Ohio is seeking to revive its once globally competitive economy. According to Cleveland-based venture capitalist David Morgenthaler, “in 1950, Cleveland was king of 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.” The state and the region are taking important steps to make up for that now, said Mr. Morgenthaler. “We’re making investments to maintain the level of economic activity that we’ve become accustomed to, and to adapt to the changing global economy.” 1 These initiatives include a wide range of public-private organizations to bring industry, academia, state and regional governments, and federal agencies together with a common goal of fostering innovation, entrepreneurship, and economic growth.
To document these initiatives, the National Academies Board on Science, Technology, and Economic Policy convened a conference to discuss the variety of initiatives underway to strengthen Ohio’s innovation and technology infrastructure and identify areas where federal, state, and foundation contributions could generate positive synergies. The conference also sought to draw attention to the scale and focus of foreign competitive programs and consider their implications for Ohio and the nation, and highlight Ohio’s potential as a center for innovation.
In his welcoming address, Richard Pogue, Senior Advisor to Jones Day, identified the key goals of the conference. The first, he said, was to highlight the “global challenges we all face in this very dynamic worldwide economy”—challenges that could be turned into export opportunities for American firms. The second was the effects of global competition on the economy in Ohio, specifically northeast Ohio. The state’s response to these challenges, he said, will determine the kind of place Ohio would be in the future. He added that the conference would also review the “substantial progress we’re
1Daniel R. Denison and Stuart L. Hart, Revival in the Rust Belt: Tracking the Evolution of an Urban Industrial Region (Research Report Series), Ann Arbor: Institute for Social Research, 1987.
A century of industrial leadership, followed by decline
Blessed with abundant forests, iron ore, water, coal, petroleum, and other natural resources, Ohio was able to generate agricultural and then industrial wealth almost from the time of its initial European settlement. First surveyed by George Washington during the 1750s, Ohio introduced and adopted new industries throughout the 19th century. One of the nation’s first iron manufacturing plants opened near Youngstown in 1804. By the mid-nineteenth century, 48 blast furnaces were operating in the state. By 1853, Cleveland was the third largest iron and steel producer in the country, and its Cleveland Rolling Mill Company became part of U.S. Steel, the first billion-dollar U.S. corporation.a Cyrus McCormick of Cincinnati invented the McCormick reaper; Dayton was home to the National Cash Register Co.; Herbert Dow, a chemistry graduate of Case Western Reserve, founded Dow Chemical with financing from Cleveland investors. All three of the nation’s giant tire companies, Goodyear, Firestone, and Goodrich, grew up in Akron. By the end of the 19th century, northeast Ohio was a global industrial center, linked by the Great Lakes, the Erie Canal, and new railroads to markets around the world.b
In addition to its natural resources, the state was home to important innovators. William Procter and James Gamble of Cincinnati built a company around an inexpensive floating soap called Ivory; today P&G is the world’s largest consumer products corporation. Wilbur and Orville Wright grew up in Dayton; Michael Owen’s glass-blowing company gave rise to Owens-Illinois and Owens Corning; and Charles Kettering co-founded Delco Electronics around his invention of the automatic starter for automobiles. Researchers at Battelle Memorial Institute perfected xerography; Albert Sabin developed the first oral polio vaccine; Noah McVicker concocted a resilient wallpaper cleaner for the Cincinnati school system that became Play-Doh.
During the first half of the 20th century, Ohio’s economy was buoyed by its steel, auto, rubber, and aerospace industries. By the 1970s, many of these key heavy industries were subject to growing competition from abroad; at the same time, the state failed to invest sufficiently in the university infrastructure and to attract rapidly growing industries such as electronics and biomedicine.
A steady decline in jobs, population, and competitiveness followed, particularly in Ohio’s industrial cities. During the recession of 2009, the state
lost 376,500 jobs and suffered some 89,000 housing foreclosures. A drive through modern Cleveland reveals vast stretches of abandoned industrial facilities. Speaking at the conference, Dr. Lavea Brachman of the Greater Ohio Policy Center called the economic decline of northeast Ohio “unparalleled.”
aWikipedia, “History of Ohio,” Accessed on November 9, 2012.
bJoel Garreau, The Nine Nations of North America, Boston: Houghton-Mifflin, 1981.
making, particularly in this region but throughout the state, in bringing together the public and private sectors to cooperate and create opportunities for the Ohio economy.” The fourth theme, he said, was to explore ways in which the sectors of society can work together in partnership, including the federal government, state government, Ohio foundations, the private sector, investors, and major universities.
A. THE GLOBAL INNOVATION CHALLENGE
In his conference remarks, Dr. Luis Proenza of the University of Akron observed that “the primacy that America has long enjoyed around the world is increasingly being challenged by the very same forces of technological innovation that America has itself unleashed.”
He turned to some significant shifts in global investment in research and development, which today totals more than $1 trillion. Global R&D expenditure is dominated by ten countries that together account for almost 80 percent of that the world total. The U.S. alone invests nearly $400 billion annually in R&D. Its present global share of 33 percent, however, has declined from 44 percent five years ago. He said that this relative decline is caused largely by the growth in China’s R&D investment at an average of 19 percent during the past decade, moving that nation beyond Japan for second place in R&D investments in 2011.
