Driving Innovation & Job Creation Lessons from Globalization National Governors Association November 14, 2013 Chicago, IL Charles W. Wessner, Ph.D. Director, Technology, Innovation, and Entrepreneurship The National Academies 1 Charles W. Wessner PhD
The National Academies National Academy of Sciences (NAS) National Academy of Engineering (NAE Institute of Medicine (IOM) National Research Council (NRC) 2 Charles W. Wessner, PhD.
Today s Presentation The Global Innovation Challenge What is the rest of the world doing? Is the U.S. keeping up? How are the States addressing this challenge? New focus on innovation in the states Initiatives in Ohio and New York What must states do? Conclusions NB: Today s presentation reflects my personal views Charles W. Wessner, PhD.
The Global Innovation Imperative The capacity to innovate and capture the benefits of innovation is fast becoming the most important determinant of a nation s ability to compete globally A nation s innovative capacity is tightly linked with its potential for economic growth, highvalue job creation, and national security. Because governments around the world recognize this, they are providing significant support in five key areas 4 Charles W. Wessner Ph.D.
The Rest of the World addressing the Innovation Imperative High-level Policy Focus on Growth and Strength Sustained Support for Universities Rapidly Growing Funding for Research Support for Innovative Small Businesses Government-Industry Partnerships to bring new products and services to market Leading nations are investing very substantial resources to create, attract and retain the industries of today and tomorrow. 5 Charles W. Wessner, Ph.D.
China s Goal: To Become an Innovation-Driven Economy by 2020 Boosting R&D Investments Expenditure on basic research now 14% of global research doubled between 2004 and 2008 Tax incentives for enterprises that invest in R&D Building first-world R&D Infrastructure and Facilities Developing World Class Universities Investing in Higher Education at Record Levels Building Innovation Clusters though the development of large S&T Parks Acquiring technologies and talent from abroad Source: Mu Roping, 2010 UNESCO Science Report 6 Charles W. Wessner, Ph.D.
Its not just Size but Focus! Singapore s Innovation Strategy Singapore (population: 4.5 million) goal is to be Asia's preeminent financial and high-tech hub. Government investing $12.8 billion under the Research, Innovation and Enterprise 2015 plan A*STAR s task, with $5 Billion in funding, is to: Attract a skilled R&D workforce Draw major investments in pharmaceuticals and medical technology production Invest in S&T Parks: Biopolis & Fusionopolis Focus on funding for Early-Stage firms (SBIR) 7 Charles W. Wessner Ph.D.
What is Finland Doing? Steady, high investments in R&D at 3.7% of GDP Mobilizing private capital for start-ups and growth companies (eg. by introducing tax incentives) Introducing new partnership programs for greater productivity in the services sector (private & public) Reforming university structures and public research institutes Source: Finland as a Knowledge Economy, Carl Dahlman, Jorma Routti, and Pekka Ylä-Anttila, eds. 2008 8
Major U.S. Advantages in Innovation Openness to science and innovation Trust in Science & Scientific Institutions Positive Social Norms High Social Value on Commercial Success Forgiving Social Norms allow more than one try Entrepreneur-friendly Policies Markets Open to Competition Gentle Bankruptcy Laws permit rapid recovery Taxes give Prospect of Substantial Rewards Strong Intellectual Property Regime: Encourages Research & Diffusion of Research Results 9 Charles W. Wessner, Ph.D.
Traditional Pillars of the U.S. Innovation System Government investments in R&D: ~$150B a year Private investments in R&D: ~$270B a year Research Universities: some with a culture of innovation Entrepreneurial spirit and laws to support it Talent: from the U.S. and from around the world Capital: Broad, deep, and efficient capital markets with significant angel ($22.5 Billion*) and venture funding ($28.4 Billion**) Sources: * Jeff Sohl, UNH Center for Venture Research; ** 2012 Money Tree Report 10 Charles W. Wessner Ph.D.
