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Science-Based Economic Development edited by Susan Raymond
Walter H. Plosila
North Carolina Alliance for Competitive Technologies
Research Triangle Park, North Carolina
Susan U. Raymond
New York Academy of Sciences
Pennsylvania
Science and Engineering Profile
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Actual | 50-State Rank |
|---|---|---|
| General | ||
| Population, 1994 | 12,052,000 | 5 |
| Civilian Labor Force, 1994 | 5,829,000 | 6 |
| Personal income per capita | $22,324 | 19 |
| Gross state product, 1992 (billions) | $267 | 6 |
| Science and Engineering | ||
| Doctoral scientists, 1993 | 20,012 | 4 |
| Doctoral engineers, 1993 | 3,886 | 6 |
| S&E doctorates awarded, 1993 | 1,290 | 6 |
| S&E post-doctorates, 1993 | 1,807 | 5 |
| S&E graduate students, 1993 | 19,873 | 7 |
| Federal Spending | ||
| Total Expenditures, 1994 (millions) | $61,025 | 5 |
| R&D obligations, 1993 (millions) | $2,567 | 7 |
| Total R&D performance, 1993 (millions) | $8,278 | 6 |
| Industry R&D, 1993 (millions) | $6,711 | 6 |
| Academic R&D, 1993 (millions) | $1,019 | 9 |
| font size="-1"of which, in life sciences | 54% |
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| of which, in engineering | 20% |
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| of which, in math & computer sciences | 7% |
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Higher education current-fund expenditures, 1993 (millions) |
$9,672 | 3 |
| Number of SBIR awards, 1990-93 | 468 | 7 |
| Patents issued to state residents, 1994 | 2,816 | 7 |
Ohio
Science and Engineering Profile
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Actual | 50-State Rank |
|---|---|---|
| General | ||
| Population, 1994 | 11,102,000 | 7 |
| Civilian Labor Force, 1994 | 5,537,000 | 7 |
| Personal income per capita | $20,928 | 23 |
| Gross state product, 1992 (billions) | $241.6 | 7 |
| Science and Engineering | ||
| Doctoral scientists, 1993 | 14,727 | 9 |
| Doctoral engineers, 1993 | 3,888 | 5 |
| S&E doctorates awarded, 1993 | 976 | 7 |
| S&E post-doctorates, 1993 | 1,023 | 5 |
| S&E graduate students, 1993 | 22,002 | 7 |
| Federal Spending | ||
| Total Expenditures, 1994 (millions) | $48,023 | 7 |
| R&D obligations, 1993 (millions) | $1,922 | 13 |
| Total R&D performance, 1993 (millions) | $6,395 | 10 |
| Industry R&D, 1993 (millions) | $5.144 | 8 |
| Academic R&D, 1993 (millions) | $591 | 10 |
| of which, in life sciences | 52% |
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| of which, in engineering | 26% |
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| of which, in physical sciences | 10% |
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Higher education current-fund expenditures, 1993 (millions) |
$6,086 | 7 |
| Number of SBIR awards, 1990-93 | 352 | 11 |
| Patents issued to state residents, 1994 | 2,594 | 8 |
The S&T policies of the states of Pennsylvania and Ohio have been developed in the context of the crises faced by mature industrial economies seeking to adapt to an increasingly flexible, technology-based, and globally-oriented economic playing field. With an aging capital stock, little technological adaptation, massive losses of jobs, industrial leadership that failed to reconstruct of its own initiative, global competition, and high labor costs, both Ohio and Pennsylvania saw their economies plummet in the 1970s. In turn, state governments faced both a fiscal crisis, as tax revenues dwindled, and a social crisis, as job loss and worker displacement began to erode the very fabric of the electorate.
The economic structures in Ohio and Pennsylvania in the mid 1970s find few parallels in many less developed country settings. As historically industrially-based economics, these two states faced not the problems of creating economic momentum (the problem of many less developed countries), but of halting and then reversing economic decline. Nevertheless, because Ohio and Pennsylvania represent some of the earliest state-level efforts to link explicit S&T strategies to economic growth, and because they have been taken as models by many other states and nations, closer examination of both the process of policy-making and of the content of S&T initiatives may provide useful insights.
