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The Knowledge Economy and Maryland's Research Backbone
President C.D. Mote, Jr. University of Maryland, College Park November 22, 1999
Maryland Economic Development Commission
Introduction At the beginning of this millennium, the most powerful person in the world was Genghis Khan, who ruled an empire that extended from Hungary across Asia to Korea and from Siberia to Tibet. At the beginning of this century, the most powerful person in the world was Queen Victoria, who ruled an empire that encompassed 20% of the land and 25% of the people on earth. At the end of this century, many would say that the most powerful person in the world is William Henry Gates III. (In fact, he may be too powerful according to the Justice Department.) Bill Gates' power does not come from his armies, from his land, from his rule over people, or from controlling vast natural resources. Bill Gates' empire sits on your desk. Joseph Stieglitz, the chief Economist of the World Bank, recently said ... "Knowledge and information are being produced today like cars and steel were produced a hundred years ago. Those, like Bill Gates, who know how to produce knowledge and information better than others reap the rewards, just as those who knew how to produce cars and steel a hundred years ago became magnates of that era." As we sit here today, we are experiencing an economic transformation that many economists compare to the Industrial Revolution of the last century. The Industrial Revolution changed us from an agrarian to a manufacturing economy. But a manufacturing economy is still based on physical resources. As we shift from a manufacturing economy to what has been called a Knowledge Economy, we are experiencing something that has never happened in world history. For the first time, something we can neither see nor touch -- knowledge and information -- are becoming even more valuable than physical resources like land, gold, and oil. The Argument I want to talk to you today about the critical role that research universities will play in the Knowledge Economy over the next decade. In fact, I want to convince you that the research university powers the knowledge economy in the same way that electricity powered the industrial economy. Research universities provide this power in three critical ways. First, by producing advanced research in science and technology. Second, by educating a workforce that can sustain the knowledge industries. Third, by fostering, and participating in, an entrepreneurial culture that is essential to the development of new industries based on Knowledge. This can be seen by looking at regions of the country that are the powerhouses of the Knowledge Economy. Stanford University and the University of California, Berkeley anchor Silicon Valley, which is the oldest, strongest, and most imitated powerhouse of the Knowledge Economy. The Research Triangle in North Carolina is literally surrounded by the University of North Carolina, NC State, and Duke University. In Massachusetts, Route 128 research flows out from MIT and Harvard. What is particularly striking is that when any of those three regions is mentioned, those universities come to mind as the drivers of that regional economic development. But when the Maryland region is mentioned, normally there is no similar association with our universities. Maryland has the potential to become a dominant regional force in the Knowledge Economy. Consider our assets: We have very strong, and potentially dominant, research universities like the University of Maryland, College Park, Johns Hopkins University, the University of Maryland, Baltimore, and the University of Maryland Baltimore County. We have a strong and growing base of industries based on knowledge -- namely, information technology and biotechnology. We also have an extraordinary advantage, our unfair advantage, in the number of government labs located in the area. In the Knowledge Economy, repositories of information Like NASA and FDA and many others are as valuable as oil was in the industrial economy. But we do not have sufficiently strong links between our research universities, government laboratories, and private companies. We have not yet forged fully the partnerships between them that will make Maryland a dominant regional economic force. I hope to convince you that unless we do this, we will not take full advantage of our opportunities. In fact we will fail to achieve our destiny. The cover story of the November 1998 issue of Newsweek -- titled the "Hot New Tech Cities" -- was about attempts by various regions around the country -- indeed the world -- to recreate Silicon Valley. The article named six factors that were critical for doing this. Number 1 was the need for a major research institution. Virtually every such analysis lists major research universities as necessary to economic development. That is not news to anybody here. But most people I meet in this region think that research universities do research, supply workforce and provide market. That’s basically it. And that is a big mistake. In Silicon Valley, the Research Triangle, and Route 128, the great research universities do much more than supply workforce and market. They are sources of new ideas and new technologies, suppliers of creativity, creators of the entrepreneurial drive, and as importantly, they are partners in economic and social development of the region. It is this partnership and participation that separates the great regions from the good ones because it creates the authentic engagement that is necessary for an entrepreneurial culture to flourish in the region over the long term and over the certain transitions in the valued technologies. Think of the many births, fatal pronouncements and then re-births of the Silicon Valley. The Strength of the Knowledge Economy Let me start by convincing you of the strength of the Knowledge Economy. The industries of this economy are information technology and, increasingly biotechnology. I will talk more about biotechnology later on. According to a Commerce Department report, the information technology industry generated one-third of the nation's economic growth between 1995 and 1998. It predicts that almost half of all American workers will be employed in technology or technology-related industries by 2006 -- that is, 7 years from now. In case you are not convinced we are in a new economic age, here are a few more figures:
