In the October 11, 2002 Issue:

Copyright State Science & Technology Institute 2003. Information in this issue of the SSTI Weekly Digest was prepared under a cooperative agreement with the U.S. Department of Commerce, Economic Development Administration. Redistribution to all others interested in tech-based economic development is strongly encouraged — please cite the State Science & Technology Institute whenever portions are reproduced or redirected. Any opinions expressed in the Digest do not necessarily reflect the official position of the U.S. Department of Commerce.

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NSF Issues 24 Math and Science Partnership Awards
The National Science Foundation (NSF) recently announced 24 awards under the new Math and Science Partnership (MSP) Program — an anticipated investment of $240 million over five years in projects to improve the achievement of K-12 students in science and mathematics. The Department of Education is an NSF partner in this effort, co-funding two projects involving state education agencies.

Seven comprehensive MSP awards total about $147 million over five years and will affect about 1.8 million students in 11 states. Seventeen targeted partnership grants, which are intended to improve achievement in specific disciplines or grade ranges, total about $90 million over five years and will affect about 200 school districts and some 600,000 pre-K through grade 12 students in 11 states.

Also, 12 smaller awards for capacity building projects will focus on research, evaluation and technical assistance for the MSP Learning Network. Through this vehicle, researchers and practitioners in MSP and other related projects will unite in a national effort to further develop understanding of how students best learn mathematics and science. It will also promote broad dissemination and emulation of successful strategies in educational practice.

Designed to enhance the performance of U.S. students in mathematics and science, these new partnership activities are a key facet of President Bush's No Child Left Behind education plan and the first investment in his five-year $1 billion math and science partnership initiative. Partnership projects address key contributing factors such as: too many teachers who are not fully trained to teach math and science subjects, too few students who take advanced coursework, and too few schools that offer challenging curricula and textbooks.

The new partnership program will unite teachers and administrators in K-12 schools, mathematics, science and engineering faculty in colleges and universities, and other stakeholders in K-12 education to improve student outcomes. MSP projects will seek to enhance the quantity, quality and diversity of the math and science teacher workforce at a time when many teachers are retiring or otherwise leaving the profession.

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EDA Gives $442.5K to Innovation Philadelphia for Economic Development
Innovation Philadelphia (IP), the public-private partnership dedicated to enhancing the global innovation economy of Philadelphia through technological leadership, received on Monday a $442,500 investment from the U.S. Department of Commerce's Economic Development Administration.

With a goal of developing a coordinated technology-based, cluster-driven, economic development strategy for the Greater Philadelphia Region, the investment will support a series of studies of the Knowledge Economy that will focus on new approaches, relationships, methods and technologies, including: cluster analysis, innovation diagnostics, nanotechnology and life science research and workforce development, university and industry technology consortium, angel investment, and knowledge partnership for student engagement and retention.

"This investment from EDA will allow us to amplify the forward momentum of the regional knowledge economy," said Richard Bendis, President and CEO of Innovation Philadelphia, in a press statement. "It also demonstrates the increased access to federal funding that is one of IP's primary goals."

"President Bush believes one way to create jobs is to grow the economy by encouraging investments in local communities," said Steven Nesmith, Deputy Assistant Secretary for the U.S. Department of Commerce. "This EDA investment will provide Philadelphia with information that will allow its many private-public technology partnerships to implement activities that will result in economic development through knowledge economy growth, reduced emigration of graduates with high-tech training and increased commercialization of university research."

With the investment, IP will develop a better understanding of Philadelphia's comparative advantage and will sharpen public policy tools such as tax incentives, incubator investment and support for commercialization, and industry-championed skills training, enabling the private sector to maximize return on taxpayer investment.

EDA serves as a venture capital resource to meet the economic development needs of distressed communities throughout the United States. EDA partners with states, local governments and community nonprofit organizations in economically distressed areas, regions and communities in order to alleviate unemployment and underemployment.

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Understanding the Impact of University R&D on Local ED
Universities and the investment they pour into R&D are "major factors" that contribute to a region's economic growth, concludes a recent report funded by the Ewing Marion Kaufman Foundation, NCOE and the U.S. Small Business Administration (SBA). The report's results show the growth occurs in less time than traditionally has been noted and that small firms innovate at a rate almost twice that of large firms.

Building on Joseph Schumpeter's "creative destruction" concept and previous research, The Influence of R&D Expenditures on New Firm Formation and Economic Growth seeks to answer two questions: 1) do R&D activities at research universities have a significant effect on local new firm formations? and 2) do R&D activities as research universities have a significant effect on local economic growth? Creative destruction, the authors say, takes place when "newly formed independently owned firms commercialize inventions that increase overall demand thereby causing economic growth... ." Existing market structures consequently are destroyed, and the market's remaining firms experience a redistribution of wealth.