Policy Trigger
Although at different points in time, the technology policy trigger in both states was the combination of an economic recession, a failed state recovery and a proximate gubernatorial election. In both cases, the underlying economic problems of the states had been years in the malting, but the severity of the economic situation, and the need for creative alternatives, was focused by the combination of recession and election.
Pennsylvania
Pennsylvania had historically enjoyed a strong economy, with unemployment lower than the national average, a firm manufacturing base, and a thriving coal mining industry By the 1960s, however, a combination of competition for manufactured goods, and the replacement of coal with oil for energy, resulted in the beginnings of a slow, twenty-year economic decline. Between the early 1960s and the early 1980s, Pennsylvania lost nearly half a million manufacturing jobs. Nearly two-thirds of that loss occurred in primary metals, textiles, and apparel industries.
Nevertheless, prior to the recession of 1975, Pennsylvania's unemployment rate was lower than the national average. But the long-term damage had been done. The state was unable to recover from the recession, and by 1979 Pennsylvania's unemployment was the ninth highest in the nation.
In 1978, the gubernatorial election turned on these issues. Then-Governor Milton Shapp had concentrated his policies and his attention human services pro- grams and welfare issues. Economic issues had taken a back seat, and, to the extent they had been pursued, economic development initiatives had been posed in terms of raiding other states to attract additional investment to Pennsylvania (a practice known as "smoke-stack chasing"). By the 1978 election, Pennsylvania was nearly bankrupt. The state's bonds had the lowest rating in the United States, and its high way department had virtually shut down.
Moreover, graft and corruption had become tabloid topics and heated issues prior to and during the campaign. Members of the Shapp administration had been indicted and convicted on corruption charges. Hence, there was a failure of confidence in the electorate, both in terms of economics and in terms of political trust.
Shapp's challenger (and ultimately the electoral victor), Dick Thornburgh, made the dual issues of corruption and the economy the focus of his campaign. A former U.S. attorney with a reputation for fighting organized crime and corruption in Western Pennsylvania, Thornburgh's emphasis on dismantling the old patronage system of the state played well with voters. He also argued that the state's economic initiatives had to be both aggressive and oriented toward restoring the state's competitiveness by placing economic development first on the policy agenda.
Thornburgh won, but by the time he took office, "the economy fell off a cliff. Between 1979 and 1985, 21.5 percent of all manufacturing jobs in Pennsylvania disappeared. The state's forty largest corporations were literally cut in half, as their total employment fell from 1.2 million in 1979 to 600,000 in 1985. Unemployment peaked at 14.9 percent. When Inc. magazine ranked American cities by their growth in jobs and business startups between 1981 and 1985, Pennsylvania had six cities in the bottom twenty. 1 Ohio ranks seventh in the United States both in terms of population and in terms of the size of its economy. 2 The state's economy has an intense manufacturing focus. Ohio ranks fourth in the nation in terms of manufacturing as a percentage of gross state domestic product.
The recession of the early 1980s provided the trigger for an emphasis on technology policy. Not only was the state's manufacturing base hit hard, but federal environmental regulations were beginning to reduce demand for Ohio's extensive reserves of coal. By the end of 1992, Ohio's unemployed population exceeded the entire population of several other U.S. states.
In 1982, the Ohio legislature created a Task Force to assess the state's economy. This led to a state-wide comprehensive review of past and existing economic development programs. In response, a public-private partnership, the Thomas Edison Program, was developed to promote technological innovation through university- industry collaboration.
The Leadership
In both Ohio and Pennsylvania, the central leadership for initiatives to tie S&T policies to economic recovery came overwhelmingly from the Office of the Governor. While, ultimately and often painfully, policy coalitions were forged with the state legislature, early policy leadership rested clearly with the vision of the Governors, Dick Thornburgh and Richard Celeste.
Although from different political parties, both governors placed the economic development-S&T link at the top of their political agenda, upon assuming office. Both concentrated on developing policies and implementing programs that represented a partnership of government, academe, and industry. Both broke with traditional "economic development" strategies by defining development policy not in terms of episodic and/or ad hoc courting of outside investors, but in terms of planned, sustained partnerships among existing state private, and academic resources. The emphasis was on strengthening intellectual not physical infrastructure. Ultimately, and despite state histories of deep political conflict between parties, consistent gubernatorial leadership was able to generate bipartisan support for the economic development strategies.
