R&D for Local Needs
A DISCUSSION OFPlace-Based Economic Development
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In “Place-Based Economic Development” (Issues, Fall 2022), Maryann Feldman observes that the CHIPS and Science Act marks “an abrupt pivot in the nation’s innovation policy” away from the laissez-faire system of the past and toward a policy focused on addressing regional economic development. Central to this new course is the act’s directive for the National Science Foundation (NSF) to “support use-inspired and translational research” through its new Technology, Innovation, and Partnerships (TIP) directorate.
Yet nowhere within the statute are these terms defined or described. The phrase “use-inspired research” was coined in 1997 by the political scientist Donald Stokes in his seminal work, Pasteur’s Quadrant, in which he sought to break down the artificial distinctions between scientific understanding and wider use while rejecting overly limiting terms such as basic and applied research. For Stokes, research focused on real-world societal problems—such as French chemist Louis Pasteur’s work on anthrax, cholera, and rabies—can spark both new fundamental knowledge and applied breakthroughs.
But what potential uses will inspire the next generation of innovators? If we look to the text of the CHIPS and Science Act, the legislation outlines 10 technology focus areas and five areas of societal need to guide use-inspired research overseen by the TIP directorate. Beyond these lists however, there is another source of inspiration that is strongly implied by the legislative language: regional societal and economic needs—specifically, the needs of places where scientists live and work.
While this observation may sound simple, implementation is not. Indeed, researchers at the University of Maine previously described in Issues the intricate challenges of crafting a regional use-inspired research agenda, creating community partnerships, engaging stakeholders, and breaking through institutional and cultural barriers that transcend publish-or-perish incentives to help produce real-world solutions.
The CHIPS and Science Act has launched such an endeavor on a national scale with NSF as the driver. It is a new place-based research enterprise that finds inspiration from the needs of diverse geographic regions across the United States. The statute is an important step, though many bumps in the road lie ahead, including securing the necessary appropriations. However, by focusing more on the needs of geographic regions through use-inspired research, NSF can better meet the mandate of CHIPS and Science to address societal, national, and geostrategic challenges for the benefit of all Americans.
President, Arch Street
Former professional staff member, US House Committee on Science, Space, and Technology
The recent CHIPS and Science Act ensures that the invisible hand in the capitalist US economy is now far from invisible. With nearly $280 billion in planned investments by the federal government for domestic research, development, and manufacturing of semiconductors, officials are hoping this support will lead to a technological paradigm shift for future generations. Officials contend this sizeable investment will decrease the nation’s dependence on countries such as South Korea, Taiwan, and China, which have dominated the semiconductor industry for the past two decades. By their dominance, these countries are effectively in control of the US supply chain and thus threaten the nation’s current and future national security. Credit is due to federal elected officials for realizing the need for such critical investment in the US economy and semiconductor industry. How that funding and support is distributed, however, remains a critical component of the legislation.
In her essay, Maryann Feldman argues that “the United States needs a bold strategic effort to create prosperity.” While one could argue that the Chips and Science Act is the bold public policy needed to ensure the nation’s technological independence and innovation, from an economic and public policy perspective I would argue that the most critical components of that act will be source contract award processes that are directly connected to defined requirements, strong agency oversight, engagement throughout the award timeline, early definition and commitment to creating commercialization pathways, implementation of award support for research personnel in flyover states, and a commitment to assess program results as they relate to the requirement that generated the award.
Additionally, based on contemporary research from TechLink, a US Department of Defense Partnership Intermediary, in order to develop innovative, successfully commercialized technology, identifying the most effective research personnel in flyover states—those individuals who will be able to ensure that their technology innovations and commercialization overcome the well-known “valley of death”—will be critical for place-based economic impacts and outcomes.
The CHIPS and Science Act needs to ensure that when technology decisions and appropriations occur at the practical level, they are funded to a diverse set of independent entrepreneurs, innovators, nonprofit organizations, universities, small businesses, local government partners, and educated citizens in research parks—those whose sole purpose is in developing the most advanced technology conceivable. COVID-19 changed how researchers can coordinate remotely with leading technology experts in the field, regardless of their physical location. Technological innovation and commercialization must take precedence over quid-pro-quo politics in Washington, DC, or the nation’s attempt to become the global leader in the semiconductor industry will have started and ended with federal public policy officials and bureaucrats. If the recommendations that Feldman makes regarding place-based economics, public policy implementation, and economic development are implemented, I’m confident the United States will surpass China, Taiwan, and South Korea in a semiconductor paradigm shift that will last for decades to come.
Michael P. Wallner
Department Head, Economic Impacts
Maryann Feldman in her excellent article makes a strong case that one of the most important strategic requirements for future growth in high-income jobs is expanding what the regional economic growth policy arena calls “innovation hubs.”
Feldman states that “place-based policy recognizes that when firms conducting related activities are located near each other, this proximity to suppliers and customers and access to workers and ideas yield significant dynamic efficiency gains. These clusters may become self-reinforcing, leading to greater productivity and enhanced innovation.”
There are a lot of economic rationales and policy implications packed into this summary statement. From an economist’s perspective, innovation hubs are an essential industrial structure for future economic development, first and foremost because they enable the realization of “economies of scope.” This is a distinguishing characteristic from the Industrial Revolution in which “economies of scale” dominated.
More specifically, scale is the dominant driver when product technology is relatively simple and product differentiation is therefore limited. In such cases, the emphasis is largely on reducing unit cost; that is, price is the basis for competing. In contrast, modern technology platforms offer a much wider “scope” of potential product applications, which requires more sophisticated process technologies in terms of both quality and attribute flexibility. The increasingly differentiated needs of modern high-tech supply chains means that economies of scope with respect to emerging technology platforms are now the major policy driver.
More technically demanding product and process technology development and use require higher and diversified labor skills. As the complex set of labor inputs changes continuously with the evolution of technology development, responsive educational institutions are essential to update and refocus workers’ skills. The resulting diverse local (and hence mobile) labor pool is essential to meeting rapidly changing skill requirements across firms in a regional innovation cluster.
Further, the potential for economies of scope provides many opportunities for small firms to form and pursue niche markets. But doing so requires the availability of a local start-up infrastructure embodying such institutional entities as “accelerators” and “incubators” to facilitate evolution of optimal industry structures.
The extreme dynamic character of technology-based competition determined to a significant extent by economies of scope inherent in modern technology platforms means considerable shifting of skilled labor among competing firms, as new application areas are developed and grow. Co-location of a large skilled labor pool and a supporting educational infrastructure is therefore essential. Similarly, the extreme dynamics of the high-tech economy that affords opportunities for new firms to form and prosper works well only if a significant venture capital infrastructure is present.
These factors—facilitation of economies of scope in research and development; a diverse and skilled local labor pool; start-up firm formation; risk financing; and technical infrastructure—collectively promote the innovation hub concept. As Feldman states, “For too long, the conventional policy approach has been for government to invest in projects and training rather than in places.”
In summary, the complexity of modern technology development and commercialization demands a four-element growth model: technology, fixed capital (hardware and software), and skilled labor, all of which depend on a complex supporting element: technical, educational, and business infrastructure. All four assets must be co-located to achieve economies of scope and hence broad-based technology development and commercialization.
Research Fellow, Economic Policy Research Center
University of Washington