Universities are Wellsprings of Innovation, Drivers of Regional Economies

Deborah Wince-Smith, President, Global Federation of Competitiveness Councils

We are living in the midst of the digital, biotechnology and nanotechnology revolutions. Around the world, countries and regions seek to leverage the opportunities these great revolutions and other technologies present to transform their economies into innovation-based, high-value engines of growth, job creation and prosperity. Experiences of the past few decades have demonstrated that universities play a pivotal role in developing the talent, technology, and new business formation that drive such economic transformations.

A New Model for Economic Growth Takes Shape

During the 1980s and 1990s in the United States — a time of economic challenge and rising global competition — Silicon Valley and the Boston, Massachusetts Route 128 corridor were thriving and “growing their own” economies, despite strong economic turbulence. They were getting new business investment and new business formation, inflows of high-skill talent and creating high wage jobs.

Universities have played a critical role in these industry clusters. The growth of Silicon Valley — epicenter of the digital revolution — is intertwined with Stanford University and its alumni. For example, in 1939, Stanford alumni engineers David Packard and William Hewlett set up a small electronics company in a Palo Alto garage, which, with decades of electronics innovation, grew into a $100+ billion global enterprise, still headquartered in the region.[i] The first occupant of the Stanford Research Park was Varian Associates — pioneer in X-ray and imaging technologies, and one of the first high-tech companies in Silicon Valley — that grew into a company with $3 billion in revenues. In the 1970s, Stanford Professor Vinton Cerf co-developed the TCP/IP protocol, the foundation for Internet communications. Google’s search engine has roots in the page rank algorithm developed by two Stanford graduate students. Other Silicon Valley companies with strong ties to Stanford include Cisco, Silicon Graphics and Sun Microsystems.[ii]

MIT has been a driving force in Boston’s high-tech economy. A 2009 study found that MIT alumni and faculty have spun-off more than 25,000 companies since the Institute’s founding, that employ more than three million people with annual revenues of $2 trillion. Remarkably, almost one third of these companies were located in Massachusetts, with sales of $164 billion, accounting for a quarter of the sales of all Massachusetts companies.[iii]

University-Driven Clusters of Industry and Innovation Around the World

Key elements of the Silicon Valley and Boston Route 128 Corridor experience are being replicated around the world. Here are a few examples, including several in countries that are members of the Global Federation of Competitiveness Councils (GFCC).

U.S. Nano Cluster in New York

With its manufacturing sector in decline, Albany, New York was bleeding thousands of jobs and technical talent educated in the region’s universities. To reverse the hemorrhaging, in the early 1990s, New York political leaders, with encouragement of the region’s business community, made the bold move to invest in the nascent field of nanotechnology. The region’s strategy involved integrating nanotech R&D, education and businesses, anchored by the state’s public university. This included investing in a leading edge, shared semiconductor manufacturing facility at the university, capabilities beyond what all but the largest firms could establish. This bet on the future is paying dividends now as the nanotech revolution accelerates.

Today, world-class research infrastructure at the SUNY Polytechnic Institute and its Colleges of Nanoscale Science and Engineering (CNSE) is the centerpiece of a global hotbed for nanotech and semiconductor manufacturing research and engineering, and collaborations with more than 300 partners in electronics, energy, IT, defense and bio-health. CNSE accounts for more than $14 billion in direct investments, there has been $28 billion in nanotech investment statewide, and more than 12,000 jobs have been created or retained.[iv]

Canada’s Waterloo University

The University of Waterloo is a major asset in an innovation ecosystem propelling a thriving regional cluster of more than 1,000 ICT-related firms, and others in advanced manufacturing, aerospace and high value services.[v] The university is home to world-class research centers in nanotech, biotech, quantum computing, sustainable energy and automotive research, as well as one of the world’s largest concentrations of mathematical, computer and quantum information scientists.

Its unique inventor-owned intellectual property policies foster innovation and entrepreneurship, contributing to a rate of patenting in the region that is more than ten times the national average. Strong academic programs on entrepreneurship contribute to the region’s strong start-up culture, which has seen nearly 1,900 new start-ups in the past few years. [vi] Waterloo engineering students, faculty, staff and alumni alone have launched more than 600 companies.[vii] About half of the companies in the region say the university is a key factor in their start-up or ongoing operations. The university operates the largest post-secondary cooperative program in the world, building strong ties to industry. Nearly three-quarters of the region’s companies say they depend on university graduates and students as a source of employment, with 44 percent saying that Waterloo students and graduates made up more than half their workforce.[viii]

U.K. Silicon Fen

The high-tech cluster Silicon Fen is deeply intertwined with Cambridge University, and its long track record of innovation, which includes the jet engine, the first computer to use stored programs and discovery of the structure of DNA. Today, Silicon Fen is a hub of 4,330 companies in ICT, life sciences and healthcare, knowledge intensive professional services and high-tech manufacturing, with revenues exceeding £11 billion and employing about 59,000 people.[ix] The university works with about 200 industrial partners.[x]

