We are moving into a new environment for innovation in which universities, and other knowledge producing organizations, play a much stronger role. Local, regional and national governments play a more prominent role in industrial policy. International and multi-national authorities are also involved. Even the older, larger firms are revising the way that they develop technology, entering into horizontal and vertical strategic alliances to develop and market new products. Product and process innovation within industry (Mowery, 1983) is supplemented by techno-scientific innovation (Hilpert, 1991). Originating in academia and encouraged by government policies new technological fields, such as biotechnology and alternative energy, have become sources of innovation. Industrial and university based innovation represent stages in economic growth rather than mutually exclusive strategies: current high-tech sectors replicate the emergence of the chemical and electrical industries from scientific research, much of it conducted in German and British universities, in the late nineteenth century (Mowery, 1993). Having long since been incorporated into large firms, the current form of development of older science-based technologies in industry has been noted rather than their boundary spanning origins. The emergence of a new group of science-based technologies, and the need to renew older technologies, has revived issues of the source and diffusion of innovation in the late twentieth century.
Institutional and national boundaries are transcended in the course of creating a new innovation environment. Three institutional sectors (public, private and academic) that formerly operated at arms length are increasingly working together, with a spiral pattern of linkages emerging at various stages of the innovation process. Start up firms are a common outgrowth of the three sectors: arising from academic research groups, national laboratories, and the laboratories of large corporations. National innovation systems are regionalized and internationalized as innovation processes take place across national boundaries, through cooperative arrangements among regions and firms (Kohler-Koch, 1993). Three nations (Canada, Mexico and the United States), with close but often oppossing economic interests until quite recently, are contemplating joint innovation initiatives even as firms across two and even three countries enter into an increasingly complex pattern of mergers and joint ventures. Labatt, the Canadian brewer, has acquired a stake in Femsa, a Mexican beverage, packaging and retail firm; both companies will distribute each others beers, forming a new operation to distribute their products jointly in the US (Farnsworth, 1994). Few in the US are aware that Corning is a subsidiary of a Mexican glass firm. Resistrol, Monsanto's Mexican affiliate sponsors a US startup firm, based on research at an Ohio university, to develop a new product that it will manufacture and distribute across Latin America.
Innovation systems, a characteristic of the nation-state (Nelson, 1993), are being supplemented by regional and multi-national innovation systems within the European Union and elsewhere (Kohler-Koch, 1993). At the regional level, this is not a new development. The New England regional innovation system, named after a post war ring-road "Route 128" originated in the mid-nineteenth century with the founding of MIT, a new type of technological university designed to infuse industry with the results of what is now known as "strategic research" (Etzkowitz, 1993). What is new is the spread of technology policy to virtually all regions, irrespective of whether they are research or industrially intensive. At the international and multi-national levels, The UN, the OECD, the World Bank and the European Union have all launched programs to assist economic development; many of these efforts rely on academic-industry-government relations to achieve their goals (Nelson, 1993). Nafta originated in the movement to reduce intra-continental trade barriers as a strategy for economic development. Can this contract among nations grow into an institutional environment to encourage innovation in North America: its countries, regions, industries and firms?
A new mode of production is emerging based on linkages among academia, industry and government. Not too many years ago, the linear model of innovation was taken for granted. New discoveries made in the industrial laboratories of large companies would pass though stages of development and eventually be produced in the manufacturing plants of those companies. Large corporations that could affford to maintain research laboratories were expected to be the prime source of technological innovation, industrial expansion and economic growth. The linear model depicted how innovation took place, or at least how it was supposed to work through the 1960s, exemplified by Dupont's motto of "Better Living Through Chemistry." The premise of employment growth and a higher material standard of living emanating from the technological engine of the large corporation was widely accepted even if fault was found with some consumer products and environmental byproducts.
