Chapter 7

Clusters and Regional Initiatives

Clusters foster the collaboration needed to develop new ideas and bring them to market. In this way, successful clusters significantly improve the return on public investments in R&D and provide global leadership in key technologies. Recognizing this impact, both advanced and emerging economies are making investments and promulgating polices to encourage cluster development.

This chapter explores several ways in which U.S. regions are rising to the challenge, focusing on Regional Innovation Cluster initiatives and new types of science and research parks. In this chapter, we explore a sample of some of the more interesting regional innovation cluster initiatives underway in the United States. The second part of this chapter assesses new strategies for developing research parks, both in the United States and abroad.

THE INNOVATION CHALLENGE

U.S. regional economies face mounting global competitive challenges. No longer do U.S. states and cities primarily compete among themselves for talent, investment, and entrepreneurs in technology-intensive industries. They also compete against national and regional governments that are executing comprehensive strategies that seek to create innovation clusters in many of the same important, emerging industries. National and regional governments in Europe, Asia, and Latin America are backing up these strategies with heavy investment in universities, public-private research collaborations, workforce training, early-stage capital funds, and modern science parks.1 They are further reinforced by strong policy focus from top leaders. National and regional governments also can offer investors financial incentives that state governments cannot, such as exemption from all corporate taxes.

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1 Francisco Grando, Brazil’s Secretary of Innovation, and Alberto Duque Portugal, State Secretary for Science, Technology and Higher Education of the Brazilian state of Minas Gerais presented a review of initiatives underway in Brazil at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.



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Chapter 7 Clusters and Regional Initiatives Clusters foster the collaboration needed to develop new ideas and bring them to market. In this way, successful clusters significantly improve the return on public investments in R&D and provide global leadership in key technologies. Recognizing this impact, both advanced and emerging economies are making investments and promulgating polices to encourage cluster development. This chapter explores several ways in which U.S. regions are rising to the challenge, focusing on Regional Innovation Cluster initiatives and new types of science and research parks. In this chapter, we explore a sample of some of the more interesting regional innovation cluster initiatives underway in the United States. The second part of this chapter assesses new strategies for developing research parks, both in the United States and abroad. THE INNOVATION CHALLENGE U.S. regional economies face mounting global competitive challenges. No longer do U.S. states and cities primarily compete among themselves for talent, investment, and entrepreneurs in technology-intensive industries. They also compete against national and regional governments that are executing comprehensive strategies that seek to create innovation clusters in many of the same important, emerging industries. National and regional governments in Europe, Asia, and Latin America are backing up these strategies with heavy investment in universities, public-private research collaborations, workforce training, early-stage capital funds, and modern science parks.1 They are further 1 Francisco Grando, Brazil’s Secretary of Innovation, and Alberto Duque Portugal, State Secretary for Science, Technology and Higher Education of the Brazilian state of Minas Gerais presented a review of initiatives underway in Brazil at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010. 431

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432 RISING TO THE CHALLENGE Michigan: Advanced Batteries North East Ohio: Flexible Electronics, Renewable Energy ¤ ¤ ¤ ¤ New York: Nanotechnology West Virginia: Biometrics, ¤ Energy ¤ New Mexico: Information Technology, Aerospace, Bioscience South Carolina: Automotive Technology, Advanced Materials FIGURE 7.1 U.S. regional innovation clusters discussed in Chapter 7. reinforced by strong policy focus from top leaders. National and regional governments also can offer investors financial incentives that state governments cannot, such as exemption from all corporate taxes. In a number of Asian clusters, most notably Taiwan’s Hsinchu Science Park, research and manufacturing functions are tightly linked, an entire industry chain is present within the cluster to manufacture and commercialize the technologies emerging from the laboratories. While this phenomenon is observable in many U.S. clusters, a number of the clusters featured in this study, have seen U.S. developed technologies2 manufactured outside the United States because so much of the value chain is located there. John A. Matthews, an Australian academic who has extensively studied the cluster phenomenon in Asia recently noted the actual and prospective advent 2 In nanotechnology, a specialty of a number of U.S. clusters, a number of U.S. firms that have originated promising new technologies have outsourced the manufacturing to Asia. In 2011, U.S.- based Nova Centrix entered into an agreement with Japan’s Showa Denko pursuant to which the latter would manufacture and sell nanoparticle inks developed by Nova Centrix. An industry journal commented as follows: “Nova Centrix is one of several nanomaterials suppliers working with Japanese and other Asian partners to support production and commercialization of their technology. Experience of industrialized production methods can be leveraged as these technology developers try to commercialize their technologies, and much of the world’s display and electronics manufacturing occurs in Asia.” “Nanomaterials firms turn to Asia for Commercial Opportunities” Plastic Electronics (April 15, 2011).

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CLUSTERS AND REGIONAL INITIATIVES 433 of research and industrial clusters in China and India and commented that “”the success of these emerging industrial giants of the 21st century cannot be understood without reference to the industrial cluster phenomenon that is embedded within them, housed within such institutional settings as Special Economic Zones and science-based industry parks. All the intellectual machinery developed to understand the rise of clusters in the advanced world is now going to have to be applied in order to make sense of this same phenomenon in the developing world, but in a new context defined by globalization and the emergence of global production networks and global value chains”.3 POLICIES TO FOSTER INNOVATION The new competitive landscape is prompting state and regional authorities around the U.S. to take creative, comprehensive, and proactive approaches to developing innovation-led economies. Indeed, just as foreign governments have absorbed lessons from successful U.S. innovation zones such as Silicon Valley and Research Triangle Park, U.S. economic-development officials have studied the strategies and experiences of other nations. The growing global challenges also have prompted fresh discussion of and experimentation with closer collaboration between federal agencies and state and local bodies to improve innovation capacity and boost industrial competitiveness. REGIONAL INNOVATION CLUSTERS Communities across the world have long tried to mimic the success of innovation hot spots such as Silicon Valley and Boston’s Route 128. Only in the past decade or two, however, have innovation clusters become a matter of serious public policy in the United States. Today, a growing number of state and regional governments are developing comprehensive strategies to nurture new concentrations of growth industries. No longer is regional economic development merely a competition among states for corporate investment on the basis of tax breaks and subsidized land and labor. State development officials also know that it takes more than funding for university research and building science parks for high concentrations of innovative companies to take root in a given region.4 It 3 John A. Matthews. “The Hsinchu Model: Collective Efficiency, Increasing Returns and Higher- Order Capabilities in the Hsinchu Science-Based Industry Park, Taiwan”. Keynote Address, Chinese Society for Management of Technology, 20th Anniversary Conference, Tsinghua University, Hsinchu, Taiwan, December 10, 2010. 4 For the perspectives of state economic development officials from Ohio, Pennsylvania, Virginia, Kansas and Washington state, see National Research Council, Growing Innovation Clusters for

