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Science-Based Economic Development edited by Susan Raymond
Richard Bendis
Susan U. Raymond
Janie Rutherford
Charles R. Warren
Kansas
Science and Engineering Profile
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Actual | 50-State Rank |
|---|---|---|
| General | ||
| Population, 1994 | 2,554,000 | 32 |
| Civilian Labor Force, 1994 | 1,331,000 | 31 |
| Personal income per capita | $20,89 | 24 |
| Gross state product, 1992 (billions) | $56.2 | 31 |
| Science and Engineering | ||
| Doctoral scientists, 1993 | 3,124 | 35 |
| Doctoral engineers, 1993 | 515 | 34 |
| S&E doctorates awarded, 1993 | 240 | 30 |
| S&E post-doctorates, 1993 | 294 | 26 |
| S&E graduate students, 1993 | 5,482 | 27 |
| Federal Spending | ||
| Total Expenditures, 1994 (millions) | $12,506 | 33 |
| R&D obligations, 1993 (millions) | $88 | 41 |
| Total R&D performance, 1993 (millions) | $463 | 36 |
| Industry R&D, 1993 (millions) | $292 | 34 |
| Academic R&D, 1993 (millions) | $154 | 32 |
| of which, in life sciences | 62% |
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| of which, in physical sciences | 7% |
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| of which, in engineering | 13% |
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Higher education current-fund expenditures, 1993 (millions) |
$1,487 | 32 |
| Number of SBIR awards, 1990-93 | 24 | 40 |
| Patents issued to state residents, 1994 | 272 | 34 |
The thirty-second largest state in the Union with slightly more than 2.5 million residents in 105 counties, Kansas is in the heart of the nation's agricultural belt. Farming as a proportion of gross state product is 4.6%, well above that of the nation as a whole (2.0%). Kansas is the nation's leading producer of wheat, and its income from the livestock industry exceeds even its income from agriculture.
Manufacturing and natural resources, however, play the dominant role in the state economy, accounting for over 20% of gross state product. Kansas ranks eighth of the fifty states in oil and gas production, and the state contains one of the nation's largest natural gas fields. The manufacturing base has historically been diversified, with 60% of manufacturing in durable goods and 20% in aviation.
Kansas is also a frontier state. Settled by farmers and pioneers searching for land and dependent only on the product of their own efforts, Kansas is imbued with a culture of self-help and self-reliance. Kansas was the birthplace of agrarian populism and the home of abolitionist crusaders. Kansas institutions do not find it easy to collaborate, and competition and resentments among the various geographic sections of the state are deep-seated, giving rise to regional distrust and political conflict.
During the 1970s and early 1980s, Kansas was a relatively prosperous state. Its three main industries, agriculture, oil and gas, and manufacturing (including aviation), had historically provided the Kansas economy with stable growth. Although economic cycles often affected one of these main components of the state's wealth, the others had always been able to grow apace and bring the state safely through economic storms.
Science and technology policy had never been a fundamental concern in the state's economic planning process. The Kansas state government had no history nor tradition of public policy to link science and technology (S&T) with economic engines. Although the aviation industry and the oil and gas industry were heavily technology based, S&T issues had been left largely within the realm of the relatively large firms in these industries. Similarly, until 1983, Kansas had not invested heavily in university research. The relationship between support for academic research and the nature or growth of the state economy bad not been recognized.
Moreover, Kansas had never been aggressive in obtaining federal research and development (R&D) funding. There was little public involvement in the development of Kansan R&D institutions, and the state received only one-tenth the share of federal R&D support dollars that it would have received if those monies had been evenly allocated on a per capita basis.
Thus, although the state has a widespread and strong university network, and although it ranks eighth of the fifty states in the number of science and engineering graduate students, it ranks near the bottom (forty-third) in engineers and scientists in the work force and in R&D capacity linked to federal research spending (forty- eighth). Yet, historically, this brain drain out of Kansas had not affected the state's economic prospects. Stability in agriculture, the oil and gas industry, and the aviation industry, as well as the size of firms involved in the latter two sectors, kept Kansas on an even keel.
The Policy Trigger
Thus, Kansas continued along a policy trajectory that emphasized stable overall growth, marginal public policy involvement in science and technology, and reliance on historical economic underpinnings. Such a trajectory appeared well justified that is, until the bottom fell out of the state economy from 1984 to 1986.
