In the November 22, 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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Appalachia Rife with Tech Clusters But Exploiting Them Presents Challenges
More than 100 technology clusters may exist in the Appalachian Regional Commission (ARC) area, but challenges to exploit and nurture the clusters still exist. A new report analyzes the ARC region's concentration of technology resources at a sub-regional level and uncovers localized technology strengths that might be promoted through concentrated economic development policy.

Regional Technology Assets and Opportunities: The Geographic Clustering of High-Tech Industry, Science and Innovation in Appalachia, written by Edward Feser, Harvey Goldstein, Henry Renski and Catherine Renault, shows the technology sector of the Appalachian region is small, yet expanding. In 1998, more than one million technology workers belonged to the 406-county ARC area. This represents an 11.2 percent increase since 1989 when 959,000 technology workers were present in the area.

The ARC region's technology clusters are organized in eight technology areas – chemicals and plastics, motor vehicles and related, industrial machinery, information technology and instruments, aerospace, communications services and software, and pharmaceuticals and medical technologies – but their spatial distribution is highly uneven. Forty-five clusters are located in the northern third of the region, 29 are in the southern third, and only 19 of the clusters are in the middle third.

In addition, more than half of the clusters are located on the periphery of the region and are anchored to metropolitan areas outside of the ARC region — a statistic the report suggests may present a problem for a region where high-tech prospects are heavily reliant on spillover effects from nearby cities and metropolitan areas. These spillover effects are not necessarily positive, however. High-tech concentrations in these neighboring cities can draw away talented graduates and skilled labor and deplete the human capital, which is necessary to fuel tech-based economic growth. This sort of negative spillover is one that policy makers must address to assure that a skilled workforce remains in the region.

Other findings suggest that areas with the greatest advantage in exploiting the knowledge economy are those near large population centers or academic research facilities. SBIR, STTR, and ATP award winners are concentrated in Huntsville, Blacksburg, Pittsburgh, State College and Ithaca. The diversity leaders in high-tech industry are Binghamton, Greenville-Spartanburg, Huntsville, Johnson City and Pittsburgh.

The report provides three major recommendations:

Regional Technology Assets and Opportunities is available at: http://www.kenaninstitute.unc.edu/Centers/OED/OED_Publications/assets.pdf

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R&D Intensity and Regional Growth: Does a Link Really Exist?
Economic growth in a regional economy can be positively linked to an increase in intensity of industry R&D, according to recent research by Marios Zachariadis of Louisiana State University. R&D, Innovation, and Technological Progress: A Test of the Schumpeterian Framework without Scale Effects, released in September 2002, establishes a connection among R&D intensity, patenting, technological change and economic growth.

Zachariadis uses 2-digit SIC code industry data from U.S. manufacturing between 1963-1988. Defining R&D intensity as the fraction of output that is devoted to R&D expenditures, the research supports the position for a growth model in which policy decisions can have a positive impact on economic growth. Zachariadis' work also supports a direct and indirect relationship between R&D intensity and productivity growth.

The author establishes several relationships: (1) R&D intensity has a positive impact on the rate of patenting, (2) the rate of patenting has a positive impact on the rate of technological change, and (3) technological change has a positive impact on the growth of output per worker in a regional economy.

Zachariadis suggests that technological spillovers are present among industries, because the positive impact, when including all industry R&D, is greater than individual industry impact. An increase in aggregate industry R&D intensity by 1 percentage point increases the growth rate of output by 0.66 percentage points. This stronger positive impact indicates that industries are benefiting from spillovers amongst each other and not just within each industry.

Findings of this nature have logical implications in economic development policy. Policy makers may conclude from this research that efforts to increase the role of R&D in an economy will have a significant economic impact. R&D intensity is positively linked to increased productivity, which is key to economic growth.

R&D, Innovation, and Technological Progress is available at: http://www.bus.lsu.edu/economics/papers/pap02_18.pdf

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Telecommunications Needs of Greater Minnesota Companies Examined
Manufacturing jobs in rural Minnesota numbered almost 120,000 in 2000, a 25 percent increase since 1990, according to a recent study by the Center for Rural Policy and Development and Minnesota Technology Inc., two agencies dedicated to helping industry in Greater Minnesota. Meanwhile, manufacturing jobs in the state's metro area increased only 1.7 percent during the same period, the study shows.

The study was the third part of the 2002 Rural Minnesota Internet Study, an annual collection of surveys designed to monitor computer, Internet and broadband use. Part III examines the telecommunications needs of the state's rural manufacturing firms. A survey of 300 of these firms revealed factors contributing to why some use the technology and others do not.

