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Rejuvenating America: Sustaining an Innovation Economy

by
Shirley Ann Jackson, Ph.D.
President, Rensselaer Polytechnic Institute

Remarks to the Presidential Fellows
Arlington Ballroom
Crowne Plaza Hotel
Arlington, Virginia

Friday, November 5, 2010


It is a great pleasure to be here with you this afternoon. Our society is facing critical choices, and I look forward to our discussion of how we will deal with the issues of our time.

Painful as it has been, the Great Recession has exposed many economic fallacies, including the idea that consumer spending, finance, and service industries, alone, will guarantee the economic vitality of the United States. Clearly, we must focus on more substantial sources of prosperity — especially scientific discovery and technological innovation, and our capacity to translate innovations into commercial or social use, domestically, and to export them around the world.

Today, I want to consider the steps we must take to innovate at the pace and scale required, not only for recovery from the current economic crisis, but to lay a foundation for true global competitiveness and leadership. This foundation must rest in a self-sustaining innovation ecosystem, where new industries and enterprises of all kinds naturally germinate and grow.

The United States has invented and reinvented innovation ecosystems several times during its history. Early in our national history, “Yankee ingenuity” made the manufacturers in England nervous enough to try to block manufacturing in the American colonies with tariffs and laws that limited their industries. Manufacturing on a large scale surged with the building of the railroads, which opened up mass markets. Automobiles, steel, oil refining, and consumer goods came in a wave that swept the world. America flexed its muscles during World War II, of course, showing adaptability and innovation. Production lines were changed with, for instance, IBM’s moving to manufacture bombsights. During the war, planes, weapons, trucks, and ships came out of American factories at a prodigious rate — and they developed in sophistication at an amazing pace.

A focus on Rust Belt problems may have caused some to miss the manufacturing aspect of Silicon Valley. Many of those factories are closed now, but the initial power of Hewlett-Packard, IBM, Fairchild Semiconductor, and the other pioneers was in what they made as much as what they imagined. Capital, brains, and entrepreneurial spirit came together there in a way that still lifts and energizes our economy.

India, China, and other emerging nations are building their own Silicon Valleys today, and these countries are not shying away from manufacturing. Can we still compete? Can we create another era of manufacturing in the United States that will provide the jobs and prosperity we need?

I believe we can, but we need to be creative in ways that go beyond just inventing more clever products. Certainly, we need to take advantage of new processes, and to actualize the most inventive ideas--for example, embedding sensors and intelligent devices in manufactured products to monitor performance and aging. However, that still will be less than what we need. All the elements of an innovation ecosystem must come together if we are to compete, and each of these elements must be re-imagined, reworked, and revitalized. Yesterday’s answers will not serve tomorrow’s needs.

If we examine the elements that nurture emerging enterprises or that scale to bring innovations to market — namely, strategic focus, idea generation, translational pathways, and financial, infrastructural, and human capital — we can see readily the gaps that must be filled before we truly can call the system we already possess an ecosystem.

Let us begin with strategic focus. Successful strategic focus is a creative act because how challenges are presented can make a great difference in who gets engaged and what can be accomplished. Strategic challenges must be articulated that are of great import, and that can be addressed in a variety of ways. Being too directive or trying to pick winners is not helpful.

It is clear that, as a society, we face two great challenges that demand transformational technologies: first, energy security and environmental sustainability, and, second, health care.

It is instructive to consider what is required to create a sustainable energy system. We obviously need an overall national strategy, or roadmap. Such a strategy and an action plan were laid out by the U.S. Council on Competitiveness in its Energy Security, Innovation, and Sustainability initiative — an initiative I was privileged to co-chair.