In this period, for the first time in its history, Kansas experienced an economic free fall. Recovery from the recessions of the 1970s had never been complete, and the subsequent recessions of 1980-82 and 1984-86 knocked all three legs out from under the economic stool at once. Personal incomes grew by over 10% in the 1970 to 1975 period, but by only 2% in the 1979 to 1985 period. The price of oil and gas dropped from $28 per barrel to $12 per barrel in the first half of 1986; and 4000 oil field workers lost their jobs in Kansas as foreign sources became attractive energy alternatives. Budget cutbacks and a national economic downturn devastated the aviation industry, which represented a third of the state's manufacturing employment.
In 1985 state revenues dropped sharply, and 1986 revenue projections were even lower. The state of Kansas fell from number four in the nation in productivity to number twenty. The gathering economic storm clouds hung low over Kansan fields and factory floors.
Among the first policy loci to see the storm was the state legislature, in large part because the declining revenues and the need for yet another tax increase created a clear and present political danger. The catalyst for legislative action was state Senator Wint Winter, a thirty-two-year-old elected official from the university town of Lawrence, Kansas. With only two years in the senate, Winter recognized a need to obtain a clearer picture of the state's economic future in a changing world.
To some extent, the local Kansas climate that encouraged experimentation was emboldened by simultaneous consideration of the economic development issues by the National Governors Association (NGA) and the National Conference of State Legislators (NCSL). The deliberations of these two national associations of leading state officials provided credibility to Kansan legislators, private executives, and academics who were trying to argue the case for more pro-active economic policy to their skeptical colleagues. State Senator Winter had been impressed by panels at the NCSL that emphasized the aggressive strategies being undertaken in other states to link state policy to economic growth. Being able to point to national studies and expertise made aggressive local initiatives more attractive and provided a degree of political protection to ideas that otherwise might have been cast as risky and marginal in a politically conservative state.
Senator Winter decided to launch a major study to assess the need for a new link between the state government and economic growth. At this point, a critical precedent was set. For financial reasons, Winter sought private funding for the study. This precedent- including the state's business and agriculture leadership in the definition of problems and development of solutions in partnership with the public policy process-became the underlying strategy of nearly all that would follow in Kansas. Critical stake-holders in both analysis and action, therefore, included not just the governmental centers of policy, but the Kansas Chamber of Commerce and Industry, the Kansas Bankers Association, and the Kansas Farm Bureau, the most powerful agricultural lobby in the state.
With this joint public-private support in place, two academic researchers at the University of Kansas Institute for Public Policy and Business Research, Anthony Redwood and Charles Krider, developed the report on the ailing Kansas economy. They argued that the state's traditional economy could no longer be expected to withstand economic downturns. Its fundamental base was outdated, and it would increasingly be unable to compete with the economies of states with larger populations or with foreign sources of goods and services. Kansas was losing jobs relative to the rest of the country, losing population (especially young adults with higher education and skill levels), and failing to attract new industries. Moreover, the Redwood-Krider report predicted that it would continue to do so unless it identified and attracted industries that were likely to grow substantially and diversify the economy.
But Redwood and Krider did not just produce a report, they became academic policy entrepreneurs. With a press already sensitized to the struggling economy, voters increasingly insecure over the direction of employment and incomes, and elected politicians searching for a way to act, Redwood and Krider took their findings public. The two gave extensive interviews, lobbied the governor, and, most importantly, built greater support in the Kansas legislature.
The combination of these strategies and the projected benefits of an S&T policy successfully buoyed the efforts of Kansans from the universities, business, and the legislature. When the laws were drafted and the votes were in, forty-six of the fifty recommendations of the Redwood-Kaider report were enacted into law by the 1986 Kansas legislature. The new laws also included the creation of the Kansas lottery with the legislative mandate that a fixed percentage of the revenues realized be poured into economic development. That fund became the Economic Development Initiatives Fund (EDIF).
The Policy Initiatives
Based on the Redwood-Krider report, the role of improved S&T to future economic stability was clear. Kansas was losing high-paying manufacturing jobs to low-paying service industries. Its science and technology graduates were abandoning the state because S&T jobs were not being developed. Its small businesses were having difficulty growing and competing because their technology base was not keeping pace with those of surrounding states, let alone those of global competitors. The link between commercial needs and public policy was weak. Hence, the Kansas initiatives took two forms.
