Transcript Addressing the Innovation Imperative The Role of Public
Addressing the Innovation Imperative
Collaboration, Institutions, and Incentives SDC Seminar in honor of H.E. Dr. Tobias Krantz Washington DC February 4, 2010 Charles W. Wessner, PhD.
Director, Technology, Innovation, and Entrepreneurship The National Academies 1
© Charles W. Wessner PhD.
Current Global Mega-Challenges are Areas for Cooperation
• Fostering Economic Growth – Driving domestic Growth and Employment through Innovation • Developing New Sources of Energy – Commercializing renewable alternatives to oil – Increasing the capacity to fuel growing global demand for electricity • Addressing Global Warming – Growing a Green Economy; A major Growth opportunity • Delivering Global Health – Transforming large investments in research to affordable and personalized treatment and care • Improving Security – Through all of the above 2
© Charles W. Wessner PhD.
3
How can we address these Global Challenges?
Congress © Charles W. Wessner PhD
Innovation is Essential
• Leading nations are providing four pillars of support: – High-level Focus – Sustained Support for R&D: Leveraging Public and Private Funds – Support for Innovative SMEs – New Innovation Partnerships to bring new products and services to market • Many countries are investing very substantial resources to create, attract and retain industries in a variety of sectors 4
© Charles W. Wessner PhD.
China’s Drive for Innovation
• Government with strong sense of national purpose – Strong investments in education and training – Strategy to move rapidly up value chain – Effective requirements for training and tech transfer – Critical mass in R&D is beginning to be deployed to generate autonomous sources of innovation & growth • Government goal is to acquire technological capabilities both to grow and to maintain national autonomy.
• Focused, Committed, and Willing to Spend Modified from C. Dahlman, Georgetown University 5
© Charles W. Wessner PhD.
Changing Shares of Global R&D Spending
1999 2008 2009 2010 United States China 39% 6% Japan 15% Europe 26% 35.4% 9.1% 13.2% 24.9% 35.0% 11.1% 12.5% 24.0% 34.8% 12.2% 12.3% 23.2% Source: Battelle, R&D Magazine December 2009 6
© Charles W. Wessner PhD.
Singapore’s Innovation Strategy
• Total Focus, Commitment, and Long-Term Spending by the Government – Goal is to establish Singapore (population: 4.5 million) as Southeast Asia's preeminent financial and high-tech hub.
• A*STAR’s task, with $5 Billion in funding is to: – Invest in and attracting a skilled R&D workforce – Attract major investments in pharmaceuticals and medical technology production – Invest in Public Private Partnerships • New S&T Parks—Biopolis & Fusionopolis – Develop new programs to address the early-stage funding challenge for innovative firms • Generating local entrepreneurs and firm growth remain challenges 7 © Charles W. Wessner, PhD
What about Sweden?
The Good News: Sweden tops the Innovation Capacity Index Rankings 2009-2010 (Innovation for Development Report) 8 © Charles W. Wessner, PhD
Characteristics of the Swedish Innovation System
• The economy is strongly internationally linked • R&D-system dominated by big international companies • Low investment by SMEs in R&D • Universities dominate the public R&D-system • Government invests very little R&D-money in companies outside the military sector Source: Olof Sandberg, Senior Adviser, Ministry of Enterprise, Energy and Communications (June 2008) 9 © Charles W. Wessner, PhD
Key Challenges for Sweden
• Encourage New Equity based Hi-tech Firms with Innovation, Jobs, and Growth – Few Major New Firms Created in Sweden Since 1970 ( 30 of top 50 created before 1914) • Improve collaboration between universities and business* • Improve the commercialization of research results* *Source: Sandberg, 2008 10 © Charles W. Wessner, PhD
Deciphering the Swedish Paradox
• The Lisbon Agenda is an input measure – Without institutional change, little discernable additionality will occur – What do you get for 0.2% more R&D?
