In the November 7, 2005 Issue:

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Maine to Increase R&D Activity to $1B by 2010
A plan to increase Maine's R&D activity to $1 billion by 2010 was revealed last week by the Department of Economic and Community Development's (DECD) Office of Innovation and the Maine Science and Technology Council (MSTAC). The level of R&D activity in Maine currently stands at $430 million.

The science and technology action plan creates a road map toward achieving the objective of higher per capita income, set forth in the State Planning Office's 30 and 1000 Plan, created in 1998.

According to DECD, Maine still lags the nation on many key innovation measures. For example, the Corporation for Enterprise Development's annual report card ranks Maine last in the nation in number of science and engineering graduates. The state ranks 40th in patents produced and 42nd for university spin-outs. Without bold action, Maine will lose out to other states and other countries, leading to loss of high-wage jobs and declining prosperity, the report states.

On the upside, however, the state has attracted $610 million in federal and private funding through a $157 million investment in the Maine Biomedical Research Fund, the University of Maine, and the Maine Technology Institute. In addition, the state now offers the 10th highest level of nonprofit R&D activity in the nation, up from 48th in 1999, according to DECD.

By 2010, the state hopes to garner 75 percent of its R&D activity from the private sector and 25 percent from universities and nonprofit research centers. Areas targeted for growth include biotechnology and precision manufacturing, as well as composite, environmental, marine and aquaculture, information, and agriculture and forestry technology. Five key objectives are presented in detail, alongside action steps and benchmarks to be completed by fall of 2006. Outlined strategies include:

Maine's high quality of life will continue to be a strong asset, according to the report. However, in order to attract creative workers and businesses, Maine must also be a place where one can make money, the report states. The plan focuses on the section of the creative economy that is driven by the R&D of new technology. Over the next two years, MSTAC will work with private colleges, alumni, nonprofit research institutions, industry and policymakers at the state and national levels to implement the objectives.

A Science and Technology Action Plan for Maine 2005 is available at: http://www.maineinnovation.com/studies_reports/pdfs/science_technology_action_plan_2005.pdf

Links to this paper and more than 1,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

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Federal Reserve Papers Focus on TBED
Four recently published papers from the Federal Reserve Banks of Philadelphia, San Francisco and Chicago center around TBED issues including the role of cities in the 21st Century, the biotechnology industry in the Midwest, state R&D tax credits, and R&D spending during recessions. Links to these papers and more than 1,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

21st Century Cities Have Transformed into Centers for Consumption
Senior economic advisor and economist from the Federal Reserve Bank of Philadelphia, Jerry Carlino, discusses some of the economic functions of cities, focusing on economic activities that make firms in cities more productive and more attractive to urban households. In The Economic Role of Cities in the 21st Century, Carlino says agglomeration economies are increasingly concentrated on the consumption side and quality of life issues have become a more important determinant of where people choose to live. Large cities with more choices will inevitably attract high-income households, who tend to be high-skilled workers as well. Their presence, Carlino says, supports the cities' new function as incubators of new ideas and innovation.

The rise in real income also has led to more demand for goods and services, according to the paper. The author points to a 2004 study by Sanghoon Lee, which contends that the demand for variety may increase more than proportionately with income. For example, a 1 percent increase in income leads to more than a 1 percent increase in the demand for variety. The study suggests that since high-skill workers earn more than low-skill workers, they will account for a larger share of the workforce in large cities and a smaller share in small cities and rural areas.

Research indicates that local policymakers need to focus on lifestyle issues because they are important in attracting and retaining highly-skilled workers who want more consumption options. Public policy can play a significant role in this goal, according to the paper, by providing good public schools, focusing on reducing urban crime, and providing amenities such as clean streets and public parks.

Midwest Can Become Thriving Biotechnology Hub
The Midwest is home to a number of large drug and medical manufacturers, although none of the nation's most prominent biotech companies are based there, says a new paper from the Federal Reserve Bank of Chicago, High-technology in the Midwest - Biotech and Beyond. The paper reports the findings from a series of meetings designed to analyze the potential in the Midwest for building a biotech region and advancing technology commercialization.

Cities such as San Francisco, Seattle, Boston, and Austin already have industry sectors centered on emerging technologies that have contributed significantly to the local economy, according to the paper. In the field of biomedical science, Chicago's degree of new firm formation seems undersized given the significant R&D dollars flowing to the area universities, hospitals, and federal labs. The author poses the question, "If this spending implies significant potential for technology-driven growth in an area, then what efforts from the public and private sectors might help bring about full development?" Building clusters is offered as one possible suggestion, as well as the presence of key business service activities including a venture capital community and specialized legal firms.