But the globalization of innovation has produced a Paradigm Shift U.S. funded and U.S. based R&D no longer necessarily leads to U.S. based commercialization and large-scale manufacture. The U.S. pre-eminence is no longer assured as a place to turn research ideas into New, high-volume commercial products New companies with supportive supply chains High value, well paying jobs This has significant implications for Economic Growth, Employment, and National Security Source: NRC: Rising to the Challenge, 2012 11 Charles W. Wessner Ph.D.
How can the United States address this challenge? As we always have, with a combination of state initiatives, regional participation, and federal procurement and funding. Public-private partnerships that combine the assets of universities, private businesses and governments at various levels are a path forward. We have a long history of success. 12 Charles W. Wessner PhD
Government-Industry Partnerships are long-standing feature of U.S. Innovation 1798 - Grant to Eli Whitney to produce muskets with interchangeable parts, founds first machine tool industry in the world 1842 - Samuel Morse receives award to demonstrate feasibility of telegraph 1903 Wright Brothers fly, fulfilling the terms of an Army contract! 1915 National Advisory Committee for Aeronautics instrumental in rapid advance in commercial and military aircraft technology 13 Charles W. Wessner, PhD
Government Role in Innovation 1919 Radio manufacturing (RCA) founded on initiative (equity and Board Membership) of U.S. Navy with commercial and military rationale. 1925 U.S. Postal Act launched U.S. Aircraft Industry 1940s, 50s, 60s Radar, Jet Aircraft, Computers, Satellites, Nuclear Energy, Semiconductors Government-supported industries are the Foundations of the Modern Economy, Cohen & Noll 1969-1990s - Government investment in forerunners of the Internet (Arpanet) and establishment of the Global Positioning System 2000s Focus on Nanotechnologies, Flexible Electronics, Batteries, Solar, Biomedical Research 14 Charles W. Wessner, PhD
Government Role in Innovation Listening to some Americans critical of the government s role brings to mind the Jewish patriot criticism of the Romans in the Monty Python film Life of Brian. The Economist, May 1, 2004 But what, apart from the roads, the sewers, the medicine, the Forum, the theater, education, public order, irrigation, the fresh-water system and public baths... what have the Romans ever done for us? (and the wine, don t forget the wine ) 15 Charles W. Wessner, PhD
A More Serious Perspective Government has played an important role in the technology development and transfer in almost every US industry that has become competitive on a global scale. Technology, Growth and Development: An Induced Innovation Perspective (2001) Long-term government investment is necessary for the development of general-purpose technologies and economic growth. Is War Necessary for Economic Growth? (2006) Vernon Ruttan (1924 2008) Emeritus Professor University of Minnesota 16 Charles W. Wessner, PhD
A Major New U.S. Asset Shale Gas! Charles W. Wessner, PhD 17
The Shale Gas Impact Rapid growth in shale oil and gas production is increasing employment, household income, exports, and U.S. competitiveness. Income: Lower energy bills expected to increase income by an estimated $1200 per U.S. household this year. Trade: Imports of oil and gas have fallen dramatically, with a positive balance of payments impact. Jobs: Shale gas created up to 2.1 million jobs. Growth: Energy-intensive manufacturing industries are finding the U.S. to be a low cost location. Revenue: State and local governments are receiving substantially greater revenues. Source: IHS, America s New Energy Future: The Unconventional Oil & Gas Revolution and the US Economy (2013) 18 Charles W. Wessner Ph.D.
How did we Create the Shale Gas Opportunity? A de facto government-industry partnership Support: Three decades of government support for research, demonstration, and production R&D Investments: Government investments and support for hydraulic fracturing, 3D mapping, horizontal drilling, and horizontal wells provided the basis for private entrepreneurs to exploit shale gas deposits Tax Credits: Substantial tax credits for new gas production played a critical role in sustaining the industry through its formative years 19 Charles W. Wessner Ph.D.
Key Point: Our current strong competitive position is based on past investments. Are we investing enough today to ensure our children s prosperity? 20 Charles W. Wessner Ph.D.