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434 RISING TO THE CHALLENGE requires an entire ecosystem in which high densities of talented people— researchers, entrepreneurs, and investors—collaborate to develop and launch new products and companies.5 As Michael Porter observed, to secure competitive advantage against other regions, communities must be able to fully exploit knowledge, relationships, and motivation that “distant rivals cannot match.”6 Early U.S. innovation clusters such as Silicon Valley and Greater Boston emerged from the interaction between the private sector and major universities that received substantial federal research funding,7 but with little government design. By contrast, Research Triangle in North Carolina is the result of early, substantial, and patient public and private support. In recent decades, however, economic development agencies across the U.S. and around the world have devised policy strategies to stimulate the rapid development of regional innovation clusters.8 Governments are investing in universities, public- private research partnerships, skilled workforce training, shared prototyping facilities, and early-stage capital funds for entrepreneurs. Innovation America President Richard Bendis describes the conceptual shift of the past decade as going from “technology-based development” toward “innovation-based economic development.” 9 Egils Milbergs of the Washington Economic Development Commission contends that “a new model of economic development for states” has come to the fore, one that focuses on talent, infrastructure, productivity growth, open innovation systems, and global connections.10 American Prosperity, Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011. 5 See Robert E. Lucas, Jr., “On the Mechanics of Economic Development,” Journal of Monetary Economics 22, 1988, pp. 38-39. Richard Florida has popularized the characteristics and economic advantages of innovative clusters. See Richard Florida, The Rise of the Creative Class, New York: Basic Books, 2002. 6 Michael E. Porter, “Clusters and the New Economics of Competition,” Harvard Business Review, 76(6), pp. 77-90, 1998. 7 See AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Cambridge, MA: Harvard University Press, 1994, p. 161. Also see Martin Kenney, ed., Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, Stanford: Stanford University Press, 2000. 8 Regional cluster development policies are proliferating so fast that rigorous assessments of their effectiveness are lagging. As one researcher has summed it up: “Cluster policy has not only surged ahead of cluster potential, it has also outpaced our theoretical and empirical understanding of the cluster phenomenon.” Matthias Kiese, “Cluster Approaches to Local Economic Development,” in Uwe Blien and Gunther Maier, eds., The Economics of Regional Clusters: Networks, Technology and Policy, Cheltenham: Edward Elgar Publishing, 2008, p. 290. 9 Presentation by Richard Bendis of Innovation America in National Research Council, Growing Innovation Clusters for American Prosperity: Summary of a Symposium, op. cit. 10 Presentation by Egils Milbergs of the Washington Economic Development Commission in National Research Council, Growing Innovation Clusters for American Prosperity, ibid.

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CLUSTERS AND REGIONAL INITIATIVES 435 Until very recently, U.S. federal agencies have done little to support state and regional innovation cluster initiatives. This is not the case abroad. Clusters have been embraced globally as effective vehicles for mobilizing and coordinating public and private activities to spur economic growth. The growing movement among governments around the world to shift from outright subsidies to companies and poor regions to investing in public goods that enable industry, universities, and communities to compete represents “a new paradigm in regional policy,” according to Mario Pezzini of the Organization for Economic Co-operation and Development.11 Andrew Reamer of the Brookings Institution noted in 2009 that 26 of 31 European Union nations have cluster development programs at the national level and the EU even operates a European Cluster Observatory that maps clusters across the European continent12. A number of Asian and Latin American nations and regions have also promulgated cluster strategies. A few examples— • Brazil: Minas Gerais, a Brazilian state with 20 million people and a territory roughly the size of France, is investing $300 million in emerging clusters in micro-electronics, bio-fuels, and software. Minas Gerais also has identified hundreds of “poles of excellence” in traditional industries scattered across the state that it hopes to develop further. Sistema Mineiro de Inovação (SIMI), the agency coordinating the campaign, is promoting development of science parks, incubators, and training programs.13 • Hong Kong: Realizing that it needed to diversify its industry base after the 1997 Asian financial crisis, the Hong Kong government launched an initiative to develop innovation clusters in fields that leverage its technology strengths, its reputation as a world-class business environment, and its strategic location on the doorstep of mainland China. Some 250 companies in electronics, green technology, information and communication technology, precision engineering, and 11 Presentation by Mario Pezzini of the Organization for Economic Co-operation and Development at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010. See also “National Innovation Systems,” OECD, 1997 http://www.oecd.org/dataoecd/35/56/2101733.pdf. 12 The OECD examined 26 cluster programs in 14 countries. Notably, the programs examined for the United States were state programs – the Georgia Research Alliance and the Oregon Cluster Network. OECD, Competitive Regional Clusters: National Policy Approaches, Paris: OECD, 2007. 13 Presentation by Alberto Duque Portugal of the Minas Gerais Secretariat for Science, Technology, and Higher Education, op. cit. SIMI also is encouraging research organizations and entrepreneurs to consolidate their activities into hubs in locations strong in particular fields so that they can achieve greater scale and draw more foreign investment.