In terms of technology commercialization, the issue of Midwest states' performance is examined as well. One necessary condition for a thriving biotech industry is a large local research base, something the Midwest already has. Therefore, why are the states not performing better? According to Dan Broderick, principal of a Milwaukee-based venture capital firm, research activity in the Midwest may be too geographically dispersed to easily generate the interactions among firms and with potential investors that ultimately lead to clusters. Broderick argues that Midwest states should focus on policies that tie their activities together and otherwise encourage existing biotech industry associations and government incentive programs.

The author notes that biotech is only one of several promising technologies that could either create new industries or revive an existing economic base. Midwest policymakers also are excited about nanotechnology, the author adds. Participants of the meetings volunteered staff to form smaller task forces in order to explore more specific technology and policy directions and to make recommendations to policymakers and industry associations throughout the Midwest.

State R&D Tax Credits: Socially Beneficial or Socially Wasteful?
In The Rise and Spread of State R&D Tax Credits, the author provides an overview on recent research that quantifies the development of state tax credits for R&D -- a challenging task due to historical information not being readily available in a single data source and because of the variations within each state's law regarding deductibility and other specifics, according to the author.

State R&D tax credits work similar to federal tax credits and have become more widespread and valuable to firms over the past two decades, according to the author. The average generosity, or value of a tax credit, also has grown over time. This value is measured by calculating the effective credit rate for firms in a given state, the author explains. Results from research conducted by Daniel Wilson indicate that state tax credits are almost as important in terms of the cost of conducting R&D.

Wilson finds evidence that a reduction in the after-tax cost of R&D for a given state has a detrimental impact on the average R&D spending in other states. Since companies appear to be willing to move R&D activities from one state to another, states do not have an incentive to compete via R&D tax credits for that footloose R&D, the paper states. This may be socially beneficial if the overall, national level of R&D subsidization is too low as the competition provides an incentive for states to help make up the shortfall.

On the other hand, according to the author, if there are substantial deadweight losses caused by companies moving R&D from state to state, by companies calculating the tax implications of R&D in each of the 50 states, or by state tax agencies administering R&D tax credits, then the tax competition may be socially wasteful.

R&D Spending Tends to Fall During Recessions
The modern formulation of economist Joseph Schumpeter's idea that economic downturns play an important role in promoting long-run productivity growth builds on the observation that production is less profitable during recessions and as a result, recessions are ideal for firms to engage in activities that enhance productivity but interfere with production, says a report from the Federal Reserve Bank of Chicago. This may include retraining workers, upgrading equipment, or experimenting with providing better products at a lower cost.

The paper, Why Don't Recessions Encourage More R&D Spending, examines how recessions affect R&D spending -- one such channel for growth during times of reduced profits, according to Schumpeter. If production suffers during recessions while R&D does not, then recessions should be an ideal time to seek out and develop new ideas and products. However, empirical evidence shows that R&D tends to fall during recessions, not rise.

Schumpeter proposes two possible explanations for this finding. One involves credit restraints. While firms may ideally like to concentrate on R&D activity during recessions, it entails expenditure that, if paid off, would only do so in the future. Unless the firm has the cash reserve to pay for R&D, it will have to borrow against future profits, and R&D activity will depend on credit market conditions, the author says. Since firms tend to have less cash at their disposal during recessions, they often have to turn to outside funding to finance R&D. The author analyzes data on the R&D expenditures of individual firms to gain further insight into this explanation.

Another possibility relates to a firm's tendency to act in a shortsighted manner, according to the paper, focusing on immediate profits they can reap from a successful innovation. Entrepreneurs, fearing they will only earn profits on an innovation over a short time period may be reluctant to allocate significant resources to R&D during a recession. According to this logic, growth-enhancing activities that do not involve spillovers to other companies would be concentrated in recessions.

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State and Local Tech-based ED RoundUp

Colorado
The Rocky Mountain Technology Alliance (RMTA) is a recently formed regional development organization for applied research and technology development whose membership includes universities, government organizations and private businesses. The goal of RMTA is to assist its member organizations by pursuing collaborative programs that will produce intellectual property for new products and businesses. Its mission also includes creating manufacturing solutions to support successful commercial growth and national security. The alliance will cater to a cluster of high tech companies, educational institutions, and government facilities located in the Rocky Mountain Technology Corridor, which stretches from Northern Colorado to Southern New Mexico.

Indiana
To boost community and economic development successes and achieve greater efficiency in use of resources and volunteers, several local Indiana groups should combine operations, according to the 19-member Lafayette-West Lafayette Economic & Community Development Working Group. The group spent the last year studying the organizations and options and recommends consolidating six nonprofits: Downtown Business Center, Greater Lafayette Community Development Corp., Lafayette Urban Enterprise Association, Lafayette-West Lafayette Chamber of Commerce, Lafayette-West Lafayette Economic Development Corp. and Vision 2020. In a report presented to its board members, the group suggests the benefits of consolidation of still additional groups could include shared bookkeeping, information technology and support staffs; lower costs for auditing, legal assistance and other expenses; and a stronger management structure.

