News from the IPL
INTRODUCTION
This newsletter is published by The Innovation Policy Lab at the Munk School of Global Affairs, University of Toronto, and sponsored by the Ministry of Research and Innovation. The views and ideas expressed in this newsletter do not necessarily reflect the views and policies of the Ontario Government.
ANNOUNCEMENTS
Proposed National Manufacturing Network Draws Big Response
Nearly 1,000 companies, universities, individuals, and other manufacturing stakeholders have weighed in with ideas on the design of a new National Network for Manufacturing Innovation (NNMI), as proposed by President Obama last March. As conceived, the NNMI will consist of up to 15 regional IMIs, funded by a proposed one-time, $1 billion federal investment, along with matching contributions for each institute from private-sector, state, and local sources. The President’s proposal addresses a crucial challenge to U.S. competitiveness and a threat to future national prosperity: Closing the gap separating inventions and research discoveries from the development and scale-up of domestic manufacturing capabilities necessary to make products based on U.S. innovations.
Cisco Increases Commitment to Innovation in Waterloo Region
Cisco (NASDAQ: CSCO), in conjunction with the University of Waterloo, recently held a ribbon-cutting ceremony to celebrate the opening of the Cisco Incubation Centre to nurture Canada’s next generation of entrepreneurs. The ceremony, which also marked the announcement of a Cisco Research Chair in Smart Grid at the University, was attended by representatives from the Kitchener-Waterloo region, the University, and Cisco Canada. The Cisco Incubation Centre, located in the University of Waterloo’s David Johnston Research + Technology Park, will primarily focus on providing local start-ups and students with the opportunity to take advantage of Cisco’s collaboration technology, expertise and global partner ecosystem. Researchers and entrepreneurs will have valuable access to the diverse Cisco® technology portfolio, including collaboration tools such as Cisco TelePresence™, enabling collaboration with university technology research parks and innovation centres across Canada and around the world.
Editor's Pick
The Global Innovation 1000: Making Ideas Work
Barry Jaruzekski, John Loehr and Richard Holman, Booz & Co.
The early stages of innovation can be challenging. But this annual study of R&D spending reveals that successful innovators bring clarity to a process often described as fuzzy and vague. As this study has consistently shown over the past eight years, there is no long-term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance; instead, what matters is how companies use that money and other resources, as well as the quality of their talent, processes, and decision making. Those are the things that determine their ability to execute their innovation agendas. Over the past
few years, reports have carefully analyzed the innovation strategies, capabilities, and cultural factors that enable some companies to consistently achieve superior financial results. This year, to further clarify those performance drivers, the authors surveyed nearly 700 companies and interviewed 12 senior innovation executives and chief technology officers at leading companies. Their goal was to gain insights into the early stages of innovation — when companies generate ideas and then decide which ones to develop.
Innovation Policy
Unleashing Business Innovation in Canada
Alexandra Bibbee, OECD
This paper discusses how to improve Canada’s business innovation in order to boost labour productivity and output growth. Many general framework conditions are highly favorable to business risk-taking and innovation, including macro stability, openness, strong human capital, low corporate tax rates, low barriers to firm entry and flexible labor markets. However, they can be improved further by reduced external and interprovincial barriers in network and professional service sectors, more efficient capital markets, fewer capital tax distortions and improved patent protection. A second focus should be on ensuring that incentives arising from government subsidies are targeted on actual market failures. The very high level of support to business R&D via the federal Scientific Research and Experimental Development (SR&ED) tax credit and provincial top-ups may affect the incentives of small firms to grow and should be redesigned. A plethora of small, fragmented granting programs, mainly geared to SMEs, should be streamlined for better government-business collaboration. The large public share in venture capital should be wound down, as it may crowd out more productive private finance. A final focus should be on boosting manager and worker skills that are intrinsic to all forms of innovation, by filling gaps in training, mentoring and education.
OECD
The Internet is now a fundamental infrastructure supporting the economy and is firmly in its second stage of development, having evolved from a data network connecting PCs with wires to a much broader network of new portable devices from mobile phones to tablet computers. It is also on the cusp of a much larger expansion to objects that typically did not have communications capabilities: the “Internet of things” is projected to have more connections than the people using them. This raises many important socio-economic and political issues for stakeholders to consider, as economies and societies become increasingly inter-meshed.
