The New Boomtowns

With the explosion of knowledge in technology, some of the nation's hottest regions are now located near universities with strong engineering programs.

By Warren Cohen

illustration by Steve McCrackenOne could be forgiven for thinking that Rochester, New York could be something of a ghost town. After all, Rochester has suffered severe job cuts from some of its largest employers: Kodak, Xerox, and Bausch & Lomb. More than 8,000 positions have been eliminated in the past two years.

But the local unemployment rate still stands at about 4 percent and new jobs in telecommunications, medical equipment, and software are being created faster than the old ones disappear. It's not tax incentives or easy access to transportation that's giving the city a boost, but a strong learning climate that is driving the new economy. Where do these workers come from? "Universities," says Albert J. Simone, president of the Rochester Institute of Technology. "With the knowledge explosion in telecom, biotech, and software, you can't expect corporations to introduce these technologies to new employees, so they rely on the university."

Science heavyweights like RIT are coming out of the ivory tower and helping local businesses thrive. Today, universities help their surrounding environs in far more ways than just putting the locals on the payroll and contributing to a town's tax coffers. Many cities are realizing that a university's most valued local service is as a source of high-tech breakthroughs that occur in resource-rich campus laboratories. The faculty members and students who create these inventions, in fields such as engineering, information technology and biotechnology, often turn the discoveries into companies.

These fledgling startups, often a stone's throw from campus, bloom into growing businesses that convince other companies to relocate near them. These firms also become employers for the legions of future talented students trained at the local campus, regenerating the cycle of economic growth. "Universities are an outstanding resource for people, expertise, and ideas, which lays the foundation for the economy," says David Lampe, author of two books about high-tech growth in Massachusetts.

It's hard to know for sure what the precise financial impact of universities is on local business, because there are a myriad of factors that contribute to economic conditions, such as tax rates, land, office, and energy costs. But a few studies indicate that the impact is strong. According to a study by the Association of University Technology Managers, $33.5 billion of U.S. economic activity can be traced to universities' licensing technology, resulting in 280,000 jobs. Since 1980, at least 2,578 new companies have formed based on licenses from universities, and 79 percent of the firms remained in the state where the initial research was conducted. In the past six years, the volume of their formal technology transfer through patenting and licensing has more than doubled.

Since those statistics only account for firms in which the university helped fund the research, it significantly undercounts the actual economic activity by students and faculty members who start new companies on their own, and companies that move closer to universities to take advantage of research spillovers. "Any technology-oriented enterprise today usually locates near the research center of a university," says Perry Wong, an economist at the Milken Institute, an economic think tank in Santa Monica, California.

University expertise is so prized today because the economy is more dependent on high-tech growth than ever before. Two-thirds of per-capita economic growth stems from technological innovation, says the Progressive Policy Institute. All told, technology is responsible for nearly 11 percent of the gross domestic product, up from 4.5 percent in 1980. And according to a study of 315 metro regions by the Milken Institute, high-tech activity accounts for 65 percent of the difference in economic growth.

To sustain such momentum, many researchers believe that science-led universities are the key. Of the Milken Institute's 12 most important factors for high-tech development—ranging from public research dollars, cost factors, workforce education, and quality of life—only research institutions ranked "critical" in every stage of economic progress, from inception to growth to fortification.

Getting Started

Universities haven't always been economic catalysts. In 1914, Congress passed the Smith-Lever Act establishing the Cooperative Extension Service, which was the first attempt to leverage the expertise on campus to help the nation's farm economy. But other than agriculture and military research, universities used their campus facilities mostly for the pursuit of knowledge for knowledge's sake. Local economic development was concentrated on "smokestack chasing": providing tax incentives to lure big industries to relocate.

It wasn't until after World War II when two university-led regional boomlets began to ignite. On the West Coast, Stanford electrical engineering professor Frederick Terman worried that the most talented students couldn't find jobs after graduation in an area best known for apricots and plums. He helped persuade the school to develop 8,000 unused acres to create an industrial park that would lure companies by promising them a peek at the university's ongoing research. In turn, the companies were a source of employment for graduates, and faculty members could start their own businesses. The research park opened in 1951 and the resulting growth turned the former Valley of Heart's Delight into Silicon Valley. Today, more than 2,000 high-tech firms have facilities in the area, including such innovators as Hewlett-Packard and Intel.

On the East Coast, the war had funneled defense-related research money into universities in the Boston area such as Harvard and MIT. During peacetime, some individuals formed spinoffs based on the military research in some critical areas as supercomputers and electronics. Some of the most renowned companies in the area of Boston's Route 128 included Raytheon and Digital Equipment Corporation. Today, many cities with universities are trying to emulate the success of Silicon Valley and Route 128 by touting university scientific achievements.