In his conference remarks, Charles Wessner of the National Academies said that countries around the world are working hard on their own innovation strategies. “These nations recognize that innovation policy is not a hobby,” he said. “It is not something you do when you have done everything else on your day-to-day policy agenda. It is the main game, the job of state and federal governments at macro and micro levels. We need to support funding for research, and we need to convert that research into competitive products for the market.”
Major U.S. trading partners, Dr. Wessner said, have placed innovation high on their list of national priorities. Leading countries and regions are providing a high-level focus on growth and strength, sustained support for universities, consistent funding for research, imaginative support for small businesses, and support for government-industry partnerships that bring new
products and services to market. “They’re committed, they’re focused, and they’re willing to spend.”
In his remarks, Dr. Proenza observed that that although China’s R&D spending is presently 1.5 percent of its gross domestic product, compared to 2.7 percent in the United States, but added that China’s R&D share of GDP has doubled in the last 10 years. While U.S. spending on R&D is still well beyond that of its closest competitors, the gap between it and other nations is narrowing.
Dr. Proenza went on to say that many countries abroad succeed economically by aligning their R&D strategies with their economic objectives. Other countries and cross-national organizations, he said, appear to be more successful at this than the United States, especially European and Asian countries that focus on public-private partnerships to stimulate their economic development. “I think that the United States can learn a great deal from what these countries are doing,” he said, “and indeed the Academies’ STEP Board is seeking to identify the best approaches from around the world to better understand the new global challenge and to develop recommendations for the U.S. Government.2
B. BUILDING OHIO’S INNOVATION ECONOMY
To revive its economy, Ohio must address its weaknesses and build on its strengths. In her conference remarks, Lavea Brachman of the Brookings Institution noted that, on one hand, the extent of economic decline in Ohio was “unparalleled.” On the other hand, she observed, the state’s economy is highly diverse, covering seven or so major metropolitan areas with long traditions in manufacturing. (See Figure 1 for a map of Ohio.) Dayton specialized in autos, Toledo in glass, Youngstown in rubber, and so on. Reconciling both these weaknesses and strengths is a challenge as Ohio seeks to build an innovationbased economy. “We’re sort of stuck with older economies that still exist. With the layering on top of those older industries, it is harder to identify the key growing clusters.” It is also a challenge to connect regional economic growth and the power of the metros with neighborhood revitalization. The cities have emptied out, leaving high concentrations of poverty. For example the population of Cleveland dropped from 900,000 to 400,000 between 1950 and 2010, the population of Cincinnati from 500,000 to 300,000. A disconnect persists between skill level and job creation, and the fragmentation of government makes collaboration more difficult.
2For a wide-ranging review of innovation policies around the world and recommendations for sustaining U.S. technological leadership in a changing competitive environment, see National Research Council, Rising to the Challenge: U.S. Innovation Policy for the Global Economy, Charles W. Wessner and Alan. Wm. Wolff, eds., Washington, DC: The National Academies Press, 2012.
FIGURE 1 Map of the State of Ohio.
SOURCE: U.S. Geological Survey, 2012.
At the same time, Ms. Brachman added, there are opportunities. 3 Most notably, the state’s economic landscape is defined by clusters of concentrated industrial activity rooted in each of its major cities. These seven or eight clusters present a unique opportunity for Ohio; other states such as Illinois and Indiana have only one major city. “Theoretically,” she said, “if the metro and regional economies are our drivers, we have many of those. We just have to figure out how to leverage them and return ourselves to a basis where each of these cities can thrive uniquely. We can also make good use of multiple anchor institutions rooted by place, such as the University of Cincinnati, the Uptown Consortium, and University Circle in Cleveland.”
Ohio’s Innovation Challenges
James Griffith of Timken, a large Ohio-based manufacturer of steel bearings, noted at the conference that the state and its regions no longer benefit from the wealth and leadership of its heavy industries to the degree they once did. Their workforces, accustomed for many years to the presence of established industries and production practices, have not always developed the new skills
3See Jennifer Bradley, Lavea Brachman, and Bruce Katz, “Restoring prosperity: transforming Ohio’s communities for the next economy,” Washington, DC: The Brookings Institution, 2010.
necessary to adapt to global competition. And while the northeast region is home to many small and medium-sized firms, most were accustomed to serving as suppliers for larger firms rather than focused on bringing new technologies to the market. “Many of them,” Griffith said, “were founded as outsource suppliers to big companies like Timken, and they have to acquire the skills of innovation and better access to high technology.”
John West of Kent State University noted that Ohio is learning from its recent experience of developing liquid crystal displays (LCD) technology but then watching its early leadership slip away to other countries that developed significant programs to promote applied research and support manufacturing.4 Responding to these challenges Ohio is developing new strategies to rebuild its institutional and economic base. These strategies, as documented in the proceedings of this conference, seek to build on the region’s research and development base, capitalize on investments by the federal government, and leverage the catalytic role of regional philanthropic organizations.