Is U.S. Economic Growth Over? Faltering Innovation Confronts Six Headwinds
Robert J. Gordon, NBER
This paper raises basic questions about the process of economic growth. It questions the assumption, nearly universal since Solow’s seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever. There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history. The paper is only about the United States and views the future from 2007 while pretending that the financial crisis did not happen. Its point of departure is growth in per-capita real GDP in the frontier country since 1300, the U.K. until 1906 and the U.S. afterwards. Growth in this frontier gradually accelerated after 1750, reached a peak in the middle of the 20th century, and has been slowing down since. The paper is about “how much further could the frontier growth rate decline?” Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.
No More Growth? Let’s not be so Hasty: An Assessment of Robert J. Gordon’s Recent Working Paper
Justin Hicks, The Innovation Files
The single most important question regarding the future of the U.S. economy is whether productivity growth will be robust going forward. Recently there has been vigorous debate over this question, with some like MIT’s Erik Brynjolfsson arguing for robust, and others like George Mason’s Tyler Cowen arguing for stagnation. The newest foray into this debate comes from Northwestern’s noted economist Robert J. Gordon, through a working paper published by the National Bureau of Economic Research (NBER) (linked above). Gordon’s paper has received widespread attention for his provocative thesis that U.S. productivity growth is essentially over and that the average American will be no better off, and likely worse off in the future. This report discusses why this thesis is flawed.
Cities, Clusters & Regions
Jonathan Barr, et al., OECD
How to stimulate growth and support job creation are two critical challenges that countries and localities confront. Limited resources require lateral thinking about how actions in one area, such as employment and training, can have simultaneous benefits in others, such as creating new jobs and better supporting labor market inclusion. To achieve a more co-ordinated and joined up approach, local stakeholders need to pool resources and reduce transaction costs by building effective partnerships on the ground. The OECD Local Economic and Employment Development (LEED) program has developed the international Local Job Creation project to assess the contribution of labor market policy to boosting quality employment and enhancing productivity by better matching skills supply to demand, improving training provision and addressing skills gaps, as well as improving skills utilization by firms. This working pape, reports on the review carried out for the Labour Agency (Agenzia del Lavoro) of the Autonomous Province of Trento, Italy, and highlights both the strengths and weaknesses of policy approaches and actions taken by the Labor Agency. The working paper concludes with an outline of the key issues for consideration that could inform the development of an action plan in order to ensure the right conditions exist for sustainable job creation at the local level.
The Business of Cities: The Private Sector, Local Enterprise Partnerships and Growth
The Work Foundation
The UK government has placed business at the heart of economic development. Shortly after the most recent administration came into power, they established Local Enterprise Partnerships (LEPS), private-sector led organizations designed to incorporate business in the leadership of cities. Collaboration between different private, public and third sector bodies is important for economic development and the need for business involvement in economic development has become an unchallenged consensus. Yet, there are concerns about the new arrangements. We know very little about exactly how and why businesses are interacting with LEPs. Drawing on anonymous interviews with business leaders involved in LEPs, and a review of the history of business involvement in similar initiatives, this paper considers a range of issues around business engagement in LEPs.
Department for Business, Innovation and Skills
Lord Heseltine has set out a comprehensive economic plan to improve the UK’s ability to create wealth. His independent report makes the case for a major rebalancing of responsibilities for economic development between central and local government, and between government and the private sector. At the heart of the proposals are measures to unleash the potential of local economies and leaders and enable every part of the UK economy to raise its game.
Statistics & Indicators
Regional Innovation Scoreboard
European Commission
Innovation is a key driver of economic growth and jobs. This edition of the Scoreboard provides a comparative assessment of how European regions perform with regard to innovation. The report covers 190 regions across the European Union, Croatia, Norway and Switzerland. It classifies the European regions into four innovation performance groups, similarly to the Innovation Union Scoreboard. There are 41 regions in the first group of “innovation leaders”, 58 regions belong to the second group of “innovation followers”, 39 regions are “moderate innovators”, and 52 regions are in the fourth group of “modest innovators”.
The Needlessly Inscrutable Geography of Scientific Funding
Jordan Bell-Masterson and Samuel Arbesman, The Atlantic Cities
This Atlantic Cities map reinforces the common conception that the bulk of federal scientific funding is found in urban areas; however, the authors found cities that struggled under indices like the Creative Class Index or the Milken Institute’s Tech Pole Index still captured unexpected levels of funding from federal sources.
How do you measure Quality of Life?