• The Swedish Paradox is two-fold – On one hand, existing levels of R&D need to be augmented by new incentives to bring research across the Valley of Death – On the other hand, existing high levels of
funding for research and certainly for
commercialization may not be sufficient, given Sweden’s admirable tendency to “punch above its weight” in the global economy. 11 © Charles W. Wessner, PhD
Innovation in the United States
New Focus on Applied Research to address challenges in Energy, Health, and the Environment © Charles W. Wessner, PhD
Strengths of the American Model
• • • Sustained Growth: Despite the debt fueled bubble, the U.S. economy grew by 63% between 1991 and 2009, – Compare with 35% for France, 22% for Germany, and 16% for Japan Stability: In 1975, the U.S. had 26.3% of world GDP; today it is 26.7% – We’re not going away Science and Innovation are key to our future, as is new leadership Source: New York Times, December 7, 2009 13
© Charles W. Wessner, PhD.
A Renewed Focus on Innovation
Science and innovation is "more essential for our prosperity, our security, our health, and our environment than it has ever been." President Obama at the National Academies —April 27, 2009 14
© Charles W. Wessner, PhD
Obama Pledges to Raise R&D and Create new Incentives for Innovation
• “We will devote more than 3 percent of our GDP to research and development.” – The U.S. joins the quest for the Lisbon Target • “We will not just meet, but we will exceed the level achieved at the height of the space race, through policies that – invest in basic and applied research, – create new incentives for private innovation, – promote breakthroughs in energy and medicine, and – improve education in math and science.” Address to the National Academy of Sciences, April 27, 2009 15
© Charles W. Wessner, PhD
• • •
National Economic Council: “A Strategy for American Innovation”
September 21, 2009 Invest in the Building Blocks of American Innovation – Investments in human, physical, and technological capital Promote Competitive Markets that Spur Productive Entrepreneurship Catalyze Breakthroughs for National Priorities – Develop alternative energy sources – Reduce costs and improve lives with health IT – Manufacture advanced vehicles 16
© Charles W. Wessner, PhD
New Commitments to Support Innovation
Doubling of federal funding for basic research over 10 years at NSF, NIST, DOE (Office of Science) New Investments in S&T Infrastructure New Financing for S&T and Innovation Making the research and experimentation tax credit permanent 17
© Charles W. Wessner, PhD
Increases are for Research, but not for Transition
Myths about “Perfect Markets” mean insufficient focus on collaborations essential for transitioning new ideas to the market
The U.S. Myth of Perfect Markets
• • Strong U.S. Myth: “If it is a good idea, the market will fund it.” Reality: – Potential Investors have less than perfect knowledge, especially about innovative new ideas – “Asymmetric Information” leads to suboptimal investments – George Akerlof, Michael Spence and Joseph Stiglitz received the Nobel Prize in 2001, "for their analyses of markets with asymmetric information“ 19
©Charles W. Wessner PhD
Federally Funded Research Creates New Ideas
Reality: The Early-Stage Funding Valley of Death
Capital to Transform Ideas into Innovations No Capital Product Development and Firm Growth Dead Ideas
20
Charles W. Wessner PhD
• •
The Myth of U.S.
Venture Capital Markets
Myth: “U.S. VC Markets are broad & deep, thus there is no role for government awards” – “If you have a good idea, a good team, and you sell it well, you will be funded” • George Scalise, President SIA, 29 April, 2008 Reality: Venture Capitalists have – – – – Limited information on new firms Prone to herding tendencies Focus on later stages of technology development Most VC investors seek early exit 21
Charles W. Wessner PhD
Large U.S. Venture Capital Market is Not Focused on Seed/Early-Stage Firms:
U.S. Venture Captial by Stage of Investment 2008
Total: $28.2 Billion 37% Later Stage $10.8 billion 1,177 Deals Expansion Stage $10.6 billion 1,178 Deals Early Stage: $5.3 billion 1,013 Deals 19% 5% Source: PriceWaterhouseCoopers/Thompson Venture Economics/ NVCA 2009 22 39% Seed Stage: $1.5 billion 440 Deals
Charles W. Wessner PhD
U.S. Venture Investments Down 37% in 2009
U.S. Venture Capital by Stage of Investment 2009
Early Stage: $4.6 billion 883 Deals 31% Later Stage $5.9 billion 799 Deals Expansion Stage $5.5 billion 801 Deals 26% Total: 17.7 Billion, 2795 deals 9% 34% Seed Stage: $1.7 billion 312 Deals 23 Source: PWC-MoneyTree Report, 2010
©Charles W. Wessner PhD
The Venture Capital Obsession
• • Investment in Public VC Funds = Substantial Risk “Extraordinary skewness of returns” on VC Investments in the United States* – About 15 percent of investments fail completely – 35 percent of returns are less than 100 percent – Only 15 percent of the firms that go public or are acquired give a return greater than 1,000 percent!