A study by the Milken Institute called "America's High-Tech Economy" analyzed 315 regions in the United States and concluded that high-tech industries were responsible for 65% of their economic growth. An article in the November 1998 issue of Fortune Magazine ranks the top five cities for business, all of which are booming because of high-tech companies. In case you not convinced by data alone, just think about what happened when got up and drove here this morning. Your toothbrush, your coffee maker, your microwave, your phone, your car, all have microchips in them. You probably own a computer, since over half of all Americans do. We get our news through the Internet, communicate over e-mail, order books online. Internet ads are more common than beer ads during pro-football commercial breaks on TV. Pretty soon, our refrigerators will read the expiration dates on our milk cartons and dump them automatically. I also like to use the observation of our alumna Carly Fiorina her campus earlier this year. Carly was Vice President at Lucent Technologies at the time and is now President and CEO of Hewlett Packard. She told me that at 3:00pm every weekday, all of the phone exchanges in the United States slow down. That is when millions of children come home from school and get online. The Knowledge Economy and Research Universities I told you earlier that research universities make three major contributions to the Knowledge Economy. The first contribution was advanced research in science and technology. Would you agree if I told you that the information-technology industry would not even exist if it weren't for research done at universities? You don't have to take my word for it. Last spring, a presidential commission report stated that "Everything from the microchip to the Internet can be traced to fundamental research bankrolled by the government years ago." For the sake of the nation’s economic future, the Commission recommended that the federal government double its funding of advanced university research in information technology over the next five years. Today’s information-technology industry sprouted out of basic research done at universities many years ago. Because the industry changes rapidly, university research continues to provide the technological advances that drive its growth. Let me give you an example at the University of Maryland. Professor Chia-Hung Yang recently created the world's smallest transistor. Transistors -- the key building blocks of electronic devices -- put vacuum tubes out of business 50 years ago. Minute size is vital for applications of the present and future. Yang's transistor is 10 nanometers across, which means that two of them, side by side, span the mean free path of an oxygen molecule. 100,000 of them side by side will span a human hair. The strength of our business and engineering schools is a key reason that so many technology companies have located in this area. I like to quote Jeong Kim, a Maryland alumnus, who started Yuri Systems. He said that one of his highest priorities was to locate his company near the University of Maryland. Not because he loved the campus (though he certainly does), but because his company needed to be near the cutting-edge of technology research. Yuri Systems was bought by Lucent for $1 billion, and Kim is now a Lucent Vice President. But his operation is in the same place -- near the University of Maryland. Now let’s consider the second and third contributions of educating the workforce of the Knowledge Economy and fostering the entrepreneurial drive. What really distinguishes the students at a research university is that they are surrounded, encompassed, enveloped, and formed by the research culture. My colleague, Gerhard Caspar, President of Stanford University describes this culture as having two characteristics: the Search for Knowledge and the Spirit of Inquiry. The search for knowledge powers the research engine. The spirit of inquiry underpins teaching. Professor Yang will use his own research to illustrate examples to his class. Like all faculty at a research university, he will demand that his students participate actively in their own education. And because of this, his students will find that learning is an act of creation. Dissemination and creation of knowledge couple inextricably. The Knowledge Economy in Maryland So this brings us back to the question of Maryland’s potential to be a dominant player in the Knowledge Economy. As I said, we have substantial assets: our strong research universities; our growing base of high-tech companies; our proximity to federal labs and agencies. There is no question that Maryland is a player. How do we rank nationally? I mentioned previously a report of the Milken Institute called "America’s High-Tech Economy." It developed a "relative total real output growth index" that measured economic growth in 315 regions around the country. As you might expect, Silicon Valley was ranked number 1 by a large margin. The D.C. metro area was ranked number 6. The report did not break out the various parts of the Maryland, Virginia and Washington, D.C. areas, though most agree that Northern Virginia has been the strong player. So let me give you another piece of data that might give you a sense of Maryland’s comparative economic strength in the Knowledge Economy. In 1998, the total venture capital investment in the state of Maryland was $71 million. In the same year, the total venture capital investment in: North Carolina was $168 million; Fairfax County was $178 million; Massachusetts was $895 million and in California, it was $3,500 million. So I think it is clear that Maryland is not yet firing on all cylinders. The Future of the Knowledge Economy: Biotechnology Information-technology will continue to progress and change rapidly. Already the focus is shifting from information to communications. (In fact, Bill Gates's attempt to make that shift successfully is one of the reasons he's in trouble.) But the new century belongs to biology. And I know you didn't hear that here first. There are at least two reasons why this will be the century of biology. First, we are an aging population, and we increasingly value the science and technology that