Martin Prosperity Institute
As cities change, researchers and policy makers try to understand the ways that economic, social, political and environmental factors as well as public policies influence the quality of life (QOL) of a place, and for groups and individuals. Many studies have been undertaken to identify and measure indicators, using quantitative and qualitative data sets, which contribute to QOL. An overview of this field is offered by Massam (2002). Absent in many discussions regarding the well-being of cities, however, is the status of the lived experiences of individuals within a specific place. While improving quality of life is argued to be desirable, the ways in which the concept can be measured is far more complex.
Policy Digest
ITIF
Since September 3rd, ITIF has issued weekly “Winning the Race” memos to help guide the next administration on ensuring that economic organizations in the United States (for-profit, non-profit and government) boost competitiveness, innovation, and productivity. This “Winning the Race”memo provides a summary of all 36 recommendations.
The top ten:
1. Develop a national innovation and competitiveness strategy: Many nations, as well as most U.S. states, have detailed innovation and competitiveness strategies. But the United States does not, at least not a strategy based on a comprehensive analysis of traded-sector strengths and weaknesses, opportunities and threats, and the viability of a range of public policies. The Obama administration should make the development and implementation of such a strategy a top commitment.
2. Increase funding for the Manufacturing Extension Partnership (MEP): The National Institute of Standards and Technology’s MEP plays a vital role in enhancing the productivity, competitiveness, and innovation potential of U.S. small and medium-sized
enterprise manufacturers. The Obama administration should double MEP’s budget to approximately $220 million annually.
3. Transform Fannie Mae into an industrial bank: Former Intel CEO Andy Grove notably has called for a “scaling bank” to help scale innovations to production in the United States. To do this, the Obama administration should call for repurposing Fannie Mae into an
industrial financing organization. The very existence of Fannie Mae reflects the fact that America has put more emphasis on consumption (housing) than on production (manufacturing). The new Fannie Mae (perhaps called the Federal National Industrial
Mortgage Association) would buy and resell loans made to traded sector firms from banks and other lenders.
4. Require the Small Business Administration to make at least two thirds of its loans to traded sector firms: The SBA does not give any special priority or focus to traded sector firms, treating all industries alike in its funding priorities, even though traded sector firms are critical to U.S. job growth.
5. Reduce the corporate tax rate to 20 percent: This would move the United States from the highest corporate tax rate in the OECD to 21st and make investing in the United States more attractive while at the same time increasing the competitive position of U.S. establishments vis-à-vis their foreign competitors. This would also result in multinational companies deferring fewer taxes offshore since their profits in more nations would be taxed a higher rate than in the United States. On a static basis this reduction would cost the Treasury an estimated $100 billion per year, but on a dynamic basis after adjusting for the additional growth, it would likely cost significantly less.
6. Institute an Innovation and Investment Tax Credit (IITC): In the last decade, the United States has fallen behind other nations in investment in the key building blocks of innovation and competitiveness: R&D, equipment and software, and worker training. In part this is because relative to other nations, U.S. capital markets reward short-term investments, not long-term ones. But it is also because U.S. tax incentives have become relatively less generous. The U.S. R&D tax credit is now 27th most generous, behind even Brazil, China, and India. To correct for this and to restore a climate of productive investment we need an IITC which would provide a tax credit of 45 percent of business investments on R&D and skills training and 25 percent on expenditures on new equipment and software. Both credits would be on expenditures in excess 75 percent of base-period expenditures (the average of the last three years).
7. Pay for the tax reductions with other tax increases: While cutting the corporate rate and instituting an IITC would spur some offsetting tax revenues, it would not be revenue neutral. As such, other taxes would need to be raised (with spending cuts used to reduce the budget deficit). The first place to start is to repeal the 2003 law that lowered the individual tax rate on dividends to 20 percent, which resulted in companies increasing dividend payments at the expense of investment. Taxing dividends as ordinary income would raise approximately $20 billion a year. In addition raising the capital gains tax rate from 15 to at 25 percent would raise $10 billion each year. To recover the remaining funds, the Obama administration should propose instituting a border-adjustable corporate activity tax (like a value-added tax), such that imports would be taxed, not exports. More than 150 countries apply such a border-adjustable consumption tax on their imports, which imposes a tax burden on U.S. exports.
8. Work to expand and create key sectoral trade agreements such as the Information Technology Agreement: Expanding the product coverage scope of the Information Technology Agreement (ITA) could boost U.S. exports by $2.8 billion and create some 60,000 jobs. In addition, the administration should lead a global clean technology agreement, modeled after the ITA.