Federal R&D Spending: A Declining Share of GDP Source: Nature Materials 10, 407 (2011) 21
U.S. Competitors are Raising their Game 22 Charles W. Wessner Ph.D.
Falling Support for U.S. Universities: Less Funding and More Regulations Per-student funding for major public research universities has dropped by 20 percent during the past decade (NSB,2012) At the same time, U.S. Research Universities face a growing regulatory burden. Source: NRC, Research Universities and the Future of America: Ten Breakthrough Actions Vital to Our Nation's Prosperity and Security,2012. These developments are undercutting a principal pillar of the U.S. innovation system. 23 Charles W. Wessner PhD
The Major Risks to the U.S. Complacency about our competitive position Focus on current consumption rather than investment for the future A lack of investment in R&D on the scale of our fathers and our competitors Limited attention to the composition of the economy, including trade and investment policy Failure to focus on the commercialization of research and on manufacturing 24 Charles W. Wessner PhD.
How are State Governments addressing the Innovation Challenge? Focus of a recent National Academy of Sciences Study 25 Charles W. Wessner Ph.D.
To Survive in Today s Global Economy, Elected Officials, University Presidents, and Business Leaders need to: Grow and draw in a skilled workforce Support and grow universities Expand university connections to the regional economy Leverage complementary federal programs Identify and support new industries & companies Grow the manufacturing base 26 Charles W. Wessner PhD
New Partnerships Support Innovation-led Growth Public-private partnerships foster Collaboration Provide shared research facilities to develop and commercialize new products for the market Leading Role of Community colleges: Work with industry to identify needs and train a workforce able to adapt to changing technologies. Ohio s Lorraine CC and New York s Hudson Valley CC are leading examples Catalytic role of philanthropic foundations Important role in initiating, complementing, and sustaining action, by regional and state authorities. 27 Charles W. Wessner PhD
New Focus in the States on Growing Innovation Clusters To grow regional clusters, states and regions are: Building on local expertise and regional strengths: e.g., NE Ohio s focus on flexible electronics builds on expertise in polymer engineering Partnering with industry to pool resources and share risks: e.g., New York State and IBM in growing NY s nano cluster Investing in education and a trained workforce: e.g., GlobalFoundries is partnering with NY community colleges. Long-term policy commitment is required 28 Charles W. Wessner Ph.D.
A More In-depth View State innovation initiatives in Ohio and New York 29 Charles W. Wessner PhD
The State Government Role in Ohio Significant State Investment The Ohio Third Frontier Program is an internationally recognized technology-based economic development initiative Funded in 2002 by a $1.6 billion bond issue Ohio voters voted in 2010 to invest an additional $700 million Leveraging Federal Investments Building on federal support for university research, for Magnet as an MEP Center, for clusters through EDA, for additive manufacturing 30 Charles Wessner, Ph.D.
Growing Ohio s Innovation Ecosystem The Role of Industry Timken has cut losses, consolidated assets, invested in the workforce, and cooperated with universities--jim Griffith, CEO of Timken The Role of Universities Universities must function as a broad-based and robust platform for economic engagement. --Luis Proenza, President of the University of Akron Agile Innovation Intermediaries NorTech: fostering regional clusters BioEnterprise: Growing the biomedical sector Jumpstart: Resources to grow new high potential firms Magnet: Support for Ohio-based manufacturing 31 Charles Wessner, Ph.D.
New York s Nanotechnology Initiative Collaboration: Private and university based collaboration to set up world class research programs and state-of-the-art research laboratories State Leadership: Substantial and sustained state investments; bi-partisan, long-term commitment New Institutions: CNSE, Sematech, Academic programs at RPI and SUNY Workforce development: Industry is working with local community colleges to develop training programs Results: These investments are now attracting high value manufacturing, and jobs focused on nanotechnology and semiconductor technologies 32 Charles W. Wessner PhD.
