleveland, The Plain Dealer September 6, 2012. 40 All About Talent—the University of Akron Wants to be a Leader: Its New Strategic Plan Explains How it Will Do So,” Akron Beacon Journal January 22, 2012.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 119 of Cleveland.”41 Other foundations were established by millionaire industrialists in Ohio’s first economic heyday in “a region where the ghosts of once-great corporations live on in charitable foundations.”42 At present, about 1780 of Ohio’s 3244 foundations are found in northeast Ohio, where the first such organizations appeared and where interest has been compounding, in some cases, for over half a century. Moreover, in present-day northeast Ohio, “there’s an expectation that today’s corporate leaders will keep alive that tradition of giving,” and “everyday folks are known as big givers too, donating twice as much to the United Way as residents of many other cities.”43 In responding to the economic crisis that overtook Ohio in the late Twentieth Century, the foundations were able “to do something the area’s patchwork of city government hasn’t always been successful at,” and their work has “proven so cutting edge that it was recently [in 2010] showcased at a global summit.” David Abhott, the executive director of the Gund Foundation, observes that “the way we are fragmented governmentally impairs our ability to compete globally,” but “[now] we’re getting into the habits of competing more effectively as a region.”44 Most importantly, in the past decade, the foundations have pooled their funds and backed roughly a half dozen small nonprofit economic development organizations with expert staffs that have functioned as catalysts for innovation-based economic revitalization. In this way, “the old money [of Ohio’s first industrial century] is starting new industries. The foundations have really turned themselves into a way of recycling old money into new products.”45 In 2003, the foundations of northeast Ohio for the first time began exploring how to work together to address the region’s economic challenges at a time when most of the foundations had limited staff, confined to making grants.46 In February 2004, a coalition of foundations and companies created the Fund for Our Economic Future with an initial funding goal of $20 million. These resources were primarily directed to a handful of the best economic development organizations out of “31 organizations that do the kind of work in 41 The Fund has assets of nearly $2 billion.” The Cleveland Foundation—Our History,” . 42 The George Gund Fund, established in 1952, was established by a former president of Cleveland Trust Co. who made his fortune after selling a company that had developed on innovative processes for decaffeinating coffee known as Sanka. The Burton D. Morgan Foundation, created by the founder of Morgan Adhesives, supports entrepreneurship in the region. The Kelvin and Eleanor Smith Foundation is named for a co-founder of Lubrizal. ”Philanthropy is Our Way of Life of Greater Clevelanders,” The Plain Dealer, December 26, 2010. 43 Ibid. 44 Ibid. 45 Hill, Edward “Ned” quoted in “Philanthropy is Our Way of Life of Greater Clevelanders,” The Plain Dealer, December 26, 2010. Hill says that “digging deep to help one’s fellow man is uniquely rooted in Cleveland’s DNA. The history of giving in Cleveland is one of our historic strengths. It is a competitive asset. Ibid. 46 “Foundations to Try to Help the Economy,” The Plain Dealer, September 4, 2003.