First, we must find new, renewable power sources and storage technologies, such as advanced batteries. Second, we must find ways to use existing energy sources with less impact, for example, by solving the challenge of carbon capture and storage for fossil energy sources. Third, if the future of transportation is electrical, we, also, need to determine where all this electricity is going to come from, and what physical, economic, and regulatory infrastructure is needed to support this future. Finally, we must develop two forms of intelligence in our national electrical grid — the ability to deal with multiple types of energy sources, including the intermittency of renewable energy; and the ability to support smart appliances that draw electricity during low-demand periods.

It should be clear that there are tremendous possibilities in the explosion of new industries that we will need to address the interlinked challenges of energy security and climate change. In this arena, our economic opportunities and grand challenges happen to be one and the same.

Health care, as well, can benefit from new technologies that could generate new industries. These include enabling technologies for the mitigation and cure of diseases, which may soon include revolutionary ways to use biological processes themselves to manufacture new treatments. Technology may soon make genome sequencing and drug development so affordable that personalized medicine will become the standard.

Our health care system, itself, requires a range of technological innovations simply to lower its overall costs, while spreading its benefits to all Americans. These include electronic health records, and new ways to monitor patient health conditions in real-time, or to connect patient health information to broader databases, and to research results--in ways that allow prevention, and/or mitigation of disease.

Many industries have put information technology to work and demonstrated its benefits, but health care is a laggard here. There are problems of standardization and privacy. A key question is, who pays for it?  Here we run into a classic problem: one person’s investment is another’s spending.

Ultimately, however, our health care system, like our energy system, is an expression of our basic values, and our vision of what a modern society should be.

The federal government has multiple roles that can drive or influence innovation. It is the key decision-maker, policy-setter, investor, regulator, consumer, end-user, and endorser across multiple fronts. In particular, the federal government has both regulatory and incentive tools at its disposal.

If properly applied, regulation can incent the movement to new technologies, or at least the evolution of new technologies. An example is CAFE standards for vehicles. In a more controversial example, the Environmental Protection Agency (EPA) has announced that it will regulate greenhouse gas emissions from power plants and other facilities. Such a move can spur the development of alternative generation sources. It also can cause industry backlash.

Sometimes, regulatory arbitrage can limit the effectiveness and intent of regulation. As we saw with restrictions on stem cell research. If certain work is precluded in one country, it often can be moved to another.

Although difficult at a time of needed fiscal constraint, incentives can finesse spending that is already in place. For instance, the government can use its own purchasing power to move key technologies forward. The U.S. Department of Energy has offered an interesting model by sponsoring a $10 million prize for an energy-efficient LED light bulb design — and, the chance to compete for even more valuable federal contracts. As well, procurement can be used to accelerate the turnover to advanced-technology vehicles.

The government has other incentives that might spur the development of essential innovations if used more frequently. It can use funding, for example, to steer university research towards our key challenges, as is intended with the new Advanced Research Projects Agency for Energy (ARPA-E).

The federal government, also, can encourage industry to innovate in key areas by awarding more and larger grants to high-tech start-ups through mechanisms such as the Small Business Innovation Research Program. Other incentives include tax policies to encourage industry-based research. Our current federal Research and Experimentation (R&E) tax credit still is not permanent, and by international standards, its incentives are underwhelming. A sensible expansion might encourage more research to be done collaboratively between companies, or between industry and universities. An R&D-linked (or overall) lowering of tax rates might create more patient capital for long-term, larger-scale projects — focused on basic and applied research, and infrastructure development.

But, the key element of any innovation ecosystem is idea generation. Game-changing ideas tend to arise out of basic research, which extends the boundaries of human knowledge. Universities are critical players here, because basic research dovetails magnificently with their educational mission. The endpoints of basic research, in terms of commercial technologies, often cannot be envisaged — even by the researchers themselves. Yet, history shows that out of such open exploration, thriving industries are born.

It was basic research at the Defense Advanced Research Projects Agency (DARPA), for example, that gave birth to the Internet. Another example is provided by the sharing of the 2009 Nobel Prize in Physics by two researchers who developed the charge coupled device (or CCD), a digital sensor, which converts light to electrical signals, and allows images to be gathered and read out in a large number of image points, or pixels. CCDs are widely used in cameras, intra-body imaging in medicine, and in astronomy. The other recipient of the prize calculated how light could be transmitted over large distances by ultra-pure optical fibers. Without this breakthrough, there would be no true Internet — no World Wide Web.