will prolong good health and increase the quality of life. Second, the frontiers of research in the biosciences are expanding very rapidly. Marvelous achievements are happening, and getting noticed by the public, almost daily. There is a thriving biotechnology industry here in Maryland, and this is the direct result of our research universities. The biotech industry needs universities even more than the info-comm industry does. And this happens because of essential differences between the two industries. Two guys in a garage can create an info-comm company. In fact that is part of its legend. In 1938 Bill Hewlett and Dave Packard thought up H-P while they sat on the bench at Stanford’s football games. Steve Jobs and Steve Wozniak dropped out to start Apple Computer. Bill Gates was writing software for PC’s in 1975. The time to market can be measured in weeks and months, and a modest enterprise can become a multi-million, or multi-billion, dollar corporation. These companies are closely tied to the marketplace, and because the market is volatile, these companies are volatile and their market position is always at risk. In contrast, a biotechnology company is a very expensive and long-term endeavor. It requires teams of exceptionally well-educated and well-trained researchers and state-of-the-art laboratory facilities. The research phase can take years -- even decades of work -- before a product can be brought to market. This means enormous financial risks have to be taken with a very delayed payback. Biotech companies are essentially always clustered near universities because they must have the sustained research commitment and long time horizons that only research universities can support. Occasionally, you will find an info-comm company located in Aspen, or some wonderful place, with no research university in sight. This never happens with biotech companies. As my friend Bob Berdahl, the Chancellor of UC Berkeley, is fond of pointing out: 30% of the biotechnology companies in the entire world are located within 30 miles of a University of California campus. There are 500 biotech companies in San Francisco. 70 biotech companies are located between MIT and Harvard alone. Not surprisingly the Maryland biotech industry is comparably strong given the substantial strengths of Johns Hopkins University, the University of Maryland, Baltimore, and -- increasingly -- the University of Maryland, College Park. I made a commitment last year to expand College Park’s commitment to the bioscience fields. This not only means strengthening biology and biochemistry but building upon our highly ranked programs in engineering, computer science, mathematics, agriculture and psychology. There will be no major research university in the next century that is not strong in biosciences and biotechnology. It is important to understand that research in the biosciences now goes far beyond biology and medicine. It includes biochemistry, biophysics, bioengineering, neurosciences, mathematics, computer science, psychology, et alia. It is broader than the Health Sciences for we can not forget the animal and plant sciences. And many argue that only universities with broad strength across many different disciplines can participate in the most advanced research in the biosciences. It extends well beyond the capacity of medical schools as we know them, which I predict will become less and less responsible for bioscience and biotechnology in the next century. The Research Backbone What do we need to do in Maryland to prepare ourselves for a century and an economy that is based on knowledge? We have in Maryland what I call a research backbone. At one end is Montgomery and Prince George's counties - and the I-270 corridor - and the University of Maryland, College Park. At the other end, along I-95 from the university, is Baltimore and the research universities there. (I like to think of College Park as located at the head end of the backbone.) The backbone has a complementary balance of strengths with Johns Hopkins leading nationally in biomedicine and College Park in information technology. Along the backbone there are many powerful government laboratories, businesses and other universities too. You may be wondering about the basic competitiveness of the university research power of this backbone. Let me try to give you a sense of scale through the research expenditures of the large universities in the key clusters. (The Community of Science reported them for 1997.) In 1997 Berkeley and Stanford together spent $750 million in research. Harvard and MIT together spent $710 million. Duke, North Carolina, and NC State together spent $700 million. In 1997 Johns Hopkins and the University of Maryland, College Park together spent $1,000 million. If UCSF is included with Berkeley and Stanford, they together spent $1.1 billion in 1997. If UM Baltimore is included with Hopkins and College Park, they spent $1.2 billion in 1997. Of course we should not make too much of numbers like these, but they do give us the sense that Maryland is competitive in the size of our research enterprise. Another way of looking at it, is that our failure to create a entrepreneurial cluster can not be blamed on insufficient research effort. And along the research backbone, we also have major federal and private-sector ribs. The alphabet soup of government labs -- NIH, NASA, NSA, FDA, USDA (to name only a few); major companies like Lucent and Northrup-Gruman; and start-ups with names that no one knows now but could be the next CISCO or AOL. Bringing the Backbone to Life We have not yet created what Professor Michael Porter of Harvard Business School calls an "entrepreneurial cluster." He lists six ingredients required for a cluster: high-tech talent; infrastructure (people, roads, suppliers, etc.); financial support (VC’s, angels, etc.); university research centers; success stories; and an entrepreneurial culture (image, attitude). Challenge for the State: Create an entrepreneurial culture for the new, high-tech economy. In order to do so the state needs to:
Challenge for the Universities: Create an internal and external vision for the entrepreneurial culture. To do so we should:
The Knowledge Economy is a new ball game, and the ball is in Maryland’s court. Is it time to play? |
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