OCR for page 111
120 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 6-2 Ohio’s Leading Innovation Based Development Organizations47  NorTech, a nonprofit organization promoting technology-based economic development, was launched in 1999. NorTech promotes formation of clusters in northeast Ohio, including the creation of detailed sectoral roadmaps in collaboration with local public and private actors.48  BioEnterprise, a nonprofit spin-off from NorTech, has the mission of growing healthcare companies and commercializing biomedical technologies.  JumpStart, founded in 2004, JumpStart is a nonprofit organization to provide direct funding and to arrange venture capital for promising startups.49  Team NEO, established in 2003, Team NEO’s objective is to recruit businesses from outside the region to locate in northeast Ohio.50  MAGNET, the Manufacturing Advocacy and Growth Network was formed in 2006 to support, defend, and educate manufacturing enterprises in northeast Ohio and help them improve their competitiveness.51  UARF, the University of Akron Research Foundation, was established in 2001 as a boundary spanning organization connecting NE Ohio resources from industry, universities and investment communities for the purpose of wealth creation.52 which the Fund [was] interested.”53 The fund’s objective was to channel investments into a limited number of projects likely to yield a high impact and “to encourage an entrepreneurial spirit once deeply present and now more of an echo.”54 The chosen development organization have continued to have strong 47 For additional information on these organizations, see National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 48 Rebecca Bagley, “The Role of NorTech: Promoting Economic Development,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 49 JumpStart’s original funding sources were the State of Ohio, the Fund for Our Economic Future, the Cleveland Foundation, and the Greater Cleveland Partnership.” N, E, Ohio Economy Gets a Boost—Jumpstart Helping Develop Businesses” Akron Beacon Journal, November 9, 2004. 50 “Team NEO Has Work Cut Out—Momentum Needed in Economic Struggle,” Akron Beacon Journal, January 26, 2003. 51 “CEO to Speak at Roundtable,” Akron Beacon Journal, July 18, 2006. 52 See generally National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit. 53 “Coalition Ready to Dip into Pooled funds to Boost NE Ohio Economy,” The Plain Dealer, July 27, 2004. 54 “Foundation for Regional Recovery—A Compelling Voice for All of Northeast Ohio” Akron Beacon Journal, November 28, 2004. The Cleveland Plain Dealer warned in 2002 that “already

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 121 support from the Fund and/or from the donor foundations directly down to the present day, with positive results that have garnered national and international attention. The Role of Intermediating Institutions Box 6-2 provides a list of key innovation based development organizations serving northeast Ohio. These economic development organizations and their achievements have begun to win national attention, because Cleveland and the rest of Ohio are making progress in new technologies, particularly in the area of clean energy. Impact of the Ohio Third Frontier program in Northeast Ohio Luis Proenza underscored the importance of a statewide program, Third Frontier in the regional turnaround of northeast Ohio. Third Frontier has provided funds to the region’s universities and to nonprofits like JumpStart and Team NEO and to individual companies.55 In 2010, the Akron Beacon Journal published a survey of the effects of the Ohio Third Frontier program in the Akron area. It found that between 2002 and 2010 nearly 20 statewide or regional Third Frontier initiatives were led by Akron organizations, representing nearly $79 million in Third Frontier grants. The Industrial Revival During the past decade northeast Ohio companies have also implemented innovation-based turnaround strategies. Timken Company, a highly successful Canton-based manufacturer of steel bearings between 1960 and 1980, suffered from a protracted 20-year slump after 1980—its current President and CEO, James Griffith, commented in 2011 that “I’ve been there for 26 years and never knew that good time. I’ve been there for the struggling time.” Griffith says Timken’s turnaround reflected the 10-year application of a focused strategy, “grow and optimize,” based on innovation. While remaining primarily a bearing and steel company, Timken “learned to take the technology and apply it to markets where we could differentiate and expand,” diversifying beyond automotive applications to sectors such as aerospace and infrastructure manufacturing. The company has grown very aggressively in Asia and there are plenty of [economic development groups] with their snouts in the slop, diluting and draining focus and money.” “Why have 30 of them going around town trying to raise resources when you can have one?” asked Dennis Roche, COO of the Greater Cleveland Growth Association.” Agents of Change: An Explosion of New Organizations Promoting Economic Development and Opportunities is Igniting in Northeast Ohio,” The Plain Dealer, December 8, 2002. 55 “Ohio’s Third Frontier Program Awards $14 Million in Grants to Northeast Ohio Organizations,” Crain’s Cleveland Business, December 14. 2012.

