• April 25, 2014

A Better Formula for Economic Growth: Connecting Smart Risk Takers

The Lure, and the Risks, of Starting a University 1

Katy Lemay for The Chronicle

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close The Lure, and the Risks, of Starting a University 1

Katy Lemay for The Chronicle

Build a magnificent technology park next to a research university; provide incentives for chosen businesses to locate there; add some venture capital. That is the common recipe for harnessing higher education and industry to spur economic growth as prescribed by management consultants touting the "cluster theory" developed by Harvard Business School's Michael E. Porter.

Hundreds of regions all over the world have spent billions on such efforts; practically all have failed. Yet others are following suit—such as Japan, with its Okinawa research-and-development cluster, and Russia, with its Skolkovo project.

All of those are well-intentioned efforts to build Silicon Valley-style technology hubs, but they are based on the same flawed assumptions: that government planners can pick industries they want to develop and, by erecting buildings and providing money to entrepreneurs and university researchers, make innovation happen.

It simply doesn't work that way. It takes people who are knowledgeable, motivated, and willing to take risks. Those people have to be connected to one another and to universities by information-sharing social networks.

Regional planners and some academics get very defensive when asked to produce evidence of cluster theory's success. They commonly tout Silicon Valley and North Carolina's Research Triangle Park as examples of the success of government-supported clusters. Research Triangle Park is a 50-year-old project that achieved success decades ago but lost momentum in the Internet era. And the success of Silicon Valley was achieved without government involvement.

One way to understand what works and why no one has been able to replicate Silicon Valley is to compare it with the Route 128 ring around Boston. A 1994 book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 by AnnaLee Saxenian, a University of California at Berkeley professor, documented the evolution of both tech centers. Ms. Saxenian noted that during World War II, the government provided financial support to the Massachusetts Institute of Technology and Stanford University for research on aerospace and electronics. Boston had a huge advantage because of its proximity to East Coast industrial centers and helped build General Electric, RCA, Westinghouse Electric, and Raytheon. Silicon Valley produced Hewlett-Packard, among others, but the 128 belt maintained an advantage through the 1970s.

By the 80s, Silicon Valley and Route 128 looked alike: a mix of large and small tech firms, world-class universities, venture capitalists, and military financing. If you were betting on one, you'd have been wise to bet on Route 128 because of its longer industrial history and its proximity to other big corporate research centers and high-quality institutions, including MIT; Brown, Harvard, and Yale Universities, and Amherst College.

Yet, today, most people don't even know where Route 128 is. Silicon Valley raced ahead because of its dynamism, which overwhelmed the slow pace of technological change in the Boston area. What gave Silicon Valley its advantage were its high rates of job hopping, new-company formation, and a culture of information exchange and risk taking. Silicon Valley firms understood that collaborating and competing at the same time is a recipe for success in the tech world, where complex products often comprise chunks of technology harvested from many organizations. In addition, failure was tolerated and often worn proudly.

In Silicon Valley today, diversity is the rule, in terms of both products and people. The region produces chips, computer hardware, business software, search engines, social media, and clean technology. From 1995 to 2005, 52 percent of Silicon Valley's start-up founders were born outside the United States. Immigrants from India and Taiwan have been especially adept at mastering the Valley's rules of engagement. They did this by forming strong social networks that brought their local communities together with those in their home countries. Stanford University, in particular, has become part of the ecosystem of Silicon Valley, with its researchers and faculty maintaining strong, informal connections with businesses.

There are important lessons here for countries such as China, Japan, Malaysia, and Russia, and for regions in the United States and Europe that have been trying for decades to replicate Silicon Valley. To boost entrepreneurship, they need to focus their energy not on infrastructure, but on people. They have to be connected to each other and be given the means to innovate and take risks. The obstacles in their path need to be removed.

Here are some ways in which they can do it:

  • Work toward removing the stigma associated with failure—which is the most significant inhibitor to entrepreneurship. The public needs to be educated to understand that, in the high-tech world at least, experimentation and risk taking are the paths to success, and that success is often preceded by one or more failures. That idea must be discussed frequently by political leaders and taught in schools. State and local governments should establish venture funds for entrepreneurs who are starting their second or third businesses after failing.
  • Teach entrepreneurship, not just to university students, but also to experienced workers. Entrepreneurs primarily come from the work force. They have ideas for technologies that can be built, and when they get tired of working for others and want to build wealth, they develop the motivation to start companies. Most often, they simply don't know how to do this. Programs such as the Ewing Marion Kauffman Foundation's FastTrac can teach the fundamentals.
  • Bring in skilled immigrants from all over the world. The foreign-born workers who founded a majority of Silicon Valley tech companies brought diversity and new ideas with them. Chile is trying such an experiment with its Start-Up Chile program. It is offering $40,000 and a visa to entrepreneurs from anywhere in the world to get their companies started in Chile. All they have to do is to stay in the country for six months. Chile is betting that those foreigners will teach its natives about entrepreneurship and risk taking and at the same help them build global networks.
  • Countries, such as Russia, that have deep supplies of science and engineering talent should also connect those workers with their counterparts in America and Europe who are desperately looking for such talent. This should be a simple matter of setting up Web sites and internships and easing regulations.
  • In the long term, most regions need to improve their education systems. A focus on quality and freedom of thought and of expression would go a long way toward preparing children for the high-tech world.

