In the February 28, 2005 Issue:

Copyright State Science & Technology Institute 2005. 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.

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.

Organizations Sound Alarm on U.S. Standing in Innovation
SSTI, like other organizations, found few S&T winners in the Administration's FY 2006 federal budget proposal (download SSTI's special budget issue at http://www.ssti.org/Digest/2005/FY06_Federal_Budget.pdf). Now, two organizations are sounding the alarm that the U.S.'s standing as the world leader in innovation is in danger of slipping, if it has not already begun.

AeA, a national trade association for information and communication technologies, says the country is neglecting the factors that sparked the U.S. technology revolution in its study, Losing the Competitive Advantage?: The Challenge for Science and Technology in the United States. The Task Force on the Future of American Innovation, a coalition of high tech industry, scientific societies and higher education associations, asserts the same notion in its similarly titled report, The Knowledge Economy: Is the United States Losing Its Competitive Edge?.

Also, in its analysis of the FY 2006 federal budget, the American Association for Advancement of Science (AAAS) shows cuts to key R&D programs outnumber spending increases -- a budget in which R&D funding would fail to keep pace with inflation for the first time in years for agencies such as the National Institutes of Health (NIH).

In each of their reports, AeA, the Task Force (of which AeA is a member) and AAAS call upon U.S. leadership to act to protect the country's standing. Their findings are highlighted below.

AeA
"Even if we were doing everything right, the United States still faces major new challenges from an intensely competitive world," said William Archey, AeA's president and CEO, in a press statement.

Losing the Competitive Advantage? finds other countries such as China and India are catching up to the U.S. in critical areas. These countries have restructured their economies to benefit from the free market system they once resisted, AeA notes. They are increasing the skill sets of their workforce, investing in R&D, and adopting advanced technologies, all to create wealth and spur economic growth.

The report analyzes how R&D funding supports innovation by investing in the technologies that advance society, increase productivity and ultimately improve standards of living. AeA points out the Internet, MRI scanning technology, Doppler radar, and GPS were born from U.S. federally sponsored research. While funding remains available, it has decreased from its peak in 1987 and has declined substantially as a percentage of the economy, AeA says.

AeA also states the American K-12 educational system is failing to provide the math and science skills necessary for kids to compete as knowledge workers in the 21st century. The U.S. higher education system, the agency adds, is not graduating enough engineers, computer scientists and mathematicians to support the growth of the U.S. high-tech industry.

At the same time, the U.S. has raised the bureaucratic barriers for high-skilled immigration. One out of five U.S. scientists and engineers are foreign-born, AeA observes, and these workers make significant contributions to the U.S. economy by creating intellectual property and hundreds of thousands of jobs. Yet, the number of skilled workers immigrating to the U.S. has declined by 27 percent between 2001 and 2003, according to AeA's report.

Losing the Competitive Advantage? includes a list of recommendations and priorities to address these challenges. To support R&D specifically, AeA calls for increased National Science Foundation funding - specifically for physical sciences, engineering, and math and computer science research - and increased funding for college and university research to support academic R&D and facilitate graduate education. AeA also states it is encouraged by the Administration's FY 2006 budget proposal to make the R&D tax credit permanent.

To obtain a copy of the AeA report, visit: http://www.aeanet.org/competitiveness

The Task Force on the Future of American Innovation
“We are and remain the world’s leader in innovation,” said John Engler, National Association of Manufacturers president and former governor of Michigan. “But we do not enjoy that status by divine right, and we cannot assume that we are safely ahead of the world."

Engler, also chairman of the SSTI Board of Trustees, was addressing those in attendance at a Task Force meeting that recently convened in Washington, D.C. Business and academic leaders comprising the group pointed to a set of benchmarks in such areas as education, workforce, ideas, and research investment in which other regions and nations - particularly the rapidly developing economies of Asia - are sharply pursuing the U.S. They reminded policymakers that leadership in these fields has been critical to the country’s economic strength and national security.

Examples of benchmarks identified by the group include the following:

Other benchmarks cited by the group include:

The Knowledge Economy compiles all of the above benchmarks, but does not provide recommendations. The report and a press statement containing some of the comments made by Task Force members is available at: http://www.futureofinnovation.org/

AAAS
"After a tough 2005 budget, we expected a tight 2006 budget, but it's striking how much the budget retreats from federal investments in science and technology in important areas," said Kei Koizumi, director of the R&D Budget and Policy Program at AAAS. "From the Hubble telescope to environmental R&D to defense support of basic research to investments in commercial technologies, the president's proposals would undo the gains of the last several years."