Mowery has noted the importance to innovation of a technological trajectory based on improvement in manufacturing processes, apart rom market demand or an underlying scientific knowledge base. "While large firm size may not be critical to successful innovation the history and recent development of the semiconductor industry suggests that contractural arrangements among small single product firms will not support a high level of innovation" (1983). This analysis suggests a continuing role for large firms with ability to commit significant resources to innovation. Even as new elements from academia and government appear, the traditional role of the large national and multi-national firm as an organizer of innovation and vehicle for technology transfer continues. Their significance has especially been noted in Canada where such firms integrate locally produced elements of innovation into broader trans-national systems (McFetridge, 1993).
Despite some continuity, large corporations are changing their role in the new innovation environment. Some of these corporations, such as IBM and General Motors, maintained large basic research laboratories as contributions to their national innovation system, with only long term benefits expected. IBM, for example, achieved significant advances in superconductivity and reduced instruction set computing (RISC). Advances in superconductivity led to the formation of new firms and possibly a new industry; RISC computing was exploited by other firms for years before IBM decided to develop its own technology. With the economic downturn and reversal of business fortunes many of these large companies have downsized their laboratories and required that they must either contribute directly to the company or find income elsewhere.
In response to changing conditions large companies are revising their individualisitic approach to developing and marketing technology, entering into consortia with other firms and national laboratories. Laboratories of large companies, such as Grumman, which used to be officially devoted just to that company, are now setting up technology transfer offices, following the universities and the national laboratories and selling technology to other companies. Closer ties are arranged through "strategic alliances" or partnerships between two firms (or units of large entities) to bring the special capabilities of each together, to carrry out a task jointly, that neither could do as effectively, cheaply or quickly, on their own. Such alliances were originally organized to carry out a discrete task such as development of a particular product; now they are increasingly thought of as arrangements to develop a series of related products, open to expansion into other corporate tasks such as marketing, fianance and procurement. On a continuum, an alliance lies in between a merger or acquisition and a discrete transaction such as licensing a piece of intellectual property.
The felt need for a broad multi-faceted relationship between organizations, to carry innovation forward and bring new products to market in the stringent international competitive climate of the 90s, The director of R&D in the U.S. for Henkel, the German chemical firm, has concluded that, "Technology transfer is dead... The old 1950s model doesnt work anymore; the old way of hoping R&D came up with something brilliant only works if you are the only game in town." (Giorden, 1994) as the U.S. was in many technologies during that era. The new paradigm is based on meshing the disciplines of marketing, development and research, creating teams within and across internal and external organizational boundaries.
For IBM, and other firms like it, the issue is not so much the amount spent on R&D but the disconnect that often exists between R&D and product development and marketing in these companies. In their growth period, during the early post-war era, such firms typically expanded by separating R&D, organizationally and geographically from more mundane corporate functions. It is not clear now that by just subsidizing R&D that the Clinton administration, or the companies themselves, are sufficiently addressing the need for developing technology transfer and commercialization capabilities for their research campuses, within and among firms.
In this regard, various European Union programs provide some partial models (Malerba, 1993: 254-255). In addition to traditional industrial technologies, such as chemicals in which Europe has maintained great strength, the European Union's 4th framework program proposes to emphasize the life sciences, especially biotechnology, medecine and health as well as agricultural reform and rural development. Environmental concerns, including lowering the pollution levels of transport systems, are also driving the direction of 4th framework R&D programs. These initiatives run parallel to proposals for green technology development in North America.
It has been more than a century since the US government took its last great initiative to advance civil technology by giving the states federal land for universities devoted to agricultural and mechanical arts and sciences. However, the US, beginning with a rationale for a patent system in its Constitution, has always encouraged technically oriented economic development. The construction of the Erie Canal, the coastal mapping survey and expeditions - such as those of Lewis and Clark to determine the resources of the hinterlands - nurtured the growth of civil engineering, oceanography, and geology early in the nineteenth century. Since World War II the US government has indirectly supported technological innovation through military spin-offs. The US has also been fortunate enough to have the National Institutes of Health which, through its programmes of fundamental research, has inadvertently cultured a thriving and lucrative biotechnology industry.
