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Virtuous and Viscious Cycles of Higher Ed in Economic Development


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Virtuous and Viscious Cycles of Higher Ed in Economic Development

  1. 1. Economic Development Quarterly and Vicious Cycles in the Contributions of Public Research Universities to State Economic Development Objectives Irwin Feller Economic Development Quarterly 2004 18: 138 DOI: 10.1177/0891242403262042 The online version of this article can be found at: Published by: Additional services and information for Economic Development Quarterly can be found at: Email Alerts: Subscriptions: Reprints: Permissions: Citations: >> Version of Record - May 1, 2004 What is This? Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  2. 2. Feller / CONTRIBUTIONSARTICLE ECONOMIC DEVELOPMENT QU 10.1177/0891242403262042OF PUBLIC RESEARCH UNIVERSITIES ARTERL / May 2004 Y S&T-BASED ECONOMIC DEVELOPMENT AND THE UNIVERSITYIrwin Feller is senior visiting Virtuous and Vicious Cycles inscientist at the AmericanAssociation for the the Contributions of PublicAdvancement of Science andprofessor emeritus of Research Universities to Stateeconomics at Pennsylvania Economic Development ObjectivesState University. His currentprojects include studies ofuniversity technology transferstrategies, the development Irwin Fellerand institutionalization ofinterdisciplinary research American Association for the Advancement of Scienceprograms, and evaluation ofpublic sector research and State governments are increasingly dichotomizing support of public research univer-development programs. sities, selectively enhancing technology-based academic research initiatives while gradually withdrawing support for general educational infrastructure. This dichotomization is based on a narrow perspective of the contributions that universities make to state economic growth, the interdependence of targeted and general support, and the unpredictability of correctly identified university-based scientific and techno- logical advances that contribute to localized economic growth. The trend also runs the risk of generating vicious cycles whereby states lose relative position, especially to states with research-intensive private universities. The trend also reduces the affordability of higher education and contributes to pressures to earmark federal academic research and development funds. Keywords: economic development; higher education; research; technology trans- fer; R&D “How can a guy so green get the blues so bad?” Kermit the Frog once observed, and much the same can be said today of public research universities as they contemplate their vaunted roles as engines of regional economic growth in the face of declining standing as claimants on state budgets. This article starts from these contrasting colors to nest well-known developments and issues regarding technology transfer from universities and state technology-based economic develop- ment strategies within a larger set of developments that affect the condition of research universi- ties, public and private. It focuses on the following two linked issues: (a) the divergence between state policies for technology-based economic development and the support of higher education AUTHOR’S NOTE: I am indebted to Julia Melkers and an anonymous referee for helpful comments on an earlier version of this article and to Jeffrey Selingo and the State Higher Education Executive Officers for assistance in obtaining data on state government expenditures. ECONOMIC DEVELOPMENT QUARTERLY, Vol. 18 No. 2, May 2004 138-150 DOI: 10.1177/0891242403262042 © 2004 Sage Publications138 Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  3. 3. Feller / CONTRIBUTIONS OF PUBLIC RESEARCH UNIVERSITIES 139and (b) the spillover effects of state expenditure policies for public higher education on increasedpressures to earmark federal academic research and development (R&D) funds. I begin by outlining the dynamics of virtuous and vicious cycles in the interplay of federal andstate government funding of academic R&D. I then describe current events in state funding ofhigher education. The following section relates these developments to competing theories of thecontribution of academic research to state economic development programs. I then trace theimpacts of trends in state funding of public research universities on federal earmarking of aca-demic R&D funds. The final section presents implications and conclusions. VIRTUOUS AND VICIOUS CYCLES State government budget settings for public universities have been bleak. Rescissions and Numerous recentreduced levels of appropriations were widespread across the states in fiscal years 2002 and 2003; developments point toprospects for additional reductions in or stagnant levels of state support for higher education in fis- the continuing vitality ofcal year (FY) 2004 were widespread as this article was being written (American Association of the research enterprisesState Colleges and Universities [AASCU], 2003). Abstracting, however, from the cyclical down- of an increasing numberturn in state revenues that are the proximate cause of these