In his preliminary analysis of the Administration's FY 2006 budget, Koizumi shows the total federal R&D portfolio would rise $733 million to $132.3 billion, a 0.6 percent increase that would be below the expected 2 percent rate of inflation. "In real terms," Koizumi says, "the total federal R&D portfolio would decline for the first time since 1996."

The numbers do not bode well for America, Koizumi says, as world economic authorities are expressing concern about the U.S. deficit and the borrowing needed to close the gap. If approved by Congress in its current form, he adds, homeland security would be the clear winner, "the only R&D priority exempt from tough budgetary choices." The Department of Homeland Security's R&D budget would rise to $1.5 billion, an increase of $282 million, or 23.8 percent. Total homeland security spending, including programs in all federal departments, would rise 10.7 percent to $4.6 billion.

Although NASA's R&D budget would increase 4.9 percent to $11.5 billion, the agency would face "daunting challenges," according to the analysis. New funds would go to completing construction of the International Space Station and preparing for future Moon and Mars missions, but earlier proposals to send a robotic mission to service the Hubble Space Telescope would be scrapped, effectively ending its life.

Koizumi's preliminary analysis also details the FY 2006 R&D portfolios of federal agencies such as the Environmental Protection Agency, Department of Defense, National Science Foundation, NIH and the Department of Energy. The analysis and numerous tables and charts highlighting budget information by federal agency and historical data are available at: http://www.aaas.org/spp/rd/

return to the top of the page

New Hampshire Creates $100M Fund to Spur Job Creation
An initiative aimed at creating 2,500 new jobs throughout New Hampshire will offer low-interest loans to companies who commit to creating new jobs or expanding their current employment base in the state.

Gov. John Lynch, along with Citizens Bank New Hampshire President and CEO Thomas Metzger, recently announced the Citizens Job Bank Program, a $100 million fund that will offer loans at 2 percent below prime for a fixed rate of 3.5 percent.

According to the governor's office, borrowers must create at least one full-time job for every $40,000 borrowed. The terms of the loan will require that the specified jobs be created within three years after the funds are borrowed. The New Hampshire Department of Resources and Economic Development will administer the program and certify that borrowers fulfill their job creation commitment.

Qualified borrowers may apply for a minimum loan size of $250,000 and a maximum of $10 million under the program.

"In addition to creating new jobs at existing local companies, it will allow us to attract out of state companies looking to expand or relocate to New Hampshire," according to Stuart Arnett, director of the New Hampshire Division of Economic Development.

Any public or privately owned business in a broad array of industry sectors, including manufacturing and industrial, will be eligible to apply for the loans. More information is available at: http://www.egov.nh.gov/jobbank/info/

return to the top of the page

Georgia's Fourth Innovation Center Focuses on Life Sciences
Gov. Sonny Perdue recently announced the creation of the state's fourth Center of Innovation. Located in Augusta, the Life Sciences Innovation Center (LSIC) will assist with business incubation and securing matching grants for applied R&D with industry partners through the Georgia Research Alliance.

A joint partnership between the state and the Life Sciences Business Development Center of the Medical College of Georgia, LSIC will enhance the likelihood of success for Georgia life sciences companies, according to the governor's office. The center will provide expertise and counsel for life science entrepreneurs, serve as an incubator facility for bio-business, and foster opportunities for joint university and private applied research work.

The Georgia Centers of Innovation program was launched in 2003 to enhance long-term economic opportunities and encourage new companies to invest and build in the state. The program focuses on specific industries such as aerospace, agricultural technologies, life sciences, marine logistics, and information technology,

The first center, the Maritime Logistics Innovation Center, was created in August 2003 in Savannah, followed by the Middle Georgia Aerospace Innovation Center in November 2003 (see the Dec. 5 issue of the Digest) and the National Environmentally Sound Production Agriculture Laboratory Technology Development Center in August 2004. More information about the Georgia Centers of Innovation is available at: http://www.smartgeorgia.org/greatergeorgia/greatergeorgia.html

Hold That Date!
SSTI annual conference note: Georgia's approach to building a tech-based economy -- founded on significant and targeted investments in innovative university-based research -- provides a model worthy of study and emulation by many other states and large communities. That's one of the great reasons SSTI is proud to be convening its ninth annual conference in Atlanta on Oct. 19-21, 2005.

Our co-host organizations, proven leaders in the TBED field, are the Georgia Research Alliance and the Advanced Technology Development Center. More information is to come. We encourage you to save the dates and plan to join us in Atlanta to learn more about what makes both efforts so successful.

return to the top of the page

Issue Brief Finds Mixed Responses On Effects of Global Business in Minnesota
While wider market opportunities have led to increased exporting and lower costs for business operations in some Minnesota companies, others are facing difficult operational challenges as a result of the rapid integration of global business practices, according to a new Issue Brief from the Minnesota Department of Employment and Economic Development (DEED) and Minnesota Technology, Inc.