The region has the highest patenting rate in the U.K.[xi] University graduates and faculty are a major source of spin-offs; Cambridge University Computer Lab alumni alone have founded more than 240 companies. University spin-offs have raised £1.4 billion in follow-on funding.[xii] And, more than 1,000 IP licensing, consultancy and equity contracts are currently under management by Cambridge Enterprise, the University’s commercialization group. The region has been growing faster than China. It has been estimated that the city’s life science and technology companies could employ another 250,000 people over the next decade.[xiii]

Biotech Brazil

With more than 300 start-ups and companies,[xiv] Brazil’s biotech industry is concentrated around the universities in San Paulo and Minas Gerais, areas that are home to about two-thirds of the country’s biotech companies. These universities — with more than 100 biotech experts, and programs in medicine, biochemistry, pharmacy and agriculture, and courses in genetics and biotech — have played a key role in the industry’s growth. Ninety-five percent of Brazil’s biotech companies have relationships with universities or research institutes. Of these, 70 percent have a formal relationship and, for 77 percent of them, the partnership involves the co-development of products or processes. More than half of these companies use infrastructure, such as labs or equipment, at the institutions.

The companies rely on highly educated talent. For example, on average, in biotech companies with 1–10 employees, 40 percent are PhDs and 29 percent are MScs.[xv] The Federal University of Minas Gerais is the biggest university in Minas Gerais, with more than 160 researchers with a Ph.D. in biological sciences, and more than 60 percent of the university’s patents are related to biotechnology.[xvi] In a 2009 survey, 66 percent of the biotech companies in the Minas Gerais region had close relations with universities.[xvii]

These examples illustrate how universities help sow the seeds that grow into new industries, disrupt the industrial landscape, and create new wealth and jobs:

• Research that leads to game-changing technologies and new business
• Providing skilled technical and business professionals who create value for companies, and
• Technical talent and entrepreneurs that venture out from universities to commercialize research and technologies and/or form their own start-up companies. For example, one quarter of MIT alumni have founded companies; more than 40 percent of these are “serial entrepreneurs” who have founded two or more companies.[xviii]

Enablers and Challenges

Intellectual Property Management:

Management of intellectual property is a key factor in leveraging university research for economic gain. The United States provides a key example. Since the end of World War II, the U.S. government has funded about 60 percent to 70 percent of the R&D performed at U.S. universities and colleges.[xix] Prior to 1980, there was little incentive for universities to seek commercial uses for the inventions they created through government-funded R&D, hampered by the lack of a uniform policy on government-owned patents. In 1980, the U.S. government held title to 28,000 patents, but less than 5 percent of them had been licensed.[xx]

To more fully leverage government-funded R&D for the benefit of the U.S. economy, the U.S. Congress passed the 1980 Bayh-Dole Act, which allows universities to retain title to, license and commercialize their U.S. government-funded inventions, and to share royalties with faculty inventors. In the first 20 years after passage of the Act, U.S. universities generated a tenfold increase in patents.[xxi] Since 1980, U.S. universities have spun-off nearly 5,000 start-up companies, and 3.8 million jobs were created due to university and nonprofit patent licensing. From 1996 to 2013, the economic impact of university and nonprofit patent licensing was $518 billion in U.S. GDP, and $1.1 trillion in U.S. gross industrial output.[xxii]

Some GFCC countries have similar patent laws, including Brazil, Russia, South Korea and the United Kingdom.[xxiii] For example, South Korea, one of the poorest countries in East Asia in the 1960s, has risen to a top global innovator and high tech economy. Its strong system of intellectual property protection, encouragement of patent commercialization and a focus on university technology transfer have been integral components of Korea’s growth strategy.[xxiv]

Technology Transfer and the Valley of Death Challenge:

A time-consuming transfer gap often occurs when new science and technology move out of universities to industry. It is a common challenge in which university R&D results and technology are immature, and it takes time and money to bring them to commercial readiness. Many small firms, including university spin-outs, do not have the funds needed to de-risk the technology, develop and validate product and manufacturing process prototypes, and generate cost and performance data needed to attract commercial financing. In the absence of this validation, technologies can fall into the so-called “valley of death. ”

In the past decade, the U.S. government has increased its focus on moving technologies through the valley of death. This includes significant investment to fund partnerships between universities and companies to advance and demonstrate clean energy technologies.

Also, the U.S. government has begun co-funding Manufacturing Innovation Institutes, typically providing $70 million in matching funds to each institute. The institutes bring together industry, academia and government to move new systems, subsystems or components from Technology/Manufacturing Readiness Level 4, capable of being produced in a laboratory environment, through Readiness Level 7, capable of being produced in a production representative environment. To date, institutes have been established on wide-band gap power electronics, flexible electronics, photonics, lightweight metals manufacturing, digital manufacturing and design, advanced composites, additive manufacturing/3D printing, and technical fibers and textiles.

Betting on the Future

Recognizing the critical role of universities in research and education, GFCC member countries devote a share of their total national R&D spending for R&D performed at higher education institutions. Based on data available for some GFCC member countries, these shares range widely from 9 percent to 60 percent, compared with an OECD average of about 18 percent.

