Best Practices in State and Regional Innovation Initiatives Competing in the 21st Century (2013) / Chapter Skim
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2 State and Regional Development and Clustering
2 State and Regional Development and Clustering
Pages 27-46
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From page 27... ...
3 U.S. agricultural interests, succeeded in securing the establishment of a cabinet-level department to promote their industry in 1889 and succeeded in establishing the proposition that the farm sector was a special industry requiring a special public policy, At various points in the past century U.S.
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In the 1970s and 1980s, science and research initiatives were implemented by state governments, but these were generally ancillary to largerscale efforts to shore up established industrial sectors and to recruit out-of-state companies with the objective of preserving and expanding employment.7 In recent decades, however, innovation-related initiatives have moved to the center of state and local development efforts, featuring initiatives such as the upgrading of university research infrastructure, faculty recruiting, the promotion of systematic and professionalized university-industry technology transfer, the fostering of start-ups, and the development of research and innovation-based industrial clusters. NATURAL DEVELOPMENTAL ADVANTAGES ENJOYED BY STATES AND REGIONS State leadership in innovation enjoys a rationale that extends beyond the parochial concerns of local leaders.
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The plan features a series of improvements in DoD's technology commercialization processes and new performance metrics which include the commercial impact of DoD technology transfer. DoD, "Strategy Action Plan for Accelerating Technology Transfer [T2]
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13 National Science Board, Science and Engineering Indicators 2012, Arlington, VA: National Science Foundation, Chapter 6. 14 According to the National Science Board, "State per-student funding for the nation's 101 major public research universities declined by an average of 20 percent in inflation-adjusted dollars between 2002 and 2010, with 10 states experiencing declines ranging from 30 to as high as 48 percent." NSF, Press Release 12-176, "Science Board Concerned About Declines in Public Research University Funding." 15 Washington Post, "Sequester cuts university research funds," March 16, 2013.
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THE INNOVATION CLUSTER PHENOMENON The states have been the primary movers in the widespread and growing practice of fostering innovation clusters as an economic development tool. In his seminal 1990 book The Competitive Advantage of Nations, Michael Porter argued that in advanced economies, regional "clusters" of related industries -- not individual companies or sectors -- are the primary source of competitiveness, export growth and rising employment and income levels.20 Clusters are geographically localized concentrations of firms in related sectors that do business with each other and have common needs for trained workers, infrastructure and technology.
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STAR A city-state in south-east Asia, Singapore has a population of 4.5 million. With a budget of US$4.3 billion allocated in the 2010 S&T Plan, Singapore's technology agency mission is to conduct research and strengthen the base of scientific talent to support the development of the key industry clusters, including those in the biomedical sciences, chemicals, electronics, information and communications technologies, and engineering.
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In 2012, Tekes provided 570 million Euros in funding for Finnish companies and research organizations, and 350 million Euros for company projects, of which 135 million Euros were directed to young growth companies. With a view to promoting international R&D cooperation, Tekes can also finance R&D projects that are undertaken by foreign-owned companies that are registered in Finland.24 come to dominate the economic development thinking in advanced countries, including the United States.25 At present, most state and regional development efforts in technologyintensive industries are based on cluster formation.26 A 2010 report by the Brookings Institution observed that "with little or no past federal support, 23 A*
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manufacture products in the region for export, restoring value to the region."29 Geographic concentrations of specialized artisanal and industrial activities can be traced back to the beginnings of recorded history, and a rich literature on the subject has developed since the writings of the great English economic historian Alfred Marshall in the late Nineteenth and early Twentieth Centuries. Marshall and his contemporaries identified a number of "agglomeration" forces underlying such concentrations, including reduced transportation costs with respect to inputs, availability of a skilled labor pool, the desire to capture "secrets of the trade," through local presence, enhanced likelihood of innovation, and sharing resources that entail substantial fixed costs.30 More recently, Michael Porter has emphasized the manner in which local clusters ease the management of modern value chains, in which companies outsource various elements of design production, assembly, testing, and system management.31 As dramatic advances in transportation and communications unfolded, such as the railroad, the telegraph, and mass printing, many observers -- including Marshall himself -- believed that the advantages of localized industrial concentrations would diminish.
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We find accordingly that craftsmanship tends to survive in closely circumscribed local traditions.34 The demands of tacit knowledge creation and transmittal usually require not only close personal interaction, but also localized facilities and infrastructure that permit practical, hands-on application and testing of theoretical concepts. For example, protracted aircraft propeller wind tunnel testing conducted at Stanford University by professors W.F.
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There and only there can the complexities of the real world, the stuff that drawings and formulas ignore, be appreciated.37 The need and desire to capture tacit knowledge has long been recognized as a key factor underlying the location of research and development activity.38 That fact favors locations with existing manufacturing, testing, and research and development operations that are all potential sources of tacit knowledge. A 2009 survey of U.S.
