In the March 14, 2003 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.

Subscription to the SSTI Weekly Digest is free. If you are reading a forwarded copy of this issue and would like to receive your own copy each week directly, please subscribe at http://www.ssti.org/Digest/digform.htm. Requests to unsubscribe also may be completed at http://www.ssti.org/Digest/digform.htm.


More Tech Talkin' Govs
Prominent in two State of the State addresses given during the past 10 days by Governors in Illinois and North Carolina were commitments to tech-based economic development initiatives as vital ingredients toward fiscal recovery. Selected excerpts are provided below:

Illinois
Governor Rod R. Blagojevich, State of the State Address, March 12, 2003
"This week, we will introduce legislation to build a $200 million Illinois Opportunity Fund that will attract the private investment our state desperately needs. It will help jump-start industries and focus on new technologies that have the potential – to not only put people back to work, but to create the sort of jobs that will attract young people to our state. I'm going to work with you – the legislature – to pass this bill as quickly as possible so we can have the fund up and running within a year...

"There will be no more missed business opportunities... That can start with nanotechnology, which is the manipulation of matter at the atomic level. Guess where the center of the nanotechnology universe is today? Right here in Illinois. Nanotechnology is just one of many areas the Illinois Opportunity Fund will target.

"There are countless entrepreneurs across this state with good ideas who just need a chance to show what they can do. Today, I am announcing the creation of entrepreneurship centers in six Illinois communities... Two months from today, the first of these centers will be operational and making an impact. Two years from today, there will be twenty. As I promised during my campaign, we're going to equip these centers with funding to provide $5,000 business planning grants to 400 entrepreneurs across the state...

"And in agriculture, – we can use new technologies to turn grain into ethanol and other value-added products. Illinois has the nation's second highest output of corn and soy bean products. Our Illinois Opportunity Fund can help farmers explore new products and new markets for the corn and soybeans that grow here in such abundance."

North Carolina
Governor Michael Easley, State of the State Address, March 3, 2003
"...we must create an environment that rewards discovery and innovation, and knowledge and technology. We can do this by reforming our R&D tax credit to attract growth industries. We can do this by capitalizing on our commitment to the Golden LEAF Foundation. Golden LEAF has an aggressive biotechnology initiative. We are one of the few states poised to be the biotech capital of the world.

"This initiative puts us in a great position to lure new business, research, jobs, and investments across the state. And the North Carolina Biotechnology Center, in partnership with the universities and community colleges - with a modest state investment - will send the message in a loud and mighty voice that North Carolina workers plan to lead the world in biotechnology and we will not be denied."

return to the top of this page

RI Governor to Legislature: Double Slater Funding, Attract VC
Rhode Island, like nearly every state in the country, is facing a projected budget deficit in FY 2004. To deal with a $175 million or 6.6 percent shortfall, 21 agencies are facing budget reductions in Governor Don Carcieri's first budget request to the Rhode Island General Assembly. However, demonstrating his commitment to "make strategic investments to promote job growth," Gov. Carcieri calls for increased support for several tech-based economic development initiatives. Topping the agenda is doubling funding for the Slater Centers of Excellence program to $5 million in FY 2004. Gov. Carcieri also proposed eliminating the state's graduated licensing fees to help Rhode Island start-up tech firms and spending $800,000 to jump-start two biotech initiatives.

The Slater Centers of Excellence — each focused on a specific technology niche — mine Rhode Island's research institutions for ideas with commercial potential, provide modest startup funds and critical business development support for inventors and entrepreneurs who want to start technology companies. Since the program's inception in FY 1998 and a total state investment of $6.8 million, the four independent, nonprofit Slater centers have helped to launch 66 new ventures, 18 of which have already leveraged more than $117 million in private venture capital.

The Governor's request would permit the state to allow the four Slater Centers to make 8-10 investments of $100,000 annually.

