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.
How can we
address these
Global
Challenges?
Congress
3
© 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%
35.4%
35.0%
34.8%
6%
9.1%
11.1%
12.2%
Japan
15%
13.2%
12.5%
12.3%
Europe
26%
24.9%
24.0%
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 debtfueled 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
Reality: The Early-Stage Funding
Valley of Death
Federally
Funded
Research
Creates
New Ideas
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
Later Stage
$10.8 billion
1,177 Deals
Total: $28.2 Billion
37%
Early Stage:
$5.3 billion
1,013 Deals
Expansion Stage
$10.6 billion
1,178 Deals
39%
19%
5%
Seed Stage: $1.5 billion
440 Deals
Source: PriceWaterhouseCoopers/Thompson Venture Economics/ NVCA 2009
22
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%
26%
9%
Total: 17.7 Billion, 2795 deals
Later Stage
$5.9 billion
799 Deals
Expansion
Stage
$5.5 billion
801 Deals
34%
Seed Stage: $1.7 billion
312 Deals
Source: PWC-MoneyTree Report, 2010
23
©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
R&D Investment
Solicitation
Solicitation
PHASE II
Research
towards
Prototype
PHASE I
Feasibility
Research
$100K
Private Sector
Investment
PHASE III
Product
Development
for Gov’t or
Commercial
Market
Non-SBIR
Government
Investment
$750K
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 21st 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
Where are the
st
21 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 21st Century
Universities
– 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
Universities
Large
Companies
Small
Companies
S&T Park
– Help create companies
– Advance university
missions in education,
research, and
commercialization
Public
Support
University
Researchers
Research
Institutions
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 innovationbased companies through spin-off and incubation
– They provide value-added services together with high
quality space and facilities
– They help create a “Community of Innovation” or Cluster
needed to transfer new ideas from universities and
laboratories into the marketplace
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
42
© Charles W. Wessner, PhD
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, are
increasingly important to foster innovation
and collaboration
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