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For example, the United States no longer has the knowledge, skilled people, and supplier infrastructure required to produce light-emitting diodes for energy-efficient illumination, components for consumer electronic products like the Kindle e-reader, or advanced displays for TVs, computers, and handheld devices such as mobile phones.42 "HISTORY MATTERS" -- PATH DEPENDENCY AND PATH CREATION While an appreciation of the role of tacit knowledge aids in the understanding of why clusters exist and convey advantages to firms that locate in them, a more basic question confronting localities is how and why clusters come to exist in the first place and what can be done to encourage their growth. One perspective is that clusters require the right combination of resources and other factor advantages exist in a given location, and that these need to be 39 Semiconductor Industry Association.
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The cluster and its characteristics therefore emerge over time from the individual activities of the entrepreneurs and the organizations and institutions that evolve to support them."45 This perspective is widely shared. It follows that because clusters are rooted in the language and culture of a particular time and place, "replicating a successful cluster model elsewhere can be highly elusive."46 A considerable amount of academic literature has applied the term "path dependency" to the factors underlying the emergence of clusters in a given geographic district, meaning the evolution is shaped not by the rules of economics but by "the details of the seemingly transient and adventitious circumstance" associated with their beginnings.47 Put another way, "history matters."48 The roots of success of districts such as Silicon Valley and the achievements of Research Triangle are more likely to be found in the historical idiosyncrasies and traditions, culture, and actions of individual movers in California and North Carolina, respectively, than in economics textbooks.49 It follows that attempts to replicate some or all of the best features of these regions elsewhere requires an understanding of their individual history, innovation culture, and key individual movers.
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At present, Ohio's historical competencies derived from production of glass, polymers, and machinery are facilitating the emergence of clusters concentrating on photovoltaics, flexible electronics, and medical instruments, respectively. Innovation Culture In an extensively cited 1994 work, Annalee Saxenian makes the case that the culture of a region can be a decisive factor in its emergence and survival as an innovation center.
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Similarly although very different from the culture of the San Francisco peninsula, that of mid-Twentieth Century North Carolina was characterized by a longstanding tradition of generous philanthropy, civic-mindedness, collective spirit, and openness to institutional experimentation that transformed the state from a low-tech agrarian and light manufacturing economy into the more prosperous economy of the Research Triangle Park. Without the long-ago contributions of many ordinary North Carolinians, including hundreds of anonymous donors who provided the initial capital, the Research Triangle Park, today one of the country's leading high technology clusters, would not exist.53 Annalee Saxenian observes that in Silicon Valley labor is highly mobile and adaptable, characterized by "decentralization [which]
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A Mitsubishi executive said that "we looked for a part of the country where manufacturing is not some lost art."59 A region's innovation culture can also exert negative influence on the development of innovative industries. Saxenian documents how the hierarchical, secretive big-company culture of the Route 128 innovation cluster led to its eclipse by Silicon Valley in computer technology.60 Workforce culture in some of the Rust Belt states has suffered from the legacy of the Twentieth Century "American system of manufactures" based on the theories of Frederick Winslow Taylor and the industrial methods of Henry Ford, which emphasized the segmenting of manufacturing operations into extremely narrow, comparatively unskilled tasks performed repeatedly by individual workers under close supervision of low level managers, with fluctuations in demand addressed through layoffs.61 This system placed a low emphasis on employee skills and perpetuated an adversarial relationship between labor and management.
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In the cases of Akron and Youngstown, Ohio, part of the effort to stimulate local innovationbased economic development involved demolition of old industrial areas and creation of new green spaces, parks, and attractive urban neighborhoods. 62 Taylor was a mechanical engineer who is regarding as the "father of scientific management." He commented on labor-management relations that "only through enforced standardization of methods, enforced adoption of the best implements and working conditions, and enforced cooperation that this faster work can be assured.
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Because new ideas are by definition unproven, the knowledge that an entrepreneur has about his or her innovation and its commercial potential may not be appreciated by prospective investors. 67 For 65 Raphu Garud and Peter Karnoe, "Path Creation as a Process of Mindful Deviation" in Garud, Raghu and Peter Karnoe, Path Dependence and Creation, New York: Psychology Press, 2012, pp.
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In reality, angel investors and venture capitalists often have quite limited information on new firms Given their obligations to their investors, venture capital firms tend not to invest upstream in the higher-risk, early-stages of technology commercialization, and they have been moving further downstream in recent years. In 2012, venture capitalists in the United States invested $26.5 billion over the course of 3,698 deals.
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State and regional governments are pursuing the establishment of innovation clusters as their major development policy tool. Most of the state and regional developmental efforts that the Committee has considered seek to build on existing local advantages arising out of their geography, industrial legacy, and culture, rather than seek to establish entirely new competencies.
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