Today's high-tech economy depends on such advances for job creation. Knowledge positions such as computer scientists, engineers, and systems analysts have expanded by nearly one million since 1992, a growth rate of 80 percent. Such jobs not only pay better than typical wages but spawn more employment through new uses of technology. "All the other factors of production, like land, labor, and capital are limited in supply: the more you use, the less you have available tomorrow," says Simone. "But if you add knowledge, the more you use, the more you get. One idea implemented spawns ten more."

Another benefit of having a strong high-tech center is that growth can occur without new employees. With the nation's unemployment rate near record lows, high-tech productivity breakthroughs permit companies to improve their output without increasing their workforce. This year, the nation's productivity rate has its largest year over year increase since 1983. Between productivity and job growth, it's now obvious that universities are the linchpins to continued economic success. As Alan Greenspan, Chairman of the Federal Reserve System, recently said: "If we are to remain preeminent in transforming knowledge into economic value, America's system of higher education must remain the world's leader in generating scientific and technological breakthroughs and in meeting the challenge to educate workers."

While many towns have been successful leveraging the knowledge base of their universities, a few places aside from Silicon Valley and Route 128 stand out for their economic development strategies. The University of San Diego has been a model of transferring knowledge out of the labs and into spinoff companies, especially in biotechnology. In North Carolina, a troika of universities has fine-tuned the industrial park model for luring world-class corporate research centers. George Mason University, located in the information technology corridor of Northern Virginia, is helping the existing workforce build its skills through lifelong learning. And Pittsburgh, led by Carnegie Mellon University, is making an aggressive bet on the future through robotics, an industry still in its infancy. These case studies may serve as examples for other university towns to harness enriching knowledge and devise similar growth tactics.

San Diego

San Diego, once a mainstay for defense research, has become an important player in biotechnology, thanks in large part to the University of California at San Diego.  Last year, the university licensed research conducted on campus to dozens of companies.
From diagnostic systems that test the stress on human hearts to the discovery of genetic links to cancer, scientists at the University of California at San Diego have been in the forefront of the biotechnology revolution. The university has been adept at making sure these discoveries don't remain in the laboratory as the school has aggressively licensed the processes to private companies. Today, there are more than 150 biotech companies in San Diego, representing about 10 percent of all such firms nationwide. More than 40 percent have direct roots with the university.

This strong emphasis on biotech may seem out of place in San Diego, which was once known as a mainstay for defense research. But in the late 1980s and early 1990s, military spending cuts devastated the region. The city is home to three military bases and felt the major brunt of the state's 210,000 lost jobs in the aerospace industry in the 1990s. The cutbacks left a lot of talented science and technical workers who didn't want to leave the agreeable climate of southern California. So instead, they created their own enterprises and staffed them with fellow defense refugees and eager students. Of the 75,000 students who have graduated from UCSD since the university opened in 1964, more than 40,000 have remained in the San Diego job market. "As defense was pulling back, some unique pharmaceutical applications were pushing into the economy and venture capital firms were starting to recognize that," says Jim Langley, the university's vice chancellor for external relations. "As these companies grew, they turned to the engineers and scientists from defense for the labor force."

The fields of defense and biotech are not totally incompatible. Because of the region's military strength, the school had been awarded one of the nation's supercomputing centers. With such a resource having less relevance to a shrinking defense sector, scientists turned to use the massive computing power for bioinformatics, a field that uses software, computer graphics, and information technology to assist with DNA research. One large prize is to help map the human genome. After the sequencing is known, researchers use the information to create gene therapies that can treat such medical scourges as strokes, Alzheimer's disease, and cancer.

In part through its biotech research, the University of San Diego now has more than 130 active patents. Last year, it turned more than 38 of them over to 25 different private companies to commercialize. In all, biotech firms in the city today employ more than 3,000 people, with an annual payroll exceeding $140 million. Last year, the university claims it had an economic impact of more than seven times its original investment from the state, creating more than 122,000 jobs nationwide.

One example is New Jersey-based Merck, a major pharmaceutical company that realized it needed to be closer to all the research activities in San Diego, especially in the expanding field of neurobiology. This past June, Merck approached UCSD asking how it could forge closer ties with the school. The university brass suggested that the company could fund a few graduate students. Merck raised the ante, deciding to sponsor every single grad student in neurobiology. The five-year, $2.5 million gift—the largest single donation for graduate fellowships in the school's history—will give the 90 students in the doctoral program an average of $25,000 in fellowship money and a research supplement of $5,000. "This gift will allow us to attract even more of the best graduate students to our labs, and that increases collaborative opportunities for all neuroscientists in the community," says William B. Kristan, Jr., director of UCSD's graduate program in neuroscience

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