Kansas, Inc.
A new, private, non-profit organization was created and named Kansas, Inc. This institution was a partnership between the state government, private business, and state universities, and was designed to oversee the development of economic assessments for the state. The creation of Kansas, Inc. was a conscious legislative decision. Although the state Department of Economic Development was retained and reorganized. legislative leaders and private executives felt that a new, fresh approach to planning was required. State public and private leaders sought to develop an institution that organically combined both the priorities of public policy and the perspectives of the private sector. Kansas, Inc. was a completely new venture to create a collaborative strategy for the state's economic development.
Kansas, Inc. was formed as a true partnership of public and private interests. It was one of the first efforts in the nation to harness both private and public expertise into the economic planning traces. The fifteen-member board of directors included representatives of all key industries in the state, as well as labor representatives, state legislators, and top executives from the board of regents representing the state university system. The governor shares the chairmanship with a private-sector chief executive officer.
The budget of Kansas, Inc. is met by both public funds and contributions from the private sector.
As a coordinated public-private planning and evaluation agency, Kansas, Inc., while not the official state economic development entity (that remains the legal role of the Economic Development Department), acts as an analyst and program development source both on core economic issues and on subsidiary issues such as reform of the state education system, work force skill improvement, etc. Because it is jointly controlled, independent, and collaborative, Kansas, Inc. provides a forum for consensus building between business, labor, education, and public policy makers.
Kansas Technology Enterprise Corporation
The Kansas Technology Enterprise Corporation (KTEC) is a non-profit, quasi-public corporation established in 1987 to develop and oversee the programs that implement the state's policy initiatives. KTEC links science and technology initiatives for business and universities with economic policy as articulated by the state government and Kansas, Inc. KTEC's central mission is to foster innovation through the creation, growth, and expansion of Kansas enterprises, not simply by supporting technological innovation, but by seeing that technology advancement contributes to economic growth. KTEC both supports research and provides linkages for the commercialization of that research. Enabling legislation allows KTEC to operate as a business, free from the restrictions normally found in state agencies. Today, KTEC operates much as a holding company, managing and coordinating various programs and subsidiary corporations.
KTEC's programs have evolved systematically as operations are constantly re evaluated and gaps in assistance and financing are identified. KTEC's programs can be organized into six categories:
Centers of Excellence:Created in 1983 and subsequently transferred to KTEC, the Centers of Excellence are located within the four public universities in the state. The centers provide research and commercialization support in advanced manufacturing, computer-aided systems engineering, biosciences, and aviation research. The centers are peer-reviewed biannually to assess quality and the productivity of their links to commercial ventures. Each center receives core funding through KTEC on a competitive basis, following submission of an annual report documenting results and accomplishments and setting out future goals and objectives.
Grant Programs:KTEC operates a set of grant programs for applied research, for equipment used in S&T skill training, and for innovative R&D in small business. In applied research, KTEC funds 40% of approved research projects, with the participating company providing the remaining 60%. On these projects, KTEC takes a royalty position that provides for repayment when the product becomes commercially successful. It is hoped that this royalty strategy will ultimately reduce KTEC's dependence on monies from the Economic Development Initiatives Fund.
Training equipment grants are designed to assist two-year academic institutions in buying state-of-the-art equipment to train students and manufacturing employees to work in a particular industry or in a particular region of the state. These grants are targeted at improving the technical sector of the state's work force. The federal governments Small Business Innovation Research program, which places a particular focus on small business innovation and the advancement and commercialization of technology, shares the cost of preparing proposals for submission to federal agencies.
Kansas Value Added Center (KVAC):Originally created in 1988, KVAC was realigned as a program of KTEC in 1993. Consistent with the overall priority on public-private partnership, KVAC is led by a joint public-private board of directors, and is focused on enhancing agricultural, economic and rural revitalization by promoting the growth of value-added processing facilities in the state. Programs assist technical innovation in agriculture, commercialization of agriculture technology in rural communities, and development of investment-grade technologies and products. KVAC also has initiated industrial agricultural programs supporting research and innovation on uses of agricultural products and by-products for non-food, non-feed innovations.