OCR for page 111
132 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES TABLE 6-2 Core Competencies in the Flex Matters Cluster Core Competency Description R&D pipeline – Electro-optic materials – Semiconductor materials – Materials science and design – Device physics – Novel processes Technology and – Particle processing innovation – Coatings processing – R2R and wide web equipment/tools – Polymer film processing Talent and intellectual – Highly skilled faculty capital – Masters and PhDs – Engineers and scientists Intellectual property – Seminal patents – Know-how – Trade secrets Commercialized and – Electro-optic materials and films for curved near-commercialized product designs products and – Silver conductive inks and pastes for electrodes components – Robust, low sheet resistance ITO conductive films – Nanotechnology based coatings for screen protection – Solar devices/components – Lighting components – Thermal heat dissipation components SOURCE: NorTech, FlexMatters Strategic Roadmap, 2010, p. 26. Center for Multifunctional Polymer Nanomaterials and Devices (a Wright program technology center) and local companies.99 FlexMatters received a $900,000 grant from the Ohio third Frontier program in 2007 and chose a site in a new research park being established by Kent State, Centennial Research Park.100 In 2010, NorTech released a detailed roadmap for the development of a 99 “KSU Dedicates New Research Park,” Akron Beacon Journal June 9, 2007; “6 Projects Get NorTech Money,” Cleveland The Plain Dealer November 15, 2006. 100 “KSU Dedicates New Research Park,” Akron Beacon Journal June 9, 2007.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 133 flexible electronics industry in northeast Ohio.101 The ultimate goal of the effort was stated for FlexMatters to create 1,500 jobs, $75 million in payroll and $100 million in capital for the northeastern Ohio economy within seven years. The Roadmap identified “core competencies” that already existed in the FlexMatters cluster and indicated that “to the best of our knowledge, this portfolio of competencies is not duplicated in any other existing centers or clusters.” (See Table 6-2.) The FlexMatters cluster is comprised of a number of university research organizations and private companies. In addition to Kent State’s LCIs the University of Akron’s College and Institute for polymer science and engineering, and the Center for Multifunctional Polymer Nanomaterials and Devices at Ohio State,102 the cluster includes the Center for Photochemical Science at Bowling Green State University103 and the Center for Layered Polymeric Systems (CLIPS) at the Case Western Reserve School of Engineering.104 Participating companies like Kent Displays and Alpha Micron have started to make a commercial impact.105 YOUNGSTOWN— SOFTWARE AND ADDITIVE MANUFACTURING Heavily oriented toward steel manufacturing, Youngstown and its surrounding Mahoning Valley region were hard hit by the contraction of that industry in Ohio. Youngstown’s population of 82,000 in 2007 was roughly half of what it was 40 year previously and between 2000 and 2012, the Youngstown area lost 40,500 jobs. Thirty-one plants in or near the city shut down between 2001 and 2006. In 2012, a Cleveland-based economist estimated it would take 52 years for the area to return to the employment levels of 2000.106 A 2012 manufacturing workforce summit at Youngstown State University sponsored by the Mahoning Valley Manufacturers Coalition concluded that a shortage of 101 NorTech, FlexMatters Strategic Roadmap: Accelerating Growth in Northeast Ohio’s Flexible electronics Cluster November 2010; “Banking on Flexible Plastic: Nonprofit Aims to Provide Support for Promising New Industry in Northeast Ohio,” Akron Beacon Journal November 10, 2010. 102 The Center develops protocols for manufacturing and nanostructures for polymer photonic components. It received a 22 million grant from the Ohio Third Frontier program in 2005. SRI International, Making an Impact (2009) op. cit. p. 47; “Nanotechnology Could Give Ohio the Edge in Global Economy—Emerging Field May Spur Job Growth,” Dayton Daily News August 7, 2005. 103 The Center studies the interaction of light with biological, physical and chemical systems. SRI International, Making a Difference, 2009, op. cit. p. 47. 104 CLIPS was launched by an NSF award of $19 million in 2007, and headed by CWRU professor Anne Hiltner, who specializes in the development of layers of plastics with practical applications. “Case Pioneer to Lead Center of Research,” Cleveland The Plain Dealer February 11, 2007. 105 “Designing the Future Kent Firm Incorporates Liquid Crystals in Fashion Line,” Cleveland The Plain Dealer December 29, 2007. 106 “Mahoning Valley Expert: Region’s Recovery Will Take Decades,” Youngstown Vindicator September 23, 2012.

