March 15, 2012

Virginia Tech and economic development: What should we measure?

Guest post Julie Erickson

Up until the 1970s, economic development efforts focused primarily on pushing infrastructure and access policies that allowed for economic growth opportunities. Attracting big businesses was among the principal efforts of local, state and national economic development initiatives. Yet, these techniques were not very effective in spurring large-scale economic development, in part, because of the lack of public involvement incorporated in the process (Plosila, 2004).

Beginning in the 1980’s, economic development became very closely tied to the economic development efforts of the states. State science and technology began to influence economic policies and the concepts of higher education, entrepreneurial culture, and talent were increasingly incorporated into state economic development practices (Plosila, 2004). Such examples as Massachusetts Institute of Technology (MIT), Stanford University, and Silicon Valley were praised for their successes in economic development, through the development of research parks and investment in research universities. Once again, recruiting businesses became a primary focus of state economic development efforts, but this time the objective was to target companies with talent, capital and technology, rather than big firms and facilities, with extensive infrastructure and access (Plosila, 2004).

As entrepreneurial start-ups and spin-offs became widespread among research universities in California and Massachusetts, the link between higher education investment and economic development was noted by states. Across America, economic development policy began to shift to include universities’ science and technology programs at the forefront, with nontraditional projects, such as venture capital, workforce, and technology infrastructure (i.e. incubators, research parks and communication networks).  According to Plosila (2004), the common characteristics of economic development programs in the 1980s…
1. Included risk, by focusing on equity, seed, venture and working capital programs
2. Emphasized the importance of technology in assistance
3. Incorporated higher education and stressed its importance in state and local economic development
4. Stressed entrepreneurial efforts as increasingly important in economic development, rather than Fortune 500 companies

During the 1980s, many university-centric economic development programs received funding from states. However, due to the small immediate and direct impact on job creation of these programs and, more generally, the economy, many of them have since deteriorated. As a result, funding for university-based technology development efforts steadily decreased over time (Plosila, 2004). 
The link between new science and technology programs and economic development was reestablished as a policy strategy in the 1990s, principally focusing on entrepreneurship. This time, states emphasized the impact of science and technology on future economies, as opposed to an immediate effect. In 1999, the Progressive Policy Institute claimed that “A state’s economic success will increasingly be determined by how effectively they can spur technological innovation, entrepreneurship education, specialized skills and the transition of all organizations – public and private – from bureaucratic hierarchies to learning networks”(Plosila, 2004, p. 119). States focused primarily on issues related to entrepreneurship, particularly technology transfer. Universities began to take back responsibility for technology transfer functions, which they had previously outsourced. 

The federal government started a new program, also in the nineties, to focus on process enhancement, rather than product creation, to improve efficiency of small- to medium-sized manufacturing companies (Plosila, 2004). This, subsequently, affected state investments to favor process enhancement in technology, increasing attention to industrial extension and problem–solving. As is true in this case, university investments in research are highly influenced by state decision-making with regard to economic development initiatives and program support, and, as a result, universities began to fund an increased number of process enhancement projects in manufacturing (Plosila, 2004).  The relationship between universities’ science and technology programs and state economic development has developed into something very meaningful in the past 30 years (Plosila, 2004). Current metrics for measuring economic impact stem directly from those policies of the eighties and nineties that emphasized technology transfer, patents, start-ups, direct capital inputs and revenues generated from research. Many universities have historically taken a ‘first generation’ approach to measuring economic impact, focusing on resource inputs such as capital, labor and time, and outputs, such as returns on investment (Milsbergs & Vonortas, n.d.). Current metrics reflect the industrial era more so than they do the current knowledge economy. Innovation is much more than technology and it comprises much more than can be measured by a single metric (Milsbergs & Vonortas, n.d.).

1st Generation Input Indicators (1950s-60s)
• R&D expenditures
• S&T Personnel
• Capital
• Tech intensity

2nd Generation Output indicators (1970s-80s)
• Patents
• Publications
• Products
• Quality Change

3rd Generation Innovation Indicators (1990s)
• Innovation surveys
• Indexing
• Benchmarking innovation capacity

4th Generation Process Indicators (2000 + emerging focus)
• Knowledge
• Intangibles
• Networks
• Demand
• Clusters
• Management techniques
• Risk/Return
• System Dynamics

Source: Milsbergs & Vonortas, n.d., p. 4

The first generation of metrics focuses on inputs, the second on intermediate outputs, and the third on innovation indicators and indexes (Milsbergs & Vonortas, n.d.). The fourth generation of metrics is still in its early stages, but aims to quantitatively measure knowledge, networks, and conditions for innovation. Milbergs and Vonortas assert that, “We still count machinery, tons of steel, transactions, number of PhDs, patents. We should rather account for the knowledge that underlies their creation and the ways it is developed and diffused (Milsbergs & Vonortas, n.d., p. 4-5)”. Until now, Virginia Tech has measured economic impact using first and second generation indicators. We hope to increase the use of third and fourth generation indicators to increase the relevance and credibility of our metrics. New economic development metrics will measure innovation inputs, such as entrepreneurship courses/programs and opportunities; the value of university contributions to company formation, growth and sustainability; talent contributed to the workforce and economic success of alumni, among many others. Better measurements will allow the university to carry out well-informed policy analysis and decision-making (Milsbergs & Vonortas, n.d.) with the greater goal of increasing the economic impact of the university on the region, state and nation.

Sources:
1. Milbergs, E. & Vonortas, N. (n.d.). Innovation metrics: Measurement to insight.
2. Plosila, W.H. (2004). State science- and technology-based economic development policy: History, trends and developments, and future directions. Economic Development Quarterly, 18, 113-128.

Search

Advanced Search