In response to the decline of manufacturing industries from the 1970s, state governments have also established science and technology agencies to spur science-based economic development. State programs targeted at a range of industrial and research conditions include research centres at universities to focus on local technological niches, technology extension services for older firms and venture capital funds to assist new firms. Thus, the U.S. has had a de facto, if intermittent, technology policy in the form of programs at the state level, federal initiatives such as grants to support R&D in small businesses, and the beginnings, in a few agencies of a framework for national laboratories and companies to collaborate on R&D.
In this innovation picture, the state governments undertook to play a greater role in the 1980's by supporting both the universites and business through various measures. In Pennsylvania, fo example, the Ben Franklin program encouraged linkages between universities and industry by supporting cooperatve research projects. Ben Franklin also made available "seed venture capital" funding for startup firms. At the federal level, it was ideologically impermissable to directly encourage these linkages; but at the state level it was relatively uncontroversial because it was done to promote job creation and that was an accepted role of state governments.
At the federal level, the problems of the older industrial regions came to the fore in President Jimmy Carter's 1978 domestic policy review, with loss of jobs already apparrent in automotive and heavy manufacturing industries. Carter's domestic policy advisors suggested that government address this problem by fostering innovation in industry. But when the administration proposed programs taking a more activist role in support of industrial innovation, there was strong Congressional opposition. Many in Congress believed that government could not play an effective role; that governmental action would likely would make the situation worse, not better. Viewed as an interference with the market, called an attempt to "pick winners;" it was not acceptable, at that time, for government to play an open role. But the issue of innovation or reindustrialization, as the Carter administration called it, was too important to be entirely dropped.
In the face of widespread opposition to a direct approach, advocates of an innovation policy took an indirect approach, focussing on the ancillary issue of the build-up of in the universities of discoveries, with potential industrial relevance, made by academic researchers in the course of their investigations. This relatively untapped resource was a byproduct of federally funded research, whose patent rights were controlled by the federal government. Intellectual property, potentially available to all interested takers, in practice, was utilized by few since it was expected that successful developers would attract "free riders" who could not be fended off given the uncertain legal status of federally funded academic research.
To address this intellectual property issue, and the broader problem of stagnation in industrial innovation, a change in the laws governing intellectual property based on federally funded academic research was proposed. The ownership of the rights to discoveries made with funds provided by the federal government would be shifted to the research site. The Bayh-Dole Act of 1980 turned the intellectual property rights to these discoveries over to the universities, saying it is yours to comercialize. Undertaking the responsibility to see that the results of research are put to use became a condition of accepting research grants from the federal government.
In addition to the requirement to transfer technology, there was also an incentive: if the university was successful in its technology transfer effort; it could retain the funds that accrue from the sale and licensing of discoveries. Nevertheless, the purpose of the Bayh-Dole Act was not to fund the universities; it was to restructure the relationship of academia to industry, making academic laboratories into a source of technological innovation for industrial firms. The metric of success for Bayh-Dole is university originated industrial innovation: monies earned by universities from their technology transfer activities are, at best, an indirect indicator of a contribution to innovation.
The Bayh-Dole Act is the "land grant" Act of the twentieth century. The Morill Act of 1862 provided federal resources, land, to make it possible for universities to create a system of innovation that made American agriculture the world leader. Carter's 1978 domestic policy review, which focused upon the need to renew American industrial technology, led the federal government to give the universities federal intellectual property, the virtual equivalent of land, to encourage them to play a similar role in industrial innovation.