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436 RISING TO THE CHALLENGE biotechnology clusters are based in the new Hong Kong Science and Technology Park (see below).14 • Canada: As part of its goal of developing at least 10 internationally recognized technology clusters,15 Canada has established a network of 17 Centers of Excellence since 2008 in fields such as brain research, optics, and theoretical physics16 • Singapore: Singapore is investing billions of dollars in comprehensive strategies to expand innovation clusters in biomedicine, digital media, and high value-added manufacturing, including microelectronics and new materials (see chapter 3).17 • France: The Grenoble region is rising fast as one of Europe’s premier hubs for micro-electronics and nanotechnology companies, and is a showpiece of the French government’s pôles de croissance initiative to develop globally competitive innovation clusters.18 • Taiwan: Taiwan’s Industrial Technology Research Institute (ITRI) already has helped establish some of the world’s most successful clusters in notebook PCs, digital displays, and semiconductors. Now ITRI and other government agencies are working with industry to develop promising clusters of manufacturers in solid-state lighting, 14 Now Hong Kong is focusing on developing innovation clusters in areas like thin-film photovoltaic cells, environmental engineering, and energy management for buildings. Presentation by Nicholas Brooke of Hong Kong Science and Technology Parks Corp. in National Research Council, Understanding Research, Science and Technology Parks: Global Best Practice: Report of a Symposium, Charles W. Wessner, editor, Washington, DC: National Academy Press, 2009. 15 Each center is based at a university and receives a mix of government and private industry funding for collaborative research and commercialization programs. The centers are credited with creating more than 100 spin-off companies, training 36,000 personnel, and attracting $71 million in private investment. Industry Canada, Achieving Excellence: Investing in People, Knowledge and Opportunity—Canada’s Innovation Strategy, 2001. (http://dsp-psd.pwgsc.gc.ca/Collection/C2-596- 2001E.pdf. 16 Networks of Centers of Excellence, “About the Networks of Centres of Excellence,” accessible on the Web at http://www.nce-rce.gc.ca/About-APropos/Index_eng.asp. 17 The initiative, led by the Agency for Science, Technology, and Research (A*STAR), includes development of several multibillion-dollar science parks, recruitment of top international scientists, a training program for 1,000 Singaporean science and engineering Ph. Ds, revamped university curriculum, and a $275 million program to support technology entrepreneurs with start-up capital and incubators. National Research Foundation, “National Framework for Innovation and Enterprise,” Prime Minister’s Office, Republic of Singapore, 2008, (http://www.nrf.gov.sg/nrf/otherProgrammes.aspx?id=1206). 18 Gilles Duranton, Philippe Martin, Thierry Mayer, and Florian Mayneris The economics of clusters. Lessons from the French experience. Oxford: Oxford University Press, 2010. The cluster is centered around MINATEC, a 3,000-student campus that represents a €3.35 billion investment by the national and local government (see Science Park chapter). Minatec has brought together public-private research collaborations involving four universities and has spawned start-ups in optoelectronics, biotechnology, circuit design, motion sensing, and other fields. From presentation by David Holden of MINATEC in Understanding Research, Science, and Technology Parks, op. cit.

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CLUSTERS AND REGIONAL INITIATIVES 437 flexible displays, thin-film photovoltaic cells, medical devices (see chapter 3).19 Cluster Dynamics Industrial clusters have been the subject of study since the pioneering study of Sheffield’s cluster by the British economist Alfred Marshall in the late 19th century.20 He identified three basic advantages of clusters which are still acknowledged and have come to be known as “Marshall’s trinity”. They are: 1) a pool of skilled labor; 2) knowledge spillovers; and 3) inter-firm linkages. These factors are widely recognized to convey benefits to enterprises located in a cluster, but the benefits have proven difficult to quantify.21In addition to the traditional sources of cluster advantages cited by Marshall, a number of contemporary analysts, notably Michael Porter, have argued that highly clusters localities in which intense competition for ideas occurs are more conducive to innovation.22 19 Presentation by John Chen, Industrial Technology and Research Institute of Taiwan at the National Academies Conference on Flexible Electronics for Security, Manufacturing, and Growth in the United States, September 24, 2010 in Washington, DC. 20 Alfred Marshall, Principles of Economics, London: Macmillan, 1920. The first edition of Marshall’s classic textbook appeared in 1890. While the analysis of the spatial concentration of economic activity goes back to Marshall’s analysis of the localization of industry it was given more recent attention by Paul Krugman, Geography and Trade, Cambridge: The MIT Press, 1991 See also W. Brian Arthur, “Industry Location Pattern and the Importance of History,” in W. Brian Arthur, Increasing Returns and Path Dependence in the Economy, Ann Arbor: The University of Michigan Press, 1994. Arthur examines the relationship between two different theories of spatial concentration, agglomeration economies and the historical accident/path dependence viewpoint. Recent empirical work by Delgado, Porter and Stern find significant evidence for cluster-driven agglomeration. Mercedes Delgado, Michael E. Porter and Scott Stern, “Clusters, Convergence, and Economic Performance,” March 11, 2011, submitted for publication, accessible at http://www.isc.hbs.edu/econ-clusters.htm. 21 Paul Krugman, who popularized Marshall’s thinking in the late 20th century, observed that “technological spillovers leave no paper trail.” Stephern Klepper, “Nano-economics, Spinoffs, and the Wealth of Regions”, Small Business Economics (2011) 37: 141-154. 22 Michael Porter, “Location, Competition, and Economic Development: Local Clusters in a Global Economy”, Economic Development Quarterly (2000); Eric Y Cho and Hideki Yamawaki, “Clusters, Productivity, and Experts in Taiwanese Manufacturing Industries”. (University of Michigan Quantitative Analysis of Newly Evolving Patterns of Japanese, U.S. and International Trade: Fragmentation; Off-shoring of activities; and vertical intra-industry trade, October 16th, 2009). See also the empirical analysis by Walter Powell et al. of the emergence of life sciences clusters. The authors point out that "necessary conditions are a diversity of for-profit, nonprofit, and public organizations, a local anchor tenant, and a dense web of local relationships. These features make possible cross-network transposition, whereby experience, status, and legitimacy in one domain are converted into ‘fresh’ action in another. The argument does not hinge on specific types of organizations or ingredients; indeed, it is general enough to accommodate multiple pathways.” Walter W. Powell, Kelley A. Packalen, and Kjersten Bunker Whittington, “Organizational and Institutional Genesis: The Emergence of High-Tech Clusters in the Life Sciences.” In John Padgett,