Rhode Island's graduated licensing fee, paid whenever a company makes changes to its authorized share of stock, would be replaced with a fixed, flat $160 fee with passage of the governor's FY04 budget proposal. The graduated licensing fee is described in the budget's executive summary as particularly burdensome for start-up technology firms: "Typically, in early phases of business development, when a firm has more potential than actual profits, a venture capitalist will invest real money in the firm in exchange for shares of the company's stock... For a start-up venture that wishes to increase its authorized shares of stock in order to transfer them to a prospective venture capitalist, [the current graduated licensing] fee in the tens of thousands of dollars to do so is counterproductive."

Gov. Carcieri's budget also requested $300,000 for architectural and engineering "seed money to assist in the development of a $10 million biotechnology training facility, which will prepare Rhode Islanders for employment in the growing bioscience industry." Additional financing would be provided by a public-private partnership between the state, biopharmaceutical manufacturers, and the makers of equipment used in the biopharmaceutical manufacturing process.

An additional $500,000 is requested over two years for initial planning of a $50 million Center for Biotechnology and Molecular Biosciences and the University of Rhode Island. The bulk of the funds to establish the center would be part of a bond referendum to be put before Rhode Island voters this fall.

return to the top of this page

Fiscal Stress Pervasive in Nation's Cities, State Budget Crises Not Helping
Three-quarters of the nation's cities surveyed by the National League of Cities (NLC) report they are less able to meet their financial needs this year than they were a year ago. This is a sharp increase over the 55 percent of cities that said they were less able to meet financial needs in last year's survey by NLC, the oldest and largest national organization for American cities. The preliminary survey results are based on initial responses from officials in 145 cities to NLC's State of America's Cities Survey on Fiscal Conditions, conducted in February 2003.

Factors contributing to the worsening financial picture in cities include a decrease in aid from state governments. More than one-third of the surveyed cities (36 percent) said the decrease in state funds is the largest source of revenue decline in their cities. At the same time, most cities (81 percent) report they increased spending on public safety in 2003.

To deal with tightening budgets, 63 percent of the cities report that they are raising fees for services or creating new fees in 2003, compared to 42 percent in 2001. Fifty-six percent said city reserves are being drawn down in comparison to only 24 percent in 2001.

Looking ahead, 74 percent of cities said they would be even less able to meet their cities' financial needs in the coming year and 54 percent expect their local economies to be weaker next year.

NLC held a summit March 7-11 in recognition of the fiscal crisis facing governments at all levels, which marked the survey's unofficial release. Full results of the NLC survey are expected to be available by April 24. A fact sheet highlighting the survey's preliminary findings will be available at http://www.nlc.org.

return to the top of this page

Washington Leads in New Company Creation, Index Finds
Washington State still ranks first nationally in the creation of new companies, according to the third annual Index of Innovation and Technology released by the Washington Technology Center (WTC), a state-funded organization that fosters technology employment growth. The Index also shows the number of patents earned by Washington inventors increased by 11 percent from 2000 to 2001.

WTC's Innovation Index considers more than 40 key indicators to characterize the health of the state's innovation economy. Growth, financial capacity, human potential, competitiveness, quality of life, and innovation capacity in Washington all are assessed.

Venture investment in Washington companies declined almost 60 percent during the years covered by the Index. However, the Pacific Northwest state remains among the top regions of the country for venture investment, ranking ninth overall. Silicon Valley, however, attracts 15 to 20 times more venture capital than Washington State, the findings show.

The steady growth of the state's non-aircraft technology sectors has helped offset the loss of its Internet companies and curb any decline in technology employment, the Index reports. Many of the refugees from defunct dot-com companies have found new full-time jobs in other parts of the innovation economy. Washington also leads in average technology job wage at $118,252 per year.

The Index does raise some reasons for concern, including investors' tentativeness. It also points out the slow rate of increase in elementary and secondary students passing math proficiency — a key element for sustained growth in an innovation economy.

The WTC Index is available at http://www.watechcenter.org/techindex/.

return to the top of this page

Minnesota Manufacturers Facing Stiff Chinese Competition, MTI Survey Says
Minnesota manufacturers are cutting payrolls, bidding low and scrambling to compete with the giant threat of cheap labor and enhanced manufacturing facilities offered in China, according to a recent survey of Greater Minnesota manufacturing companies.