• Source: John H. Cochrane, “The Risk and Return of Venture Capital,” Journal of Financial Economics, 75(1):3-52, 2005.
• Many companies live and grow without Venture Funding – “Hardly ten percent of the serial entrepreneurs took venture money in their first startups” • Source: Duke University Survey, October, 2009 by V. Wadhwa • Where is the Deal Flow?
24
©Charles W. Wessner PhD
Crossing the Valley of Death is a Major Challenge
There are many paths: The Small Business Innovation Research (SBIR) Program is a Proven Approach
Oxygen for Innovation: What is SBIR?
• A Competitive Innovation Award Program that – Provides seed funding to worthy entrepreneurs – Signals that there are promising opportunities for private investors – Solves problems for government agencies and improve markets – Creates products to address social needs at the bottom of the Pyramid 26
© Charles W. Wessner PhD.
$151 billion
The SBIR “Open Innovation” Model
Social and Government Needs Drive the Program
Solicitation
$100K PHASE I Feasibility Research $750K Private Sector
Solicitation
Investment PHASE II Research towards Prototype Non-SBIR Government Investment PHASE III Product Development for Gov’t or Commercial Market Tax Revenue Federal Investment
27
©Charles W. Wessner PhD
Academies Research Reveals SBIR Impact on Firm Formation and Growth
• Company Creation : 20% of responding companies said they were founded as a result of a prospective SBIR award (25% at Defense) • Research Initiation : SBIR awards played a key role in the decision to pursue a research project (70% claimed as cause) • Company Growth: Significant part of firm growth resulted from award • Partnering: SBIR funding is often used to bring in Academic Consultants & to partner with other firms 28
©Charles W. Wessner PhD
Universities play a Growing Role in Commercializing Knowledge
Universities that are able to connect with Industry Drive Regional Development and are Assets for National Competitiveness 29
© Charles W. Wessner, PhD
•
From the “Ivory Tower” to the Marketplace
“Pure” Research is not the only University Role • Research Related to Industry Helps Generate Training and Skills Necessary for Productive Lives – (and the tax dollars for Research) • Industry’s Needs and Questions can Drive Research and be a Source of Relevant Publications 30
©Charles W. Wessner PhD
Roles of the 21
st
Century University
• Teach the next generation – With up-to-date laboratories on real market questions – Focus on science needed to address current and future questions (e.g., climate change, nuclear waste, stem cell research, genetically modified food) • Conduct Research – “Curiosity-driven Research” – But also on Social Problems and Industry Needs • Commercialize – New Science-led solutions to societal problems – New Products, Processes • Generate Market-ready students – Create a cadre of creative and curious team players 31
©Charles W. Wessner PhD
21
st
Where are the Century Universities?