Growing NY s Nanotech Cluster Year Key Developments Initial Investment 2001 Center of Excellence in Nanoelectronics and Nanotechnology (CENN) established at SUNY Albany $100 million from IBM + $50 million from NY State $150 million 2002 International SEMATECH Research Center $405 million 2004 College of Nanoscale Science and Engineering (CNSE) established 2005 ASML establishes research center $400 million 2005 Multi-partner Center for Semiconductor Research established $500 million 2005 CNSE establishes a collaborative center for nanolithography research with AMD, ASML, IBM, and Micron $600 million 2006 International SEMATECH relocates to NY $760 million 2007 IBM expands operations at CNSE $1.64 billion 2009 GLOBALFOUNDRIES breaks ground in Malta, NY $6.6 billion 33 Charles W. Wessner, Ph.D.
Payoffs for New York Establishment of a globally recognized center in a key enabling industry Billions in investment have been drawn into the state as supply chain follows the fabs Companies such as IBM, AMD, Applied Materials, and Tokyo Electron are making significant investments in the region. Economic Activity and High Value Jobs are moving to New York State 3500 direct jobs were created in the Albany region alone: there is a 3 to 5x multiplier New economic activity is driving the revitalization of the region Center for advanced research for 450mm fabs: a strategic gain for the U.S. economy. 34 Charles W. Wessner PhD.
What can we learn from Best Practices among our States? Understand today s competitive challenge. Make the investments needed to lead in the global economy. 35 Charles W. Wessner, Ph.D.
Take the Lead You need to compete with the leading innovative regions of the world. Don t wait for the federal government; you need to do this yourselves. But don t underestimate the catalytic effect of federal opportunities. Invest in and exploit available resources How can university incubators and business accelerators help? 36 Charles W. Wessner, Ph.D.
What must States do? Everything! Take a long-term, bi-partisan view Reinforce local assets Build clusters on existing strengths, but be ready to seize new opportunities Focus State investments Pull in Philanthropic Foundations Leverage federal investments 37 Charles W. Wessner, Ph.D.
A Good Example: The MEP Program Leverages State, Federal, and Private Sector Resources 38 Charles W. Wessner, Ph.D.
MEP: An Effective State-Federal Partnership to Support Manufacturing Leading US program designed explicitly to provide support services to small and medium manufacturers. These SMEs have limited market alternatives Distributed program, with MEP Centers addressing needs particular to different states and regions A new NAS Study finds MEP to be effective. It makes effective use of relatively limited resources for reaching and supporting small and medium sized manufacturers. It should benefit from additional resources. 39
What more must States do? Support your universities Get more out of your universities Incentivize university-industry cooperation with vouchers, common facilities Attract SBIR awards Pay attention and support Community Colleges for middle skill training 40 Charles W. Wessner, Ph.D.
We need to Understand & Respond to Today s Competitive Challenge We need to compete globally Investments at the regional, state and federal level need to match those of our competitors. Our future is at stake; Complacency is not an option. Our continued economic leadership and national security are not assured without continued investment in research, innovation, and manufacturing. Innovation policy is not a hobby! Innovation policy is not something you can do when you have done everything else. Innovation is the currency of global competition in the 21 st Century. 41 Charles W. Wessner, Ph.D.
Thank You Charles W. Wessner, Ph.D. Director, Program on Technology, Innovation and Entrepreneurship The U.S. National Academies 500 Fifth Street NW Washington, D.C. 20001 cwessner@nas.edu Tel: 202 334 3801 http://www.nationalacademies.org/step 42 Charles W. Wessner Ph.D.
New Area for Academy Research Incubators: A Growing Phenomenon: More than 300 of these facilities have sprung up in the U.S. over the past decade,. Incubators now host about 6,000 companies; many are attached to universities They provide a menu of services, from access to expensive lab equipment to accounting and secretarial support. How well are they working? Compared to what? 43 Charles W. Wessner, Ph.D.
How are U.S. Incubators Performing? Best Practice: We need to learn more about best practices regarding their goals, structures, mechanisms, and successes Cluster Development: How can these organizations can be best combined and optimized to serve their communities. What can we learn from others? e.g., Israel, Taiwan, Sweden, the Netherlands 44 Charles W. Wessner, Ph.D.