Innovation and Growth: The Challenge in 2012                                         

Every country or region wants to be the home to a technologically innovative industry cluster that creates relatively high-wage jobs even while it attracts talent, capital, and global attention.  In other words, everyone wants the next Silicon Valley.  Experience has shown, however, that there is no simple formula for creating or attracting concentrations of innovative economic activity.

Robust, innovative industry clusters exist because of simultaneous (or at least co-incident) events: 1) the emergence of paired technological and economic opportunities; and 2) the development of a geographically concentrated network of individuals, companies, and institutions capable of exploiting the opportunities.

It is also the case that any concentration of economic activity that may emerge from these co-incident events will not be a reflection of a grand plan but rather the product of an accident-riddled, dynamic, and cumulative economic process.

Attempting to Create Innovative Clusters

The nature of economic development is that concentrations of innovative companies both shape, and are shaped by, the market and technological opportunities they are exploiting.   Nonetheless, many regions and countries attempt to create a cluster by trying to replicate attributes of the current mature clusters including:

• an easily understood focus area such as biotech or nanotech
• a few “anchor companies” in closely related industries
• new or newly energized research universities
• incentives for seed and venture capital; and
• lifestyle amenities to attract entrepreneurs

This is a plausible but difficult path for a region as it assumes that wise policy and careful investment can somehow replicate a cumulative dynamic process that often has its germ in a bit lucky regional happenstance.

What if Bill Hewlett had gone to college at Princeton and David Packard to MIT?  Or if Sergey Brin and Larry Page had chosen Carnegie Mellon University in Pittsburgh?  What if Henry Ford had decided that Milwaukee was a better place for his family to live?

A further challenge, in 2012, is that geography is demonstrably less important than it was even 20 years ago when it comes to creating a network of institutions, innovators and business people with a shared set of incentives to create economic value out of technological innovation.

Globalization

This globalization of economic development is apparent in virtually every segment of the economy but especially in the R&D-intensive sectors.  The global network of individuals and institutions engaged in basic and problem-oriented R&D, and in research-intensive higher education, has increased in size and density, and the frequency of interaction has risen dramatically.

Today ideas (science, technology, intellectual property, applications/innovations) and finance are incredibly mobile and are already flowing in massive quantities through global networks, collecting in turbulent pools around the enterprises and human capital that can best exploit them.

In recent years there has been a great deal of policy focus on analyzing, attempting to create, or forwarding the activities of meaningful clusters of economic activity and, similarly, local and regional ecosystems of tech-based innovation.  But globalization (and increasingly “virtualization”) of higher education and, particularly, the global spread of basic and problem-oriented applied research capability has changed the world in the last 20 years.

The Way Forward

Which brings us back to the presenting question: What is the best path to pursue public goals of regional economic growth as “place” (the regional cluster) matters less and engagement with the global network of R&D and higher education institutions matters more?

There is no clear path but there are some indications, nicely captured in a 2009 report published by the Palo Alto based Institute for the Future titled: Future Knowledge Ecosystems. ¹ The report starts with a very narrow definition of place, a research park and/or incubator, and reasons through the (almost Schumpeterian) impacts of a number of trends such as:

• globalization of R&D;
• ubiquitous computing;
• the transformation of research institutions;
• changing role of universities; and
• emerging models of “lightweight” innovation (similar to open innovation).

Two conclusions in the report stand out from the perspective of regions or nations trying to tap the global network for economic development purposes:

• “That economic development practice will shift from trying to copy the success of others to building ‘sticky’ know-how — tacit knowledge that builds on local cultural and industrial resources and which is not mobile” [p 22]; and
• “Regional knowledge ecosystems will emerge as the new strategic frame providing scale, efficiency, and global platforms for economic development [p.22]”

In sum, the new regional economic paradigm is not “we invented it, developed it, and commercialized it here” but rather, perhaps, “we tapped the global stock and flow of science, human capital, and financial capital to make it happen here.”

Focusing on the global flows of human capital and science, there are some features – call them national or regional assets – that are likely to determine the success or failure of a wide range of science and technology driven economic development initiatives:

• Regions and nations vary tremendously with regard to their economic stability, the quality and stability of their participation in international trade and IP agreements, and the degree to which local financial markets (debt and equity) are well-regulated and transparent. Stable, internationally engaged, well-regulated, and transparent regional or national economies will draw the best talent and ideas.
• The quality and volume of problem-oriented R&D (in civic research institutions, universities, government labs, and industrial R&D facilities) needs to be adequate to be a credible node in a global network.
• Research universities are the global leaders in the development R&D-capable talent and, simultaneously, the development of a global, interdisciplinary, multi-institutional science and engineering enterprise. If your universities are parochial – not capable of linking the region to the world’s research community and standing up to true world standards – the region will likely fail as a node for tech-based economic development.

Luckily, globalization of the research and higher education enterprise means that it is possible for most regions to grow and/or attract the right human capital, the least mobile and “stickiest” element in the global flows.

Post-secondary education is being revolutionized by new, increasingly online, approaches.   If emerging trends continue, the up-front investment and operating expense of developing local, technically sophisticated talent (from technicians to PhD researchers) will decrease.

Further, many countries now see that immigration and assimilation (as citizens or permanent residents) of talented people from around the world can leap a region or nation toward the front of the line as a location to attract start-ups, new economic activity, and venture capital globally.  There are still, of course, very insular countries, cultures, and governments but they are almost certain to lose the economic competition for innovative industries.

The challenge for policy makers and industry leaders in 2012 is get better, very quickly, at tapping the global networks of problem-oriented R&D and higher education.  This means translating broad strategy into specific pragmatic approaches that will work for a specific region or nation with an existing, and perhaps balky, endowment of policies, companies, universities and government agencies.

Clusters of Innovation –>

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