• • • • • • In California: Stanford and CalTech In Massachusetts: MIT In Flanders: KU Leuven In Sweden: Chalmers and Jönköping University In Finland: the new Aalta University We need to build more 21 st Universities Century – Is Sweden replicating its successes? 32
©Charles W. Wessner PhD
•
Today, Industry (and Regions) Rely on University Research to Create Future Growth
University research draws ideas from commercial trends—feedback loops from industry to universities are sources of Quality Research • • • Regional economies rely on research universities for jobs, branding, growth, & entrepreneurship University innovation + early government funding are key to the growth of many successful technology companies A Supportive University Culture & Real Incentives are essential for the development of vibrant Innovation Clusters 33
©Charles W. Wessner PhD
New Focus in the U.S. on Innovation Clusters
34
©Charles W. Wessner PhD
Greater Federal Role Seen for Fostering Regional Innovation Clusters
• • • “Regional industry clusters represent a potent source of productivity at a moment of national vulnerability to global economic competition.” – Karen Mills, Clusters and Competitiveness, Brookings 2008 The U.S. can facilitate knowledge exchanges and provide additional funds to encourage regional cluster development President Obama has called for a new federal effort to support regional innovation clusters 35
©Charles W. Wessner PhD
S&T Parks can be a Catalyst for Cluster Development
• Well-conceived and well funded S&T Parks can – Build partnerships among researchers, small companies, and large companies – Help create companies – Advance university missions in education, research, and commercialization
Small Companies University Researchers Universities S&T Park Research Institutions Large Companies Public Support
36
©Charles W. Wessner PhD
New National Academies Report on Research Parks
• • Understanding Research, Science and Technology Parks: Global Best Practices (2009) Key Points – Research Parks stimulate and manage the flow of knowledge among universities, R&D institutions, firms and markets – They facilitate the creation and growth of innovation based companies through spin-off and incubation – They provide value-added services quality space and facilities – They help create a “Community of Innovation” needed to transfer new ideas from universities and laboratories into the marketplace together with high or Cluster 37
©Charles W. Wessner PhD
• • •
Key Findings: Successful Research Parks Require…
Critical Mass – Involvement of a Local Major Research Universities – Availability of Skilled Workers – Access to Finance – Good Park Infrastructure and Quality of Life Amenities Strong Leadership – Committed Political Champions – Strong and Committed Park Leadership – Attract Entrepreneurs and Skilled Managers Patient and Supportive Public Policies – Predictable, Substantial, and Sustained Funding – Complementary programs like SBIR 38
©Charles W. Wessner PhD
Parks are now a Worldwide Phenomenon
• • Governments around the world are building research parks to – Facilitate the commercialization of new technologies – Attract leading technology companies from abroad – Benefit from and contribute to university research Significant financial and policy support from national & state governments drives park growth – Zhangjiang High Tech (ZHT) Park in Shanghai • MNC R&D Centers encouraged to team up with Chinese research institutes • Overseas Chinese scientists lured home with tax breaks and low rent—253 returnees for ZHT park alone in 2003 • Shanghai New Pudong Area Venture Fund provided more than $25 billion in venture capital in 2006 for the ZHT Park 39
©Charles W. Wessner PhD
U.S. Proposals to Support Clusters
• • • 2009 Appropriations Act provides the Economic Development Administration (EDA) $4 million to begin a regional innovation clusters program 2010 Legislation provides Support for Research Parks – Senate: Building a Stronger America Act • Provides $500 million grants and loan guarantees for the development and construction of science parks over 5 years – House: Science Parks Research and Innovative New
Technologies (SPRINT) Act
• Authorizes $7.5 million for competitive grants for studies to develop new parks or expand existing research parks • Guarantees up to 80 percent of loans for the construction of science parks Question of Critical Mass… 40
©Charles W. Wessner PhD
NAS Conference “Growing Innovation Clusters for American Prosperity” • We are organizing a conference on February 25, 2010 to: – Review the government’s new initiatives in stimulating clusters – Explore role of universities and foundations in their development.
– Study specific strategies in place around the country and around the world – Highlight institutions and programs that can be leveraged now to grow and sustain clusters 41
©Charles W. Wessner PhD
To Conclude
Key Take Home Points Our Common Challenge
© Charles W. Wessner, PhD
42
The Global Innovation Imperative
• 3 Take Home Points – Innovation is Key to Growing and Maintaining a Country’s Competitive Position in the Global Economy and to address Global Challenges – Collaboration is Essential for Innovation as Small and Large Businesses, Universities, and Research Institutes Contribute to Regional Growth and Job Creation – New Institutions and New Incentives, and collaboration are increasingly important to foster innovation 43
© Charles W. Wessner PhD.
Our Common Challenge: New Incentives
• • Overcome Complacency: Sweden and the United States need to address the Global Innovation Imperative by initiating change: – Incentives for entrepreneurial activity for Small Firms, Large Firms, and Universities – New, better institutions that incentivize cooperation among all actors Mutual Learning and Cooperation are Essential for our Common Future 44
©Charles W. Wessner PhD
Thank You
Charles W. Wessner, Ph.D.
Director, Program on Technology, Innovation and Entrepreneurship The U.S. National Academies 500 Fifth Street NW Washington, D.C. 20001 [email protected]
Tel: 202 334 3801 http://www.nationalacademies.org/step 45
©Charles W. Wessner PhD