Advancing Indiana, an economic development initiative of Indiana University (IU) and its six regional sites, is ready to do business after opening a new office in Indianapolis. The office will provide businesses and governmental units throughout Indiana with a central point of contact to help them access the university's resources. Bill Hunt, chairman of Hunt Capital Partners, LLC, a venture capital and consulting firm based in Indianapolis, is serving in a volunteer capacity as IU's chief economic development representative. Kyle Salyers will share lead responsibilities with Hunt as special advisor for economic development to the president. Salyers has participated in a number of state economic development leadership roles and, with Hunt, serves on the Indiana University Research and Technology Corporation Advisory Board. The two will look to prioritize current university engagement activities, identifying new targets of opportunity. Creation of the office is part of an economic development plan completed in 2004 by a task force that visited 10 Indiana communities to learn how IU could help become more competitive.

Iowa
Using money approved by the Iowa Board of Regents, the University of Iowa has announced a new economic development initiative called Iowa Centers for Enterprise, Business and Commercialization Services. The centers will provide assistance to Iowa startups and existing Iowa businesses and communities, and help the state of Iowa develop a creative, entrepreneurial workforce. Funding for the centers comes from the Grow Iowa Values Fund, which will provide $5 million annually through 2015. The Iowa Centers for Enterprise include the John Pappajohn Entrepreneurial Center, the University of Iowa Research Foundation, the Small Business Development Center, the Office of Corporate Relations, the Technology Innovation Center business incubator and Oakdale Research Park.

Washington
A Spokesman Review article reports the Spokane-based Technet organization is closing for business after 15 years of operation. Technet was established as a conduit to technology and innovation resources, promoting education, mentoring and networking among regional business professionals, educators, students. The article cites reasons of Technet fulfilling its purpose and difficulty sustaining membership for its closure. The organization also struggled to secure private sector financing or government grants for its programs, the Spokesman Review adds.

West Virginia
The West Virginia High Technology Consortium Foundation (WVHTC) and the Institute for Scientific Research, Inc. (ISR) will join forces, the Charleston Daily Mail reported last month. Combined, West Virginia's two leading high-tech organizations employ about 250 people, the article states. The WVHTC Foundation, a nonprofit corporation established in 1993, provides innovative technology-based programs, products and services. ISR, a nonprofit organization formed in 1995, performs research across a variety of scientific and engineering disciplines.

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Wisconsin Manufacturers Face Opportunities, Challenges
Wisconsin manufacturers must adapt to a fast-changing world in order to grow and succeed in the 21st century. That is the thrust of a recent study of the state’s industrial economy recently released by the Wisconsin Manufacturing Extension Partnership (WMEP).

In 2004, Wisconsin’s manufacturers generated more than $46 billion in gross product, employed 512,630 workers, produced $90,000 in gross product per employee, and exported $14 billion in manufactured goods, the Wisconsin Manufacturing Study shows. By 2008, the study projects the state's manufacturing gross product will be $54 billion.

Wisconsin has 13 statewide "driver" industries that are the underpinning of its industrial economy, according to the study. Wisconsin’s primary driver industries include agricultural and industrial machinery, fabricated metal products, electrical equipment, wood products, paper and dairy product manufacturing. The report suggests the state's 13 such industries give it a competitive advantage and demonstrate the diversity of the state's manufacturing economy.

The study's findings also indicate that exports represent a significant opportunity for the state’s many small manufacturers. From 1992 to 2001, 30 percent of U.S. exports were from small- and medium-size firms, two-thirds of which had 20 or fewer employees. Their numbers grew twice as fast as large-company exporters. Smaller, more flexible companies may be able to grow exports faster than their larger competitors, the authors say.

The Wisconsin Manufacturing Study includes a series of recommendations to improve and strengthen the state's industrial sector:

Many Wisconsin manufacturers provided direct input into the study, either through a survey or roundtable discussions held in May 2005. State strengths identified by the manufacturers include an excellent transportation infrastructure; a superior, highly-skilled workforce and well-educated managerial and engineering talent; outstanding support industries; and a highly valued quality of life.

Participants also identified major barriers to success, including an outdated manufacturing image in Wisconsin that makes it difficult to attract and retain high quality workers. This is especially true when finding dedicated replacement workers for the older generation who will be retiring soon, according to the study. In addition, taxes are high in Wisconsin compared to border and competitor states, the manufacturers said, and businesses are unable to contain manufacturing costs, due to spiraling healthcare, liability insurance, on-the-job training and new machinery and technology costs.

The Wisconsin Manufacturing Study was funded by grants from the U.S. Department of Commerce Economic Development Administration and the Waukesha-based Kern Family Foundation. To obtain a copy of the report, visit http://www.wmep.org/manufacturingstudy.html or contact WMEP at (888) 372-9602.

Links to this paper and more than 1,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

The above story was printed with permission of WMEP, Wisconsin Manufacturing Extension Partnership. www.wmep.org. Phone: 608-240-1740

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