Ad Astra Fund: Kansashas virtually no seed or venture capital infrastructure. Indeed, capital from outside of the state has historically bled enterprises from Kansas rather than strengthening them or relocating to the state. Recognizing the importance of capital availability to the overall S&T-economic development strategy, a $1.8 million seed capital fund was created with EDIF monies and has been leveraged to $2.6 million with private funds. A second fund was created in 1994 with $1.5 million of EDIF money, with another $1.5 million added in fiscal 1995. The second fund is also being leveraged with private resources. Both seed capital funds focus on advanced technology businesses in which an equity position can be taken with the expectation of a return on investment at some future point.
Mid-America Manufacturing Technology Center:The Mid-America Manufacturing Technology Center is a not-for-profit corporation designed to provide hands-on consulting services to small and medium-sized manufacturers in the areas of quality improvement, resolution of equipment and production problems, product testing, and vendor identification. The objective of the center is to make manufacturers more efficient, to increase sales and reduce costs, and hence to increase manufacturing stability, competitiveness, and employment. It operates seven regional offices in Kansas, with additional responsibility in the states of Missouri, Colorado, and Wyoming.
Commercialization Corporations: Commercialization Corporations were created in 1994 as subsidiaries of KTEC to accelerate the conversion of technologies into viable products for the marketplace. Each corporation is initially capitalized with a combination of funds from KTEC, the local commmunity, and the university with which the corporation is affiliated. Infused funding will allow the corporations to invest in and help develop the marketable technologies and processes, ultimately building new companies around those technologies. Pre-seed and local seed capital funds will assist in capitalizing new companies through the commercialization corporations.
Kansas Inc. receives and operating budget through a combination of State General Fund and Economic Development Initiatives Fund (EDIF), and contributions from private businesses for research projects. KTEC, on the other hand, receives no funds from general state revenues. KTEC is funded annually through the EDIF, which is proceeds from the Kansas lottery and pari-mutual racing. In fiscal year 1995, KTEC received an operating budget of $13.5 million from the EDIE Through leveraging of federal funds and private industry partnerships, KTEC's funding rose to $43.8 million to support ongoing and new initiatives. Over the eleven year period 1984-1995, KTEC received a total of $63.6 million for economic development initiatives, a sum which was leveraged over threefold to reach a total of $223.7 million.
Each year, KTFC must demonstrate to the Kansas legislature its accomplishments in order to maintain funding, initiate new programs, and support its clients. In the eleven-year period 1984-1995, KTEC programs have resulted in:
Recognizing the importance of demonstrating the return on public investment in its programs, particularly where other interests compete for access to public funding, KTEC contracted with the Institute of Public Policy and Business Research at the University of Kansas to develop an evaluation tool called ROPI (Return on Public Investment Model). Results of both direct and indirect effects of public investments will then be an annual part of KTEC's report to the state legislature. Since its creation in 1987, KTEC has routinely surveyed its clients to assess the achievement of economic development goals and objectives. This tracking of out comes is an integral part of KTEC's success.
Potholes in the Political Roadway
The process of creating Kansas, Inc. and KTEC and of maintaining the political and economic momentum behind their programs was (and is) not always a smooth one. While investments in science and technology seek to trigger or restore economic progress in a globally competitive environment and may appear to be eminently sensible to some, to others they are far off the desired policy mark. In Kansas, political opposition to S&T policy initiatives has arisen occasionally, although positive program results have always succeeded in swaying opinion in the direction of program support. The loci of opposition have been threefold.
First, early skepticism about Kansas, Inc. and KTEC was centered in rural areas in the north and west of the state. These regions perceived that the research, technology transfer, and institution building that would take place would be centered in urban areas, which were located largely in the eastern sections of the state. This competition for resources in the face of a statewide economic crisis, overlaid upon a historical rural/urban-west/east tradition of distrust was resolved by strengthening the agricultural technology aspects of the programs (KVAC), by linking services to the agricultural extension system already in place, and by ensuring that regional offices, such as those affiliated with the Industrial Liaison program and the Mid-America Manufacturing Technology program, were located throughout the state.
Second, Kansas has a "populist" tradition in its political leanings, with a tendency to focus on the needs and welfare of "common people." The electorate's historically pro-business tendency is tempered by this populist sentiment. Particularly in periods of economic constraint, when public resource allocations will create losers as well as winners, a significant number of legislators argued for public allocations to direct social welfare programs rather than to longer-term S&T investments. This tension between short-term crisis resolution through direct social service programs and long-term investment in educational and business economic infrastructure will always offer challenges to the S&T-economic development coalition.