Ninety-three percent of the surveyed companies reported having an Internet connection, and 28 percent said they buy or sell products through e-commerce applications. Among those with Internet hook-ups, 47 percent said they had a dial-up connection, while the majority of those with a broadband connection (42 percent) reported using either a digital subscriber line (DSL) or a T-1 line.

The findings suggest that companies still using dial-up connections may be doing so due to cost and lack of availability of broadband technology. Between 58-65 percent of those companies equipped with the technology said DSL and T-1 lines were available at a reasonable cost to them. No more than 28 percent of dial-up users, however, believed these broadband services were available at a reasonable cost.

A similar relationship was shown between company size and the use of broadband. Of those firms with $5 million or more in sales, 78 percent said they were using a broadband connection, while only 23 percent of firms with less than $1 million reported using one. Likewise, 81 percent of companies having 50 or more employees said they were using broadband, while only 29 percent of those with less than 10 employees claimed not having broadband.

Companies also described how telecommunications technology impacted their business and their costs. Among the findings, more than half reported the costs of doing business and productivity were affected by an inability to secure needed bandwith. Forty-one percent said such inability has adversely impacted business opportunities, a finding the study suggests "could become a factor in business retention and expansion efforts."

Nearly one in four of the surveyed companies expressed plans to invest in broadband services during the next year. If companies fear losing business opportunities due to their local telecommunications infrastructure, the authors conclude, "they could relocate to areas that better meet their needs."

The Center for Rural Policy and Development, based in Mankato, Minn., is a non-partisan, nonprofit policy research organization that provides its policy makers with an evaluation of issues from a rural perspective. Minnesota Technology Inc. is the state's leading technology-based economic development organization. All three parts of the 2002 Rural Minnesota Internet Study are available at: http://www.mankato.msus.edu/ruralmn/

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National Academies Report Offers Ways to Improve Undergraduate Education
Universities should revamp how they evaluate S&T teaching, report says

Because advances in science and technology have done much to fuel U.S. economic growth over the past 50 years, both the public and private sectors have invested heavily in university research. However, the evaluation of teaching in science, technology, engineering, and mathematics has been haphazard and less exacting, says a new report from the National Academies' National Research Council.

Fair strategies for evaluating undergraduate teaching and learning in these fields deserve wider appreciation and use, the report states. First-rate scholarship focused on improving teaching and learning also should be recognized and supported as a bona fide academic endeavor on par with top-notch research. Likewise, faculty members who excel in the classroom should be publicly recognized and rewarded, the report suggests.

Many of the nation's higher-education institutions stress the need for superior science and mathematics instruction, especially in lower-level undergraduate courses, but faculty members and administrators often believe it is nearly impossible to objectively gauge the effectiveness of teaching skills or the impact of departmental curricula, according to the report. Since scientific disciplines, colleges and universities vary considerably, no single path to high-quality evaluation of professors or academic departments is clearly superior. On the whole, teaching and program effectiveness should be judged by the extent of student learning, the report emphasizes, but evaluations often leave this key variable out of the equation.

Evaluations of teaching effectiveness and departmental curricula could be informed by input from colleagues who have observed fellow instructors in the classroom or analyzed their course content and materials, says the committee that wrote the report. Feedback from undergraduate students and graduate teaching assistants also could enhance reviews of academic programs and teaching or mentoring performance. Each of these criteria, the committee warns, should be considered with care, however. Many factors other than teaching performance – institutional policies, for example – may affect student learning and development.

While the report underscores the importance of tapping into a variety of information sources to foster evaluation that promotes continuous improvement, it also acknowledges that putting multiple review measures in place can be time-consuming. The report suggests that, in addition to making undergraduate education in science, technology, engineering, and mathematics a top priority, university leaders, departments or governing boards should undertake the following:

Shared commitment to the goal of improving undergraduate education is critical at the department level, where key decisions regarding tenure, promotions, and curricula are made, the report states. Beyond the campus, agencies and boards that certify colleges and universities for accountability purposes also must play a role in shoring up undergraduate education. They should revise their policies to stress student learning as a primary criterion for program accreditation, concludes the report.

Evaluating and Improving Undergraduate Teaching in Science, Technology, Engineering, and Mathematics was sponsored by the National Research Council, a private, nonprofit institution that provides science and technology advice under a congressional charter. The report is available at: http://www.nap.edu/books/0309072778/html/

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Useful Stats: 3rd Quarter VC Data by State
Two independent surveys of venture capital investments made during the third quarter of FY 2002 suggest the downward trends in the flow of money and number of VC placements will continue.