expenditure patterns, this should other- of public and privatewise be a green period for academic research and the technology transfer activities of universities. universities, to theirNumerous recent developments point to the continuing vitality of the research enterprises of an accumulatingincreasing number of public and private universities, to their accumulating achievements and fill- achievements and fillinging pipelines in technology transfer undertakings, and, above all, to high public regard for the pipelines in technologyimportant role of universities in the U.S. system of research and technological innovation. transfer Federal support of academic R&D enjoys broad-based bipartisan support, with momentumtoward projected increases for FY2004, albeit at a somewhat decelerated rate. Federal government undertakings. . . .funding was the source of approximately 60% of the estimated total of $37.5 billion in academicR&D expenditures for FY2002 (American Association for the Advancement of Science, 2003,Table I-12, p. 62). In FY2003, the National Institutes of Health achieved what would have beenviewed in the early 1990s as a politically quixotic goal—namely, a doubling of its budget (to $27.2billion) over a 5-year period. Further indication of strong bipartisan support for basic research canbe seen in the passage of the National Science Foundation (NSF) Authorization Act of 2002. Mod-eled on NIH’s success, the legislation authorizes a doubling of NSF’s budget over a 5-year period(although the current interplay among continuing Bush administration pressure for tax reduction,increasing federal budgetary defenses, and spending priorities that emphasize military and terror-ism-related expenditures raises questions about the likelihood that the doubling permitted byauthorizations will find its way into appropriations). Shifting from research inputs to metrics of technology transfer activity, Association of Univer-sity Technology Managers surveys (2001) document an almost unbroken string of annualincreases in university patent, license, and firm start-up activities. These activities produce notonly increasing amounts of revenue—$1 billion in royalties in FY2000, up 40% from the previousfiscal year—but also demonstrable evidence of the contributions of universities to state andregional economic development objectives. As reflected in the 2003 inaugural addresses and ini-tiatives of recently elected governors and in general state actions, state leaders continue to expressthe view (albeit with a somewhat more questioning tone about the effectiveness of past investmentsand strategies and with a tendency for recent initiatives to resemble reorganizations more than sus-tained or increased financial commitments)1 that universities are central players in governments’various technology-based economic development strategies. Universities, for their part, continueto document and publicize the contributions that their research and technology transfer activitiesmake to regional economic growth (Potter, 2003; Tornatzky, Waugaman, & Gray, 2002). Theyhave established and expanded the size of technology transfer offices (Rogers, Yin, & Hoffman,2000; Thursby, Jensen, & Thursby, 2001) and have become more entrepreneurial in their participa-tion in equity holding and support of start-up firms (Feldman, Feller, Bercovitz, & Burton, 2002a).Indeed, hardly an issue of the State Science and Technology Institute’s weekly digest appears with-out listing some new involvement by universities, either on their own or as part of a larger coalition Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  4. 4. 140 ECONOMIC DEVELOPMENT QUARTERLY / May 2004 of public- and private-sector organizations, to extend their research and technology transfer capa- bilities to the interests of state, regional, and local governments. Finally, a continuing stream of research and practitioner literature cites the importance of universities as prime movers or catalysts in promoting the rise of start-up firms and variously as regional economic engines (or tender), growth poles, core components of a regional science and/or technology cluster, or fountainheads of knowledge spillovers. (For a sample of perspectives contained in this copious literature, see Etzkowitz & Leydesdorff, 1997; Feldman, Feller, Bercovitz, & Burton, 2002b; Feller, 1997; Malecki, 1991; Mansfield & Lee, 1996.) In all, the elements for a reinforcing, upwardly headed virtuous cycle of interactions would seem to be in place. In schematic form, the cycle may be viewed as starting from the existing stock of knowledge-generating capabilities possessed by U.S. universities and a national innovation pol- icy that invests the larger portion of publicly funded basic research in universities. Given this initial condition, increased federal government support for academic R&D increases the production of new knowledge. The joint production of new knowledge and education characteristic of academic R&D in the United States also increases the supply of scientists, engineers, and technologistsThis cycle . . . has the required to convert new research findings into marketable products and processes. This