Title: A Public Policy Perspective on InnovationDriven Development Strategies: The North Carolina Example
1A Public Policy Perspective on Innovation-Driven
Development Strategies The North Carolina Example
- Robert McMahan, Ph.D.
- State Science and Technology Advisor
- Exec. Director, NC Office of Science and
Technology
2Since WW2, the Mix of Jobs Has Been Changing
This trend in evidence since the end of
WW2 Manufacturing is now lt10 of total non-farm
employment Today 15 of NC Workforce is engaged
in production
http//www.frbsf.org/csip/analysisEssay1.pdf
3At the same time, income disparities have been
widening
- The consensus is that the main cause was
technology, which increased the demand for
skilled workers relative to their supply, with
freer trade reinforcing the effect.
http//www.economist.com/world/displaystory.cfm?st
ory_id7055911
4In 1950s North Carolina
- Poor Economic Conditions
- Concentration in low-wage primary/crop industries
- Tobacco, Cotton
- Furniture
- Textiles
- Low-wage Jobs
- 49th in per capita income in the US
- Brain Drain
- Need to diversify expand economy
5Combined with Strong Committed Leaders
6Yielded Creation of RTP
- Early 1950s Idea emerged that the regions
three universities (Duke, NCSU, UNC) could act as
magnet to attract companies - 1956 Research Triangle Committee, Inc. formed
to promote the establishment of industrial
research laboratories and other facilities - 1956 Director (George Simpson) appointed to
lead the Committee and advertise RTP to research
companies throughout the US - 1957 For-profit company (The Pinelands) formed
independent of the Committee purchased or
optioned more than 1,699 hectares of land - 1958 Archie Davis raised nearly 2 million in
private donations (not investments!) in 60 days - 1959 Dissolved Pinelands and Formed Research
Triangle Foundation of North Carolina, a private,
non-profit organization to develop and manage the
land also formed Research Triangle Institute
(RTI) - 1959 Chemstrand Corporation announces its
decision to locate in RTP, becoming the parks
first major industrial tenant
7Key Question asked in 1950s in NC
- In the face of major structural changes in the
Economy - How to leverage local strengths and diversify the
NC economy? - How to bridge the research and Commercial Sectors
in an effective way to enhance the economic
well-being of the state?
8Lest we forget - there was resistance
- 1956
- Let me see, if I really understand what it is we
are talking about here, you want the professors
here and all of us to be the prostitutes and
youre going to be the pimp. - -William Carmichael, representative of the UNC
System, - to Romeo Guest, developer and contractor
1990 Looking back now, it seems so obvious that
all these groups had a lot to gain by working
together. But back then, it wasnt so obvious .
. . What it took was the willingness of
public-spirited leaders from various segments of
the community to downplay their
differences. -George Simpson, founding director
of the Research Triangle Committee, reflecting on
the history of RTP
9In hindsight, success was attributable to
- Cooperation among the 3 Research Universities in
initial discussions that led to the Park - Creation of bridging institutions, e.g. RTI
10In hindsight, success was attributable to
- Statewide focus of citizens and a tradition of
interaction - No dominant city at time of formation
- Most initiatives were Statewide (e.g. Art
Museum, Symphony) - Statewide philanthropy efforts
- Fed a Statewide Perspective
11Other Factors
- State leaders were accustomed to working in small
groups that thrived on interaction - Tradition since the Civil War era
- And FinallyLuck and Timing
- Emerging consensus in 1950s that technology was
linked to economic prosperity - Sputnik in 1957 created urgency
- Two tireless Governors Hodges and Sanford
12Late 50s saw the emergence of
- a competitive market for Ph.D.s in SE
- A Research Park would create a ideal environment
to - Attract ST industry
- Capture Retain Graduate Pool from Universities
13RTP
- 2,800 hectares in total size
- 13 kilometers long and 3.2 kilometers wide
- 450 hectares available for development
- 2 million square meters of developed space
- gt 2 BB in capital investment
- Nearly 140 companies
- 50 of the employees work for multinational
corporations - All 100 counties in NC have connections to RTP
companies
14Resident Breakdown by Size 2006
- Employment
- 12 largest companies 30,150.