Innovation and Economic Development
As several speakers noted at the conference, changing the region’s fortunes requires a shift from standard economic development strategies to an approach that capitalizes on knowledge and innovation. Traditional economic development strategies call on policy makers, political leaders, or community members to strengthen the standard of living and economic growth through more human capital, financial capital, and business infrastructure.5
Analyses by MIT economist Robert Solow and others emphasized that knowledge, along with capital and labor, is an essential driver of economic development.6 More specifically, they showed that scientific and engineering knowledge, generated largely by research universities with funding from the Federal government, is a primary driver of new ideas that find value through the invention, innovation and commercialization at scale. This process further
4Kent State University’s Liquid Crystal Institute helped pioneer LCD technology and patented the first LCD wristwatch in 1971. Yet Japanese, Korean, and Taiwanese companies have dominated the vast LCD display industry for decades. For a historical review, see Insoo Han et al., “Changes in Competitiveness of LCD Industry of East Asia: From Bamboo Capitalism to Water Lily,” International Telecommunications Policy Review, 19(1), 2012. Likewise, the University of Toledo has been at the forefront in thin-film photovoltaic technology. Yet little manufacturing of solar cells and modules has been based northeastern Ohio. See presentation by Norman Johnston of Solar Fields, Calyxo, and Ohio Advanced Energy in National Research Council, The Future of Photovoltaics Manufacturing in the United States: Summary of Two Symposia, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2011.
5Ricardo Conteras, “How the Concept of Development Got Started,” University of Iowa Center for International Finance and Development E-Book, <http://www.uiowa.edu/ifdebook/ebook2/contents/part1-I.shtml>.
6 Robert M. Solow, “Technical change and the aggregate production function,” The Review of Economics and Statistics 39(3):312-320, 1957. Solow attributes nearly 90 percent of U.S. economic growth during the period 1909-1949 to improvements in technology.
depends on entrepreneurship and access to capital. Together, these activities were understood to stimulate economic growth and global competitiveness.7
More recently, economists have pointed out that innovation-based development relies on successful cooperation among a variety of participants to develop new research ideas into market competitive products and services.8 Innovation is thus more focused on services, processes, and ways of communicating, partnering, and working together—not just about creating the next best widget. This new paradigm calls for more public investment and risk taking, developing trust through collaboration, ensuring responsiveness to partners’ missions, and building consensus among all constituents.
This cooperation can falter where there are market failures. For example, information asymmetries can lead to the “valley of death,” a perilous stage when the inventor runs out of money before investors, who lack the necessary information, are ready to join in.9 Because young, knowledge-based firms tend to face both technical and financial risks as they mature, most of them perish before achieving the commercial success necessary for their survival. A robust industrial commons that includes effective intermediating institutions can help solve many of these challenges of collective action.
Reviving the Industrial Commons
In order to cross the valley of death, a young firm needs not only financing, but also a host of relationships, perspectives, and resources, many of which are local or regional in scope. Elements of what is sometimes called the industrial commons” include engineering R&D, materials, standards, tools, equipment, and scalable processes, components and manufacturing competencies. These elements underpin the “platform technologies” needed to produce cost-effective, safe, and reliable products.10 As Sridhar Kota, then of White House Office of Science and Technology Policy, noted at the conference, a weakening industrial commons erodes strength in manufacturing, and without
7According to EDA, “Because regions compete in a global economy, they must have an economic base of firms that constantly innovate and maximize the use of technology in the workplace.” For this reason, “Technology-based economic development is the approach used to help create a climate where that new economic base can thrive.” Economic Development Administration, A Resource Guide for Technology-Based Economic Development, Washington, DC: Economic Development Administration, 2006.
8See, for example, H. W. Chesbrough, “A better way to innovate,” Harvard Business Review 81(7):12-13, 2003. See also J. E. L. Bercovitz and M. Feldman, “Fishing upstream: firm innovation strategy and university research alliances,” Research Policy 36(7):930-948, 2007. See also Pedro de Faria, Francisco Lima, and Rui Santos, “Cooperation in innovation activities: The importance of partners,” Research Policy 39(8):1082-1092, 2010.
9George Akerlof, Michael Spence, and Joseph Stiglitz were awarded the 2001 Nobel Prize in Economics for their contributions to the understanding of Asymmetric Information. Even firms with venture funding have high failure rates.
10Gary P. Pisano and Willy C. Shih, “Restoring American Competitiveness,” Harvard Business Review July 2009.
manufacturing and its feedbacks to designers comes lowered ability to innovate next-generation products.
Ohio is trying to pull together many of the actors in its innovation ecosystem, including the universities and community colleges, private companies, private capital, state and local governments, foundations, and NGOs though a series of state and regional initiatives.
C. OHIO’S INNOVATION INTERMEDIARIES
The conference presentations highlighted the emergence of a number of small, agile, flexible “innovation intermediaries” in Ohio that specialize in seed funding, business formation, or business incubation. Because they are typically homegrown and linked with local organizations, their missions are often adapted to local needs and benefit from the bonds of personal trust. In many cases, these small economic development organizations benefit from strong leadership, backed by active linkages with academia, industry, philanthropic organizations, and state and local government. The conference presentations also emphasized the importance of regional clusters and multi-party partnerships in developing state and regional innovation ecosystems.