9. Complete a gold-standard Trans-Pacific Partnership (TPP): The United States is negotiating a trade pact that includes 11 Asia-Pacific region countries—Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. While the TPP is the right approach, the effort will only be worthwhile if the United States concludes a gold-standard trade agreement that includes strong intellectual property protection, market access, and enforcement provisions and holds the countries that sign on to genuinely embrace free trade principles.
10. Build a new free trade coalition: The Obama administration should detail Vice President Biden to lead an effort to build a coalition with the Europeans, Canadians, Australians, Japanese, and whoever else will come aboard to lay out a renewed vision for globalization grounded in the perspective that markets should drive global trade and investment, that countries should not seek sustained trade surpluses, that currency prices should be set by the market (or at least not manipulated for competitive advantage); and that fair international competition and “good” innovation policies that leave all countries better off. The United States could start this with efforts to establish a TAP, a Trans-Atlantic Partnership: a new trade agreement with Europe and perhaps the Commonwealth nations.
Events
Triple Helix Workshop: Building the Entrepreneurial University
Stanford, CA, 12-16 November, 2012
T he Triple Helix Research Group at Stanford University’s Human Sciences and Technologies Advanced Research Institute (H-STAR) announces a new initiative for 2012: the Triple Helix Workshop Series that starts with the five-day intensive workshop “Building the Entrepreneurial University”. The event is organized to meet a growing demand for learning about the university’s “third mission”, next to education in research – the involvement in economic development and growth creation at regional and national level. The workshop presents the experience of some of the most successful US entrepreneurial universities, including Stanford, MIT, Utah, Arizona State, Berkeley, CalTech, Boston, University of Southern California. We are also discussing various innovation initiatives at the university-industry-government interface, US federal and state policies and mechanisms to support them, the successful trajectory of some high-tech companies emerging from university research, and the role of venture capital and business angel investments in this effort.
London, UK, 23 November, 2012
One of the major impacts of the current economic crisis is the way it is deepening territorial inequalities at a time when the scope for public intervention to tackle inequality is being diminished as a result of widespread austerity measures. These developments pose many challenges for the analysis and management of territorial development strategies, particularly at the scale of cities and regions. Some of the many challenges centre on which regions and industries will suffer and which will show greater capacity to adapt and thrive in an uncertain political and economic environment. How will extant (and classic) forms of urban and regional development policy be affected? Will the current crises expose the failures of these policies or demonstrate their strengths? What alternative models of territorial development are there? Should any of these alternative models be considered, that is, are they likely to redress some of the structural inequalities reinforced in the current context? To address these issues future research is needed interpreting regional inequality trends, combined with an analysis of their impact in particular places. This should take into account both macro-processes and local dynamics as this will be crucial in deepening our understandings of how an international financial crisis and the politics of ‘expansionary austerity’ affect the prospects of cities and regions. We also need to evaluate the opportunities and challenges ahead, reflect on the usefulness of previous approaches, and explore the potential of alternative territorial development strategies. In vogue concepts such as ‘city regions’ and ‘creative places’ need to be re-evaluated while emerging notions of ‘shrinking cities’ and ‘smart specialization’ must be carefully evaluated. Equally, the notion of managing decline, both economic and environmental, is likely to become more relevant as opportunities for significant public investment are reduced.
Madrid, Spain, 10-12 April, 2013
The Conference aims to encourage dialogue betweens academics and practitioners to improve innovation policy design, implementation and evaluation. The conference will offer keynote speeches, parallel thematic sessions, roundtable discussions, special activities for young researchers and ample space for all participants to interact. Visits to research and innovation centres both in public and private institutions will be offered after the conference.
16th Uddevalla Symposium 2013: Innovation, High-Growth Entrepreneurship and Regional Development 
Kansas City, 13-15 June, 2013
The critical role of innovation and entrepreneurship in regional economic development in terms of productivity and employment growth has been well documented theoretically as well as empirically by researchers in recent decades. The specific mechanisms through which innovation stimulates regional economic development are less well established. It is often assumed that entrepreneurship in the form of new firm formation and the growth of newly established firms plays a critical role, but how, why, when and under what conditions is less clear. Empirical studies show that a limited share of new business ventures have the capacity to rapidly up-scale and to generate substantial new jobs in the regions where they are launched. From the perspective of regional policy makers, this implies that it is critical to understand what regional economic milieus are capable of generating innovations that can be the basis of high-growth entrepreneurship as well as provide the right environment for entrepreneurs to launch entrepreneurial initiatives.Against this background, we seek papers that, in particular, topics related to exploring these themes.
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This newsletter is prepared by Jen Nelles.
Project manager is David A. Wolfe.