From 1980, universities which had never been involved in technology transfer established offices, hiring a scientist from industry or giving a university attorney a new task: to market the technology that professors were producing as part of their research. Until the passage of Bayh-Dole, only a very few universities, such as MIT and Stanford, had been actively involved in technology transfer. In the past decade and a half, technology transfer activities have spread throughout the research university system. The change induced by Bayh-Dole is part of the new role of the university in the innovation system, both in providing technology that is produced from the research activities at the unviersities to existing firms as well as the establishment of new firms by faculty members and students. Technology transfer offices, often initally set up to show best efforts in meeting federal requirments to put technology to use, typically begin to produce income for their universities in seven years. They are soon accompanied by incubator facilties and research parks as campuses broaden their participation in regional economic development either at their own initiative or encouraged by local governments.
This new role in promoting economic development has become an academic mission along with research and teaching. Just as it was recently considered unusual for universities to be involved in technology transfer; in the late nineteenth century, it was considered unusual for universities to conduct research, something entirely accepted today. A number of US and Canadian universities transformed themselves in the late nineteenth century to become research institutions even as they are currently expanding their mission to incorporate technology transfer.
Economist John Maynard Keynes post World War One volume, "The Economic Consequences of Peace" provides a framework for understanding the changing role of the research university during the current era of constricted financial support for academic institutions. From the era of Word War II, many U.S. research universities have been extensively tied to the military, conducting research for future weapons systems such as those based on robotics and computer software. Support also came as a reward from a grateful nation for past contributions to the military, such as the proximity fuse and the atomic bomb.
Despite serious conflicts in Bosnia and Somalia, not since the close of World War One has the US had to face the issues of peace for a sustained period; the Cold War loomed too soon after World War II. Can a role in regional economic devleopment, and reviving the technology of US industry, take the place of the Cold War as the economic underpinning of research universities let loose from some of their traditional moorings?
The academic model of technology transfer has evolved from the Research Corporation of the early twentieth century, as an intermediary organization servng as a buffer between industry and academia, to the decentralized and differentiated models common today. Campus-based licensing offices select from a variety of options to transfer technology or form firms; indeed they may be part of a broader administrative unit that also operates an incubator facility or research park. The Research Corporation, as Research Corporation Technologies, has reinvented itself, identifying a new niche as venture capitalist to the universities.
Whether as handmaiden to industry or as independent entrepreneur, the research university has taken a new role in an emerging civilian innovation environment in which the research laboratories of major firms are only one of a number of players along with government laboratories and start-up firms. There is no single linear approach to inovation. Instead, we can expect the continuous renegotiation of alliances among university, industry and government entities (Senker, 1994). The economic context for the universities has been irrevocably changed by the end of the Cold War even as the rules of the game for intellectual property were earlier transformed by the Bayh-Dole Act, Congress's "natural experiment" in industrial policy.
There are special problems in each country. In Canada, reseachers with common interests are often widely scattered. To encourage cooperation rather than competition among universities the Natural Sciences and Engineering Research Council established a program of Strategic Grants and Networks to encourage the formation of centres spanning different universities as well as disciplinary and sectoral boundaries. The goal was to bring together investigators with common interests in fields with long term industrial relevance (Walden, 1993).
The next challenge is to transfer resulting commercializable knowledge to industry. There are several approaches to achieving this objective including taking no special steps. Its proponents argue that the most effective technology transfer mechanism is the moving van that transports a newly minted PhD's personal effects to their first industrial post. This laissez faire approach is based upon the assumption of a large corporation with research facilities capable of effecting its own transfer of technology through the rest of the firm. A start-up firm strategy of technology transfer has become attractive, moving technology from academia to the marketplace by involving the originator of the knowledge directly in its transfer through the incentive of participating in the financial rewards of commercial success.
There is a potential contradiction between regional development and cross-national transfer of technology that has arisen in all the Nafta countries. For example, the Technology Transfer Office at the University of British Columbia reports that it is subject to cross-pressures from the university administration and provincial authorities in making deals. On the one hand, pressed for funds in an era of academic constriction, the president of the university wants the tech-transfer office to license university originated intellectual property to the highest bidder, which may not be a local or even a Canadian firm. On the other hand, regional authorities, having contributed to the support of the office, wish it to pursue a licensing strategy in accordance with their development policy of encouraging the formation of start-ups, locally (Livingstone, 1994).