Funded by Minnesota Technology, Inc. (MTI), the state's lead technology-based economic development organization, the survey finds that most of Minnesota's outstate manufacturing companies are facing increased competition, specifically from Chinese manufacturers. Half of all respondents said that Chinese competition is hurting their business, and others suggested manufacturers have yet to see the benefits of trade with China touted by many free marketers. Of those who said Chinese manufacturing had hurt their business:

To conduct the survey, MTI compiled a list of 850 manufacturing firms in sectors that U.S. Trade Deficit Review Commission researchers identified as having significant production shifts from the U.S. to China. One hundred fifty of these firms were randomly selected and surveyed by telephone between January 6 and January 16, 2003.

The MTI survey Impact of China-based Manufacturing on Greater Minnesota Manufacturing Companies is available at: http://www.minnesotatechnology.org/

return to the top of this page

Maine Environmental, Energy Groups Merge
Around the country, the current funding climate is forcing some technology groups to explore new relationships with each other, including consolidation. In other cases, it just makes good sense. For example, two of Maine's environmental and energy technology organizations are joining forces with the goal of advancing job growth, R&D and new product commercialization within their overlapping industries.

The Environmental Business Council of Maine (EBCM) and the Maine Environment & Energy Center (Maine E2 Center) are combining to create the Environmental & Energy Technology Council of Maine (E2 Tech Council). The new organization will service an industry sector that includes more than 200 companies and nonprofit organizations employing approximately 4,000 workers.

A two-year Cluster Enhancement Grant provided by the Maine Technology Institute (MTI) is supporting the new organization's start-up effort, with additional cash and in-kind support donated by the Maine State Chamber of Commerce and by approximately one dozen other companies, organizations and agencies.

"This merger is a very healthy step for the Maine economy," Willard Warren, president of the EBCM, said in a press statement. "Individually, the Maine E2 Center and our organization have had a limited capability to fully serve the expanding list of Maine firms researching and commercializing environmental and energy technologies. Together, as the E2Tech Council, we can draw on more resources and forge more partnerships that will ultimately mean more jobs and opportunities for Maine."

Environmental and energy technology is one of seven economic sectors targeted for growth and assistance within the state. The E2 Tech Council will provide information about state and federal early-stage financing programs, university research partnerships, and business incubation and technical assistance programs.

The Council will also provide improved communications and networking opportunities for Maine environmental and energy technology companies, entrepreneurs, and educational and conservation institutions.

The Center for Environmental Enterprise at Southern Maine Technical College is hosting the new organization, with John Ferland, president of CEE, serving as interim executive director.

return to the top of this page

Should Public Policy Reward R&D Inputs, Outputs or Both?
Encouraging innovation is an important part of the bottom line for many state and local technology-based economic development programs. The advantages or "spillover effects" of growing localized knowledge economies or concentrations of researchers and technology firms has been studied by academia for more than two decades. Much of the attention of that analysis and of subsequent public policy has been on the knowledge or process side of innovation.

For instance, tax credits for R&D investments, present in more than 45 states based on SSTI research, reward almost any R&D expenditures by firms when, according to a recent working paper by Carmine Ornaghi at the Universidad Carlos III de Madrid, spillovers from product innovations are greater than those derived from process innovation. Spillovers in Product and Process Innovation: Evidence from Manufacturing Firms, which warrants additional research to confirm or refine its findings, suggests public policies targeted more exclusively toward encouraging product innovations by firms may be more effective and beneficial than a current portfolio of policies.

Most studies focus on the notion that technological innovation is inherently process oriented; or, in other words, the knowledge capital acquired by a firm improves the process through which input is changed into output. However, this overlooks an important element of innovation concerning upgrading the quality of existing products.

Ornaghi's research adds a demand equation to the standard production function model traditionally used and focuses more heavily on the output side of innovation by introducing a notion of operative R&D capital. The result is Ornaghi finds "that technological diffusion of product innovations is larger than the one of process innovations both in magnitude and pervasiveness." This finding implies the common approach of studying production can only contribute to part of the understanding about spillovers, Ornaghi argues.