The two agencies jointly released Gearing Up and Going Global: Experiences of Minnesota Businesses in order to better understand the global business experience in Minnesota and its impact on the state's economy. The survey details global business practices, motivations and the impact on business operations and employment was administered to 252 small, medium and large-sized companies. Findings therein offer a preliminary view of Minnesota business experiences in the global marketplace and are expected to help the legislature, economic developers and education system improve efforts to facilitate business, worker and community adjustments.

The survey explores current and projected global activities and trends on businesses over the years 1998-2003. Two-thirds of the respondents involved were from the manufacturing sector, which has a greater tendency to import and export goods and outsource production to non-U.S. locations. Other sectors surveyed include the service industry, information technology (IT), and non-IT professional services. Some of the key findings include:

Gearing Up and Going Global: Experiences of Minnesota Businesses is the second of a two-part series studying the global impact on businesses in Minnesota. The first issue brief, Globalization: Pressure Points in a Competitive World, was published in March 2004 and covers background research and findings from a roundtable discussion with businesses and policymakers in Minnesota. Both reports are available from DEED at: http://www.deed.state.mn.us/

return to the top of the page

States Reap Quantifiable Benefits through Investments in Higher Ed
The same benefits of higher education to society and individuals found on a national level also are evident at the individual state level and need to be taken into account in state policy discussions, including those on state funding, says a new report from the Institute for Higher Education Policy (IHEP).

Using data from the U.S. Census Bureau, The Investment Payoff: A 50-State Analysis of Public and Private Benefits of Higher Education, measures societal and individual benefits of higher education on a state-by-state basis across six indicators. For each state, benefits are documented for residents by education level, ranging from those with a high school diploma to those with a bachelor's degree or higher. The report concludes that almost every state benefits from higher education in all indicators measured, although some states reap more than others.

According to IHEP, national averages show that these benefits are widespread and dramatic. In March 2004, six percent of the population age 25 or older with a high school diploma was unemployed, compared to only 3 percent for those with a bachelor's degree. Societal benefits of citizens with a college degree include decreased reliance on public assistance, higher voting rates, and increased volunteering, while individual benefits include higher income, lower unemployment and better health, the study indicates. The state's economy also profits through increased tax revenue, greater productivity, and increased workforce flexibility.

"This study shows that state investment is not only worthwhile, but has significant return benefits that are quantifiable," said Jamie Merisotis, president of IHEP. The study builds on previous efforts to measure benefits, using six indicators from a broader list identified in national-level research -- personal income, unemployment rates, receipt of public assistance, health status, volunteerism, and voting participation.

The scope of the effort is purposely narrow, the authors state, and does not attempt to rate state performance, draw inferences regarding causal relationships, or explain why some states fared better than others. Rather, it offers a detailed historical perspective and catalog of benefits, suggesting that further efforts should be undertaken to develop specific and quantifiable indicators of the value of higher education at the state level. The report is available from IHEP at: http://www.ihep.org/

return to the top of the page

Recent Research
Are Subsidies Wasted When Tech Firms Fail?
Funding research and development (R&D) is risky business. Using the popular baseball analogies, venture capitalists count on one home run to make up for all of the strikeouts and pop flies. Public support for R&D in private firms, then, could be considered a gamble if policymakers are not patient or understanding of that risk. These programs also must be well managed, with an eye on the market or business aspect of any resulting technologies, to minimize the public's risk.

What happens, then, when projects or companies fail? Does a state or community reap any tangible benefits for their investments? One common assumption is value may be gained from knowledge diffusion. For instance, employees of the failed venture perpetuate growth by continuing their R&D work with other firms or in new spin-off efforts. Tracking such assertions is difficult, however, often relying heavily on anecdotal evidence and individual case studies of corporate genealogy in Silicon Valley and Route 128.

New research from Statistics Norway searches for spin-offs and knowledge diffusion in the after-effects following the country's heavy public investment in information technology (IT) during the 1980s. Unfortunately, Norway's IT sector tanked after the introduction of personal computers and a decade passed before Norwegian IT services began to emerge as world competitors.

In When Subsidized R&D-firms Fail, Do They Still Stimulate Growth? Tracing Knowledge by Following Employees Across Firms, author Jarle Moen concludes that these subsidies did not stimulate growth by either human capital nor spin-off ventures. Using government matched employer-employee data, Moen examines earnings and new spin-offs for evidence of transferred knowledge through the labor market.

Moen runs wage regression on the employees who spent at least a year in a subsidized IT firm. If these employees gained valuable knowledge during their tenure at the subsidized firm, then they should command higher wages in subsequent employment, Moen asserts. However, the study finds these employees fared no better or no worse than other IT workers in future wages.