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438 RISING TO THE CHALLENGE John Matthews, who has extensively studied Taiwan’s Hsinchu technology cluster, cited data from the Hsinchu Science Park to the effect that firms located in the park were 66 percent more productive than firms located outside of the park.23 He attributed that fact in substantial part to the existence of “inter-firm linkages”, cited by Marshall, which facilitated the establishment of highly efficient industry chains based on specialization by individual companies.24 If Matthews’ productivity estimate is anywhere near accurate, the implication is that companies’ presence in a successful cluster gives them a major cost advantage relative to other companies, regions, and countries. A further implication is that current trends, with see U.S.-originated designs bring manufactured in Asia, could be at least partially offset through the establishment of local manufacturing industry chains in U.S. technology clusters. The Taiwanese production chains which operate in and around the Hsinchu cluster include many of the companies which originated as spin-offs and start-ups. The fact that venture capital was available to such companies in their initial stages was an important aspect of their subsequent success25. In U.S. Innovation clusters, the creation of comparable spin-offs and start-ups will depend in significant part, to the availability of early stage funding. An Emerging U.S. Cluster Strategy Compared to the national cluster-development initiatives of other nations, U.S. federal programs have tended to be “siloed” and “uncoordinated.”26 Ginger Lew of the White House National Economic Council Walter W. Powell, eds., The Emergence Of Organization And Markets, Princeton: Princeton University Press, 2012. Chapter 13. 23 Matthews (2010). Op. cit. p. ii. 24 “Firms that form part of a network have access to many more resources than would be available to them individually and such firms can contract with third parties to accomplish many more activities than would otherwise be under their control [and] the scope for specialization and intermediation grows. Matthews (2010) op. cit p. ii. Ding Yuan Yang, founder of Winland Electronic Corporation, located in Hsinchu Park, described this dynamic as follows: “Taiwanese companies may not coordinate well enough, but each company clearly defines its own focus. And [they] break down the PC industry into parts. Each company does what it does best. Some do the keyboards, some do the monitors, some do the motherboards, and some do the casing. That is what I call the ability to innovate.” Interview with Ding-Yuan Yang, recorded February 23, 2011 (Computer History Museum, 2011). 25 The government has contributed directly and indirectly to making Taiwan one of the world’s largest sources of venture capital. “Taiwan—A Growing Model for Startup Companies” Central News Agency (November 27, 2011); “Fund to Invest in Venture Capital Firms” Taipei Times (March 19th, 2009); “Cabinet Inks Deal with Israeli Fund” Taipei Times (October 19, 2004). 26 See presentation by Andrew Reamer of The Brookings Institution in Growing Innovation Clusters for American Prosperity, op. cit. Stockinger, Sternberg and Kiese examine differences between the “liberal market economy” approach of the United States and the “coordinated market economy” approach of Germany. Dennis Stockinger, Rolf Sternberg and Matthias Kiese, “Cluster Policy in

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CLUSTERS AND REGIONAL INITIATIVES 439 agreed that state and regional efforts have been “occurring on an ad-hoc basis without a formal U.S. policy.” 27 The federal government has become far more engaged in the past few years. Concerns that the U.S. is ceding global leadership in technology and innovation competitiveness in the wake of the National Academies’ Gathering Storm report have prompted Congress to address clusters in legislation such as the America COMPETES Act.28 Cluster building took on greater urgency in the wake of the financial crisis of 2008 and deep recession that followed. The departments of Energy, Commerce, Defense, Agriculture, Labor, and Education now all have programs devoted to regional innovation clusters. Congress allocated substantial financial support for clusters such as advanced batteries through the American Recovery and Reinvestment Act of 2009, and the Obama Administration’s budget for fiscal year 2011 included more than $300 million in new funding for federal agencies to assist regional innovation cluster initiatives. The Administration also developed a strategy to coordinate programs of various federal agencies to support “holistic, integrated solutions to building regional economies,” according to Ms. Lew of the National Economic Council.29 New federal programs include— • The Energy Regional Innovation Clusters (ERIC) program, in which the DOE is leading six other federal agencies to help U.S. regions develop innovation zones. Regions compete for funds.30 • The Energy Innovation Hubs program, also led by the DOE, provides funds for multidisciplinary teams to deploy new clean-energy technologies at scale. • The Economic Development Agency of the Commerce Department received $50 million under the Recovery Act to map cluster activities Co-Ordinated vs. Liberal Market Economies: A Tale of Two High-Tech States,” paper presented at Copenhagen Business School Summer Conference 2009, Denmark June 17-19, 2009. 27 Presentation by Ginger Lew of the White House National Economic Council at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010. 28 Sec. 603 of The America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education and Science Reauthorization Act of 2010 (P. L. 111-358) , known as the America COMPETES Act, provides for the Department of Commerce to provide competitive grants to regional innovation clusters and create a research and information program on regional innovation strategies. 29 Lew presentation, op. cit. The Taskforce for the Advancement of Regional Innovation Clusters (TARIC), under the auspices of the National Economic Council, is overseeing the development and implementation of interagency clusters efforts. The TARIC was chaired by Ginger Lew until her retirement in June 2011. 30 A public-private consortium led by Pennsylvania State University won the first grant of up to $130 million to form an innovation hub focusing on energy-efficient building technologies. For an explanation of the Energy Regional Innovation Clusters program, see Lew presentation, op. cit. Details on the announcement to fund the Energy Innovation Hub in Philadelphia can be found in the DOE press release of Aug. 24, 2010 at http://www.energy.gov/news/9380.htm.

