The IPL newsletter: Volume 7, Issue 142

Promoting Opportunity and Growth Through Science, Technology and Innovation

Jason E. Bordoff, Michael Deich, Rebecca Kahane, and Peter R. Orszag, The Hamilton Project

Americans are facing heightened economic pressures from the effects of globalization as workers from China, India, and other developing nations play a growing role in the world’s economy. Advances in technology and transportation now mean that U.S. workers increasingly are competing with workers overseas—not just in manufacturing, but also in high-skill and high-wage sectors. Growth in information technologies, in particular, has facilitated deeper integration of economies across the globe while also posing both new opportunities and new challenges for the U.S. economy. Maintaining the US’ economic leadership in the world and promoting broad-based growth at home will require effective policies to support research, innovation, and access to advanced information and telecommunications technologies. This paper provides the arguments that support this position, as well as proposals to maintain leadership in science, technology and innovation.

Science and Innovation: Making the Most of UK Research

UK-DTI

This publication demonstrates, through a selection of examples: how the academic community and businesses in the UK have worked together, how they have risen to new challenges, and how they have been able to build upon each others’ strengths to produce
new and innovative products and services that have a significant impact on the UK’s economy. The collaboration between researchers and business takes many forms, including; the people who emerge from their excellent research base, greater responsiveness of the research base to the needs of the economy, and increased business investment and collaboration.

Measuring the Moment: Innovation, National Security, and Economic Competitiveness

The Task Force on the Future of American Innovation, a private consortium of leading industry and academic organizations, has a released a new report that assesses America’s future innovation capacity. Measuring the Moment: Innovation, National Security, and Economic Competitiveness is a benchmarking exercise designed to assess how America stacks up on key measures of research investment, knowledge creation, and the development of critical industries such as biotechnology, semiconductors and information technology. The report’s main findings are similar to other recent studies from the National Research Council and the Council on Competitiveness. While the US economy has many strengths, it also faces serious long-term challenges in its educational systems and in its future ability to attract and retain talent.

All of these findings are particularly important given that:

• Fastest-growing economies continue to increase their R&D investments rapidly, nearly five times the rate of the United States: The countries of China, Ireland, Israel, Singapore, South Korea and Taiwan collectively increased their R&D investments by 214 percent between 1995 and 2004. The United States in that period increased its total R&D investments by 43 percent.

• United States falls in rankings of percentage of GDP spent on R&D: The United States was passed by three countries between
  1991 and 2004 in the percentage of GDP spent on R&D, dropping it from second behind Japan to fifth behind Israel, Finland, South Korea and Japan.

• U.S. share of S&E publications continues to shrink: In the first Benchmarks report, it was reported that the U.S. share of worldwide science had shrunk from 38 percent in 1988 to 31 percent in 2001.The 2003 data reveal that the number continued to decline, due largely to increased Asian output.

• More R&D facilities are being located abroad: In a large survey of several industries in the United States and Europe, 48 of 235 recent
  or planned R&D facilities were located in the United States, 55 in China and 18 in India.

   

  The benchmarks elaborated in the report demonstrate America’s historical strength in science and technology, but they also reveal
  the impact of earlier decisions about the federal investment in basic research in physics, mathematics, engineering, chemistry and computing. The benchmarks demonstrate how inadequate investment has helped to set in motion an erosion of American leadership in science, in turn jeopardizing the foundation upon which future economic and national security will be built.

OECD Territorial Review: Competitive Cities in the Global Economy

OECD

The report studies the 78 largest metro-regions in the OECD, ranging from Tokyo with close to 35 million inhabitants to Auckland with about 1.5 million. The OECD average is just over 5 million. Of the 25 wealthiest cities, as measured by GDP per capita, 22 are in the United States and the others are London (in 13th place), Paris (18th) and Dublin (23rd).

Successful cities attract talented young highly-skilled workers, are centres of innovation and entrepreneurship and are competitive locations for global and regional headquarters. The proximity of universities to research and production facilities means cities are where new products are developed and commercialized. More than 80% of patents are filed in cities.

However, cities are not always synonymous with success. Cities can falter. Berlin, Fukuoka, Lille, Naples, and Pittsburgh perform below the national average for income, productivity, skills, and employment. And there is some evidence that mega-size cities – those more than 7 million people such as Seoul, Mexico City, Istanbul and Tokyo – have outgrown the economies of scale normally associated with cities.

This report argues that there is no ‘one size fits all’ policy for cities. But the report makes recommendations that can be tailored to meet specific needs. These cover a wide range of policy “dilemmas” identified in the report. The combination of economic advantages and difficulties posed by the rise of metro-regions present a number of strategic choices that confront policy-makers. Large cities have acquired growing economic and demographic importance, and function as the key loci of transnational flows on the international market. Yet, large cities are also associated with negative externalities, such as congestion, pollution, social segregation or high crime rates. These trends raise issues about the long-term sustainability of urban regions. The following “dilemmas” and proposals, address some of these key issues.

1. The Impact of Metro Areas

This report examines some of the supposed effects of large urban agglomerations on society and the economy. For example, it finds that:

• The causal relationship between levels of urbanization and per-capita income growth are not clear – that is, creating larger cities does not necessarily lead to growth in per capita prosperity. Although, larger urban agglomerations tend to have greater internal diversity, making them more likely to foster innovation.