- Remaining 124 companies 7,335.
- Nearly 42 of companies have lt 10 employees
- Among large organizations, the majority are
branch plants of large corporations, - most of which do not have headquarters in NC.
15Fundamentally the Park
- Represented a planned approach to ST-based
economic development - Like Austin, San Diego, N.VA benefited from city
and state as well as corporate and university
involvement - Contrasted to 128 and San Jose
- More organic and less facilitated
16NC Recognized Early the Importance of Creating
Structures to Institutionalize change
NC Board of Science Technology Helped to Create
Initiatives That Have Made NC an International
Model
- e.g. Biopharma / Biotechnology
- and works to to identify the next
- Emerging Industries Nonwoven Textiles
- Grid Computing
- Advanced Materials / Manufacturing /
Nanotechnology - Fuel Cells
17North Carolina has been successful
- It was among the first states in the nation to
recognize that knowledge-based economic
development creates high-growth companies and
well-paying jobs. - Over fifty years ago it began making long-term
investments - in universities and in
- science and technology as drivers of economic
growth.
18Biotechnology Center as a direct example of a
Bridging Institution
- A patient, evolutionary model
- The State committed initial investments largely
to create academic positions and infrastructure
at NC universities. - Later became economic development organization
- In 1980, not an industry
19Currently in Biotech
- Third leading state in biotechnology
- 324 Bioscience companies
- 31 Publicly traded
- 30 Ag-bio companies 2nd largest concentration
in US (after CA) - 45 Based on University technology
- 80 CROs worlds largest concentration
20Currently
- 48,000 employees
- 10 average annual employment growth 1996-2006
- Projected to lead the nation in employment growth
in biopharma through 2014 - Direct Support Industry 28,500 employees
- 3BB Payroll
- Average salary 72,000 pa (avg mfg 37,000)
- 145MM in state income taxes
- 4x employment multiplier
21NC has made significant progress and has been
truly innovative
- BioNetwork
- training, curricula and equipment to develop a
world-class workforce - Education
- New Schools, 21c Skills
- Engaged Universities not just IP
- Continuum/seamless models of education
- Leaderhip in raising standards for students
- Emphasis on Individual Training and Workforce
Development
22NC Statewide
23RTP Growth (1960-2001)
Number of jobs
Number of firms
24Recent Accolades
- 1 High Tech Region in US (Research Triangle
Region) "Projections 2006 - Daring to
Compete A Region-to-Region Reality Check,"
Silicon Valley Leadership Group, August 2005 - 1 Preferred State for Location and Expansion
(NC) Plants Sites and Parks,
October 2004 - 2 Best Place for Business Careers
(Raleigh-Durham) Forbes, May 5, 2005 - 3 Hot Cities for Entrepreneurs (Raleigh-Durham)
Entrepreneur Magazine, September, 2005 - 3 U.S. Metro Area for Biotech/Life Sciences
(Raleigh-Durham-CH) Milken Institute, June 2004 - 5 Most Entrepreneurial City in the United States
(Raleigh) Visa's New Innovation Index,
October 2004
25Next Kannapolis Research Campus
- 1BB Private Public Investment
- Site of Pillowtex
- 320,000 ft2 Core Laboratory facility, a
state-of-the-art contract manufacturing biogenic
facility, and Dole Institute - Centers for Advanced Fruit and Vegetable Science
- Institute for Excellence in Nutrition
- Centers for education and training for
biotechnology - Institute for Translational Medicine
- 350-acre campus is expected to total
- 1 million square feet of offices and laboratory
space, - 350,000 square feet of retail and commercial
space and approximately - 700 residential units.
26(No Transcript)
27Challenges ahead In the Next 10 years, existing
clusters of strength will shift
- BioPharma will commodify
- Will become like the specialty chemical industry
- More and More Generics
- Biologics surpassed Pharma approvals in 2004
- FDA qualification not enough Medicare in the
drivers seat - Emphasis on Wellness
- 82BB worth of Blockbusters will lose patent
protection in US by 2007 - Diagnostics things that tell you what to take
will be the value point - The center of mass is moving from Pharma to Life
Sciences
28Nonetheless, the major issues facing NC today
29are the same as 50 years ago
- A Vibrant, Globally Competitive Diversified
Economy - University Involvement in Economic Development
30But the latter question is a bit different
- Was
- How can the Universities help attract industries
to the State? - Now is
- How can the Universities more broadly contribute
directly to economic development?