Representatives of some of Ohio’s leading innovation intermediaries described the mission of their organizations at the conference:
- NorTech is a nonprofit economic development organization that champions growth in northeastern Ohio. Speaking at the conference, NorTech’s Rebecca Bagley said that her organization develops regional innovation clusters by attracting new members, building relationships, creating market-driven roadmaps, engaging with government, and utilizing data and metrics. “The important point,” she said, “is that we develop a model that operationalizes the desire to accelerate emerging industry clusters.” This is done by a partnership of companies, including larger companies, and the goal is to reduce the time required to strengthen a given sector.
- BioEnterprise is a leading development catalyst for growing the Ohio biomedical sector. According to Baiju Shah, BioEnterprise’s director, health care had been the leading growth sector of the Cleveland region for most of the past decade. He included not just health care delivery, led by the Cleveland Clinic, but also the health care industry as well. “Nor is this an accident,” he said. “In 2001, our health care leadership and civic leadership came together and established the goal of making northeast Ohio a nationally recognized center for health care innovation. Those leaders recognized that this could not be the role of any single institution, but had to be a collective commitment, including investments in translational research capabilities, the identification of capital sources, and supportive state policy in the form of the statewide
Third Frontier program. 11 It required investments in talent to help professional service firms reposition themselves and allow manufacturing firms to realign the supply chains. It required changed perspectives of clinicians and clinical institutions in their willingness to work with innovations.
- Jumpstart works toward economic transformation by providing resources to entrepreneurs to grow their high-potential, early-stage companies. Speaking at the conference, Jumpstart’s Ray Leach said that his organization “directly invests in and assists entrepreneurs leading high growth companies in the Greater Cleveland area.” Jumpstart also works “to develop the region’s entrepreneurial ecosystem by raising funds for other support organizations and by managing a network of incubators, accelerators, and investors.”
- Magnet ( the Manufacturing Advocacy and Growth Network) is a not-for-profit economic development enterprise that supports Ohio-based manufacturing. It provides consulting services to help companies realize higher efficiencies through increased productivity and process improvement programs. It also helps companies improve top-line sales through a variety of new product development and growth strategies. Speaking at the conference, James Griffith (who serves on MAGNET’s board) observed that a part of the mission of MAGNET is to better link manufacturers and universities, so that students acquire the skills needed by the manufacturers.
These and other participants cited some best practices they strive to instill in Ohio’s innovative companies, including independence, continuous reinvention, private sector leadership, accountability, longevity, and inclusion of bipartisan champions. They also described how they often act in concert with each other while following their own particular missions. Describing northeast Ohio’s evolving innovation ecosystem, Lisa Delp of the Ohio Department of Development remarked that “the collaborative nature of the organizations here is frankly phenomenal.” Rebecca Bagley, executive director of NorTech, agreed, saying that the region’s economic development strategy “includes all the partners: Jumpstart, BioEnterprise, Magnet, and NorTech.” Similarly, its cluster strategy involves forming a partnership of companies, building relationships, and “reducing the time required to strengthen a given sector.”
D. THE ROLE OF INDUSTRY
Illustrating the positive role that industry can play in the revival of the region’s economy, Mr. Griffith said that he became involved in economic development in northeast Ohio “because we were going through a
11Begun in 2002, the Third Frontier is an economic development initiative by the State of Ohio to expand research and technology economic development in the state.
transformation at Timken” which applied directly to issues experienced by other manufacturers. Like Ohio, Mr. Griffith said, Timken has a strong heritage of success. From 1960 to 1980, the firm performed strongly, with returns on invested capital above 20 percent year after year.
This changed in the 1980s when profits shrank into losses, and for the next 20 years, Mr. Griffith said, the company struggled to right itself. In the late 1990s the company changed its strategy and profits began to return, and after 2009 they reached record levels. “How we did this is not a secret,” Mr. Griffith said, “and it didn’t happen overnight. It is the result of a ten-year application of a highly focused strategy.” This “grow and optimize,” strategy, he said, began with an understanding of where the company best differentiates itself from others, and identifies which markets to target. “We were a bearing company when we started. We’re still mostly a bearing and steel company. But we’ve learned to take the technology and apply it to markets where we could differentiate and expand.”
Timken had to be “the world’s best manufacturer of steel bearings,” he said, so the company invested heavily in growing, building its skills, and spent a quarter of billion dollars redoing the company’s systems infrastructure. At the same time, Mr. Griffith added, “we had to divest $1.5 billion worth of businesses that we couldn’t win in, and we closed 30 manufacturing sites in northeast Ohio. That’s the hard side to innovation.”
In addition to reviving the region’s traditional industries, speakers at the conference also discussed efforts to encourage the growth of new industries—in particular, the biomedical, flexible electronics, and energy sectors—in northeast Ohio through university-industry partnerships. In his presentation, Dr. Toby Cosgrove of the Cleveland Clinic noted that after many early failures to commercialize new biomedical products and services developed by its doctors and researchers, the Cleveland Clinic instituted in 2000 a freestanding venture capital firm, and a tech-transfer organization called Cleveland Clinic Innovations. Through these organizations, the Clinic encouraged doctors to bring forth their innovative ideas. They also provided some financial and support resources, including legal advice, space, and other forms of encouragement.