Favoring start-ups, of course, means that immediate revenues will be low, although the long term economic and social benefits for the university and region can be considerable. A similar contradiction appeared in Mexico where the CIT, which was started to promote Mexican economic development, sometimes found that its best, or even only, licensing opportunity was to a firm abroad. Once the mechanisms for technology transfer are in place, deals can be made locally, nationally and internationally and it is a matter of conflicting university, regional and national government and multi-national authority interests as to which policy is to be favored and under what conditions. Such concerns are, of course, not unknown in the U.S., where MIT and the Scripps Institute have been attacked in Congress (fairly or not) for transferring technology abroad (Etzkowitz, 1994b).
The changing relationship among government, industry and academia in Mexico, in recent years, augurs the emergence of a new development paradigm with increasing emphasis on science-based technology (Castenada, 1993; Carroll, 1994). Prior to the currency shock of 1982, Mexico relied on an import substitution policy in which industries were encouraged to expand behind a protective tariff wall. Counter-intuitively, rather than encouraging local R&D and academic-industry connections, this policy left Mexico dependent on imported technology, largely funneled through multi-national firms. Local industry tended to be low-tech and labor intensive. Academic research was oriented to contributing to world science, not local industry (Blum, 1994).
This protectionist orientation to economic development shifted drastically after the 1982 currency shock, leading eventually to the Mexican government's push for the NAFTA treaty, encouraging free trade. Mexico's expanding commitment to academic research and its utility to economic development is expressed through increased funding provided by CONAYCT from the 1970s. Research and technology transfer policies are a fairly recent innovation, prompted by a reconsideration of traditional economic development strategy (Martuscelli, 1994).Having expanded university research in the sciences and engineering, Mexico also faces the problem of reception of academic research into its industry. Only a relatively few firms maintain R&D laboratories that operate on a comparable level to the national university's relatively well developed system of research institutes. Moreover, academic researchers are typically more attuned to developments in world science than to the needs of local industry. The Center for Technological Innovation (CIT) of the National Autonomous University of Mexico (UNAM) was established in 1983, supported by the United Nations Industrial Development Organization (UNIDO), to match academic capabilites with local industrial needs. A flow of agreements with firms in Mexico's narrow stream of science based industry followed. 350 contracts were negotiated, ranging from consultation arrangements to transfer of products and processes.
Given the imbalance between national academic science and industry, the existence of a technology transfer capability unintentionally encouraged the international transfer of technology. For example, in one instance UNAM researchers were assisted in making arrangements to have their research carried forward in Italy where the necessary sophisticated research equipment was available. The imbalance between the University's high tech potential and the lower technical level of much of Mexican industry, despite the existence of biotechnology and electronics firms, has encouraged the university's interest in creating its own industrial sector by developing an incubator program. Such a strategy has historical resonance with Stanford University's involvement in creating an electronics industry adjacent to its campus in order to provide a context for its engineering school.
The Clinton administration, elected to revive the US economy, has put ideological blinders aside in adopting an activist stance towards science and technology policy. It views all sectors of domestic, if not foreign, policy as part of a broader framework to renew the role of government in national life. Science policy makers such as John Gibbons, head of the US Office of Science and Technology Policy, and Mary Good, Under-secretary for Technology in the Department of Commerce, are focusing on improving industry's access to government science resources, coordinating the science programs of federal agencies and developing an economic rationale for government support of science. The principles of this technology policy include a major role for industry in priority setting; government procurement to stimulate early markets for new civilian technology; industrial extension services and other improved means for distributing information; and a shift of the national laboratories from military research to cost-shared industrial research.
