In the January 10, 2005 Issue:

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Tech Talkin' Govs 2005, Part One
Most of the nation's governors use the winter months to publicly lay out their agendas, visions and budget requests for the coming year. The text of State of the State Addresses, Budget Messages and, to a lesser extent, Inaugural Addresses, often reveals each governor's legislative priorities and new initiatives to be pursued over the coming months.

As a service to the tech-based economic development (TBED) community, SSTI provides excerpts from the various gubernatorial speeches and addresses that provide glimpses into how tech-based economic development issues are positioned in each governor's 2005 agenda. We kick off the sixth annual series of "Tech Talkin' Govs" with TBED highlights from addresses given by the governors of New York and North Dakota.

New York
Gov. George Pataki,State of the State Address, Jan. 5, 2005
"Just as we created Operation IMPACT to target high-crime counties, let's create an economic version to leverage job growth and investment in communities that need it the most. To that end, I will propose Operation SPUR - the Strategic Partnership for Upstate Revitalization. This critical new initiative will target Upstate communities where we need additional economic growth and job creation, as well as areas that rely heavily on the farming and agribusiness sectors.

"In my Executive Budget, I will propose a seven-point plan that will marshal our resources to revitalize these SPUR communities. From enacting a single sales factor for manufacturers and advancing new job tax credits to creating new Agri-Business Opportunity Zones and tax credits for high-tech businesses, SPUR will bring new jobs and the promise of a growing economy to all New Yorkers."

North Dakota
Gov. John Hoeven, State of the State Address, Jan. 4, 2005
"Businesses must invest in products and people in order to create new wealth. So it is with the state of North Dakota. We must invest in our future…the people, the tools, and the opportunity to compete, if we are to truly build a higher standard of living.

"Our country's economic growth over the last 50 years has been fueled by new and emerging technologies. The jobs of the old production economy have been replaced with the careers of the new technology-based economy. Our competition is not just regional or national, but global.

"Economists now predict that 75 percent of the S&P Fortune 500 companies in the year 2020 will be comprised of companies that don't even exist today.

"North Dakota must come to the table as a player and full participant. Ready to do what it takes to prosper in the next generation. Ready to take advantage of the new opportunities.

"If we're going to create the best business climate to create higher paying jobs and retain our young people, we're going to have to build a workforce prepared for the opportunities of the future. That means the best schools and the brightest teachers educating the best and brightest students."

"...higher education is not only a training ground for life - it is also an engine of growth for our entire state. Virtually every business I talk to either has a link or is looking to develop one with our universities. That includes research and development for new products and services, on-going education and workforce training, and access to an exceptional quality of life.

"To truly build the best business environment, we must link our campuses to the private sector. Our Centers of Excellence program will do just that. Centers of Excellence are partnerships between higher education and business to create new, good paying jobs. These hubs of research and technology commercialize their work into products and services, and they provide a nucleus for business clusters across our state. They represent a significant force for economic growth - not only in North Dakota, but also across America...

"To capitalize on the potential for economic growth, states around the country are investing in Centers of Excellence with their universities...That is why we have proposed expanding our Centers of Excellence initiative as a $50 million program. Further, we will leverage our state's investment on a 2 to 1 basis, with private sector and federal dollars, to make $150 million available for these dynamic enterprises...

"In addition to Centers of Excellence, [introduced] legislation includes a range of initiatives that invest in our people and our future. These include more venture capital and investment tax credits for small business to support the kinds of entrepreneurial activities that produce new wealth and new opportunities for our people."

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PA Gov. Outlines Manufacturing Recovery Strategy
Hoping to combat and reverse job losses in the manufacturing sector, Pennsylvania Gov. Edward Rendell outlined his blueprint for recovery last month, entitled "Manufacturing Innovation."

Nearly 165,000 manufacturing jobs have been lost in Pennsylvania since 2001. Manufacturing, however, remains one of the largest sources of jobs in the state's economy, accounting for one out of every eight jobs. Gov. Rendell's blueprint targets this important sector for Pennsylvania, defining key business finance, workforce and technical support tools for manufacturers to remake themselves.

To increase business capital for manufacturing, the blueprint recommends the state undertake three steps:

The plan also outlines a number of steps needed to make manufacturing more competitive, including: create an early warning network to identify distressed firms; help small and rural firms with succession planning; help firms to identify pollution planning and energy efficiency opportunities; and study business tax reform commission recommendations.