Finally, staying the long-term S&T course as short-term economic conditions began to improve has proved to be a challenge. By 1990, Kansas began to enjoy a growing surplus of state revenue. The improved economic picture, together with the governor's continued lack of interest, reduced legislative interest in and commitment to economic development policy initiatives. Simultaneous increases in state property taxes and reductions in business inventory taxes, produced voter resentment over the distribution of the tax burden, although, in reality, commercial properties were hit harder by the property tax change than were residential properties.
In 1991, the governor who had not been involved in development of either the 1986 assessment or the S&T initiatives stemming from it, proposed that most KTEC programs be eliminated and gaming proceeds put directly into the state general revenue pool. An aggressive education program for the legislature and the governor regarding the employment and competitiveness effects of the S&T programs resulted in continued support for KTEC initiatives. That effort was given a boost by the fact that KTEC was simultaneously awarded a six-year, $12.9 million contract from the federal government's National Institute of Standards and Technology to develop a Manufacturing Technology Center. The award was based primarily upon programs that KTEC had put in place and the overall S&T policy and program infrastructure established in Kansas in support of its economic goals.
The 1991 experience underlined the degree to which S&T-economic development policy making is a continuous process. Coalitions will need to form and re-form if policy support is to successfully ride everchanging political and economic cycles.
Organizational Lessons
Several lessons can be derived from the Kansas experience regarding the process of making and maintaining policy that links science and technology to economic growth.
First, a clear articulation of the problem and its implications for fundamental measures such as investment, jobs, and incomes is critical. A compelling analysis, such as that provided by the Redwood-Krider report in Kansas, is a key catalyst. Moreover, that analysis must be constantly revised in light of both national and global economic and technological trends. Policies and programs must be ready to change course if they are to avoid falling behind.
Second, a "champion" for the S&T-economic policy process must be embedded in the political process. While leadership may begin with one person, it cannot ultimately rest with a single individual. The "champion" is most effective and sustained if it rep resents a leadership group that is willing and able to pull together a lasting coalition around the initiatives, a coalition that will take "ownership" of the policy and its subsequent programs. In the case of Kansas, that "champion" was the state legislature, and the coalition encompassed the legislative, business, labor, and agricultural organizations that represented a significant critical mass of the Kansas economy. The resultant bipartisan coalition still supports the S&T-economic development strategy today.
Third, the development of a public-private partnership must be a priority from the earliest stage of diagnosis and therapy prescription. Linking universities, business, and government together from the beginning is important for continued commitment of public as well as private resources. In Kansas, the Redwood-Krider report itself was financed with private as well as public resources, giving major business, labor, and agricultural organizations a stake in defining the problem and structuring solutions. Consistent with that approach, both Kansas Inc. and KTEC are public-private partnerships, both in their governance and in their programming, ensuring broad and sustained commitment to carrying policy initiatives forward over time.
Fourth, programs must be targeted at critical bottlenecks. Programs that focus on strengthening linkages between partners with mutually beneficial interests and objectives will further solidify the relationships between universities, business, and government, and hence help to ensure that the program initiatives result in sustained investments and activities. KTEC has been successful by developing programs that incorporate continual analysis to identify gaps relative to the demands of the state's economic actors and immediately create programmatic modifications in response.
Fifth, institutional innovation must reach outside of traditional bureaucracies. A non-profit organization, such as KTEC, that acts like a business and yet is governed by an independent board of directors that represents all parties has the institutional flexibility to act creatively, and the self-interest to keep programs moving forward and ensure that they meet the partners' perceived needs. Further, such a collaborative institution creates accountability on all sides.
Sixth, the return to S&T investments takes time to grow. The ability to sustain long-term thinking consistently through short-term cycles is important for policy stability. The "ownership" of the program must be assumed by all players-the public through the legislature and administration, the private sector, and the academic sector. Programs must include efforts to develop mechanisms for marshalling dispassionate evidence on the effects of the initiatives in order to satisfy both taxpayers and political supporters, and to win over political opponents or resource competitors. Finally, there must be continual reinforcement and reeducation of the electorate. The goals and objectives of S&T policy, and its economic impacts, must be clearly enunciated, and repeated regularly in public fora of policy debate.
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