These initiatives are typical of an administration that is trying to reform American life on a scale not seen since the New Deal era of the 1930s, although with far less political support than President Roosevelt had. Although change is expected to take place through administrative actions rather than new laws, the administration's goals are still far-reaching. It is intent on remaking US science policy into a subset of industrial policy in order to foster innovation in industry. This is in striking contrast to the policies of the previous two administrations. The Reagan and Bush administrations viewed support for basic research as a legitimate government activity on the grounds that the market could not be expected to fund it, but by the same rationale did not consider themselves responsible for industrial and near-market research. The Democrats now in power have a new role in mind for science, and are taking steps to translate government supported research directly into economic goods.
This forms part of the restructuring of the military sector of the economy that has been taking place since the end of the Cold War. The US has had a dual economy since World War II, with a civilian economy which could, more or less (given the competition-suppressing activities of large oligopolistic corporations), be called a market economy, and a military economy which was essentially government controlled. The broader processes driving current US science policy are the contraction of the military economy and the need to make government supported research contribute more fully to the civilian economy in the context of increased international economic competition. Some democrats in Congress are pushing even farther along these lines, attempting to reshape the National Science Foundation (NSF) from a basic research to an innovation agency.
Ideological prohibitions against breaching laissez faire walls between government and industry have required elaborate subterfuges to make direct intervention possible. During the Cold War, "national security" was invoked to support measures in such diverse areas as human resources and transportation policy, and state governments maintained their industrial policies on the grounds of traditional responsibilities for supporting local economies. The federal government, however, was expected to desist from such activities save for the exemptions granted by all-out war. It was only military and space competition with the former Soviet Union that provided exceptions to this ideology.
The driving forces of science and technology policy that held sway from the end of the Second World War to the end of the Cold War have been superceded. These include: 1. an expanding military economy led by government R&D agencies; 2. government support for basic research legitimated by wartime technological accomplishments; and 3. scientific and technological competition between the U.S. and the USSR. In this context government support for science flowed primarily through military agencies such as the Office of Naval Research (ONR), the Advanced Research Progects Agency (ARPA), supplemented on the civilian side by the National Science Foundation (NSF). As economic competition displaces military competition, government science policy and funding mechanisms are being transformed to address a new set of industrial policy issues.
The U.S. science and technology policy agenda has become a subset of industrial policy, driven by: 1. the transition to a mixed economy; 2. the civilianisation of military R&D and 3. increased international economic competition. A redistribution of scientific resources and a reorientation of research funding agencies is underway as the "endless frontier" of science is closed. From now on, a social and economic rationale rather than a military or "knowledge for its own sake" justification will be necessary to open the public purse.
The emergence of industrial policy is part of the transition from a dual (military and civilian) to a single mixed economy. Changes in the mission of the university and of the role of government in the economy are assisting this movement out of a military economy. The civilianisation of R&D is driven by increased international economic competition, the loss of a military rationale, and the need to move research resources more closely to industrial users in order to have them contribute to the civilian economy.
These forces are the impetus to a shift in the role of the national laboratories from military to civilian purposes. Some of these labs were established as part of the Manhattan Project and other programs for weapons development during the Second World War and were primarily devoted to military purposes until the end of the Cold War. Even before the end of the Cold War, Congress decided that the kind of changes it had undertaken in the universities, by encouraging the transfer of intellectual property to industry should be made applicable to the national laboratories, as well.
In the Stevenson Wydler Act of 1986, Congress mandated the national laboratories to play a technology transfer and cooperative research role with industry. Laboratories typically had one customer, a particular department of the government, for example, Los Alamos in nuclear weapons research for the Department of Energy or Livermore, to do similar kinds of nuclear and Star Wars research. National laboratories were instructed that, in addition to what you normally do, if things come up in the course of your research that would be useful to civilian industry, some of your engineers and scientists should transfer that work to industry. Thus, the national laboratories soon began to establish technology transfer offices, often modeled on those exisiting in the universities, and conduct joint research with companies through CRADA's (Cooperative Research and Development Agreements).