In addition to positioning his new strategy, the governor appointed Tom Palisin as Pennsylvania's first Manufacturing Ombudsman and named Paul Piquado as the executive director of the newly-created Office of Fair Trade. Palisin will work to help solve problems involving state agencies and to help businesses "cut through the red tape." He will be responsible for assisting employers with questions regarding business finance, workforce training programs, permits and other regulatory issues.

Piquado will function as an advisor to, and advocate for, Pennsylvania business to ensure businesses can compete in the global marketplace.

More information is available through the Gov. Rendell's website: http://www.governor.state.pa.us/

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Amended VA Budget Could Be Kind to TBED
Ah, the difference positive revenue figures make for some states' tech-based economic development (TBED) portfolios! In mid-December, Virginia Gov. Mark Warner introduced an amended 2004-2006 biennial budget that is the most favorable yet during the Warner term for programs to promote economic growth through strategic investments in science and technology.

“Having restored Virginia’s financial stability, we now face the challenge of maintaining it over the long term,” Gov. Warner said in his address to a joint meeting of the Senate Finance, House Finance, and House Appropriations Committees.

The opportunity to fine tune the state's TBED investments comes as 2004 revenue projections were estimated to be nearly $1 billion higher than originally forecast in 2003. In addition to cutting several taxes and shoring up the state's rainy day fund, Gov. Warner proposes the state supplement funding for dozens of initiatives and programs.

The single largest new economic development initiative, Virginia Works, uses $20.8 million to promote new strategies for enhancing the economic development potential of rural areas. One of the program's three components supports several manufacturing technology initiatives, including: $379,000 to launch an Advanced Manufacturing/Packaging program at Dabney Lancaster Community College in Clifton Forge; $100,000 to expand technology, manufacturing and marketing through the Sloan Foundation Forestry Industries Center at Virginia Tech; and $394,000 for the creation of the Virginia Small Manufacturing Assistance Program to initially help 30 small existing manufacturers at the Virginia Philpott Manufacturing Extension Partnership.

Other TBED-related highlights in the amended budget request include:

More information is available at: http://asp.vipnet.org/news/anmviewer.asp?a=105&z=2

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Council on Competitiveness Lays Out National Innovation Initiative
A December gathering of leaders from many of the nation's largest companies raised what could be considered a battle cry for the U.S. to take more seriously the implications of globalization.

While most of the corporate giants at the Council on Competitiveness event held last month are actively positioning their companies in the global economy - by offshoring manufacturing and back office operations, scaling up international sales divisions, and increasing R&D investments overseas - their unified alarm call was the U.S. as an economic power is seriously threatened without a more proactive and aggressive national strategy to encourage innovation.

To help the nation's decision makers chart that corrected course, the Council unveiled a 68-page plan outlining numerous recommendations to be implemented for a National Innovation Initiative (NII). Innovate America: Thriving in a World of Challenge and Change draws on input received over the past 15 months from more than 400 leaders and scholars from universities and colleges, corporations, professional societies, industry associations and government agencies.

Recommendations are proposed in three key categories:

The Council plans to hold several regional conferences over the next few months to help advance the NII strategy. Innovate America is available at: http://www.compete.org/pdf/NII_Final_Report.pdf

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Useful Stats
2003 S&E Doctorate Awards by State, Federal R&D
The National Science Foundation (NSF) has issued the detailed statistical tables for Science & Engineering Doctorate awards for 2003. As was done for 2002, 2001 and 2000, SSTI has compiled a 50-state table presenting the number of degrees and rank for each major field of science & engineering. In addition, SSTI has used population in the form of "S&E doctorates awarded per 100,000 residents" to standardize the data to facilitate comparisons across states.

The 2003 table is available at: http://www.ssti.org/Digest/Tables/011005t.htm

Since identifying trends in numbers is often more valuable than the raw figures themselves, here are links for past tables:

NSF's Science & Engineering Doctorate Awards: 2003 Detailed Statistical Tables is available at: http://www.nsf.gov/sbe/srs/nsf05300/start.htm

NSF also released on Jan. 7 Federal R&D Funding by Budget Function: Fiscal Years 2003-05. The report enables readers to view trends in federal research spending by budget function and includes historical tables dating back to 1955. The report is available at: http://www.nsf.gov/sbe/srs/nsf05303/start.htm

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Recent Research
Working Paper Asks: To Patent or Not to Patent?
That is the question facing researchers who have innovative ideas that become marketable products. Researchers who file patents to protect intellectual property rights may diminish the value of the research to potential developers due to "knowledge leakage" to competing developers. Instead, a researcher might approach a developer directly to negotiate an exclusive contract in which a researcher receives some immediate compensation and a stake in the licensed, developed product.