Northeast Ohio is also seeking to develop its renewable energy. At the conference, Lorry Wagner described the initiatives of LEEDCo, the Lake Erie Energy Development Corporation, to make Cleveland a national and perhaps an international leader in offshore wind power. Created by the Great Lakes Energy Development Task Force, LEEDCo is supported by a diverse partnership including the Cleveland Foundation, NorTech, Lake County, Ashtabula County, Cuyahoga County, Lorrain County, and the city of Cleveland. If it is successful in building and installing its initial 20-to 30-megawatt pilot project, he said, it will be the first offshore freshwater wind energy project in North America.
Statewide, Ohio is also poised to benefit from new sources of energy production. In his presentation, David Wilhelm described his ambitious plans to develop a solar project “that will be the largest ever constructed east of the
Rockies when it is finished in 2014.” Mr. Wilhelm said that he realized that the coal companies had erected a vast electricity infrastructure to strip mine coal in southeastern Ohio, most of which was still in place. “It was a utility-scale solar project waiting to happen,” he realized. He said that he planned to buy 250,000 solar panels, and that the likely European manufacturer would base its permanent North American operation in Ohio, creating 350 manufacturing jobs. “We are absolutely building out an Ohio-based supply chain in every instance we can,” he said. “We are a state of steel vendors. … Already in Cleveland is a manufacturer of silver paste supplying the solar industry in the U.S. We are going to create a total of at least 650 direct jobs, and probably four times as many indirect jobs.”
Mr. Wilhelm recalled many energy technologies in which Ohio had been a national leader. The first U.S. oil derrick was built in Ohio; more coal was transported out of Nelsonville, Ohio, than any other train station. “Today,” he said, “when you study this transitional energy economy, you see the opportunities that exist here. We can build nuclear containment vessels; for natural gas, we have the Marcellus shale and the Utica shale; for carbon sequestration, the Mount Simon formation covers much of western Ohio.”12
E. THE ROLE OF OHIO’S UNIVERSITIES
Ross DeVol of the Milken Institute reminded the conference audience that “universities are the most important assets of an innovation economy,” and that “among high-tech clusters, those most successful in building a regional economy have universities that recognize that role.” Effective university participation is most often determined by the leadership of the president or chancellor. Mr. DeVol added that the largest contribution by a university, especially a public university, is simply the willingness to work with industry in ways that can speed their technology development. This includes providing access to relevant research or agreeing to jointly favorable licensing arrangements.
In his conference remarks, Luis Proenza, President of the University of Akron, said that “developing and attracting talent, particularly entrepreneurial and competitively funded scientists and engineers, is considered the essential ingredient for any economic development strategy.”
Dr. Proenza noted that as late as the 1990s, a majority of university leaders were reluctant to get involved in “any aspect of economic development.”
12Preliminary estimates by Ohio’s Department of Natural Resources (ODNR) suggest a recoverable reserve potential of between 1.3 and 5.5 billion barrels of oil as well as 3.8 to 15.7 trillion cubic feet of natural gas. The overall economic value of the Utica Shale region in Ohio may be especially large, because it lies relatively close to the surface, which reduces exploration and development costs. The expected drop in natural gas prices is expected to yield significant benefits for Ohio energy consumers as well as the public at large. Access at <https://ohiodnr.com/tabid/23415/default.aspx>.
Fostering University-Industry Cooperation
Moderating the panel on universities as drivers of regional growth and employment, William Harris of Science Foundation Arizona observed the difficulty often experienced by businesses in dealing with the academic community. “The university community often says they are easy to deal with,” he said, “but to the average citizen, the universities have a wall around them and it is hard to make contact. I have seen that in Arizona, where I work, and in South Carolina where I also worked, and other places.”
By contrast, he said, he had worked in Ireland where he found the opposite—“an academic community with a hunger to be more successful in working with the business community. The Irish recognized that if academia didn’t find a way to work with industry, it was likely that their industry was going to move to China, or Eastern Europe, where they could find cheaper manufacturing.” While Ireland had major banking and real estate problems, they were still sustained by a serious biotechnology industry, he said, which manufactured nine of the ten top-selling drugs in the world. They also manufactured more software than any other country. “The presidents of the universities, in particular, were willing to try new things to help bolster their manufacturing. They had to try to protect that technology base. And they have done so, by creating friendly approaches to IP and making it easy to contact and work with the faculty.”
He called this “a major disconnect in our innovation ecosystem,” which he and several colleagues worked hard to change. For the last 12 years, the University of Akron has sought to play an active role in Ohio’s innovation-based economic development. According to Dr. Proenza, “The universities, especially public universities, cannot exist in the future if they do not become relevant in their communities. They cannot be isolated as ivory towers. To prosper, they must be connected with other sectors of the community.” His primary hope for the “Akron model,” as he calls his university’s approach, is that it functions as a “broad-based and robust platform for economic engagement.”