All of this will boost entrepreneurship and increase economic growth, but it won't lead to the creation of the disruptive, revolutionary technologies that emerge from our universities. To do that, we need to clear the pathways for university research commercialization and connect researchers with entrepreneurs.

  • Reward university researchers and technology-transfer officers for the numbers of start-ups and jobs created by university research. Right now, researchers are often judged by the numbers of academic papers they publish, grants they get, and talks they give, while transfer officers are noted for the up-front license revenue they produce.
  • Invest in capacity-building networks such as those being developed by the New York Academy of Sciences. The academy has created an alliance of research universities with academic medical centers and industry.
  • Create formal and informal linkages between university researchers and entrepreneurs. North Carolina State University's Centennial Campus is an excellent example of how to do this. Start-ups are given office space on the university campus, and entrepreneurs and researchers mingle and exchange ideas.

There is nothing to prevent there being many Silicon Valleys and nothing to stop most regions in the world from innovating. The focus just has to change from investing in real estate to investing in people.

Vivek Wadhwa is director of research at the Center for Entrepreneurship and Research Commercialization at Duke University's Pratt School of Engineering.

 


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Comments

1. eberg - November 19, 2010 at 07:41 am

The first paragraph describes a straw-man that clearly deserves debunking, but this is decidedly NOT the view of Michael Porter, as even a cursory reading of his positions would reveal or the author's colleagues at Duke's Fuqua School could readily attest. And while the technology-intensive examples mentioned in the article are some of the most widely recognized, successful clusters in several industries are not invariably found in orbit around universities.

2. arrive2__net - November 20, 2010 at 04:27 am

Failure may be more tolerated in clusters where the individuals didn't really fail at what they were doing. Companies and ventures can fail because certain parts of the company did not succeed, or due to radical shifts in the environment, even where the work of ideas and work of individual's in the company really were successful. I think the people who are known to have achieved the success in what they were doing are the one most likely to be in on the next successful venture.

I don't know a lot about the 'cluster theory' but by looking at it from a distance, and in terms of what the article says, cluster theory may need a more detailed genesis story. Maybe some kinds of government interventions are cluster killers. Risk-takers I have met are often very shy of getting involved in government situations ... government funding often seems to attract people who are risk-averse.

My observation is that the story is right to suggest that clusters seem to occur spontaneously, perhaps where some core of talented people are desperate enough to try something new to achieve success, or where they strive on regardless of discouragement, until they achieve a breakthrough. For every "cluster" that truly develops there may 100 or more that never made it past the breakthrough stage (like Route 128). It would be tough for government to cause that to happen ... to somehow stimulate 100 cluster starts, hoping maybe 1 or 2 will make it... An economy could have a thousand working potential cluster pots out there, after 999 have gone by the wayside we say..."look, another Silicon Valley."

Bernard Schuster
Arrive2.net

3. mndstuart - November 25, 2010 at 04:01 am

Writing from a UK perspective what surprises me is that somewhat inward nature of this article. Non US examples are picked from new possibilities held up only to be demolished. Other possibilities from Europe include of course Cambridge (the first one), Germany, Ruhr valley but also Tokyo and Taipei and don't forget London the academic city of the world (count the top 100 Universities here).
I'm undertaking a study to consider the development of clusters and the article fully focuses on the critical aspect which is skilled people, their development and support structures. However the failure is to focus down on letting Universities do spin outs and IP development. Academics by nature aren't that way inclined and to suggest that it is a push from the Research base is a travesty of industrial development. If you look at the whole innovation ecosystem , see my Innovation Map, from a perspective of understanding the innovation ecosystem you need all the various strands.
So lets look at what this article gets right- skills, the ability to fail and recycle people and resources and recognition of outsider's capabilities and the attendant desire to attract new people and the glimmerings of a focus on networks, and a re-emphasis on people. But we need to recognise there is a bigger globalising world out there. Perhaps the next Silicon Valley is on real Silicon - a virtual world? or is that previewing the forthcoming exhibition of Science Fiction at the British Library, London.

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