Additionally, Ornaghi makes the following observations:

Ornaghi concludes, "From our estimations, it emerges that the average gap between private and social rates of return is higher for product innovation than for process innovation. This suggests the opportunity of a different public policy towards taxation of R&D investments or government subsidies to R&D activities depending on the type of innovation that firms are focused on. More evidence is obviously required before moving in this direction."

The study analyzes data on more than 2,000 Spanish manufacturing firms from 1990 to 1998, using a database that details firms' individual input, R&D expenditure, types of innovation achieved and other demand-related variables.

Spillovers in Product and Process Innovation: Evidence from Manufacturing Firms can be downloaded at: http://docubib.uc3m.es/WORKINGPAPERS/WE/we023213.pdf

return to the top of this page

Useful Stats: State Patent Figures, 1998-2001
Knowledge in the "knowledge economy" can be an extremely difficult entity to measure with any consistency. Innovation and technological change, both key drivers of economic growth, are elusive to grasp and even harder to measure reliably in geographic terms. Patent activity, however, has long been considered an important measure of innovation in the New Economy. Patents are seen as an insightful proxy to help measure and understand economic growth through technological change and for research on the economics of innovation.

States may then ask, how inventive are we? How does our "inventiveness" compare with other states? The United States Patent and Trademark Office produces helpful online reports presenting the number of patents filed within each state distributed across technology sector or organization. To standardize the aggregate data, to permit easier comparisons and to help some trends to appear, SSTI has compiled a table showing patent activity per 10,000 residents for the most recent four years of data, 1998-2001.

Idaho maintained the top spot for number of patents per 10,000 people throughout the time frame, largely driven by the Idaho National Engineering and Environmental Laboratory. Vermont rose from 5th in 1998 to 2nd in 2001. North Dakota made the biggest jump in ranking position from 44th in 1998 to 35th in 2001. Oklahoma presented the second largest gain, moving up to 30th in 2001 from 37th in 1998.

SSTI's table can be viewed at: http://www.ssti.org/Digest/Tables/031403t.htm

return to the top of this page

NSF to Award $30M for S&T Centers
The National Science Foundation (NSF) has announced it intends to award approximately $30 million in FY 2005 funding under the Science and Technology Centers (STC): Integrative Partnerships program. NSF is encouraging proposals for high quality innovative research projects that undertake investigations across or within disciplines.

The STC program invests federal funds in areas consistent with NSF's goals to enable the nation's future through discovery, learning and innovation. STCs conduct research in partnerships among academic institutions, national laboratories, industrial organizations, and other public-private entities. Their benefit to society is accomplished via a three-pronged approach:

To date, four competitions to establish STCs have resulted in 36 centers. The first two competitions, one in the late 1980s and one in the early 1990s, led to the establishment of 25 centers that subsequently graduated from NSF support. A third competition culminated in 1999 with the National Science Board's approval to award five new centers. The fourth competition led to the last six centers in late 2002.

An estimated 6-8 new centers will be awarded under new STC program competition. The program guidelines require that each center be based in an academic institution; be directed by a science or engineering faculty member and be integrated into academic programs; and have an annual budget ranging from $1.5 million to $4 million of NSF support. Cost-sharing of 30 percent of the requested total amount of NSF funds is required for all proposals. Additional requirements are listed in the program solicitation.

Academic institutions in the U.S. that have significant research and degree-granting education programs in any area of research normally supported by NSF are eligible to apply for support. Required preliminary proposals for STC projects are due by June 3. Full proposals, which are by invitation only, will be due in 2004.

The STC program solicitation is available at: http://www.nsf.gov/pubsys/ods/getpub.cfm?nsf03550

return to the top of this page

State Science & Technology Institute
5015 Pine Creek Drive
Westerville, OH  43081
Phone: (614) 901-1690
Fax: (614) 901-1696
Email: ssti@ssti.org

© 2003 State Science and Technology Institute. All rights reserved.