Sudipto Bhattacharya of London School of Economics and Sergei Guriev of the New Economic School of Moscow address these two situations in their paper Knowledge Disclosure, Patents, and Optimal Organization of Research and Development. Based on Bhattacharya and Guriev's theories, researchers with venture capital partners may produce deals that result in greater amounts of knowledge development leading to marketable products than those that go it alone.

Using economic equations and game theory, Bhattacharya and Guriev found the preferred disclosure mode for the involved parties depended upon the nature of the research and the amount of knowledge leakage. They conclude that both parties would choose a closed sale if the research is deemed highly valuable and intellectual property rights are not well protected. If the risk of knowledge leakage remains low, researchers prefer open sales creating a variable relationship between the strength of intellectual property rights and aggregate R&D expenditures. The authors suggest that intellectual property rights reach a threshold where the closed mode is irrelevant and R&D investment declines as property rights increase.

Bhattacharya and Guriev also examine how researchers might attempt to develop their own marketable product or strengthen their bargaining position by lining up venture capital. The economists found that despite reducing the researcher's flexibility and creating inefficiencies, venture capital may enhance knowledge creation and improve the chances a researcher will pursue development of a marketable product.

From a policy perspective, a closed sale mitigates knowledge sharing (i.e. leakage) and creates a disincentive for the developer to pursue a marketable product due to shared profits with the researcher. However, the open mode creates disincentives for developers due to knowledge leakage. Based on the theories of Bhattacharya and Guriev, enhancing the access of researchers to venture capital might produce the greatest public good -- more development of knowledge and market-ready products.

Knowledge Disclosure, Patents, and Optimal Organization of Research and Development is available at: http://sticerd.lse.ac.uk/dps/te/TE478.pdf

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Recent Research
Related Knowledge Boosts Manufacturing Productivity
Just what makes firms productive? Economists continue to refine their thinking on the interactions that enhance productivity. Knowledge capital and knowledge relatedness play an active role in increasing firm competitiveness, especially in large, high-tech manufacturing sectors, according to a study presented at a recent conference of the Groupe de Recherche en Economie.

In Knowledge and Productivity in the World's Largest Manufacturing Corporations, Lionel Nesta of the University of Sussex studies the productivity and technology relatedness of the world's top manufacturing companies. Nesta correlates patent and financial data from international sources for more than 150 multinational companies. He then refines and tests these data using different econometric models. Since Nesta's study uses data related mostly to the most research-intensive sectors, the findings relate mostly to large, technologically advanced firms.

Nesta examines the relationships between output, physical capital, labor and three types of knowledge: knowledge investments, knowledge diversity and knowledge relatedness. While all the factors contribute significantly to productivity, Nesta focuses on the knowledge measures.

Nesta finds that companies realize greater productivity gains from coordinating related knowledge bases than divergent pieces of knowledge. Integrated knowledge bases cost less to coordinate, he says. He also finds strong productivity gains from knowledge investments -- the ability to assimilate and exploit new technology in the production process.

Nesta suggests companies seeking to diversify their products and production should build on their core competencies. Thus, companies can maintain productivity while broadening their product lines.

Knowledge and Productivity in the World's largest Manufacturing Corporations is available at: http://www.idefi.cnrs.fr/manifs/textes/Lionel_Nesta.pdf

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People

The Georgia Biomedical Partnership named Charles Craig as its new president.

E. Dana Dickens announced he will step down from the Suffolk City Council (Va.) to become president of the Hampton Roads Partnership, a group promoting economic development in the region.

Ohio Department of Development Director Bruce Johnson has been sworn in as the state's lieutenant governor. Johnson is expected to serve both positions for the balance of Gov. Bob Taft's term.

Jafar Karim is the new director of the Governor's Office of Economic Development in South Dakota.

David Harmer, executive director of the Utah Department of Community and Economic Development (DCED), announced his retirement. Chris Roybal, senior advisor to Gov. Jon Huntsman Jr. for economic development, will take on many of Harmer's responsibilities.

It is an unfortunate and annoying consequence of politics that sometimes, with the change of gubernatorial administrations even within parties, excellent people with enviable records of delivering results for tech-based economic development programs lose their positions. SSTI has learned that Rod Linton and Michael Keene were among 33 "at-will" economic development staff at the Utah DCED fired en masse last Thursday. Gov. Huntsman, who began his term of office on Jan. 3, plans to run most economic development's activities from within the governor's office and to dismantle DCED. We wish Rod and Mike every success in their future endeavors.

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