OCR for page 111
134 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES skilled manufacturing workers in the region was “the most significant challenge” confronting local businesses and could slow the region’s economic recovery.107 Despite daunting economic challenges, however, Youngstown has attracted national notice for its approach to turnaround. The mayor, Jay Williams, said in 2007 that city planners had decided to accept the fact that Youngstown was and would remain a smaller city than it had been and that it should “accept being smaller and clear away the clutter,” demolishing vacant buildings, opening up green space, and making the city more livable.108 Youngstown’s novel approach to urban renewal was paralleled by a sustained effort to develop local technology-oriented industry. The Youngstown Business Incubator (YBI) was formed in 1995 to support local entrepreneurs with the support of Ohio’s Thomas Edison Program’s Incubator initiative.109 In 1998, under the leadership of a new director, Jim Cossler, the YBI chose to focus narrowly on the promotion of business-to-business software enterprises. Specialization allowed it to provide increased value for its tenants, and YBI invested in high-speed fiber optic connections, a software-testing lab, and specialized trade show materials, which would not have been cost-effective for individual small companies. Its first tenant was a power equipment dealer seeking to commercialize a sales development program it had developed, and other tenants followed.110 One of the new tenants, Turning Technologies LLC, a provider of audience response technology, was drawn by the incubator’s “most significant recruitment tool: deeply discounted rent, free furniture, bandwidth, electricity and other utilities.”111 By 2007, Turning reported revenues of $20.6 million, a three year growth rate of 3,909.9 percent, and was named the fastest growing privately held software company in the United States and the 18th fastest growing privately-held company overall.112 107 A spokesperson for seamless pipe producer V&M Star, which is locating a new facility in Youngstown, said that it received over 16, 000 job applications for 350 openings at its new facility and that it was “hard to find a 10 percent pool of applicants that is qualified, particularly those with millwright or maintenance skills.” “Many Valley Workers Lack Skills for Manufacturing Jobs,” Youngstown Vindicator April 13, 2012. 108 “Less is More—Faced With Job Cuts and Factory Closings, Youngstown Tries Shrinking Back to Health,” The Cincinnati Post June 28, 2007. 109 As of 2006, YBI was receiving $225, 000 of its $400,000 operating budget from the state of Ohio. “Hatching a Revival: Youngstown Business Incubator Using High-Tech Approach to Bring New Life to Regions,” Cleveland: The Plain Dealer March 26, 2006. 110 PolicyLink, To Be Strong Again: Renewing the Promise in Smaller Individual Cities, 2008, p. 43. 111 “Hatching a Revival: Youngstown Business Incubator Using High-Tech Approach to Bring New Life to Region,” Cleveland The Plain Dealer March 26, 2006. Turning’s CEO, Michael Broderick, called the abatement of operating costs at YBI “invaluable.” He recalled in 2010 that “we didn’t have venture funding, we didn’t have capital. We started this company with credit cards.” “Youngstown Makes Strides Toward Being Technical Hub,” Cleveland The Plain Dealer January 31, 2010. 112 The recognition was from Inc. Magazine. Turnings Customers included Fortune 500 businesses, consulting and training firms, universities and K-12 classrooms. “Turning Technologies Rated Fastest-Growing,” Youngstown Vindicator August 24, 2007.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 135 YBI has added space to accommodate its burgeoning stable of growing software companies. When Turning outgrew its space in the incubator, YBI raised $6 million in federal and state grant funds to build an adjacent 30,000 sq. ft. building next door, the Taft Technology Center, which was entirely leased by Turning. Another 18,000 sq. ft. of space was secured nearby, the so-called Tech Block, whose first tenant, Revere Data, a maker of software for analyzing financial data, was characterized by Cossler as perhaps “the first company ever to move operations from San Francisco to Youngstown—but it won’t be the last.”113 These developments helped to propel Youngstown into national and international attention as an example of how a small industrial city turned its self around.114 In August 2012, President Obama announced that Youngstown would be the site of the National