Among the many university programs for broad-based engagement, Dr. Proenza highlighted the following:
- The University of Akron Research Foundation is “the core of the university’s programs,” he said “—a “robust, boundary-spanning” organization. He said that its activities go beyond those of mainstream technology offices, most of which focus primarily on traditional licensing and commercialization agreements. Among the foundation’s unusual initiatives has been a project to develop an inventory of “Rust
Belt-era assets” and assemble them for productive uses. The university has also identified potentially useful space and equipment that is underutilized; inventoried the university’s patent portfolio to make it more productive; and partnered with companies to make better use of their neglected, non-core technologies.
- The University-Park Alliance is a joint creation of the University of Akron and the Knight Foundation that seeks to revitalize a 50-block, 1,000-acre area adjacent to the university. To date, outcomes include more than $300 million in private sector investment, some 920 new jobs, 80 new housing units, and 34 acres of green space.
- The ARCHAngel network, formed in 2005 under sponsorship of the Research Foundation, seeks to “create wealth in the northeast Ohio community” through networks and partnerships among universities, industry, the business leadership, and regional governments. The network provides not only investment financing for promising young firms, but also advice, services, and mentoring from business leaders and volunteers who wish to “give back to the community.”
- The Austen BioInnovation Institute, a joint venture with the Knight Foundation, three hospitals, and the medical school works to join the university’s expertise in materials science with the hospitals’ skills in orthopedic and wound-healing to “establish Akron as the world’s leading biomaterials and orthopedic research program within 10 years.”
Case Western’s Multidisciplinary Approach
In his conference presentation, W. A. “Bud” Baeslack, provost and executive vice president of Case Western Reserve University said that universities must now be key partners in the innovation ecosystem, and to this end, they must be more efficient and flexible. They must also support more entrepreneurship. For example, he said, some professional interdisciplinary degree programs at Case Western Reserve provide joint training at premier health care and corporate partner sites. Such collaborative activities have helped to spin-off more than 20 bioscience companies in the past decade. Dr. Baeslack also drew attention to Case’s multidisciplinary NSF Center for Layered Polymer Systems (one of 17 NSF Science and Technology Centers around the nation) which emphasizes the development of research results into viable technologies and products. To provide momentum for these activities, Case employs more than 40 professionals to help faculty expand and capitalize on research ideas.
In addition, the university has its own pre-seed fund, and faculty are encouraged to move beyond the traditional activities of writing grants and publishing papers to become more entrepreneurial—to patent their discoveries and start businesses. “We’re doing self-study on how we can be more userfriendly and to take a less rigid approach to IP,” Dr. Baeslack said.
The Special Role of a Community College
Speaking at the conference, Roy Church of the Lorain County Community College observed that while his college was doing a good job at work force development, especially in training more technically-adept graduates, those same graduates had few opportunities to use their new skills near home after graduation. The college knew that Lorain County, which is located west of Cleveland, did not on its own have the resources to help new firms grow, become profitable, and create jobs for new graduates. Dr. Church said that this led the college to form the Lorain County Innovation Fund, and to reach out to other counties and economic development organizations in northeast Ohio. Finding that many successful innovators have little experience in business, the fund started a business incubator called the Great Lakes Innovation and Development Enterprise (GLIDE). “The entrepreneurs just didn’t know how to wrap a good business around their idea and breathe life into it,” said Dr. Church.
After five years of helping young businesses, the Lorain County Innovation Fund won the support of the Ohio Third Frontier program, which funded GLIDE as an Edison Technology Incubator. In 2007, to spread its reach more broadly, the Lorain County Innovation Fund changed its name to the Ohio Innovation Fund. Since then it has been successful by many metrics, making 71 awards totaling $4.3 million to 60 companies.
“The most exciting aspect to me is the return on investment,” said Dr. Church. The $3.8 million invested by GLIDE by the end of September 2010, he said, had attracted $42 million in follow-on investments. “So this is a good indication that these companies are going to be successful, launch, and move forward. The whole notion behind the Innovation Fund was to help reinvent and rejuvenate the entrepreneurial spirit of northeast Ohio.”
F. THE ROLE OF FOUNDATIONS
Even as Ohio develops multiple innovation intermediaries, the Cleveland Foundation, the state’s largest philanthropic organization, continues to be a powerful force for change. The foundation is both the world’s first community foundation (1914) and Ohio’s largest grant making organization, holding nearly $2 billion in assets. Speaking at the conference, Ronn Richard said that until recently, his foundation had devoted two-thirds of its grants in “purely responsive” fashion, many of them to support local arts and cultural organizations. Today, after a radical revision of its mission, two-third of its grants are “proactive,” generated by as the foundation itself in seeking programs and organizations deemed likely to have long-term economic impact.
Mr. Richard said that the Cleveland Foundation addresses its new mission in economic development and industrial revitalization in multiple ways: by seeking to attract foreign companies; by helping local companies find overseas markets; by prioritizing advanced energy programs, especially wind
power and solar energy; by providing strong support for the biosciences industry; and by engaging in close partnerships with anchor institutions. In all, Mr. Richard said that he believes that his organization’s effectiveness is magnified by the collaboration among the economic development organizations, especially in northeast Ohio, with their focus on partnering industry with government. In his conference remarks, Philip Singerman of NIST observed that only two other foundations in the country had such strongly positive effects on their communities as the Cleveland Foundation: the Heinz Foundation in Pittsburgh and the Danforth Foundation in St. Louis.