The lag between R&D investment and economic payoff is relatively small, the report states. Although long-term lags have been expected in the past, the authors assert R&D-to-growth requires about a year to become realized before it tapers over the next five years. Economic growth then is seen in a steady stream of new firms, new products and services, and increased employment.

That small firms may commercialize their discoveries and create new markets faster than large firms was evidenced in 1984 when The Futures Group, in a report for SBA, found that "small firms actually innovate at a rate of 1.24 to 2.38 times that of large firms." Replicating a 1976 study by Gellman Research Associates, The Futures Group had analyzed more than 8,000 product innovations introduced in 1982. Even though large firms may boast greater levels of R&D investment than small firms, the studies suggested the latter is not at an innovative disadvantage.

How have small firms experienced this innovation success? R&D Expenditures, Firm Formation and Economic Growth contends the answer lies in spillover — when knowledge generated by the R&D process at one firm spills over to and is exploited for economic gain by other firms. Moving unidirectionally from large firms to small firms, the report states, the flow of knowledge bears a geographic proximity that especially benefits small firms en route to innovative clustering.

Spillover, while most prevalent in R&D intensive industries, is not unique to corporations, however. With respect to universities, the report offers the following:

"University research laboratories are equally likely to exhibit the same spillover effects. To date, the research on such effects have focused on spin-off new firms typically started by one or more faculty from university R&D labs... Given the existence of university R&D spillovers, one can expect that new firm births would be correlated with the extent of R&D activity at research universities."

Conclusions drawn in R&D Expenditures, Firm Formation and Economic Growth largely are based on previous research. However, the authors test two hypotheses using many socio-economic variables that allow for further review. The authors also provide regression analyses and test for multicollinearity. The report is available at: http://www.ncoe.org/research/1-university.htm

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Encouraging Entrepreneurship in a Down Economy
The continuing layoffs of thousands of workers, particularly in the information and communication tech sectors, creates significant hardships for the affected local and regional economies. For instance, a recent Federal Reserve Bank report noted office vacancy rates in Silicon Valley hovering around 40 percent.

Fortunately, highly skilled labor does not tend to stay unemployed too long. If these people cannot find work, they make it by launching their own innovative businesses.

The tech-based economic development community can do a lot to encourage tech firm start-ups in a down economy.  Understanding the entrepreneurial mindset, explored from two different perspectives in the following papers, is critical for ensuring support programs address the entrepreneurs' needs.

Survey Finds Entrepreneurial Energy Among Minnesota’s Dislocated Workers
An intriguing potential source of new entrepreneurial energy seems to exist among recently laid off workers, according to a recent report by the Minnesota Department of Trade and Economic Development (DTED). The report, Dark Cloud, Silver Lining: Survey Finds Entrepreneurial Energy Among Minnesota's Dislocated Workers, details a 2002 survey of dislocated Minnesota workers who said they were interested in starting their own businesses.

“We were, frankly, a little surprised to find such a strong entrepreneurial spirit among Minnesotans who might be expected to get discouraged after losing their jobs,” DTED Commissioner Rebecca Yanisch said in a press statement. “But it turns out that laid-off workers represent a potent source of new entrepreneurial energy that we can and should tap to help the state get on track to economic recovery.”

The analysis examined data from 5,420 workers who participated in the state’s Dislocated Worker Program in 2001. Of that total, 631 (11.6 percent) indicated their interest in starting businesses, and a follow-up survey of these entrepreneurs, which drew 158 responses, showed that 11 percent have begun running their own businesses. Almost 18 percent said they are in the process of starting a business, and nearly 40 percent are still thinking about starting their own companies.

The report suggests that policymakers can encourage entrepreneurship by recognizing it as a realistic option for dislocated workers, providing reliable information and resources to support entrepreneurs, offering training in processes and skills for developing a successful business, and providing financial and technical assistance to small businesses.

Dark Cloud, Silver Lining was prepared by DTED’s Analysis and Evaluation Office. The report is available at http://www.dted.state.mn.us/PDFs/disloc-wkr-rpt.pdf.

Study: Minorities More Likely to Attempt to Start a Business than Whites
Ten million American adults are involved in the process of starting nearly six million potential new businesses at any one time, with African-Americans 50 percent more likely to start a business than whites, according to a new report released by the Ewing Marion Kauffman Foundation (EMKF).