The Policy and Program Initiatives
Both Ohio and Pennsylvania put in place programs and policies that focused on building academic-industry links, revitalizing existing private industries, and ensuring that innovation, productivity and job-creation were closely related. In both states, moreover, the policies emphasized decentralization, creating centers of initiative around the state rather than concentrating capacity at a single geographic, academic or industrial site.
Pennsylvania
With the Pennsylvania economy rapidly self-destructing, Thornburgh initiated a three-year economic analysis called "Choices for Pennsylvanians." This process of economic analysis served as a vehicle both for setting policies that matched Pennsylvania's economic needs, and for gathering to the initiative bipartisan and state-wide political and electoral support. The "Choices" process involved government at all levels, industry, organized labor, universities, and, ultimately, 185,000 citizens Early inclusiveness was a critical element of the Pennsylvania policy strategy, Maximum effort was made to ensure that no significant sector would feel it was faced with a policy fait accompli. The collaborative effort at defining the problem, as well as developing the solution, ultimately ensured that legislative leaders would support both the authorizations and the appropriations needed for program implementation.
The "Choices" process resulted in a broad economic development strategy that emphasized entrepreneurship and business retention, expansion, and recruitment. The strategy also addressed such areas as the costs of doing business in Pennsylvania, capital availability, infrastructure, quality of life, human resources, and advanced technology. The Pennsylvania initiative focused on technology and university-business relationships was called the "Ben Franklin Partnership," after the nationally renowned inventor-diplomat-entrepreneur who was also a pillar of Pennsylvanian economics and politics at the birth of the United States. The program was focused on creating a dynamic and productive relationship between the state's extensive academic S&T capacity and its struggling industrial sector. Pennsylvania ranked among the nation's top five states in terms of scientists and engineers, workers in advanced technology, and expenditures for R&D. Yet, these assets, the "Choices" report made clear, had not been linked to the state's economic infrastructure.
The Ben Franklin program comprised six different components, including engineering equipment, small business research grants, tax credits for manufacturing modernization, small business incubator grants, seed venture capital, and a challenge grant program. The last of these six was by flit the largest. Research grants for technology applications were required to be matched by private funds Every dollar of state funding allocated to an institution's research grant had to be matched by 3 to 4 dollars of private investment. leverage of the public purse became a central underlying theme. "Challenge grants" to university-based projects require that business demonstrate its interest in research applications by puting its wallet on the table as well.
Moreover the importance of small business also became a central focus. Large corporations in Pennsylvania were shrinking so rapidly and virtually all jobs in the state were being created by small businesses. Hence, the Ben Franklin program established grant programs to link academic capacity to smal business needs, as well as to fund loans and grants for the creation of business incubators for small technlogy-based businesses.
In an effort to spread the program throughout the state, yet to keep its substance focused on critical areas of technological advance, the Ben Franklin Partnership was organized around four regional centers that are substantively focused on economic specialties relevent within those geographic areas:
This decentralization not only helped to ensure that the university-industry relationship was firmly demand-driven, but also that the partnership itself was institutionally accountable to the industries and academic centers involved The Ben Franklin Partnership was not simply another bureaucracy in the state capital, it was located in and responsible to local economic and political leadership Moreover, the regional centers can act as intermediaries between state and local government, industry, and universities. This combination of decentralization, accountability and coordination provides flexibility and responsiveness in policy implementation.
Ohio
In Ohio, the policy objective was to modernize the state's "rust belt" industries and to diversify the industrial base toward materials processing, biotechnology, welding, super-computing, advanced manufacturing, and polymer development. The emphasis was on improving and revitalizing Ohio's existing business, and to promote technological Innovation through university-industry linkages. As in Pennsylvania, the strategy was to leverage public funds by requiring that businesses share the bill for innovation.
Ohio's effort, named the Thomas Edison Program, also emphasized decentralization, and the role of public institutions in coordinating across government levels and economic sectors. The program is funded through general state revenues on a biennial basis and contains two categories of activities.
The Thomas Edison Program operates through seven Edison Technology Centers which are university-industry, not-for-profit corporations focused on converting technological advance into commercial products and processes. Public funds must be matched on at least a 1:1 basis by private financing. Private sector commitment is evidenced not only by investment but by the fact that the Board of each Center is made up of a majority of business executives. Each Center supports research and development and provides industrial services that extend to marketing and information, to ensure that innovations successfully extend from the laboratory into the marketplace.