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440 RISING TO THE CHALLENGE across the country, develop evaluation metrics, and spread best practices.31 • The Small Business Administration is supporting efforts to develop robotics clusters in Michigan, Virginia, and Hawai’i with the help of state agencies and the Department of Defense.32 • The Department of Agriculture proposes a Regional Innovation Initiative in its FY 2011 budget. The agency would set aside 5 percent of the funding from around 20 programs, or about $280 million, would be granted on a competitive basis to pilot projects for regional planning in rural areas to create new industries.33 • The i6 Challenge program, announced by the Department of Commerce in May 2010, announced a $12 million partnership with the National Institutes of Health and the National Science Foundation to award grants to six teams around the country with the most innovative ideas to drive technology commercialization and entrepreneurship.34 • The Department of Labor proposes to use part of its FY 2011 budget request for a Workforce Innovation Fund pursuant to which states and regions would compete for funds by demonstrating a commitment to transforming their workforcesa program which will support cluster initiatives such as ERIC. • The National Science Foundation plans to invest $12 million to promote “NSF Innovation Ecosystems” that support regional innovation clusters by helping faculty and students to commercialize innovations, form industry alliances, and launch start-ups. Most of these new federal cluster initiatives are too new to assess. Provided they are funded, however, and taken together with growing activity at the state and regional level, they mark a clear new direction for U.S. economic and innovation policy. 31 The EDA is requesting $75 million to continue such activities.EDA, along with the Institute for Strategy and Competitiveness at Harvard Business School, has launched www.clustermapping.us the U.S. Cluster Mapping Web site. EDA sees this website, which creates a national database of cluster initiatives and other economic development organizations, as “a new tool that can assist innovators and small business in creating jobs and spurring regional economic growth.” See EDA Update, October 6, 2011, “U.S. EDA Announces Registry to Connect Industry Clusters Across the Country.” 32 The SBA also proposes to use $11 million to train and advise small businesses on how to participate in clusters For explanation of Small Business Administration cluster activities, see the summary of remarks by SBA Administrator Karen Mills in National Research Council, Growing Innovation Clusters for American Prosperity, C. Wessner, rapporteur, Washington, DC: The National Academies Press, 2011. 33 U.S. Department of Agriculture Fiscal Year 2011 Budget Summary and Annual Performance Plan http://www.obpa.usda.gov/budsum/FY11budsum.pdf). 34 National Science Foundation press release, May 3, 2010.

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CLUSTERS AND REGIONAL INITIATIVES 441 “Regional innovation clusters have a proven track record of getting good ideas more quickly into the marketplace,” Commerce Secretary Gary Locke explained at an NAS symposium. “The burning question becomes, ‘How do we create more of them?’”35 The best ways to create sustainable clusters and the appropriate role of public policy remain subjects of extensive debate. Perhaps what experts do agree on is that there are no standard recipes to develop new clusters. Strategies and public policies that are successful in some U.S. regions may not be appropriate in others. “If you attempt to replicate what was done in Silicon Valley, it just will not work,” said Arizona State University President Michael Crow.36 “You need to learn from them, draw on their lessons, and then work out your own solution.” Andrew Reamer of the Brookings Institution warns that too many states have attempted to launch clusters in the same industries, such as biotechnology, regardless of whether they have any compelling competitive advantage. Economic development agencies also tend to jump onto fads. “Today, clusters have that danger,” he said. “They’re the next magic bullet.”37Wholesale attempts to transport successful Asian strategies, where governments often dictate where clusters are to be located, also would be problematic in American regions, not least because clusters are “complex, self- organized, and composed of a broad patchwork of people and institutions,” noted Maryann Feldman of the University of North Carolina. The role of government in the U.S., she said, is to provide incentives.38 To assess the wide range of experimentation at the state, regional, and federal level, the National Academies STEP Board has hosted wide-ranging dialogues over the past few years on how to stimulate innovation clusters. These symposia explored the role that clusters play in promoting economic growth, the role of government and universities in stimulating clusters, and specific strategies in place around America and abroad. The aim was to identify institutions and programs that can be leveraged to grow and sustain clusters. Several common themes emerged from this extensive dialogue regarding guidance and best practices for state, federal, and regional policymakers. To maximize chances of success, regional innovation clusters need to— • Leverage local strengths: Regional innovation cluster initiatives should be built upon existing knowledge clusters and comparative strengths of a geographic region. Government should promote proven 35 Presentation by Commerce Secretary Gary Locke at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010. 36 From remarks by Arizona State University President Michael Crow in Growing Innovation Clusters for American Prosperity, op. cit. 37 Reamer presentation, op. cit. 38 From presentation by Maryann Feldman of the University of North Carolina at Chapel Hill in Growing Clusters for American Prosperity, op. cit.