Additive Manufacturing Innovation Institute (NAMII), a research organization specializing in a potentially revolutionary manufacturing technique based on 3-D printing. The federal government will provide $30 million in funding to be matched by a similar amount from manufacturing firms, nonprofits, and universities and colleges.115 The National Center for Defense Manufacturing and Machining, which is sponsoring the project, estimates that it will eventually create 7,200 regional jobs. President Obama cited NAMII in his 2013 State of the Union message: A once-shuttered warehouse is now a state-of-the-art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything.116 THE TOLEDO PHOTOVOLTAIC (PV) CLUSTER In 1970, Toledo, Ohio ranked in the top ten U.S. cities for per capita income. Nicknamed “Glass City,” Toledo spawned glassmaking companies like Libby Glass and Owens Corning, and was also a center for the manufacture of 113 “Youngstown Makes Strides Toward Being Technical Hub,” Cleveland The Plain Dealer January 31, 2010. Revere Data’s locational decision was reportedly based on cost comparisons, but also because one of its senior executives was a native of northeast Ohio. Rent in Youngstown was reportedly four percent of what the company would have paid in San Francisco. “Youngstown Ohio: A Young Town Again,” The Economist October 8, 2009; “Research Company to Open Office in Downtown Tech Block,” Youngstown Vindicator January 12, 2010. 114 “National Study Applauds Youngstown’s Progress,” Youngstown Vindicator July 22, 2008; “Youngstown, Ohio: A Young Town Again,” The Economist October 8, 2009. 115 “Obama Push for 3D Hub to turn ‘Rust Belt’ City Into “Tech City,” Columbus Examiner August 17, 2012. Additive manufacturing utilizes 3-D software that creates a blueprint that is sent to a machine that utilizes various materials, including resins, metal and plastic to “print” a product in layers, with little or no loss of materials in the process. “Obama Names Youngstown as Model for New Tech,” Youngstown Vindicator February 13, 2013. In fact, the Ohio partners have raised $40 million in matching funds. 116 “Obama Names Youngstown as Model for the New Tech,” Youngstown Vindicator February 13, 2015.

OCR for page 111
136 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES auto parts and furniture. These industries began a long decline in the 1980s, and by 2000 Toledo had plummeted from its top ten ranking in per capita income to the country’s bottom ten. In the decade following 2000, Toledo lost roughly 50,000 jobs, or about 14 percent of total employment, with the automotive sector being the hardest hit.117 The Legacy of Glass Manufacturing In a four-month period between December 2000 and April 2001, unemployment in Toledo jumped from 3.6 percent to 12.1 percent, prompting the formation of a group of business, academic, and government leaders that came to be known as “the partners.” The partners agreed that the only way to revive the local economy was to “bring its major institutions together to think boldly and share responsibility for creating jobs.”118 An advantage Toledo enjoyed in attempting a turnaround was its legacy of innovation in all areas of the glass industry, and as the traditional glass business had stagnated in the 1980s and 1990s, local scientists with glass expertise began to explore alternative uses for glass technology.119 Norman Johnson, a former executive at various Toledo glass companies, and founder of Solar Fields LLC, a developer of thin film solar manufacturing technology, observed in 2007 that “I started in glass and now I’m back in glass.” The same year, at a meeting of civic leaders tracing the evolution of Toledo’s photovoltaic industry, one of them commented, “How would we be in this business in the first place if it weren’t for glass?”120 The genesis of Toledo’s photovoltaic industry was the work of a local inventor and entrepreneur, Harold McMaster, holder of over 100 patents and characterized as “the glass genius” by Fortune Magazine.121 In 1984, McMaster and a group of colleagues formed Glasstech Solar, and invested in basic and applied research in solar arrays at the University of Toledo and other institutions. When Glasstech Solar failed to develop a viable technology based on amorphous silicon, McMaster founded a new company, Solar Cells, Inc., to pursue a technological alternative based on cadmium telluride in 1990. By the end of the 1990s, Solar Cells was the industry leader in thin-film photovoltaic technology. According to McMaster’s 2003 obituary, “some believe he will be remembered as the father of commercial scale solar energy, having practically 117 USA Today,”Toledo Reinvents Itself as a Solar-Power Innovator,” June 152010; Toledo Free Press, “Sun Burn 1: Area Courted Solar Energy with Research,” July 19, 2012. 