A key to the successful work of these foundations, according to Dr. Church, was an Internal Revenue Service a rule change that allows philanthropic dollars invested in small, early-stage firms to be tax deductible—as long as one or more students gain a work-place learning experience with the firm.
G. THE GOVERNMENT ROLE
In partnership with innovation intermediaries, governments at the state and local levels are playing a strong, even leading role in Ohio. The lead state actor is the Ohio Third Frontier, which has its own compelling story. The Third Frontier program is a bottom-up initiative first funded in 2002 by a $1.6 billion bond issue passed by Ohio voters. The state’s voters were sufficiently impressed by the results of the Third Frontier’s first phase that they voted in 2010 to spend another $700 million on the program and extend it for another five years.13 At the local level, Roy Church cited as an example the work of the Lorain County Board of Commissioners who, along with the Lorain county Chamber of Commerce, were instrumental in founding the Great Lakes Innovation and Development Enterprise (GLIDE).
The federal government is supporting these local and state initiatives. Speaking at the conference, John Fernandez, then the Assistant Commerce Secretary for Economic Development, defined EDA’s role as providing “the ground troops that try to build up these regional environments.” He said that since its founding in the 1960s, the EDA had evolved considerably from an economic development organization focused primarily on basic infrastructure to one now focused on building an innovation economy. In his presentation, Philip Singerman, Associate Director for Innovation and Industry Services at the National Institute for Standards and Technology (NIST), introduced his organization’s unique mission of working directly in support of industry as a non-regulatory agency. Its role, he said, has deepened in response to changing requirements of industrial development. Dr. Singerman quoted NIST director
13According to the Third Frontier’s website, “The $2.3 billion initiative supports applied research and commercialization, entrepreneurial assistance, early-stage capital formation, and expansion of a skilled talent pool that can support technology-based economic growth. The Ohio Third Frontier’s strategic intent is to create an ‘innovation ecosystem’ that supports the efficient and seamless transition of great ideas from the laboratory to the marketplace.” <http://thirdfrontier.com/History.htm>.
A New Federal Partnership for Additive Manufacturing in Ohio
“On August 15, 2012, the White House announced the launch of a new public-private institute for manufacturing innovation in Youngstown, Ohio. The new partnership, the National Additive Manufacturing Innovation Institute (NAMII), includes manufacturing firms, universities, community colleges, and nonprofit organizations from the Ohio-Pennsylvania-West Virginia “Tech Belt. The consortium was selected through a competitive process led by the Department of Defense and will receive an initial $30 million in federal funding, matched by $40 million from the consortium itself.”
SOURCE: National Institute of Standards and Technology, “National Additive Manufacturing Innovation Institute Announced,” Tech Beat, Gaithersburg, MD: National Institute of Standards and Technology, August 21, 2012.
Pat Gallagher, the first Undersecretary of Standards for Technology at the U.S. Department of Commerce in saying that NIST serves as “industry’s national laboratory. With the decline of the corporate laboratories created over a century ago,” Dr. Singerman said, “NIST now performs many of those functions.”
Federal and State Synergies for Clusters
Regional innovation clusters are the focal points where talent, knowledge, and entrepreneurship come together. According to NorTech’s Rebecca Bagley, a cluster is an economically interconnected and geographically bound ecosystem that includes the entire “value chain” of technological innovation: research institutions, materials suppliers, equipment manufacturers, service providers, sub-component manufacturers, product developers. The point of clusters, said Lester Lefton of Kent State University, is to accelerate the processes of business formation and development—“to make 2 plus 2 plus 2 equal 16, or even 27.”
Cluster formation is seldom easy to achieve, and easily hindered by antiquated governance structures that prohibit mergers, consolidation, shared services, and other alternative governance structures. Nevertheless, Ohio’s innovation intermediaries are working hard to make these structures more “permissive,” in the phrase of Lavea Brachman of the Greater Ohio Policy Center. NorTech, in particular, has had success in developing regional innovation clusters by attracting new members, building relationships, creating market-driven roadmaps, engaging with government, and utilizing data and metrics. “The important point,” Ms. Brachman said, “is that we develop a model that operationalizes the desire to accelerate an emerging cluster.” This is best done, she said, by ensuring the partnership of multiple companies, including
larger companies, who share the common goal of reducing the time required to strengthen a given sector.
One new fast-growing cluster in northeast Ohio is FlexMatters, which was established to promote the development of flexible electronics. The region is a world leader in the R&D aspects of this technology, and it is devoting considerable energy to extend that leadership into manufacturing and commercialization. Cluster members are well aware of how easy it is to lose a desirable new technology to competitors elsewhere, which happened in the case of liquid crystal displays, also developed in Ohio. Today, said John West of Kent State University, “LCDs are everywhere. It is the display of choice. I invite you to count the number of LCDs you use in your personal life.”
The downside, Dr. West continued, is that “none of those LCDs are made in northeast Ohio; none are made in the U.S. The next generation of displays is going to be flexible displays, and flexible electronics. We have to make sure this does not happen again. We have the leadership now, and we should claim it, hold it, and have the vision for the future.”