The focus of R&D at universities among these GFCC countries varies by socio-economic objective. For example, Korea and Russian focus heavily on industrial production and technology. The United States and the U.K. have a strong focus on medical and health sciences. New Zealand has a focus on health, culture, recreation and mass media. These areas align, for example, with Korea’s rapid industrialization, the U.S. government’s large R&D investment at the National Institutes of Health and America’s world-leading pharmaceutical and biomedical industries, and New Zealand’s natural endowments, rich culture, and strong tourism industry.

The high share of R&D investment spent at universities is all the more reason to take steps to ensure that these investments are fully leveraged to seize opportunities for innovation, support the economy, and enhance national competitiveness. The GFCC offers a platform to share information on ways to enhance the transfer of technology from academia to industry for commercialization.

Importance of International Collaboration

We have evolved into a multi-polar science and technology world. In 1960, the United States accounted for 69 percent of global R&D. Today, two-thirds of R&D is performed somewhere other than the United States. Internationally coauthored science and engineering publications have grown to nearly one-fifth of all coauthored publications. The developing world is rapidly advancing its science and technical capacity. For example, between 2003 and 2013, total world science and engineering publication output grew at an average annual rate of 7.0 percent. The total for developing countries grew more than twice as fast (14.6 percent).

Centers of research and technology excellence are spreading around the world. For example, Australia is a world leader in quantum computing, the Rhone Alps a major bioscience center and India’s biotech sector is on a strong growth trajectory. Belgium has a world-class center for nano-electronics, Singapore a global world leader in water research, and the UAE is advancing rapidly in clean energy. Ireland is strong in pharmaceuticals and a world leader in financial services software.

Game-changing technologies can originate almost anywhere. International engagement is critical for staying globally competitive. Forging ties and international collaboration among research universities globally, and between regional innovation hubs and foreign universities can expand the scope of research and technical assets to tap for the innovation and high-value business growth that drive economies. In addition, many of the world’s most pressing challenges — adequate global food, clean water, energy and sustainability, global health and security — are transnational in nature, and will require global R&D collaboration, and cooperative technology development and deployment.

The GFCC can serve as a platform to encourage productive international engagements, knowledge exchanges to identify opportunities for such collaboration, and pave the way for global partnerships.

The Honorable Deborah L. Wince-Smith is President of the Global Federation of Competitiveness Councils and President & CEO of the U.S. Council on Competitiveness.

[i] Timeline of Our History, HP, http://www8.hp.com/us/en/hp-information/about-hp/history/hptimeline/timeline.html

[ii] History of Stanford, The Rise of Silicon Valley, https://www.stanford.edu/about/history/history_ch3.html

[iii] Entrepreneurial Impact. The Role of MIT, February 2009.

[iv] Best Practices in State and Regional Innovation Initiatives: Competing in the 21st Century, National Academies Press, 2013; The New York Innovation Economy, and the Nanotechnology Cluster, The Role of SUNY, The Research Foundation for SUNY, April 3, 2013.

[v] Waterloo Regional Economic Development Corporation Community Profile 2016.

[vi] Waterloo Regional Economic Development Corporation Community Profile 2016.

[vii] 600 Start-ups, Waterloo Engineering, http://engineerthefuture.ca/500-startups-2/

[viii] University of Waterloo Economic Impact Study 2013

[ix] Cambridge Cluster Map, Centre for Business Research, University of Cambridge.

[x] Cambridge Research in Numbers, September 2013.

[xi] Cambridge Innovation in Numbers, May 2016.

[xii] Cambridge Innovation in Numbers, May 2016.

[xiii] Silicon Fen: How Modern Cambridge Became a Tech Phenomenon, The Independent, July 28, 2015.

[xiv] Brazil’s Biotechnology Breakthrough, Eduardo Giacomazzi, BioBrasil Fiesp, October 2014.

[xv] Brazil Biotech Map 2011, brbiotec, Brazilian Association of Biotechnology

[xvi] Minas Gerais’ Overview Biotechnology, TechSolutions, Consultoria e Negocios

[xvii] Brazil Biotech Cluster: Minas Gerais, A Cluster Analysis, Microeconomics of Competitiveness, Spring 2009

[xviii] Entrepreneurship and Innovation at MIT, Continuing Global Growth and Impact, December 2015

[xix] U.S. R&D Expenditures by Performing Sector and Sources of Funds: 1953–2013, National Science Foundation.

[xx] Technology Transfer: Administration of the Bayh-Dole Act by Research Universities, U.S. General Accounting Office, May 1998.

[xxi] Technology Transfer Shapes our World in Ways Large and Small, Association of University Technology Managers.

[xxii] University Technology Transfer, Benefits People, Society and the Economy, 2014 Infographic, Association of University Technology Managers.

[xxiii] Association of University Technology Managers

[xxiv] Korea’s Patent Policy and Its Impact on Economic Development: A Model for Emerging Countries, by Jay Erstling, Mitchell Hamline School of Law, San Diego International Law Journal, Spring 2010.