118 “Toledo Reinvents Itself as a Solar-Power Innovator,” USA Today, June 15, 2010. 119 “Toledo Finds the Energy to Reinvent Itself,” Wall Street Journal, December 18, 2007. 120 Ibid. 121 McMaster graduated from The Ohio State University with a combined Masters’ degree in Physics, Mathematics, and Astronomy, and in 1939, became the first research physicist ever employed by Libby Owens Ford glass in Toledo. He pioneered in the development of curved tempered glass for ore in automotive and consumer markets. The Toledo Blade, ”Harold McMaster, 1916-2003." “Inventor Became Philanthropist,” August 26, 2003.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 137 handed the needed technology to society in the 1990s.”122 In 1990, McMaster sold Solar Cells to TrueNorth Partners LLC, who renamed it First Solar. The company began manufacturing operations in Perrysburg, Ohio, 11 miles from Toledo, in 2004. By 2009, First Solar had become the largest producer of photovoltaic modules in the world, though this position has since been yielded to a Chinese supplier.123 University of Toledo Leadership The University of Toledo (UT) played a leading role in the development of a major photovoltaic industry cluster in and around the city. McMaster’s research collaboration with the university, funded by grants, was the foundation for the formation of additional photovoltaic manufacturers. The university recruited renowned solar researchers.124 It established: the Wright Center for Photovoltaics Innovation and Commercialization, a university- industry-government collaboration for cost reduction, technology development, and technology transfer from laboratories to factories; the University Clean Energy Alliance of Ohio, which coordinates research collaborations by the state’s universities in the field of clean energy; a Clean and Alternative Energy Incubator, which assists green energy startups; and a School of Solar and Advanced Renewable Energy, which trains students in the field of renewable energy.125 UT’s President, Lloyd Jacobs, said in 2011 that in photovoltaics, “we have more scientific knowledge than almost anywhere in the world. We have more scientists doing more complex scientific work than anywhere else in the world.”126 UT’s support facilitated the advent and subsequent development of a number of start-ups in Toledo’s photovoltaic sector, including Glass Tech Solar, Solar Fields LLS, and Xunlight. In 2005, UT established the Clean and Alternative Energy Incubator, a facility providing support for spinoffs and startup alternative energy companies, including business assistance, competitive rents and help in identifying federal, state, and local funding and other support.127 122 Ibid. 123 “Sun Burn 1: Area Courted Solar Energy with Research,” The Free Press. July 19, 2012. 124 USA Today, “Toledo Reinvents Itself as a Solar-Power Innovator” June 15, 2010. 125 University of Toledo, ”UT Creates School of Solar and Advanced Renewable Energy,” Press Release, April 15, 2009. 126 The Blade, “Solar Incubator Spreads Wings, UT Program Adds Firms, Broadens its Research.” July 3, 2011. 127 SRI International, Making an Impact, 2009, op. cit. p. 33.

OCR for page 111
138 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Support from the State In addition to the support from a leading-edge public research university, Toledo’s solar firms benefitted from a number of local, state, regional, and federal initiatives. Ohio Advanced Energy, a business association representing the state’s renewable industries, worked with state officials to develop the Ohio Advanced Energy Portfolio Standard, which mandates that at least 25 percent of Ohio’s electricity be generated from clean and renewable sources by 2025. U.S. Congresswoman Marcy Kaptur helped secure $6.4 million in federal funds for two solar demonstration projects in Ohio, at the 180th Fighter Wing at Toledo Airport and Camp Perry, a National Guard training facility.128 Between 2003 and 2008, the Ohio Third Frontier program invested over $39 million on the state’s photovoltaic research base and in individual companies commercializing solar cell products and processes, including a $2 million Wright Project grant to UT to establish the Center for Photovoltaic Electricity and Hydrogen, which involved research collaboration with local PV firms, and an $18.6 