Innovation Hubs and Regional Innovation Clusters

Stephen DeAngelis

October 28, 2011

Last fall, New York Times’ columnist Thomas Friedman found himself in a conversation with Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore. At one point, the conversation turned to the subject of innovation hubs. Singapore has spent around a billion dollars to make itself a biomedical science hub. As a result, that small country has attracted some of the world’s best researchers in the field. Friedman told Mahbubani that President Obama had recommended that the U.S. establish “eight innovation hubs to solve the eight biggest energy problems in the world.” Friedman calls this “the most exciting, moon-shot-quality, high-aspiration initiative proposed by President Obama that no one has heard of.” [“Build ‘Em and They’ll Come,” New York Times, 12 October 2010] The proposal calls for an investment of $25 million in each hub; but, at the time Friedman wrote, “Congress, concerned about every dime we spend these days, is reluctant to appropriate the full $25 million for each center, let alone for all eight at once, so only three are moving ahead.” Mahbubani couldn’t believe that Friedman was correct about his numbers. He insisted that Friedman must have meant billions rather than millions. Friedman assured him that his numbers were correct. Friedman continued:

“This may seem like a little issue, but it is not. Nations thrive or languish usually not because of one big bad decision, but because of thousands of small bad ones — decisions where priorities get lost and resources misallocated so that the nation’s full potential can’t be nurtured and it ends up being less than the sum of its parts. That is my worry for America.”

I agree with Friedman that the implementation of great ideas has gone missing in efforts to help the U.S. recover from the Great Recession. Nothing has been built that leaves the country better off coming out of the recession than going into it. Friedman continued:

But none of this is inevitable. So let’s start with the good news: a shout-out for Obama’s energy, science and technology team for thinking big. Soon after taking office, they proposed what Energy Secretary Steven Chu calls ‘a series of mini-Manhattan projects.’ In the fiscal year 2010 budget, the Department of Energy requested financing for ‘Energy Innovation Hubs’ in eight areas: smart grid, solar electricity, carbon capture and storage, extreme materials, batteries and energy storage, energy efficient buildings, nuclear energy, and fuels from sunlight. In each area, universities, national labs and private industry were invited to put together teams of their best scientists and research ideas to win $25 million a year for five years, to, as Chu put it, ‘accelerate the normal progress of science and technology for energy research’ and thereby ‘discover and commercialize the energy breakthroughs we need’ and thereby spawn new jobs and industries.”

Instead, taxpayer money went towards saving failing businesses and buying troubled assets. Perhaps the biggest black eye for the government in all of this was the failure of Solyndra, a California solar company backed by 500 million dollars in loan guarantees. Last month the company shut its doors and laid off its 1,100 employees. Surely that money would have been better spent creating innovation hubs. Governments have a terrible track record when it comes to betting on businesses and technologies. Those kinds of bets should be left to the private sector. Governments have a much better track record when it comes to supporting basic research and then leaving commercial development to the private sector. The failure of Solyndra will probably prove to be a fatal blow to the Obama administration’s efforts to advance green technologies. According to Friedman, the three “hubs” that are likely to get some funding (but certainly not all that was recommended) are “Penn State and two national labs.” Friedman continued:

“In my view, Congress should be funding all eight right now for five years — $1 billion — so that we not only get graduate students, knowing the research money is there, flocking to these new energy fields but we get the benefit of all these scientists collaborating and cross-fertilizing. Chu, who holds a Nobel Prize in physics, says he understands and respects that Congress has to make tough budgeting choices today, so I cannot get him to utter one word of criticism about our lawmakers’ spending priorities. But he waxes eloquent about what it would mean for American innovation if we could actually fully pay for this focused moon shot on energy. The idea behind the hubs, explained Chu, is to ‘capture the same spirit’ that produced radar and the first nuclear bomb. That is, ‘get Nobel Prize winners in physics working side by side with engineers’ — not to produce an academic paper but ‘to solve a problem in a way that will actually be deployed’ and do it much faster than the traditional academic model of everyone working in their own silo. ‘We don’t want incremental improvements,’ said Chu. ‘We want real leaps — game-changing’ breakthroughs — like a 75 percent reduction in energy used in a commercial building through affordable design and software improvements. ‘America has shown we can do this,’ concluded Chu. ‘The scientists and engineers see the problem; they see the opportunity; they see what is at stake, and they want to help.’ That is why we should fully fund all eight now.”

I think that another reason that these hubs should be funded is that the current crop of politicians are denying rising generations even a glimmer of hope. Their general lack of vision provides few reasons for young people to get excited about the future and little hope that their lives will be better than their parents. The hubs could give hope a shot in the arm. Friedman concluded:

“All of this reminds me of my favorite business quote from a consultant who had worked for the German technology giant, Siemens. He said: ‘If Siemens only knew what Siemens knows, it would be a rich company.’ Ditto America. We still have all the right stuff. The president’s instinct to push out the boundaries of energy science is spot on, but Congress has to think big, too, and help unlock and scale everything that America knows. Please, please: Stop lavishing money on repaving old roads and pinching pennies when it comes to pioneering new frontiers.”