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480 RISING TO THE CHALLENGE Washington, DC and important nearby research institutions such as the American Center of Physics. M Square will cover 138 acres and have more than 2 million square feet of space when fully built out. It has attracted some $500 million in private investment and is expected to employ 6,500 people.204 The research park has helped the University of Maryland, which already had important institutes for physics and telecommunication sciences and the Center for Advanced Study of Languages, land a cluster of research centers tied to federal national security organizations205. The University of Maryland has set up other innovative research parks to extend its global reach. The UM-China Research Park, established in 2002, hosts 10 Chinese companies and offers services provided by the university’s engineering and business schools. Another 11 Chinese companies have set up operations at the university’s special international incubator, Dr. Mote noted, including a developer of software for the construction industry that raised $2 billion in a stock offering valued at $20 billion within six months. Another “international research park” affiliated with the university serves as a “foothold” for foreign companies in Maryland. The park “shows what universities can do on an international scale to build enterprises,” he said. Purdue’s Regional Approach A science park initiative need not be limited to one area. The Purdue Research Parks is a network of parks launched a decade ago by the Purdue Research Foundation, a nonprofit set up in the mid-1990s. In addition to the 725-acre park near Purdue’s main West Lafayette, Indiana, campus, there are campuses in Indianapolis, Merrillville, and New Albany, all aimed at helping students and faculty commercialize technology to enhance the Indiana economy. In all, Purdue is a partner in at least 10 Indiana science parks, a half dozen of which are doing quite well, according to Victor L. Lechtenberg, Purdue’s vice provost for engagement.206 204 A new 38-acre mixed-use University Town Center under development will allow researchers and entrepreneurs to both live and work at the park. Key tenants for climate and weather research include the National Oceanic and Atmospheric Administration, which will occupy 10 acres, employ 800, and partner with the university and the NASA/Goddard Space Flight Center. A climate change institute run jointly by the university and the Pacific Northwest National Laboratory and a $25 million center for earth systems modeling also are at M Square. Data from M Square Web site at http://www.msquare.umd.edu/about/um-research-park. 205 They include the Intelligence Advanced Research Project Activity, a new government program that consolidates high-level, forward-looking intelligence research. Tenants relating to food research include facilities for the U.S. Department of Agriculture, the Food and Drug Administration, and the university’s own Center for Food, Nutrition, and Agriculture policy. M Square also houses a number of start-ups incubated at the university, ranging from developers of medical devices and Internet security software to nutritional products. 206 From presentation by Victor Lechtenberg of Purdue in Understanding Research, Science, and Technology Parks.

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CLUSTERS AND REGIONAL INITIATIVES 481 The West Lafayette park has nearly 100 high-tech businesses and entities and the nation’s largest incubation program, covering 259,000 square feet and housing 57 start-ups. Some $121 million in venture capital has been invested in businesses. The park’s 2,800 employees earn an average of $58,400 each.207 Combined, the research parks have 214 companies in fields such as life sciences, information technology, advanced manufacturing, digital imaging, agri-science, and engineering.208 A second Purdue initiative is Discovery Park. Founded in 2001, Discovery Park is a network of integrated research centers at the Purdue campus, each dedicated to large-scale, interdisciplinary research in topics such as biosciences, nanotechnology, advanced manufacturing, energy, oncology, and healthcare engineering. Discovery Park also includes a $25 million Hall for Discovery and Learning Research. Discovery Park has 113,000 square feet of laboratory space, has raised nearly $150 million in research funding as of mid- 2010, and recruited 300 faculty.209 The Lilly Endowment is a major contributor. Discovery Park’s mission is to help “redefine” the academic culture for research and discovery.”210 The park has a number of project-based centers sponsored by different funders and that are affiliated with the core research centers. One major project is developing systems to predict the reliability of micro-electromechanical systems (MEMS) used in security, defense, and space applications. Scientists at Purdue’s Bindley Bioscience Center work closely with engineers at the Birck Nanotechnology Center to pioneer new cancer treatments using tiny micro-sensors implanted into tumors to allow doctors to monitor radiation. Other R&D projects study processes to convert biomass into energy and develop low-cost diagnostic tools to detect the AIDS virus. The park is also home to the George E. Brown, Jr. Network for Earthquake Engineering Simulation (NEES), which is housed in Purdue University's Discovery Learning Research Center in Discovery Park. Led by Purdue University, NEES connects research equipment sites and the earthquake engineering community from universities and research centers across the country. NEES is supported by a $105 million grant from the National Science Foundation.211 Seeding and nurturing start-ups by blending different disciplines is a major objective of Discovery Park. It has helped launch 30 companies so far, as well as six start-ups initiated by students. Discovery Park also has helped Purdue 207 Details on Purdue Research Parks from Lechtenberg presentation, ibid. 208 A current list of companies in the parks are found on the Purdue Research Web site, http://www.purdueresearchpark.com/companies/index.asp. 209 Data from Purdue University Discovery Park Web site, http://www.purdue.edu/discoverypark/. 210 Discovery Park Web site, op. cit. 211 See Peter Folger, Earthquakes, Risk, Detection, Warning and Research, Congressional Research Service, September 2, 2011. Access this CRS report at http://www.fas.org/sgp/crs/misc/RL33861.pdf

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482 RISING TO THE CHALLENGE raise more research funds, which surged to $342 million in the 2008-2009 fiscal year. Spurring Entrepreneurialism at Sandia As at many national laboratories engaged in weapons research, the technologies developed at Sandia National Laboratories in Albuquerque, N.M., did little through most of its history to stimulate civilian industries in the surrounding area. That began to change in a big way in 1999, when Sandia became the first national laboratory to open an industrial park next to its compound. The motive was not only to spur development of science-based companies in New Mexico, but also to enable the laboratories to share costs and expertise with industry so that their scientists can keep pace with the latest technological innovations.212 Today, the Sandia Science and Technology Park has 18 buildings housing 29 companies and more than 2,000 employees, who earn an average annual salary of around $70,000.213 The park also has plenty of room to expand: More than two-thirds of the 240 acres of land reserved for the park have yet to be developed. Sandia was founded as part of the Manhattan Project in the late 1940s as a spinoff of Los Alamos National Laboratories, also located in New Mexico, in order to manufacture weapons for the U.S. nuclear stockpile. Owned by the DOE and managed by Lockheed Martin, Sandia subsequently broadened its mission to meeting other national needs, such as technology for homeland security and renewable energy. Sandia’s core technological strengths include computer science, micro systems, materials, engineering sciences, and biosciences.214 Sandia also is strong in fields such as solar power, a legacy of its decades of work developing power systems for spacecraft. The park is located alongside what Sandia Chief Technology Officer Richard Stulen describes as an “innovation corridor.” Major facilities include the Microsystems and Engineering Sciences Applications (MESA) complex, a $$516 million investment by the Department of Energy, the National Nuclear 212 For an early analysis of the Sandia science park, see National Research Council, Industry- Laboratory Partnerships: A Review of the Sandia Science and Technology Park Initiative, Charles W. Wessner, editor, Washington, DC: National Academy Press, 1999. 213 Sandia Science and Technology Park, “Facts and Figures,” on Web site at http://www.sstp.org/Pages/FactsFiguresPage.html Partners in the park include the DOE, Lockheed Martin, New Mexico’s Economic Development Administration, and local governments. The park claims to have created more than 5,400 indirect jobs in the Albuquerque area and that the $68 million in public investment as of 2009 brought in $243 million in private investment. Data are from 2009 report by the Mid-Region Council of Governments. See Sandia news release, “Report: Sandia Science & Technology Park Fuels Economy With Jobs, Tax Revenue, Spending,” Aug 3., 2010 (https://share.sandia.gov/news/resources/news_releases/report-sandia-science-technology-park-fuels- economy-with-jobs-tax-revenue-spending/). 214 Presentation by J. Stephen Rottler of Sandia National Laboratories at the National Academies conference on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.