million grant to UT in 2007 to help it launch the Center for Photovoltaics Innovation and Commercialization that absorbed the Center for Photovoltaic Electricity and Hydrogen. The Third Frontier has also invested over $15 million in Rocket Ventures, a program of the Toledo Regional Growth Partnership providing financial support for entrepreneurial commercialization in northwest Ohio.129 Initial Rapid Growth By 2009, the area of northwestern Ohio around Toledo had more cadmium-telluride and glass expertise than any other region in the world.130 The area’s burgeoning photovoltaic industry also increased demand for output from local glass producers, who could offset declining sales in traditional glass markets with sales of thin films to solar manufacturers.131 By 2011, Ohio ranked second in the U.S. in solar panel output.132 Dan Johnson, a former UT professor who now serves as the University’s Director of Global Initiatives commented in 2012 that leadership in 128 Norman Johnston, “The Toledo, Ohio Solar Cluster” in National Research Council, The Future of Photovoltaics Manufacturing in the United States: Summary of Two Symposia, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011, p. 95; Toledo Free Press, ”Ohio National Guard Expands Solar Energy Field.” January 1, 2010. 129 SRI International, Making an Impact, 2009, op. cit., p. 33. 130 Norman Johnston. “The Toledo, Ohio Solar Cluster” in National Research Council, The Future of Photovoltaics Manufacturing in the United States: Summary of Two Symposia, p. 97. 131 Wall Street Journal,” Toledo Finds the Energy to Reinvent Itself,” December 18, 2007. 132 The Blade. “Ohio Ranked 2nd in the U.S. in Solar-Panel Output,” July 19, 2007.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 139 photovoltaic science and UT combined with the local presence of the glass industry make the Toledo region the perfect site for solar development: We had a head start on the industry in many ways,” Johnson said. “Toledo had the key players involved early on. The University of Toledo researchers—a very active and respected team of researchers— were early leaders of the solar industry in the region. We also had the active participation of our local economic development organizations and professionals. They played their roles and, in my view, played them quite well despite major changes in their own organizations and leadership. Local government officials did what they could, largely adding their moral support and talking up Toledo’s budding solar industry. Add to that the significant infusions of venture capital, grants and loans. And, finally, there were the individual entrepreneurs and investors. All the ingredients were in place.133 The Global Photovoltaic Slump Despite promising beginnings and a strong technology position, Toledo’s photovoltaic cluster faces an uncertain future. Global demand for solar modules has declined, reflecting decisions by a number of European governments to curtail subsidies for solar power production.134 At the same time, global production capacity has grown dramatically, particularly in China and Korea. According to a 2011report by the Swiss Bank Sarasin, in that year, global production capacity for solar modules “soared to 50 gigawatts, but the industry only managed to sell 21 gigawatts of that photovoltaic potential.135 U.S. companies “complained that solar prices have been negatively affected by China’s flooding the world market with solar panels priced below production costs.”136 By 2012, a global shakeout of the solar industry was underway. Eight of Korea’s nine photovoltaic cell manufacturers collapsed or were sold.137 First Solar indicated in April 2012 that it would cut its global work force by 30 percent, although its Toledo area operations were largely spared.138 However, some Toledo area photovoltaics firms were reportedly struggling financially. In November 2012, it was reported that the state of Ohio might not be able to recover the full amount of loans totaling $10.3 million to Willard & Kelsey 133 Toledo Free Press,” Sun Burn IV: UT, RGP, Port Leads Toledo into Solar’s Future,” August 23, 2012. 134 Spiegel Online, “Twilight of an Industry: Bankruptcies Have German Solar on the Ropes,” April 3, 2012. 135 Spiegel Online, “Setting Sun: Eastern Germany Hit Hard by Decline of Solar,” April 27, 2012. 136 Toledo Free Press, “Sun Burn 2: Global Changes Slow Solar Growth.” July 26, 2012. 137 JoongAng Daily Online, “Lights Go Out for Most PV Cell Makers.” June 12, 2012. 138 The Blade, “First Solar to Ax Global Work Force by 30%.” April 12, 2012.