The first companies in the world to manufacture flexible electronic products by roll-to-roll manufacturing are part of the FlexMatters cluster, he said. The cluster includes partnerships throughout the value chain: universities, community colleges, small businesses, large businesses, potential end users, economic development organizations, and others. FlexMatters focuses specifically on five areas: technology innovation, capital attraction, supply chain building and networking, talent development, and market development. According to Byron Clayton of NorTech, “Collaborating around all those areas is what it will take for us to compete on the world stage.” Success, he said, will depend on experts from universities and industry collaborating for years on every stage of the development process, from basic research to commercialization. Only then will northeast Ohio have a chance to be ready when demand suddenly arrives.
Development: A Matter of Urgency
Northeast Ohio is well aware of the urgency of following their technology and development roadmaps. The region—and the state—have far to go to attain the level of leadership in advanced technology that they long took for granted during the industrial era. For example, several experts at the conference warned that the region could easily lose its current leadership in flexible electronics to any country whose government adopts an aggressive investment policy. Dr. Clayton, for example, spoke of touring Taiwan’s flexible electronics facilities. “I had 15 different meetings,” he said, “and I could see that we are doing the right things here in the U.S. What we are not doing is investing enough money. In Taiwan they are putting $600 million a year into new technologies, one of which is flexible electronics.”
Dr. West agreed that Ohio, like the U.S. as a whole, faces an investment gap in roll-to-roll (RTR) manufacturing, and that whoever controls
RTR will control flexible electronics. For example, Germany, South Korea, and Japan have all made large funding commitments to industry. “We still have a lead,” said Dr. West, “but that doesn’t mean we can sit on it.” He said that Ohio’s Third Frontier and the Federal government were making significant investments in basic research and early product development, but emphasized the need to invest in manufacturing research.
“I think we have an opportunity,” Dr. West continued. “We are the first in doing the manufacturing. Our companies are learning how to do yields, put the product out into the marketplace at low cost, and gaining manufacturing expertise that will be the basis of this industry. A window of opportunity is open, and we could seize this industry.” Dr. Clayton added that the market for flexible electronics is still “pre-demand.” Major market demand has not yet hit, he said, “and when it does, people will be looking for which companies have the knowledge to actually manufacture these products. We want those companies to be in northeast Ohio.”
H. MOVING FORWARD
To spur its economic development, Ohio’s business, university, and government leaders are leveraging the state’s assets through a variety of innovation intermediaries and new institutions. The state and the region are also benefiting from a vibrant tradition of “giving back,” seen in the high level of civic volunteerism by leading citizens like David Morgenthaler, David Pogue, and James Griffith. Another potential asset for development is the state’s pension funds, which are currently invested outside of the state. If only 5 percent of these funds were invested in new Ohio businesses, one participant speculated, they would create a powerful $5 billion driver for new business formation in the state.
Indeed, despite several decades of gloomy economic news, many conference participants expressed cautious optimism about the future of the state. Dr. DeVol of the Milken Institute noted that the state’s crucial development indicators are moving in a positive direction. Despite Ohio’s overall development ranking of 29th among the 50 states on the Milken Index, the state also tied for the largest increase since the previous survey, moving up seven places. This was propelled partly by significant improvement in the risk capital infrastructure and business startup rates. “So you’re starting to see from the early indicators that Ohio’s moving in the right direction. But it must continue to improve on many of these,” he concluded, “especially in the human capital area and success in commercialization.”
Dr. DeVol added that a key to success for Ohio would be not only higher levels of training but also a change in the mindset of those entering the labor market. By tradition, young graduates of Ohio’s universities have gone to
work for someone else, typically a medium-sized or large company, in the assumption that entrepreneurship was not an option.
Encouraging entrepreneurship and innovation will require a change of culture within organizations so that they offer not only encouragement and rewards but also bear a greater tolerance for failure. Describing the experience of the Cleveland Clinic in encouraging doctors to commercialize new medical products, Dr. Cosgrove conceded that “It’s been a long trip of trial and error.” Emphasizing the importance of long-term commitment, he added “It is essential to encourage physicians to bring their ideas and their inventions forward, but it is just as important to stay with them all the way through to commercialization.” In his discussion remarks, Dr. Albert Green of Kent Displays agreed that the “challenge for us is to realize it’s not just the innovation part, which we do really well, but to translate that innovation into manufacturing and the expertise that goes out into the marketplace.”
David Morgenthaler, a long-time Cleveland venture capitalist, said that he, too, saw the urgent need to encourage more entrepreneurial and manufacturing activity in Ohio—and in the rest of the United States. He had helped organize the conference, he said, in part to ensure that the innovation initiatives of the region would not only be noticed, but also strengthened and emulated. “I am working hard for Ohio,” he said, “because I don’t want to see what happened to Ohio happen to the country.”
A Call for Commitment
The conference provided a unique opportunity to document the variety of initiatives underway by industry, universities, federal, state, and local governments to renew Ohio’s economy. Many speakers cautioned, however, that this change would not happen overnight. Dan Berglund 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.14 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 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.
14For 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.
This overview has highlighted many of the key issues discussed over the course of the conference. The proceedings of the conference, summarized in the next chapter, provide rich detail on the new policies, institutions, and initiatives now underway in Ohio.