newpotential to provide for a knowledge is then used (or licensed) by the private sector to generate technological innovations,competitively based which in turn lead to firm and industry growth and higher value-added jobs.narrowing of differentials State government support of university science and engineering programs helps universitiesin the distribution of acquire the infrastructure necessary to enter new technological areas, to catalyze new forms offederally funded partnerships between universities and the state’s private sector, and to spawn new firms. In the longacademic R&D among run, again abstracting from cyclical downturns, the more robust state economy that flows from thisinstitutions and states. knowledge-based stimulus to technological innovation generates higher revenue levels out of existing tax structures. This increased revenue makes possible increased expenditures for all state purposes, including higher education. At the same time, the contributions of university research and technology transfer activities to state economic development objectives serve to build a stron- ger private-sector political constituency speaking on behalf of university appropriations. Increases in general funds appropriations to universities in turn enable them to maintain, improve, and expand the institutional infrastructures necessary to conduct research in newly emerging areas, as well as to successfully compete nationally for the faculty and students who conduct this research. This cycle has yet further virtuous implications for the structure of the national system of research universities. It has the potential to provide for a competitively based narrowing of differ- entials in the distribution of federally funded academic R&D among institutions and states. The concentration of federally funded academic R&D among a relatively small number of institutions and states has been a longstanding point of political and policy contention, even as the distribution has become less concentrated at the top (10 and 20 universities) and the number of institutions con- sidered to be among the “haves” has steadily increased (Geiger & Feller, 1995; National Science Board, 2002). Nested within these aggregate statistics is the role played by private universities in shaping both the pattern of national and state-specific statistics. Private universities held 6 of the top 10 spots and 9 of the top 20 spots in terms of federally funded academic R&D in FY2000 (National Science Foundation, 2002, Table B-33).2 Thus, when one abstracts from differences in rates of state higher education expenditures, general increases by states in their support for public universities that con- tribute to their research competitiveness serve to lessen disparities in the geographical distribution of academic R&D activities between those states with and those without private research universities. What these paragraphs summarize, of course, is the dominant analytical framework and policy rhetoric that have characterized discussions of the role of universities in state government eco- nomic development policy over the past 20 years. But coexisting with the virtuous cycle is another less salutary set of dynamic interactions. What is termed here the vicious cycle serves to dissipate the knowledge-based gains flowing from increased academic R&D, to generate differences between heightened expectations and limited accomplishments associated with the contributions of public research universities to state eco- nomic development objectives, and to accentuate existing differences in the research Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  5. 5. Feller / CONTRIBUTIONS OF PUBLIC RESEARCH UNIVERSITIES 141competitiveness and academic quality of state higher education systems, defined now to includeboth private and public universities. Schematically, to place these competing dynamics in current historical time, the vicious cycle,as with the virtuous cycle, also may be seen as being set in motion by increased federal funding foracademic research. This support, however, is not without its costs to universities. Research at sci-entific or technological frontiers requires purchases of complementary capital-intensive inputs,such as buildings, laboratories, and equipment, as well as—given the terms of selected major fed-eral programs—matching funds. Furthermore, academic research is conducted in nationally com-petitive markets for faculty and students, requiring payment of existing market prices for eachinput, including costly start-up packages, especially because short-run supply curves of research-ers with the skills needed to conduct cutting-edge research in newly emerging scientific andtechnological areas are likely to be inelastic. Moreover, to the extent that major federal agency awards for research in newly emerging scien-tific and technological areas are based on competitive, merit-review procedures, a modicum of pre-existing capabilities is generally required if a university’s proposal is to be competitive. As relatedin Ehrenberg’s (2000) account of the set of decisions faced by Cornell University in the mid-1990sin its efforts to stay at the cutting edge