31In an Ecosystem that is now the product of two
symmetrical processes
Globalization
Regionalization
Increasingly, we must organize to link the
response and capacities of naturally occurring
economic regions within/across states to global
economic conditions.
32Because we have traditionally focused on Capacity
Building
- NC has built an enormous capacity for innovation
in science and technology. - Despite these investments in technology, however,
the state ranks only - in the middle of US states in terms of the vigor
and impact of its high-tech economy.
33National Position
NC ranks in the 2nd tier of innovative states
Milken Institute State Technology and Science
Index Enduring Lessons for the Intangible
Economy (2004)
34Underlying this
- North Carolinas ranking reflects the academic
rather than applied focus of its investments in
Research and Development. - North Carolina must become more efficient at
converting its innovation capacity into economic
outputs.
35Strong in Basic University Research
- University RD
- 4 / 1000 of GSP spent in University research
- 20 of relative total
- MA 5 / CA 3.50
36Industrial RD
- Not as strong in Private Sector RD
- 15 / 1000 of GSP spent in University research
- National Average 19
- 80 of Total
- MA 40 / CA 30
37As a result in Total RD
- We are slightly below average in total RD
spending - 21 / 1000 of GSP spent
- National Average 25
- MA 50 / CA 38
Milken Institute State Technology and Science
Index Enduring Lessons for the Intangible
Economy (2004)
38Relationship
Industry funds and conducts more RD than all
other sectors combined. Dominance of University
RD anticorrelates with dynamism of technology
economy Inputs are not Outputs Universities do
the R, companies the D
39Drives us Disproportionately Weaker in Outcomes
- Milken 200 Best Performing Cities Nov 2004
- 1 yr 5 yr Rolling View / Outcomes Only
- Job creation
- Jobs retention
- Wage and salary increases
- Economic growth, and
- business creation survival
- RDU 34th among large metros (not 4th), Charlotte
50th (not 30th), Asheville 92nd, Wilmington
117th, G-WS 165th (not 45th).
40Even in the RTP
Our Strength is in inputs NC is
disproportionally weaker in conversion of
invention to innovation.
48 In Gazelles 22 in Churn (Outputs)
1 In Innovation Capacity (Input)
41The Same Trends are in Evidence in Emerging
Sectors
NC/RDU is among the top 10 U.S regions in
university-based nanotech research
42But RDU is Not in the Top 10 U.S. regions for
Nanotech Firm Entry
NC/RDU is not among the top 10 U.S regions in
nanotech business creation
43Which suggests to us that
- Pure university-based regional economic
development policies are not effective enough to
"upgrade" localities to a higher tier of
innovative activities alone. - The presence of a "critical mass" of
agglomeration in the area surrounding the
university is required in order to expect
substantial local economic effects of academic
research.
44A Policy View
- From an Economic Perspective, we increasingly
view - University Basic Science and Technology
Research Systems as a form of Mixed
Infrastructure - Their primary economic value comes from what they
produce downstream - Enabled by collaborative bridges to engines in
the private sector
45ReinforcedWe See the Impact of
- Public RD falls dramatically with Metro Size
- 300MM in Academic RD yields
- 112 Innovations in Tier 1 avg. pop. 3MM
- 16 Innovations in Tier 2 avg. pop. 1MM
- 5 Innovations in Tier 3 avg.
pop. 400K - 4 Innovations in Tier 4 avg. pop. 200K
The same amount of university research
expenditure yields substantially different levels
of local innovation activity depending on the
concentration of economic activities in the area.