With some exceptions, hubs have proven to be a good way to create jobs as well as advance research and promote innovation (see my post entitled The Birth and Death of Industry Hubs). But you just can’t create hub anywhere and expect it to succeed. As I noted in the post I just mentioned, Nevada has spent six years trying to develop the University of Nevada Las Vegas Harry Reid Research & Technology Park. The 122-acre site has received $2 million in federal funding but, aside from the land, has only a very nice, landscaped sign to show for Nevada’s efforts. The last I heard the site sits vacant. Like any geographically-based enterprise, location is everything. Currently, “U.S. innovation is most[ly] concentrated on the coasts, with the highest density on the West Coast, according to urban theorist Richard Florida.” [“U.S. Innovation Clustered on Coasts,” by Conor Dougherty, Wall Street Journal, 22 September 2010] Regardless of the occasional hiccup and Congress’ inaction, some policymakers are starting to get on board with the idea of “regional innovation clusters” (RICs), which could be centered around innovation hubs — although that is not a necessary condition. A Brookings Institution report states:

“After a decade of delay, the executive branch and Congress have joined state and local policymakers in embracing ‘regional innovation clusters’ (RICs) as a framework for structuring the nation’s economic development activities. At the state level, governors and gubernatorial candidates of both parties are maintaining or stepping up their longstanding interest. And additionally, a broad range of business leaders, mainstream commentators, and policy analysts have been calling in the wake of the recent recession for a different kind of growth model that depends less on bubbles and consumption and more on the production of lasting value in metropolitan economies and the super-productive clusters within them. All of which, at a moment of deep economic uncertainty, makes it appropriate to revisit the cluster paradigm and consider its special relevance at a moment of deep economic uncertainty, fiscal crisis, partisan gridlock, and necessary governance reform.” [“The New ‘Cluster Moment’: How Regional Innovation Clusters can Foster the Next Economy,” by Mark Muro and Bruce Katz, Brookings Institution, September 2010]

In this era of extreme partisanship, Muro and Katz ask, “What explains clusters’ renewed popularity?” They continue:

“To be sure, some of the concept’s new and bipartisan relevance owes to its sound non-partisan concern with the mechanics of value-creation in local economies, whether metropolitan or rural, high-tech or manufacturing. And it’s true that as a matter of policy action clusters—ranging from the famous Silicon Valley technology cluster to the Vermont cheesemaking cluster—are all about synergies and efficiencies, and don’t tend to cost too much. But what is most timely beyond all that may be the possibility that the new prominence of regional innovation clusters reflects something deeper: a positive interest in locating a more grounded, realistic way to think about the economy and development efforts so as to put both on a more productive footing. In this setting, the new cluster discussions redirect attention, analysis, and policymaking to the more grounded, day-to-day interactions by which real companies in real places complete transactions, share technologies, develop innovations, start new businesses—and yes, create jobs and locate workers. To that extent, clusters—whether of airplane manufacturing in Wichita or cleantech in Colorado or biomedical innovation in Cleveland—represent an antidote to the nation’s recent economic history of bubbles and consumption and also a framework for recognizing and bolstering the real-world variety and dynamism of regional economies. Hot spots of productivity and collaboration as well as competition, clusters are the locations most likely to deliver a new economy that is export-oriented, lower carbon, innovation-driven and so opportunity and prosperity rich.”

I like the fact that Muro and Katz refer to regional innovation clusters as “an antidote.” Antidotes are used to counteract the effects of poison. In this case, the antidote is for both Washington’s partisan poison and Wall Street’s poison of greed. Muro and Katz conclude:

“Cluster thinking and cluster strategies have the potential to accelerate regional economic growth and assist with the nation’s needed economic restructuring, but they are more a paradigm than a single program. In that sense, the opportunities that a cluster policy framework provides for delivering impact, clarifying economic priorities, and coordinating disparate programmatic efforts will only grow more important in the coming era of intensified competitive pressures and tightened resources.”

Muro’s and Katz’ study is filled with policy recommendations for all levels of government. For anyone interested in the subject, it’s a “must read” document. In order for economies to grow, a degree of hope in the future must be generated. That hope has been glaringly absent for the past decade. Luke Johnson recently wrote:

“The US has named its current twenty-something cohort ‘Generation Limbo’: a highly educated group whose lives have stalled because the jobs they expected when they graduated are not there. Their plans for high-flying careers have been postponed or cancelled. … If someone aged 25 loses hope, they will not invest in a career, a home or a family – let alone a business. And if whole generations take that attitude, it becomes a form of collective suicide. Leaders in … the US must raise the spirits of twenty-somethings, and break down obstacles in areas such as housing and business start-ups. Such initiatives will boost morale, and might counter a national mood of slow-motion self-destruction: anything less would be a tragedy.” [“A national epidemic that hurts the young,” Financial Times, 13 September 2011]

Innovation hubs and regional innovation clusters don’t hold all of the answers for making the economic future of America brighter; but, they are forward looking and inspiring. RICs are particularly exciting since they are primarily driven by the private sector and, as a result, have shown they can draw bipartisan support — and that, in and of itself, is a hopeful sign.