• The impact of metro areas on the rest of the country is not clear – While cities may generate wealth and positive externalities, they may also drain other areas of key resources (such as talent).

• Reconciling national and dominant-region interests can be a positive sum game – the redistribution of wealth from dominant to flagging regions in the form of subsidies often misses the mark. Regional strengths should be supported to create diverse specializations.

• Synergies can be created by building networks between cities and other regions.

2. Policy Approaches

This section examines the extent to which policy makers can contribute to a comprehensive strategic vision for their metro regions without playing a direct role in economic planning at the local level. The report finds that:

• A strategic vision is required – Cities must constantly reinvent themselves in order to maintain prosperity. This requires a long-term vision, and partnerships that extend beyond the urban region.

• A diversified cluster approach could help limit risks – a strategic vision should support diversity and encourage a wide range of cluster initiatives. However:

• Cluster strategies should be tailored to each metro area – a cookie cutter approach to every metro area ignores local distinctiveness, strengths and weaknesses. There is no one magic policy that will accommodate every city.

• Clusters require a diversity of local ‘public goods’ – Policy should focus on diversifying and constructing local public goods. For example, transportation networks (roads, public transit, rail, air etc.) should be made more efficient. Other interventions can be sector specific. It is worth noting that strong clusters rely on diversity in public research infrastructure, instead of just one strong institution.

• Not all metro areas will succeed in high-tech – therefore, each strategic vision should seek out local advantages and global niches.

• Public policy should involve a wide variety of actors – and should focus on identifying key local actors, networks and associations to help shape and implement local policies.

3. Environment and Sustainability

What choices should policy makers be aware of? The report argues that:

• A good and attractive environment may not be an alternative to economic success – but can contribute to it. There is no clear evidence that higher tax rates that help maintain positive environmental conditions deter firms from investing in a region. Locational factors that influence firm location include environmental attractiveness.

• The timing of investment is important – For example, delaying transportation decisions can cause years of congestion costs.

• Urban renaissance strategies also contribute to attractiveness and livability – New projects in the inner city can increase the attractiveness of cities lacking historical interest, while preservation and restoration can enhance the character of historical assets.

• Attractiveness is key to attracting FDI – low taxes are not the only consideration to firm location, and there are several examples of highly successful cities with high tax rates (i.e. Stockholm and Helsinki). Low tax incentives may attract certain firms, but these may just as easily leave without having made any long term improvement to the local economy.

• Poverty and spatial polarization are the most difficult challenges – success of metro regions depends not just on environmental and physical attractiveness, but also on social cohesion. The effectiveness of policies that address the former depends on the strength of the latter. Specific policies are necessary to improve social cohesion and reduce polarization. But:

• Policies that address distressed neighborhoods have had mixed outcomes – effective policies to address social cohesion require real committment of state actors, and innovative approaches. Effective and sustained leadership and visionary thinking by public actors is critical to the success of these social policies – it is not just a question of money.

4. Governance

Should policies aim to create authority at the level of the functional urban region, or as close to citizens as possible? The report discovers that there are:

• A wide variety of governance models – the most radical of which involve large scale institutional reorganization. However, more informal, and less disruptive, approaches do exist.

• Different models have different trade offs – flexibility, efficiency and authority are issues that need to be considered in each case. Where it may be easier and faster to get things done, as well as easier to coordinate and monitor, in formal regional institutions, cooperative mechanisms can be more efficient and responsive.

• Public support and legitimacy will determine the success of a reform – Models that are imposed may lead to confrontation and undermine the goals of the reform. Most successful reforms are those where the localities and public are supportive, or have helped to shape the form of new institutions.

• The participation of local actors is essential – to deal with social conflicts and relieve tensions. The levels of government closest to the citizens must be capable of assuaging local concerns. The devolution of finances and responsibilities can help ensure that development reflects local character and encourage participatory democracy.

5. Intergovernmental Relations

Strengthening the local level may lead to the potential for intergovernmental conflict. While this may be the case, it is clear that:

• Higher levels of government are essential to building metropolitan cooperation – only rarely have initiatives for local government reforms come from the local level. National and state/provincial levels have been critical in imposing or encouraging reform, and often help provide the legal basis that support legitimacy.

• New tools of vertical relations between governments are being developed – in particular, legal measures that help support contracts between municipalities. These are most effective when supported by negotiations that involve multiple levels of government, and encourage collaboration.

6. Funding

Metro areas require significant infusions of money to encourage and maintain development. However, these can lead to inequalities. It is important that policy makers realize that:

• The specific challenges of metro regions require an urban lens on local public finance – Local taxation systems must be adapted to local responsibilities. Underfunding can result in the deterioration of the local infrastructure and environment. On the revenue side, municipalities should have sufficient autonomy to determine tax levels and priorities. On the expenditure side, the assignment of responsibilities should be appropriate to the level of government and resources available to support them.

• Equalization may have perverse effects – and create disincentives at the local level, rather than encouraging metropolitan development and equality.

Rethinking national urban strategies:

The above analysis outlines some of the key issues that policy makers must consider in developing national urban strategies. What is clear, in this report, is the importance of metro regions to national prosperity, as well as the necessity for greater visibility for urban issues on the national and regional levels.