Source Attila Varga, 2000
46Exacerbated by the structure of Federal
University RD investments -
- The top 200 institutions account for
approximately 96 of all RD expenditures - Top ten institutions account for approximately
17 of all RD expenditures - Top 20 institutions account for approximately 34
of all RD expenditures - Institutions ranked between 101 and 200 accounted
for approximately 20 of RD. - (NSF 2004 data, Bardo and Evans 2006)
47Federal RD Expenditure 1970-2002
NSF 2006 data Bardo and Evans 2006
48Academic Expenditure of RD (NSF 2006)
Academic RD Expenditure 1970-2002
Current university expenditures
Disproportionately Big R Little d
Basic Research
Applied Research
Development
(NSF 2006, Bardo and Evans 2006)
49NCs Second Quartile Rank in ST Economic Dynamism
- Our percentage of university research is higher
than typical of first tier states - While the percentage of industry RD is lower.
- Interestingly, Vargas models confirm this.
- Vargas data included two metropolitan areas from
North Carolina Charlotte and Raleigh-Durham.
50Commercialization Activity Downstream
- Depends upon the local infrastructure of Bridging
Institutions - And Private Sector Critical Mass
- Enhanced by development of social capital within
a particular geographic region. - Redefining the mission of (some of) the
Universities in the system to include economic
development?
51The importance of Bridging Institutions
- Business RD plays a very critical role in the
economic well-being of a metropolitan region. - The role of university RD is much less clear
and at best indirect. - the magnitude of the contribution that
universities research and technology development
activities play in enhancing regional economic
development is small compared with other factors
(Goldstein and Renault, 2004 744).
52Clearly
- Differences in public RD Intensity cannot
explain the differences in metro company creation
rates - Industrial D appears much more important than
Public R in explaining regional technology
development activity - Industry Performs
- 89.1 of Technology Development
- 64.1 of Applied Research
- 15.5 of Basic Research in US
53To Underscore in 2004
20 Starred Institutions account for 1/3 of
Federal RD Spending Highlighted States are top
quintile in economic growth rate
NSF, 2004 and the Economic Development
Administration
Bardo and Evans 2006
54Yet the National Academies specifically Recommend
to States
Sustain and strengthen the nations traditional
commitment to long-term basic research that has
the potential to be transformational to maintain
the flow of new ideas that fuel the economy,
provide security, and enhance the quality of life
(National Academies, 2006 7).
- But empirical data do not necessarily show a
clear linear relationship between the volume of
RD and economic prosperity.
55Yet the National Academies specifically Recommend
to States
Sustain and strengthen the nations traditional
commitment to long-term basic research that has
the potential to be transformational to maintain
the flow of new ideas that fuel the economy,
provide security, and enhance the quality of life
(National Academies, 2006 7).
- So as a state strategy, are the volumes proposed
justified on economic development grounds? - As we have seen in NC, there is no necessary link
between funding basic research and creating
innovations.
56Interestingly
- It is generally assumed that high levels of RD
will be closely associated with a rapidly growing
globally competitive economy - North Carolinas experience is that relationship
does not hold as expected. - We have made a great deal of investment in a few
locations, but outside of these the state
continues to reflect traditional economic
structures.
57Basic University Research
- University RD
- 4 / 1000 of GSP spent in University research
- 20 of relative total
- MA 5 / CA 3.50
58But Trends in K12 Workforce Prep
North Carolina High Schools graduate 6 of 10
entering 9th grade students 63 Graduation
Rate, ranked 42nd in the country
http//www.manhattan-institute.org/html/cr_baeo_t2
.htm
59Net Tech Creation Rate
Compared to other states, NC is creating tech
companies at a lower than average rate.
60Which Means
- we are beginning to think differently about the
role of the University and Research Institutions
in Building Regional Economies - And structure institutional collaborations around
them - While developing a clearer understanding of our
actual competitive regions and the economic
structures that are driving those regions.
61UNC System
- 16 Universities
- 1BB in Sponsored Research Program
62Rethinking the Organization and Mission across a
Diverse University System
- The universitys ability to address economic
transformation and development issues must not be
based solely on internal university conditions. - Policies need to promote creating effective
university/regional relationships based upon the
specifics of the relationship of the university
to its service region - Linking distribution of academic programs, RD
support, and facilities to integrated regional
economic development plans.