An example of the structure and operation of the Edison Centers is the Edison Welding Institute (EWI), which is owned by Ohio State University, the Battelle Memorial Institute, and the Welding Institute based in Britain. EWI is operated by 228 dues-paying industrial members who elect its Board of Trustees and its Industrial Advisory Board. In turn, the Board selects projects and establishes service priorities. The Ohio State Welding Engineering Department works closely with EWI in identifying basic research priorities. The University also provides rent-free use of a building, and holds two seats on the Board of Trustees.
EWI is engaged in three areas of activity. The research program links Ohio State faculty expertise to and EWI members, with members being able to have a say over how their dues are allocated across research projects. An education and training program provides services (workshops, seminars, videos) to members for purposes of skill upgrading, quality enhancement, or customized training. The applications program links research to applications within firms to enhance manufacturing competitiveness.
The other Edison Centers include:
Institute of Advanced Manufacturing Sciences
Their organization and operations are similar to that of EWI.
Sources Of Opposition
In 1835, Alexis de Tocqueville, observing early American social and political organization, wrote,
The political activity prevailing in the United States is something one could never understand unless one had seen it. No sooner do you set foot on American soil than you find yourself in a sort of tumult; a confused clamor rises on every side, and a thousand voices are heard at once. 3
A century and a half later, in both Ohio and Pennsylvania, political opposition to early gubernatorial initiatives kept faith with de Tocqueville's observation.
In Pennsylvania, the three-year process of analysis, critical as it would later be proven to be, coincided with three years of spiraling economic decline. The effort to place the state on a new technology-based path generated heated political opposition from two sources. On the one hand, Thornburgh's efforts were criticized as being unresponsive to immediate needs. Opponents attacked the failure to respond with traditional mechanisms (subsidies) to save traditional jobs. Technology was an abstraction. The question of technology-based growth was cast as politically esoteric, a theory removed from the reality of the immediate economic, and hence social, free-fall which the state was undergoing.
On the other hand, the initiatives were attacked as cold and aloof. Pennsylvania's history of tax-financed social welfare entitlement programs had created a significant bloc of advocates for welfare-based state programs. Thornburgh consistently resisted expansion of such initiatives, attracting the political wrath of these interests. had Again, the long-term nature of the planning required for the Ben Franklin Program (and the even longer-term needed to demonstrate results), collided with the short-term politics of resource allocation choices. Thornburgh's need to simultaneously weed out graft and corruption from the state's political system reinforced opposition to his economic initiatives in some political circles, although they did tend to provide a counterweight with the electorate at large.
As a gubernatorial initiative, the Ben Franklin Program had to reach across these the various cross-currents of opposition to attempt to build a legislative coalition with need the State Assembly. The enabling legislation and budget allocations that would be needed to actually implement the Program would require the cooperation of the General Assembly. The problem of collaboration was compounded by the fact that The the legislature was controlled by the opposition party, and hence partisan politics often separated the Governor from the legislature on key issues. The Ben Franklin Program was attacked from the outset as though it were the entire economic development effort of the State. Because it was so clearly identifiable as a program of Governor Thornburgh, and because extreme partisan politics in the State led to by Legislative-Gubernatorial conflict, the Ben Franklin Program became a political lightening rod. The strategy to bridge this partisan political void was multifaceted. Two key legislators in the state house, one a Democrat and one a Republican, had originally been recruited to sponsor the enabling legislation, and continued to serve on the Ben Franklin Board of Directors over the next ten years. Two State Senators also served on the board, one from each party, although there was less continuity in their appointments. Having legislators on the inside of the Ben Franklin Program helped to provide lines of communication into the opposition. Alter two or three years of in operation, support for the Ben Franklin Program in the legislature began to grow and supersede the partisan political divide.
The Program and the Governor's office also involved the legislature in assessing the effectiveness and accountability of the Program. Even though by 1985-86 the Ben Franklin Program's budget had grown to $22-25 million per year, twice that of any other economic development program, the annual budget hearings in the state house and senate raised few questions about the Program and its operations. Legislative satisfaction with program accountability resulted from a conscious effort by Program managers to report quarterly and semi-annually, on a voluntary basis, using 36 measures of performance. Hence, legislative confidence over accountability was assured. Furthermore, the legislature was involve in the public announcement of grant awards, but the grant decision-making process was kept non-political and hence obviated any disputes within the legislature over political favoritism. As a result, the program gradually built bipartisan legislative support to the point where the additional economic development programs and resources were placed in the Ben Franklin Program at the initiative of the legislature.