This role in technology transfer has increased greatly, with the end of the Cold War, as some government laboratories have entirely lost their previous mission. In order to stay in existence, they are eagerly taking up the tasks of technology transfer and providing research services to industry as one of their main missions. Until recently, it was assumed that most of the money that the federal government gave to universities for research, with the exception of health and agriculture, was tied to military purposes.
Much of the funds provided to national laboratories were also tied to military purposes. Now those purposes have lessened or even disappeared; uses for those funds for new purposes must be found or we can expect the research universities and the national laboratories to shrink greatly, reflecting the extent that their research activities were tied to defense related projects. As a result of the Clinton Administrations' willingness to engage directly with industry in fostering innovation, various programs that had been in existence for several years, operating on a very small scale, funded at 10 or 20 millions, which in federal government terms is virtually nothing, have been expanded to a half billion or or more. They are called the Advanced Technology Program or the Technology Reinvestment Program or Defense Conversion: all are targeted at encouraging industrial innovation.
Consortia of companies, large and small, and universities can apply to these programs to do research which will advance product development. These linkages among sectors, drawing together organizations working at different stages of the innovation process, is the next step to bringing about a new innovation environment comprising universities, national laboratories, laboratories of large corporations and, start up firms. These organizations act, not separately as in the old linear model, but through various alliances and consortia, creating ties across the triad of helixes (representing the academic, industrial and government sectors) whose interconnections we have only begun to model and map. These links are not only among firms in an industry but also between firms and universities, between state governments and universities and firms and now between elements of the federal government, state governments, firms and universities.
There are still gaps in the innovation environment that cause isolated initiatives to achieve less than their expected success. Too often a particular organizational innovation is perceived by observers as the motor of development. For example, the Stanford Research Park originated as a university real estate venture intended to utilize surplus land to make money for the university as an ordinary industrial park, following the success of the Stanford shopping center. The Park somewhat unexpectedly became the locational embodiment of a critical mass of linkages among technical personnell and firms when companies that had grown up around, and from, Stanford University chose to locate there (Saxenian, 1994). The high-tech cast of the Stanford Park's tenants was an unintended outcome of a well thought out university development strategy, originated by Stanford Provost and Engineering Dean Frederick Terman. The Park's success represented decades of informal interaction among academic research groups, centers and firms. When such a model is chosen for replication elsewhere without sufficient attention to creating the pre-conditions within which the original initiative flourished, or to the local region's strengths and weaknesses, unbalanced development or failure to achieve viablility in a "global milieu" is the result (Gordon, 1994).
The U.S. venture capital industry originated to fill an economic development gap identified in an analysis of regional strengths and weaknesses undertaken by a group of business, academic and poltical leaders in New England during the 1930's depression. One of the participants, Karl Compton, the President of MIT, envisioned a strategy of creating new technical industries building on the region's research strengths and examples of spinoffs from academia such as the Raytheon company that had already occurred. He persuaded other members of the New England Council to move beyond traditional development strategies such as attempting to attract branch plants. An analysis of the unviability of traditional development approaches, given New England's unfavorable locational and natural resource characteristics, also identified a lack of availability of venture capital, despite the region's great financial strength built upon its earlier industrial and merchant economies. Just after the Second World War, Compton and his associates founded the American Research and Development Corporation (ARD), which assisted the founding of a number of high-tech firms in the region, often from MIT and its laboratories, and spawned a venture capital industry as ARD's employees went off to found their own firms (Etzkowitz, 1993).
The U.S. venture capital industry has expanded greatly since ARD's founding in 1946 as a public corporation. Newer firms were organized as partnerships to allow their principals to have a greater share in earnings than they could receive as employees. The closer connection between investment decision and personal reward may have also had a conservatizing influence on the industry. In recent years, most venture capital firms have invested in the so-called mezzanine or intermediate stage of firm growth; eschewing walking the corridors of MIT and other universities to scout out leads for investment opportunities with faculty and students who had not seriously contemplated a firm until their encounter with a venture capitalist made it a realistic possibility. A "seed venture capital" gap exists, of insufficient funds available to support the early stages of firm formation.