Funded with grants from EMKF, the National Science Foundation and 33 member institutions, The Entrepreneur Next Door aims to answer who is involved in start-up ventures in the U.S. The Panel Study of Entrepreneurial Dynamics (PSED) finds that African-American men with graduate experience ages 25-35 are the most actively engaged population starting new businesses in the U.S. today. Hispanic men are 20 percent more likely than white men to be involved with start-up ventures.

PSED — a national sample of 64,622 U.S. households — identified a panel of 830 nascent entrepreneurs and followed their efforts to pursue business start-ups over a two-year period. The ongoing study tracks emerging entrepreneurs as they progress through the entrepreneurial process and reveals that attempts at new business formation, which are more widespread than previously disclosed, involve all racial and ethnic groups.

Four questions are addressed in the study: 1.) Who is involved in starting businesses in the U. S.? 2.) How do they go about the process of starting companies? 3.) Which of these business start-up efforts are likely to result in new firms? And 4.) Why are some of these business start-up efforts successful in creating high-growth firms?

Among the key findings:

Serving as principal researchers on the undertaking are: Nancy M. Carter, Graduate School of Business, University of St. Thomas; William B. Gartner, Marshall School of Business, University of Southern California; Patricia G. Greene, Henry W. Bloch School of Business and Public Administration, University of Missouri - Kansas City; and Paul D. Reynolds, Blank Center for Entrepreneurial Studies, Babson College.

The researchers led over 120 scholars in the development of the study.

Carter, Gartner, Greene and Reynolds conclude no one group or type of individual is not engaged in new business formation. The results show education, income and location significantly predicts nascent entrepreneurship, and ethnicity, age and gender impact who are actively engaged in starting new ventures in the U.S. The PSED offers widespread implications for public policy, education and economic development, as well as individual wealth creation, they say.

The Entrepreneur Next Door is available at http://www.emkf.org/pdf/psed_brochure.pdf.

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State Fiscal Crises: Lessons For The Future
Leslie McGranahan, in Unprepared for Boom or Bust: Understanding the Current State Fiscal Crisis, highlights the problems that are inherent in state policy when dealing with the cyclical behavior of the economy. The article released in the 2002 3rd quarter edition of Economic Perspectives, a publication of the Federal Reserve Bank of Chicago, identifies the common problem of states cutting taxes and increasing expenditures during boom times only to be faced with revenue shortfalls during recessions.

When revenues are reduced, states are forced to cut government services when they are needed most and increase taxes when taxpayers are the poorest. McGranahan identifies various reasons for the increased revenues during the boom period of the 1990s, including increased sales tax revenue from increased consumer spending, increase in revenue from taxes on capital gains and dividends, the influx of tobacco settlement money and decreases in spending on welfare programs as they have been restructured among various other reasons for enhanced revenues. While revenues were increasing, state spending was growing as well. State governments' tendency to increase spending and decrease tax rates creates a fiscal crisis when the inevitable cyclical downturn occurs.

McGranahan outlines five areas in which state governments can institute policy changes that can help prepare states for lean times during economic downturns.

The author hopes that two economic downturns in the past decade or so will help states understand how to have better foresight into preparing for future downturns. The complete article can be found at: http://www.chicagofed.org/publications/economicperspectives/2002/3qepart1.pdf

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NASA Selects Corporation to Lead Innovative Research Institute
NASA has announced the Langley Research Center in Hampton, VA, will team with the National Institute of Aerospace Associates (NIAA), Reston, VA, to create the National Institute of Aerospace (NIA) to perform aerospace and atmospheric research, develop new technologies for the nation and help inspire the next generation of scientists and engineers.

Locating the NIA at the Langley Research Center will facilitate the institute's involvement in agency sponsored research programs and foster collaboration with NASA, including access to its research facilities.

This government-academic partnership is comprised of a cost reimbursable, indefinite delivery/indefinite quantity contract and a cooperative agreement. The maximum value of the contract for a five-year base period is $49 million. The value of the basic five-year cooperative agreement is $69 million. If the three five-year options are exercised under the cooperative agreement, the combined potential total value would be $379 million.

NIAA is made up of seven non-profit organizations or universities including:

NIA is a long-term commitment on the part of NASA to expand collaboration with universities, industry, other government agencies and the broader scientific community to fully leverage expertise inside and outside of government. Once fully operational, institute will become a strategic partner working with NASA to enhance its aerospace and atmospheric research capability.

Through its partner universities, NIA will offer masters' and doctoral degrees in science and engineering using both a local campus and the latest innovations in distance learning. The institute will also be a catalyst for economic development by stimulating the commercialization of new intellectual property and facilitating the growth of new business opportunities.

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