Moen also examines spin-offs -- defined as a new firm with at least 25 percent of its employees from a subsidized firm. He finds that these firms were less profitable than other similar firms in terms of sales growth, return on assets, and return on equity.

In the end, Moen did not find evidence that earlier investment in IT manufacturing paved the way for Norway's recent success. He suggests that other research should explore how these subsidies affected the supply of IT engineers in Norway. For instance, the IT push may have created a pool of IT talent to the detriment of other sectors. Or, the glut of available IT workers may have spurred IT service growth as firms sought to exploit this relatively high value, low wage workforce.

Would the same hold true in the U.S.?
Since much U.S. research points to significant spillovers resulting from R&D investments, regardless of their private or public source of funding, one may ask about the relevance or transferability of Moen's conclusions for the U.S. SSTI welcomes comments and reactions from our readership on this question; please direct responses to skinner @ ssti.org.

SSTI suggests factors not addressed in Moen's paper that could account for the negative results should be considered in the continued refinement of state and local TBED programs. Most importantly, perhaps, is the decision-making process for which projects are selected to receive public support. Significant weight must be given to the business acumen or competence of the firm's management team and the commercial viability of the specific technologies to be funded in the face of competing technologies. Ensuring every TBED program's project review and selection process includes individuals capable for assessing such qualities may ensure greater success than was apparent for Norway's investments in information tech during the 1980s.

When Subsidized R&D-firms Fail, Do They Still Stimulate Growth? Tracing Knowledge by Following Employees Across Firms is available at: http://ideas.repec.org/p/ssb/dispap/399.html

return to the top of the page

Useful Stats
Top 100 NIH Cities and Five-Year Funding by State
The National Institutes of Health (NIH) data on the top 100 cities for NIH awards in FY 2003 indicates Boston reasserted its leadership over New York for the top spot by increasing its spread by $401 million. Philadelphia and Baltimore remain in third and fourth place for the second year.

The fourth year NIH has made the information available, FY 2003 shows the most shift in rankings for many cities. Seattle moved up to fifth place after three consecutive years at sixth. San Diego continued its three-year fall in the rankings, dropping from third place in FY 2001 to eighth place in the latest available data. (Note: One possible explanation could be the addition of La Jolla as a distinct city in the rankings in FY 2002 and FY 2003. Funding to La Jolla institutions doubled between the two years, pushing the city's ranking from 21st in FY 2002 to 7th in 2003).

The complete four-year stats are available at:

NIH Funding by State
SSTI has compiled a table of the National Institutes of Health (NIH) awards in total dollars and state rankings from fiscal years 1999-2003. The states are listed in order by percent change over the five-year period. The greatest gains were posted in Alaska (418.54 percent), Wyoming (380.53 percent), South Dakota (305.25 percent), Idaho (300.40 percent) and Montana (215.35 percent). Despite the significant increase, these states hold some of the lowest rankings in FY 2003 -­ Wyoming being last, with a total of $7,607,825 in awards.

The top five largest dollar amounts in FY 2003 were awarded to California, Massachusetts, New York, Pennsylvania and Maryland, respectively. Overall, total NIH awards grew considerably over the five-year period with a national increase of 69.15 percent. However, FY 2003 totals are 0.87 percent lower than FY 2002. While most states exhibited an increase of total dollars, four states sustained a decrease from FY 2002: Idaho, Arkansas, West Virginia, and the District of Columbia, which incurred the largest decrease of $40,850,841.

SSTI's table is available at: http://www.ssti.org/Digest/Tables/022805t.htm

Details of the NIH awards and statistics can be found at: http://grants1.nih.gov/grants/award/awardtr.htm

return to the top of the page

University of Toledo Seeks Director for S&T Corridor
The University of Toledo and its partners are seeking a director for the Toledo Science and Technology Corridor. The Corridor is an initiative to enhance the region's innovation-based economy through investments that promote linkages and collaboration among academic institutions, business industries and government entities. Responsibilities will include developing and implementing a plan that is aligned with the university's various educational missions, obtaining support from community leaders and members of local neighborhoods, preparing proposals and other initiatives to gain external funding, and coordinating joint Corridor projects and activities with partners, as well as technology business recruitment activities. The preferred candidate will hold a Bachelor's degree and, preferably, an advanced degree in a relevant field, among other qualifications. A full description, including contact information, is available through the SSTI Job Corner, http://www.ssti.org/posting.htm.

return to the top of the page

State Science & Technology Institute
5015 Pine Creek Drive
Westerville, OH  43081
(614) 901-1690

© 2005 State Science and Technology Institute. All rights reserved.