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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
Future Trend Analysts Session
UMBC
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:
- In the last three years, high-tech products and services increased 20
percent, while the real GDP increased 1.5 percent.
- The S&P 500 increased 27% last year; but drop out 10 technology
stocks and the S&P 490 decreased.
- In the past 20 years, high-tech has almost doubled its share of
industry output in the U.S. to 11 percent; tech services, at 5.8 percent,
are larger than manufacturing.
- Last year fully 50% of capital expenditure in this country was for
technology.
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:
- Exploit our advantages in info-comm and biotech;
- Recognize that the new economy is built around research universities
and centers;
- Recognize that it is easier to build and move companies than it is to
build and move universities;
- Recognize that high-tech research parks (anchor tenants, small
start-ups, VC’s, investment bankers, etc.) located essentially next
to research universities seem to be a necessary ingredient for creation of
an entrepreneurial culture;
- Recognize that universities participate in the development of the
economy as partners in addition to being sources of workforce and
market.
Challenge for the Universities: Create an internal and external
vision for the entrepreneurial culture.
To do so we should:
- Help the state to create a culture that will attract and retain
high-tech companies and workforce to a regional cluster through
participation, facilities and programs;
- Take a leadership role in the high-tech economic development of the
state because only research universities can represent what they do;
- Increase outreach to business and other economic sectors in the state
by fostering partnerships and participation;
- Increase visibility of the research university and the high-tech
economy in promotion of the entrepreneurial culture of the state;
- Focus on achieving and maintaining top standing in both info-comm and
biotech high-tech arenas in order to attract top faculty and students who
will remain in the state.
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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