Government programs extrapolated from the early successes of the venture capital industry have only partially filled this early stage funding gap. The Small Businesss Innovation Research (SBIR) Program, based upon a small percentage of set aside funds (currently 2%) from federal research programs above a certain size, claims credit for helping start Intel and many other firms. Although the SBIR program is a great success in providing funds to test new ideas for companies, and even to create prototypes, there is still a venture capital gap in the U.S. for startups that the Clinton adminstration, despite its industrial policy emphasis, has not seriously addressed. In 1992, a National Academy of Sciences Report, authored by Harold Brown, had called for a publicly funded investment bank, placing a 5 billion dollar price tag on the need for such financing. The scale of the proposal had put off policymakers, drawing attention away from the principle espoused and making it seemingly unattainable. In the interim, universities, drawing upon their endowments, and state governments, utilizing a small percentage of employee pension funds, have become venture capitalists on a small scale, focusing on opportunities on their campuses and in their local regions.
Many regions have some elements of the new innovation environment, of academic, industry and government cooperation, in place. In Pittsburgh and the surrounding western Pennsylvania region, a new innovation environment has been developing as separate streams of activity. There has been a wave of formation of new high-tech firms. There is also an older industrial sector that is consolidated now at a much smaller size, but still largely exists as a separate area of technology. Recently, the federal government allocated funds to support a Manufacturing Extension Service in Western Pennsylvannia, a program to assist existing firms that had been started by the state government and will now be greatly expanded with federal monies. This new and direct active role of the federal government in supporting industrial development, already in place in Mexico, is the new element in the innovation environment in the U.S. There is potential in the Pittsburgh region to establish linkages between the older and newer technology sectors. An opportunity exists for the local universities (Pittsburgh and Carnegie-Mellon) to play a role in bringing these different industrial sectors together, as well as government units, to create new economic activity. Such interaction among sectors is the defining hallmark of the new era of innovation that we are moving into, both nationally and internationally.
Parallel processes of relying on connections to universities and technology transfer for economic development, are underway in all three countries. Bi-lateral and even tri-lateral arrangements among firms and universities in the three countries are likely to be accelerated, not so much by reductions in tariffs, but by the social mechanisms for increased interaction and interchange that have been encouraged to be put into place by the existence of the treaty.
Critical technologies are boundary spanning, not only within the Nafta but across the rest of the world. What might be defined as 'Critical Technologies for North America' are also likely be on some agency list in the Europen Union and Japan. A result of the prioritization of research expenditures "Technology Foresight," not to mention budgetary stringencies, is a move toward the internationalization of R&D collaboration.
There is a growing convergence among North America, Japan and Europe in science, technology and industrial policy. The Europeans, having concentrated on assisting larger firms through pre-competitive research initiatives, are moving toward greater emphasis on startups, a U.S. specialty until recently. The Japanese, having brought the art of targeting "critical technologies" representing future industrial growth to a high level, are developing their academic basic research and graduate training capacities. The U.S., with an overcapacity of basic research supply and undercapitalized intellectual property resources, is acting to assist larger, as well as smaller, companies to take technologies off the shelf and into the factory for production, both as defense conversion and economic development policy. For its part, Europe plans to spend 13.1 billion ECU (European Currency Units) ($1=1.25-1.33 ECU) on its Fourth Framework Program (1994-98) to become more competitive with North America. A "triple helix" of academic-industry-government relations is likely to be a key component of any multi-national innovation strategy in the late twentieth century.
*This paper has been prepared for the opening session of the NAFTA Institute on Innovation, August 14-21, 1994, British Columbia, Canada. The relative emphasis on U.S. examples is an artifact of the author's current stock of knowledge; the final draft is expected to be broadened by discussion with Mexican and Canadian colleagues at the Institute and through materials which can be sent in advance of the conference to: 462 Arkansas Avenue, Nantucket MA 02554. email address: etz@cs.columbia.edu
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