Unfortunately, in recent years, across multiple sectors, we have stinted basic research to meet shorter-term goals. Corporations have found high-risk, long-term investments difficult to justify — particularly given investors’ interest in quarterly results.

Government agencies, also, have focused, increasingly, on safe, near-term bets, preferring to fund incremental projects proposed by researchers — well into their careers, with a history of success. This means that the median age at which researchers are offered grants is rising, which is not an attractor for scientists at early stages of their careers.

This hardly makes sense in a world that needs life-changing discoveries and transformational technologies, which do not always emerge from the most senior researchers. Basic research is an intergenerational pursuit. It was a Rensselaer undergraduate who, last year, invented an artificial cellular organelle called the Golgi Apparatus, which builds complex sugar molecules. Artificial Golgi show great promise for the manufacture of sugar-based medicines, including a safe, synthetic version of the blood-thinner heparin, one the most widely prescribed drugs.

After more than 80 people died from contaminated, animal-derived heparin, Rensselaer professor Robert Linhardt and his group helped to uncover the source of the contamination. Shortly thereafter, Dr. Linhardt announced the successful creation of bioengineered synthetic heparin. This result came after decades of work on polysaccharides by Dr. Linhardt and his colleagues. This work was clearly intergenerational.

When we fund basic research, we are funding serendipity. Even a sober, frugal, post-recession United States must invest in serendipity, because without it, there is no vitality in an innovation ecosystem.

A robust innovation ecosystem requires, as well, translational pathways that bring discoveries into commercial, or societal, use.

Together, the protection, regulation, and exploitation of intellectual property provide one example. There always have been university discoveries that have been commercialized, such as Gatorade. The Bayh-Dole Act sought to spur this further by giving universities ownership of the results of their federally funded research, and the right to patent and license them, and to share royalties with the researchers. Through the deliberate exploitation of their intellectual property, modern research universities are linked to the marketplace more strongly than ever before.

Bayh-Dole has been successful — spinning off thousands of new enterprises, based on university patents. Yet there are concerns about converting the work done at universities into private property. University of Michigan Law School Professor Rebecca Eisenberg has warned of a potential “tragedy of the anti-commons,” if the increasing proliferation of patents in upstream research makes it difficult for researchers downstream to access the permissions and information they need to build on previous innovations.

Within that context, universities may view the question of which discoveries should be kept proprietary, and which should be open-sourced, as a matter of the ethos of science. Data must be, and are, shared openly, for easy collaborations between scientists. This is becoming more feasible: Computer scientists at Rensselaer are creating a Semantic Web platform, which is beginning to compile scientific data on an unprecedented scale from every possible source, and making it accessible, for the first time, to citizens, as well as scientists, all over the world. The government may consider important to support open data sharing in order to spur innovation — possibly granting an automatic exemption to patent law — for the use of proprietary intellectual property in noncommercial research at a university.

Our innovation ecosystem has much to gain if such storehouses of knowledge are created and shared. At the same time, we must be aware that some technologies must be handled carefully. An example is provided by dual use technologies, which could have both commercial and national security uses, or could have both beneficial and non-beneficial uses.

An exciting example of open-sourcing in current science is that of the BioBricks Foundation, which offers to students, and others, information about standard DNA parts that encode for key biological functions, which they can use to bioengineer new organisms.

Using BioBricks, amateur biologists conceivably could employ plug-and-play DNA parts to accomplish such socially beneficial goals as consuming greenhouse gases or producing a renewable fuel. Alternatively, they could engineer microorganisms for use as weapons. Obviously, we need to ensure an appropriate focus on the ethical issues embedded in technological innovation, and to create new mechanisms to balance security issues with the free exchange required by expediting serendipity.