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CLUSTERS AND REGIONAL INITIATIVES 483 Security Agency, and Sandia.215 MESA is used for both classified and non- classified research and is a state-of-the-art microelectronics fabrication facility that can integrate single chips using different materials in ways not normally available to industry.216 Some of the park’s tenants are sizeable. EMCORE, a developer of fiber-optic transmission equipment and solar cells used in spacecraft and terrestrial systems, employs 500 and has invested $104 million in Albuquerque. The company licensed key laser, solar cell, and transponder technology from Sandia. KTech, a local company that provides technicians for the Sandia Pulsed Power Facility, also employs 500 and has invested $34 million.217 Other tenants include radar-imaging developer Microwave Imaging Systems, the spacecraft electronics operations of Moog Inc., and Applied Technology Associated, a small maker of devices such as sensors and testing instruments.218 Among the biggest challenges for the Sandia science park is “keeping the federal government engaged” and maintaining interest by government agencies in maintaining incentives to lure small businesses, explained Dr. Stulen. “Parks don’t just happen. They require energy, devotion, and passion from leaders – not only of the institution but also of the region.” He said that Sandia and other national laboratories need to improve the ways in which they collaborate with private companies, such as by reducing red tape involved with licensing intellectual property and meeting government regulations. “We need more speed in working with industries, to be able to work at their pace,” he said. Kennedy Space Center: A New Mission The final voyage of Space Shuttle Atlantis, which landed for the last time on July 21, 2011, in Cape Canaveral, Fla., not only marked the end an era of American manned space travel. It also marked the beginning of a major economic challenge for the area surrounding the Kennedy Space Center. The end of the program was estimated to have cost up to 25,000 jobs.219 Regional officials hope that a new science park just outside the security gates of Kennedy Space Center will help rebuild the region’s economy and 215 “DOE/NNSA to Dedicate Half Billion Dollar Microsystems Engineering Sciences Complex at Sandia,” News Release, National Nuclear Security Administration, August 20, 2007. 216 See presentation by Sandia Chief Technology Officer Richard Stulen in Understanding Research, Science and Technology Parks. Sandia also is home to the Red Storm, one of the world’s most powerful supercomputers, and a Joint Computation and Engineering Lab used by corporations such as Goodyear and Procter & Gamble to simulate complex industrial designs. Sandia is a partner in a new Center for Integrated Nanotechnologies, a federally funded public-private research partnership. Sandia has moved some research facilities “outside the fence,” from the highly secured laboratory compound and into the science and technology park itself. They include the Computer Science Research Institute. 217 Ibid. 218 Sandia Science and Technology Park Web, “Tenants.” 219 Donna Leinwand Leger, “End of Shuttle Program Slams Space Coast Economy, USA Today, July 5, 2011.

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484 RISING TO THE CHALLENGE reposition it for the future. Dubbed Exploration Park, the campus will support the emerging commercial space industry and new companies spun off from the center’s research projects. Construction began in March 2011 on the first 60- acre, nine-building phase of the 139-acre site.220 The project is a public-private partnership involving Space Florida—the state’s aerospace economic development organization—and real estate developer The Pizzuti Companies. When it opens, 5,000 technicians, engineers, and administrative support staff will transfer to the park, guaranteeing what NASA Kennedy Space Center Director and former astronaut Robert Cabana described as “a really high-quality workforce that will be transitioning from the end of the shuttle program to the future.”221 The science park also is adjacent to the University of Central Florida, which has an excellent engineering program and the third-largest enrollment of any U.S. university. “If we can capitalize on universities, industry, and government partnerships with the state of Florida, it is amazing what I think we can accomplish,” Mr. Cabana said. The federal government is providing considerable assistance for the transition. The Obama Administration set up a $40 million transition fund and appointed a presidential task force to promote worker retraining and economic development on the Space Coast. The Administration also announced it intends to invest $6 billion over five years in new NASA space initiatives that will stimulate the space industry and that should provide new economic opportunities in the region.222 The federal government also is allocating funds to use the Space Shuttle as a national laboratory for experiments conducted in space and for various technology-demonstration projects. “The question is, ‘How do we tie all of this together, to where we can bring industry in and really make this beneficial to everyone?’” Mr. Cabana said.223 The Kennedy Space Center began focusing more on commercializing technology several years ago. It already opened what is to be the new park’s anchor facility--the Space Life Sciences Lab. Currently the building is located within the gates of Kennedy Space Center, but will move to a new building in the park, where it will be easier for civilians to enter. The facility, built by the state of Florida, has 25 fully equipped scientific laboratories for life-sciences research and administrative offices. NASA will lease the space. The space center has a number of public-private partnerships that focus on applied research and commercialization that can create spin-offs based in the park.224 220 Space Florida press release, March 10, 2011. 221 From presentation by Robert Cabana of NASA Kennedy Space Center in Understanding Research, Science and Technology Parks. 222 See Presidential Task Force on Space Industry Workforce & Economic Development, “Report to President,” August 15, 2010, (http://www.explorationpark.com/feeds/Space_Industry_Report_to_the_President.pdf). 223 Cabana presentation, op. cit. 224 The NASA Innovative Partnerships Program provides bridge funding to help start-ups and launch projects. Innovation Partnerships provided around $400,000 to help initiate a program called Lunar