In Ohio, divisive partisan politics were also a state tradition. Ohio's legislature had operated on what Chris Coburn, Executive Director of the Thomas Edison Program, calls the "peanut butter philosophy of government." Legislatures expect to he able to spread money and immediate benefits evenly across the state to please all constituencies. Coburn notes, "The grand tradition of peanut butter in state government explains why we in Ohio have thirteen state universities with thirty-two regional campuses, seven medical schools and twenty-three two-year colleges." 4
The tension in Ohio, and, indeed, in many other state programs, is to achieve the efficiencies needed by concentrating areas of expertise, yet meeting the political need to spread program resources across geographic electoral constituencies.
Lessons for S&T Policy and Programs
The Ohio and Pennsylvania experiences point to several prerequisites for developing successful policies and implementation mechanisms.
First, close collaboration from the outset between universities, government, and private industry is essential. A sense of "ownership" of the ultimate programs will build trust and mutual accountability, and that ownership must be shared equally by universities, industry, and public institutions. It will also help ensure that resource allocation is demand-driven, and hence that the link between S&T and the marketplace is firm. Moreover, in doing so, partnerships also change the universities. Close collaboration with private entrepreneurs begins to shift university thinking toward an appreciation of the importance of the "development" side of the "research and development" function. In changing behavior, active participation in such efforts may succeed where theoretical exhortation often fails.
Second, decentralization is key. Local intermediaries, Boards of Trustees, region al distribution-all are mechanisms to ensure that the networks of expertise and information that are developed are viewed as value-added by public, university and private executives involved. Decentralization also assists in ensuring that the electorate remains aware of the initiatives, sees their benefits in the workplace and in the local economy, and hence remain supportive members of the policy coalition.
Time is critical, and often problematic. Careful analysis, stable policies delicately built through political coalitions, and consistent implementation institutions are important elements of success. Yet, the time needed to put these elements in place, and the additional time needed to realize positive outcomes (as long as 840 years), often runs counter to the pressure of economic crisis or decline, and/or the pressure of the electoral cycle. Programs that combine long-term investments with initiatives aimed at demonstrating short term results can often overcome the time conflict. The Ben Franklin Program, for example, undertook programs in education, training, entrepreneurship, and process-oriented research, all of which could show results in the short-term while longer-term investments in technological innovation and product research could come to fruition.
There is no traditional organizational "cookie-cutter" for linking S&T policies to economic objectives. Organizational innovation is required. The important prerequisite is that the institutions developed represent networks or consortia of firms and research centers that come together to mutually identify priorities, organize their implementation, and oversee their effectiveness. The actual joint ownership of the implementation organization (e.g., the joint public-university-corporate ownership of the EWI in Ohio) provides a flexible, highly accountable method for ensuring that public funds both leverage private commitment, and remain responsive to the demands of the marketplace.
A bipartisan political strategy is essential. Use of merit-based review of projects and grants, decentralization of ownership and management to local universities and industries, concerted outreach to legislative institutions, clear and regular mechanisms of accountability-all are essential ingredients to ensure that S&T initiatives do not become simply further targets for partisan politics. It is essential that such government programs be just as "entrepreneurial" in developing bipartisan support as industries must be in the marketplace.
Finally, policies and the programs they generate should be as comprehensive as demand requires. Singular focus on research, or on manufacturing alone, for example, narrows the economic impact of S&T policies. Multifaceted approaches that cross industry disciplines, and firm size are important. The tension, of course, is obvious: by trying to do too much, one can often end up doing nothing of significant value.
Notes
Note 1: Osborne, David, "Pennsylvania: The Economic Development Model," Laboratories of Democracy, p.45 Back.
Note 2: Data in this section are taken from Partnerships A Compendium of State and Federal Cooperative Technology Programs, Christopher Coburn & Dan Berglun, eds., (Ohio:Battelle Press, 1995). Back.
Note 3: Mayer, J.P, Democracy in America, (1969) Vol.1, part 2, p.242. Back.
Note 4: "National Economic Competitiveness: State Governments Should Lead the Way," delivered to the City Club of Portland, Portland, Oregon, February 6, 1987. Back.
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