Industry, too, must beware of controlling its intellectual property so jealously that it stifles innovation. A central issue concerns intellectual property in the biomedical field: the fact that pharmaceutical development, including clinical trials, is so expensive that promising treatments for certain diseases, which disproportionally affect certain groups or poor nations, often never see the light of day.

Voluntary, shared patent pools for the developing world, or for certain diseases, may be one answer. The shared royalties may be smaller, but the outcomes may be greater. New kinds of partnerships for drug development between industry, universities, and nonprofits may be an approach worth considering. Expanding government incentives for the sharing of intellectual property for humanitarian purposes may be a third.

Many patents emerging from university laboratories are licensed to start-ups, often formed by the researchers themselves, and these fledgling businesses may lack survival skills for the world of commerce. In the wake of Bayh-Dole, business incubators were formed around the country to assist such start-ups. Unfortunately, the standardized services such incubators offer — accounting, legal advice, a fax machine, and a desk — while necessary, may be inadequate to launching breakthrough technologies in fields such as synthetic biology or nanomaterials.

A robust innovation ecosystem must provide the financial, infrastructural, and human capital to support the development and exploitation of promising new technologies.

We clearly need a new financial model for start-ups, as venture capitalists increasingly prefer to invest in less risky, later-stage enterprises, and entrepreneurs refer to a widening “valley of death,” when no financing is obtainable. Large corporations, too, sometimes are unwilling to fund the development of undergirding technological breakthroughs that offer them no exclusive competitive advantage.

Rensselaer professor Jonathan Dordick and his partners, for example, have created biochips, cell cultures that allow a rapid screening of the potential toxicity of drug candidates without the need for animal testing. This is a game-changing technology, yet the chemical and pharmaceutical businesses that have the most to gain from it are not investing in it, because its applicability is too broad.

Instead, federal grants are supporting the start-up company that the researchers have formed to scale up and commercialize the technology.

Our innovation ecosystem may well require more government support for potentially transformative technologies. An example in the energy field, proposed by the Council on Competitiveness ESIS Initiative, would be the creation of a National Clean Energy Bank to provide insurance and other risk management or credit enhancements, such as loan guarantees, for the construction of large infrastructural projects, such as geological storage for carbon emissions.

We need Centers for Innovation Management, which can be university-based organizations that offer expertise targeted by industry. These centers should be able to advise start-ups on the particular market mechanisms and regulatory hurdles each will face, worldwide.

Moreover, these Centers should be capable of developing the essential connections that network a technology into the innovation ecosystem — connections between inventors and entrepreneurs — and between entrepreneurs and research facilities, established companies, and markets around the globe. Such Centers ought to be powerful enough to advocate for emerging technologies with both governments and leading corporations. This suggests that universities, which previously considered each other competitors in technology transfer, might join forces to magnify their voices — and create platforms that allow them to work in concert.

Equally important is the physical capital that allows new technologies to be improved and scaled for the marketplace — facilities for continuing research, for the prototyping and testing  new technologies, and for the development of advanced manufacturing processes. Emerging technologies in nanoelectronics or bioengineering may well demand the kind of computational power, instrumentation, robotics, and clean rooms that no single company can afford.

The question is — where should such commercial work occur?  Universities have facilities that some companies rely on for early-stage commercial explorations.

The Rensselaer Computational Center for Nanotechnology Innovations (CCNI) offers a potential model. It is located off our main campus, in the Rensselaer Technology Park — a business park owned by the university. A joint project of IBM, New York State, and Rensselaer, it not only hosts one of the world’s most powerful university-based supercomputers, it allows companies of all sizes to perform research, and to tap the expertise of Rensselaer scientists who would otherwise be inaccessible. Yet, the CCNI provides immense computational power for Rensselaer faculty use in basic research. This is enabled through a broadband connection between the campus and the technology park. This is but one example.