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CLUSTERS AND REGIONAL INITIATIVES 485 In the field of lighting, the Kennedy Space Center is developing light- emitting diode (LED) technology to help plants grow in controlled environments such as space. It also is developing LEDs in different frequencies and colors that have a direct influence on human performance. The technology has applications on earth as well as space, Mr. Cabana said. For example, it could be used to adjust office lighting during certain times of the day to help people work more efficiently.225 Other space center collaborations with industry with terrestrial applications include a “self-healing wire” developed for the Space Shuttle with ASRC Aerospace Corp. The wire can detect breaks and release polymers to repair the damage. A collaboration with PPG Industries is developing “micro- encapsulated”226 materials that inhibit corrosion in paint, while a joint project with Louisiana Tech University is developing biological instruments that detect radiation damage to DNA during space travel. A partnership with Florida Power & Light is installing a 10-megawatt solar-array system that Mr. Cabana says could help attract solar-array companies to Exploration Park. Yet another collaboration is with Starfighters Inc., a company that operates a fleet of F-104 jets227 that now are used for training. The company is developing a system that can track and monitor rockets fired in test ranges, reducing the chance of human error. 228 Mr. Cabana observed that Kennedy Space Center is a “critical resource for our future” and added that he wants to “make sure that it is maintained so that we have the ability to explore.” With an extensive research commercialization program and construction of Exploration now underway, Mr. Cabana said, “we really are doing all the right things.” Observations on Factors in the Success of Research Parks The proliferation of research parks, and the sheer scale of those being built abroad, highlights the need for U.S. policy makers to better understand the role of such parks in a nation’s innovation system. The ways in which successful parks are structured, financed, and operated have important implications for the Analog Field Demo of ISRU for lunar prospecting, for example. The program, a collaboration with the Goddard and Johnson space centers, Carnegie Mellon University, and the Pacific International Space Center for Exploration Systems run by the University of Hawai’i, uses a simulation of the lunar surface to find and develop natural resources on the moon. ISRU standards for In-Situ Resource Utilization. The program’s goal is to develop ways to use resources already on the moon to establish lunar habitats and sustain human life. (http://microgravity.grc.nasa.gov/Advanced/Capabilities/ISRU/). 225 Cabana, op. cit. 226 Micro-encapsulation is a process in which tiny particles are surrounded by a coating. 227 The Lockheed F-104 Starfighter is a single-engine supersonic interceptor jet used by the U.S. Air Force from 1958 until 1967. NASA used F-104s for test flights until 1994. 228 Examples in this paragraph cited in Cabana presentation.

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486 RISING TO THE CHALLENGE competitiveness of the U.S. and other nations in a 21st century global economy. Yet despite the significant investments in such parks, there has been little rigorous study of which practices work best or to precisely quantify their economic impact. As a result, there is no systematic framework to understand the dynamic interactions among the various stakeholders and participants in research parks and the outcomes that result.229 To advance that understanding, the National Academies’ Board on Science, Technology, and Economic Policy (STEP) made research parks a major area of focus in its study of comparative innovation policy. The major policy findings from the examination of research parks around the world are summarized below. • Successful research parks tend to have a large research university or national laboratory at the core and support a critical mass of highly trained knowledge workers. • Strong public-private partnerships among government, corporations, universities, and national laboratories are increasingly important to the success of research parks. • There is ample evidence that public investment in research parks have a high “spillover” effect in terms of attracting corporate investment, creating jobs, and forming new companies, although more work must be done to measure such impact with precision. • Public financial and policy support must be sustained over the long- term if research parks are to win support from corporate investors. Given the long-time horizons of major corporate research programs, public commitment must be viewed as reliable. • Research parks must be viewed as much more than real estate projects if they are to be catalysts of regional innovation. Successful parks not only offer corporations access to first-rate public research institutions and talent, but also valuable services such as low-cost shared laboratory and prototyping facilities, small-business incubators, advice on intellectual property, and assistance in raising early-stage capital. • Successful research parks outside of the U.S. tend to benefit from strong government-supported programs to promote applied research as well as basic research. • There is substantial room for improvement in the flow of research from universities and national laboratories to the commercial sector. This is especially true in nations such as China, India, Japan, and some nations in Europe, where academic cultures traditionally have not encouraged 229 See Phillip H. Phan, Donald S. Siegel, and Mike Wright, “Science Parks and Incubators: Observations, Synthesis and Future Research,” Journal of Business Venturing, 20(2): 165-182, March 2005.

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CLUSTERS AND REGIONAL INITIATIVES 487 entrepreneurialism, but also in the United States. Greater incentives and reform of technology-transfer policies may be required. IN CLOSING As we have seen, both advanced and emerging economies are making significant investments and promulgating polices to encourage cluster development as a way to maximize their investments in research and development. This chapter has explored several ways in which U.S. states and regions as diverse as Michigan, New York, West Virginia, and South Carolina are rising to the challenge by developing regional innovation clusters and new types of science and research parks. In many cases, these regional initiatives leverage federal investments to achieve scale. In recent years, federal policies have also sought to develop a more integrated approach to supporting regional efforts. Given that innovation clusters typically coalesce over many years, a key issue is whether these initiatives will benefit from steady commitment over the long term.

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APPENDIXES

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