OCR for page 111
140 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Solar Group, which was facing mounting “bills, legal challenges, and financial troubles.”139 Xunlight Corporation was reportedly making interest-only payments on state loans that were supposed to include principal repayments. The shakeout was not confined to Ohio; in May 2013, the largest Chinese producer of photovoltaics went bankrupt unable to serve a burden of debt.140 The impact of China’s policies to encourage the production of solar panels can have major consequences in the viability of Ohio-based firm half a world away.141 OHIO’S CHALLENGE AHEAD While there are many notable initiatives underway in Ohio, the state’s economic transformation will not happen overnight, warned participants at the National Academies’ symposium on Building the Ohio Innovation Economy.142 Dan Berglund of the Columbus, Ohio based State Science and Technology Institute noted that raising state income levels requires a long-term commitment and effort by all involved. Research Triangle Park has made significant contributions to North Carolina’s economy, he said, but it took thirty years of sustained commitment to accomplish this goal.143 Reflecting on his own firm’s experience with renewal, James Griffith noted that Timken’s transformation “came after 10 years of hard work, including a strong focus on innovating and the need to rip out the infrastructure and habits that inhibited innovation within a 100-year-old company.” The key lesson from the northeast Ohio experience, he said, is to restructure existing assets to take advantage of regional strengths and 139 The Blade, “Local Solar Firm Awash in Debts,” November 11, 2012. 140 “Chinese solar panel maker Suntech flames out,” The Washington Post May 3, 2013. 141 “Meanwhile, in late 2011, a group of U.S. solar panel manufacturers filed an anti-dumping case and won tariffs against Chinese firms. U.S. statistics indicate a sharp drop in imports from China, though some Chinese-made panels might be coming through third countries.”Ibid. A spokesman for a rival U.S.-based firm argued that “We believe Suntech suffers from the same unsustainable, distortive industry factors that confront everyone: China’s dumped pricing and massive overbuilding… Chinese companies can sell below their costs for only so long before they either go out of business or the Chinese government props them up, extending the anti-competitive problem.” Ibid. In 2012, the U.S. imposed antidumping duties ranging from 24 percent to over 250 percent ad valorem, based on the particular company, on imports of solar panels from China. In May 2013, the European Union imposed provisional antidumping duties on imports of solar panels from China, averaging about 47 percent ad valorem. “U.S. Sets Antidumping Duties on China Solar Imports,” Bloomberg October 10, 2012; “China Sun Panels Face EU Levies,” Financial Times May 6, 2013. In March 2013, Suntech, a Chinese firm which is the largest producer of solar panels in the world, defaulted on a $541 million bond payment. The company had reportedly been relying on the city of Wuxi to remain solvent. “Chinese Solar Firm Suntech Defaults on Bond Payment,” Houston Examiner March 19, 2013. 142 National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium,op. cit. 143 For a history of Research Triangle Park, See Albert N. Link, A Generosity of Spirit: The Early History of the Research Triangle Park, Research Triangle Park: Research Triangle Foundation of North Carolina, 1995. See also Albert N. Link, From Seed to Harvest: The Growth of the Research Triangle Park, Research Triangle Park: Research Triangle Foundation of North Carolina, 2002.

OCR for page 111
REBUILDING OHIO’S INNOVATION ECONOMY 141 new opportunities, to reinvest in the skills and technologies of the future, to create the right incentives for innovation and entrepreneurship, and to stay the course. LESSONS LEARNED Ohio’s ongoing industrial turnaround effort employs many policy tools observable in other states and regions, but the effort itself is arguably sui generis:  The state has made major and sustained resources available to promote innovation, most notably through the Third Frontier program, but has not engaged in significant central direction, allowing developmental decisions to devolve onto regional parapublic organizations like NorTech which provide mentoring, networking, and early stage funding.  The engagement of foundations, which have fostered the emergence of innovation intermediaries, has facilitated the sidestepping of bureaucratic gridlock that could have resulted from Ohio’s large number of governmental subunits.  Innovation initiatives have been highly focused on certain sectors (over half of the Third frontier’s investments involve biomedicine and bioscience.  Ohio’s innovation initiatives take an expansive view of the role of universities in the local economy, which work closely with industry in new ways to foster local economic development.  Civic entrepreneurship, a pervasive philanthropic tradition, and leadership by key industry figures have played an important role in Ohio’s industrial revival effort.

OCR for page 111