Yet the issue of such work on university campuses is fraught with potential conflicts. It may well interfere with the teaching and research of faculty and with the university core mission to educate students. A university cannot be turned into an early-stage factory for businesses that moves in lockstep with their interests and desires.

What are the alternatives?  We need to develop infrastructure that can be shared by nascent industries as a new kind of capital to undergird innovation. Such infrastructure could be based at a university — with appropriate safeguards — to exploit intellectual property coming out of university research, to support applied research, or to provide critical infrastructure for small and large companies.

Such physical capital need not be university-based. It could be in proximity to our national laboratories, or be developed by industry consortia. Sematech, the semiconductor consortium formed in 1987, with the support of the U.S. Department of Defense, offers an interesting model. It was created to enable the development of manufacturing processes crucial to the industry that no single company would finance. It provided a “safe harbor” with respect to antitrust concerns. It allowed the companies to come together for pre-competitive research, often in collaboration with universities. The consortium laid out a semiconductor research and development roadmap, which has been followed to position the U.S. as a leader in the semiconductor industry in advanced chip design and manufacturing.

To rebuild our manufacturing base, what are required are new processes and enabling mechanisms in existing industries in the short term, and new ways to exploit newer technologies and the enterprises they spawn.

For example, in the short-term, we must further develop manufacturing processes which link information systems to physical processes — using sensors, actuators, robotics, and other key technologies — as part of a broadly intelligent advanced manufacturing system.

A concomitant enabling mechanism might be joint federal and state-sponsored regional advanced manufacturing centers to drive technology and best practices through the supply chain. These could be modeled on the NIST Manufacturing Extension Partnership Program.

In the longer term, we can build upon the kind of road-mapping exercise undertaken by the National Science Board in robotics — to identify important cutting-edge technologies, relevant across multiple fields, that show the most promise for evolving manufacturing in key fields, such as health care and energy, and to lay out the facilitating framework for deploying such technologies in the United States.

The most crucial of capital required for our ecosystem is human capital. Clearly, the nationwide crisis in our manufacturing sector, which has lost 5 million jobs since 2000, has created a skilled, but underemployed, labor force eager to rebuild the nation’s industrial base.

The demands of advanced manufacturing require that every player in the ecosystem — universities, government at all levels, and businesses — contribute to a comprehensive education and retraining effort for our labor force in new technology development and use. Possible tools might be to make worker-training benefits portable, and to give private industry a stake in creating a pipeline of workers through tax incentives to U.S. companies.

We, also, need to look further into the future, and to understand that there is a Quiet Crisis brewing in the gap between the innovation ecosystem’s need for scientists, engineers, and technologically skilled professionals, and our failure to produce them. Our colleges and universities are not graduating enough scientists and engineers to take the place of those who are now retiring, and we are doing a particularly poor job of recruiting the underrepresented majority of women and minorities.

Clearly, we must work together to improve mathematics and science education from the very beginning of our children’s educational careers, to help them understand the excitement of discovery and innovation, to nurture them — and to lead to advanced study those who will sustain our innovation ecosystem through the next generations.

In fact, the primary contribution of universities to our ecosystem is the education of bright, motivated people, who ask questions that may take decades to answer. We also need to work harder to retain high talent from abroad, especially those obtaining advanced degrees in science and engineering from American universities.

Ultimately, the true first step towards creating an innovation ecosystem is to acknowledge the powerful economic opportunities to be found in our grand challenges, if we confront them boldly. We can reinvent, once again, an American innovation ecosystem and reclaim manufacturing to fit our times. We can do this, but only if we respond creatively and develop new policies that help us bridge the gaps that are preventing progress and growth.

Thank you.

Now, I would be happy to hear your questions and comments.


Source citations are available from the division of Strategic Communications and External Relations, Rensselaer Polytechnic Institute. Statistical data contained herein were factually accurate at the time it was delivered. Rensselaer Polytechnic Institute assumes no duty to change it to reflect new developments.

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