63Which leads to a different process
Bardo and Evans 2006
64And the Recognition in Structures that
- Knowledge-driven basic research should not be
justified on economic development grounds. - though it has very significant long-run
implications - Purpose-driven basic and applied research is
most likely to produce economic outcomes in the
short- and medium-run, - but there still have not been clear policy
discussions on the allocation of funding to these
types of research. - Opportunity is to create systemic linkages
between long-term benefit-based research outcomes
and more short- and medium-run economically
focused institutions.
65In one sense, we are re-examining the Bush linear
Model
66Keys to this view
- A single university will not reasonably be
expected to be successful in emphasizing all
types of research. - Economic development policy must link
institutional mission with particular types of
research. - Clearly defining university missions within a
state-level policy framework is the key to
linking higher education and economic
development. - Budgets must reflect this alignment
67From a State-level Public Policy Agenda
- Since NC has multiple universities, it is not
necessary for any one institution to focus
equally on all four quadrants of RD. - Traditional research extensive institutions
remain the best venues for knowledge-driven
research and purpose-driven basic research. - We must begin to examine how other Universities
can be developed to support disproportionately
purpose-driven applied research - as appropriate to their location and the
opportunities within the regions of the state to
which they can be linked.
68Which ultimately will force reconsideration
- of the Carnegie Classifications as institutional
drivers for regional institutions - i.e. what is our peer?
- missions defined by degree programs offered?
- This is a confusion of taxonomy with mission
- Conventional university classifications are of
limited utility in defining how resources and
approaches might be used to address economic
development needs.
69Finally, a Core Missing Piece -
- The US is unique in the developed world in not
having an organized post-secondary training
system for the non-college bound. - lt 0.3 of all workers enter apprenticeships
- 30 of new jobs require a college degree, but
90 require some post-secondary vocational
training.
70Balance in Post Secondary?
- In 2000, for every 1 of public money America
spend on post-secondary training, - we spent 55 on college student subsidies.
- Drivind a tendency among community colleges to
eliminate remedial and vocational/technical
offerings in favor of college transfer
programs.
71State Policies must begin to foster an integrated
educational system
- A seamless transition between high schools,
community colleges and colleges and universities. - We must stop thinking that community colleges
offer fundamentally different types of education
than universities - promoting clarification of mission between the
two institutions. - To date we have spent a great deal of effort
controlling the inputs into higher education
instead of focusing on the outputs.
72At the emerging core of NCs public policy
response?
- The development of human capital is a more
critical policy issue than RD. - Innovation as a concept is not the same as
research. - The key to our economic future is innovation
coupled with entrepreneurship. - Greater attention will need to be paid to
research and product or process outcomes, less on
simply inputs.
73Lessons
- Tripartite
- Government
- Business / Industry
- Higher Education
- Policies must be embedded in Budgets and
Structures to Prevail - There is no unifying set of development
principles for this effort. - Gaining a competitive edge is highly
idiosyncratic to a region and will depend on the
strategy forged in the region itself. - Know your assets and play to your strengths
- Focus on the common good and have bridging
institutions - Proximity and Location Matter
- Leadership willing to take risks and face
criticism - Persistence Patience
74Broadly, an environment for Building Globally
Competitive Businesses
- Education and Human capital development
- Respective capacity to fulfill the technical and
business (workforce) requirements. - These are particular strengths in NC by design
- An Economy that prizes Innovation and
Entrepreneurship the conversion of knowledge
into economic outcomes - Coordination of Resources at the Regional Level
- Public Private Collaboration
- Out of the Box interfaces and Approaches
75Future will Require a Reversal of Emphasis
- Reversed policy is rooted in a broad effort
focused on growing entrepreneurs - Some attention is given to retaining the
businesses in a region. - Only a small portion of effort is focused on
recruiting, and then only those firms that
complement the regions competitive strategy. - At the state and local level, at least, current
policy is exactly the reverse. - In a global economy where competitors are
everywhere, the cost of recruiting businesses
will be difficult to sustain.
- At the state and local level, current policy is
overwhelmingly aimed at recruiting businesses. - The dollars spent on these efforts run into the
billions of dollars, while the impact is
increasingly questioned by analysts. - Some effort is aimed at retaining existing
businesses, with limited attention to stoking
innovation or growing entrepreneurs. - (Buss 2001 National Council of State
Legislatures 2000)