MoneyTree™ Survey
Venture capital continued its downward trend in the third quarter of 2002 with total investments of $4.5 billion into entrepreneurial companies, a decrease of 26 percent from the prior quarter, according to the PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey. Venture capitalists invested $6 billion in the second quarter and $6.4 billion in the first quarter. The last time quarterly venture capital investments were below $5 billion was the first quarter of 1998, when it totaled $4.2 billion.

A total of 647 companies received funding in the third quarter of 2002, compared to 838 in the prior quarter. All major industries experienced declines, however. Software showed some resilience in dropping only 10 percent to $993 million and 180 deals, accounting for 22 percent of all venture capital, but telecommunications, the second largest industry category, fell 32 percent to $555 million in 67 companies. The Networking category also saw a comparable decline of 34 percent to $341 million in 39 deals.

After a string of solid quarterly investing, the Life Sciences industries finally faltered. Biotechnology declined 52 percent to $468 million and 48 companies. Medical Devices fell 28 percent to $448 million.

The 2002 MoneyTree™ survey results are available at: http://www.pwcmoneytree.com, http://www.nvca.org, and http://www.ventureeconomics.com.

In the latest quarter, there were 16 states where the MoneyTree™ survey reported no investments. SSTI has prepared a table <http://www.ssti.org/Digest/Tables/112202t.htm> to present the results by state. Data for the number of deals, total amount invested, and average deal size are included.

Growthink Survey
The Growthink Private Equity Funding Reports for the Third Quarter 2002 finds more than $4.9 billion of venture capital was invested in 554 private companies — a decline of 20 percent over the second quarter of 2002. Although companies securing investments only numbered 25 less than the previous quarter, those that raised funding rounds of $20 million or more dropped by 35 percent.

For major metropolitan areas, Growthink shows the San Francisco Bay Area continued to lead the way with $1.5 billion in investments, or 30.9 percent of the nation's total. Boston followed with $539 million (10.8 percent) and 58 deals, and New York, with 33 deals, was next at $259 million (5.2 percent). Despite having only nine investments, Chicago was the fourth leading metro area.

Fifth was the Research Triangle in N.C., an area that showed marked improvement over the prior quarter by moving from $123 million to $215.6 million — a 75.3 percent increase in VC investments. Combined, the top 10 metro areas accounted for 72.4 percent of the total activity for the third quarter. Following the Research Triangle were San Diego, Washington D.C., Orange County (CA), Los Angeles and Seattle.

Growthink reports only private, U.S. based companies that receive equity investments of $300,000 or more. The company does not collect information on venture capital investments in public companies, debt financing or other areas. The first quarter survey, including data by geographic region, state, metro area, and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com

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Tech-based ED RoundUp: Casualties of the Economy

Competition Canceled in Florida
The 2002 Florida 100, a competition meant for recognizing the state's fastest-growing private businesses, was canceled earlier this year due to a lack of program funding, the Sun-Sentinel reported. The competition is sponsored annually by the Warrington College of Business Administration at the University of Florida and administered by the school's Fisher School of Accounting. To qualify, companies must demonstrate an increase in sales revenues for the previous three years. Most of the program's private funding in the past has come from major accounting and law firms in Florida.

Incubator in Tampa Shut Down
Officials overseeing TechVillage Tampa Bay, an incubator established last fall, voted to dissolve the nonprofit organization last month, according to the Tampa Tribune. Initially, the incubator had funding and was backed by area sponsors such as the Greater Tampa Chamber of Commerce and the University of Tampa. As the economy stumbled, however, so did the support, the article states. The incubator's budget was approximately $120,000.

Slashed Funding Leads to Office Closures in Nebraska
State budgets cuts in Nebraska led Peru State College to cut funding for its Nebraska Business Development Center office, which will close by the end of 2002, the Omaha World-Herald recently reported. The office's Chadron State College counterpart also will close by the year's end due to a cut in federal funding. Peru State officials had survived a 1998 legislative attempt to close their office but, during this go-round, felt the need to eliminate two positions totaling more than $97,500 in costs. The Peru office served 62 clients from five counties in 2001.

Digital Divide Bridge Closes in D.C.
The McLean-based PowerUp, an organization dedicated to helping bridge the Digital Divide, closed its national office last month, according to the Washington Post. Board members of the group decided to cut funding for the program to pursue other philanthropic interests. Using numerous contributions, PowerUp invested more than $50 million toward community centers nationwide, 957 in poverty-stricken areas where computer access is limited. More than 200,000 children a week have access to 12,000 computers through the program, PowerUp estimates.

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