of science, an estimated $40 million was needed to acquirenew science and engineering facilities to retain top faculty and recruit new faculty in emergingresearch areas. Moreover, these funds had to be expended in advance of the receipt of externallyfunded research awards, and then only with a recognition that even were the awards to be received,indirect cost recoveries associated with these awards would cover at most one third of the . . . . states that are eithernecessary operating and maintenance expenses. unable or unwilling to In effect, universities (and frequently state governments) are required to ante up considerable provide the financialsums prior to the increased supply of federal funds, even to enter the high-stakes emerging fields of support necessary toscience and technology. Absent what are essentially venture capital funds, a university’s ability to maintain competitiveparticipate competitively in next-generation scientific and technological discoveries is attenuated. higher education systemsWhat we see in tracing through the mirror-image logic of the asserted relationships between uni- are likely to fall behindversity-based research advances and state-based, technology-based (or knowledge-based) eco-nomic development is that a relative weakening of the competitive position of a state’s research in longer term efforts touniversity system weakens its long-term economic competitiveness. develop nationally To play out these dynamics further, states that are either unable or unwilling to provide the competitive knowledge-financial support necessary to maintain competitive higher education systems are likely to fall based economies.behind in longer term efforts to develop nationally competitive knowledge-based economies.Relatedly, again given the importance of private research universities in shaping the geopoliticalcontours of the structure of the American university research system, a second-order consequenceof this cycle is that it serves to perpetuate and possibly exacerbate existing disparities in state andinstitutional competitiveness for federal (and industrial) academic R&D funds. There is yet another negative ramification to these interactions. As described later in this article,public officials and universities are manifestly unwilling to accept the outcome of competitiveraces for federal research funds in scientific and technological areas deemed essential to futureeconomic growth. This unwillingness easily transfers to the national level, where it contributes topressures to substitute earmarks and set-asides for competitive merit review of academic R&D,thereby placing at risk the quality and productivity of the public investment in academic R&D. Nationally, the elements driving virtuous and vicious cycles can, and indeed do currently, coex-ist. The condition of state economies can vary within an overall national setting, with some experi-encing the gains associated with the former, whereas others are experiencing the latter. Moreimportant, even when all states face common economic settings, their expenditure priorities forsupport of higher education can vary. Some states may maintain or expand long-term commit-ments to building the research infrastructures of their public universities, tacking when the eco-nomic winds wane, but nevertheless holding over time to historic levels of support as measured inhigher education’s share of state budgets or state appropriation’s share of institutional generalfunds budgets. Other states, in a contrary manner, may highlight episodic technology-based aca-demic initiatives but systematically reduce their contributions to public research universities overtime, measured as above. Finally, as noted earlier, states differ in their mix of public and private Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  6. 6. 142 ECONOMIC DEVELOPMENT QUARTERLY / May 2004 research universities. Thus, within a given state, some institutions may be increasing their research and educational capabilities (and performance in securing external research funds) whereas others are unable to do so at a comparable pace, or even may be declining. The playing out of each of these scenarios and, more important, the interactions possible among them can produce converging or diverging patterns in the technology-based growth potentials of states, the contributions of universities to state economic development, the effectiveness of state technology-based strategies, and the academic quality and national competitiveness of state research university systems.3 CURRENT EVENTS IN STATE SUPPORT OF HIGHER EDUCATION Why the academic blues? Why have Nancy Cantor, former provost at the University of Michi- gan and now chancellor at the University of Illinois, and Paul Courant, former associate provost for academic and budgetary affairs and now provost at the University of Michigan, recently described the state of higher education affairs as “scrounging” (2001)? Why has a Wall Street Journal story on state funding of universities begun with the lead sentence, “Where’s the state in State U?” (Kronholz, 2003). Relatedly, why have Travis Reindl and Dana Bower (2001) of the American Association of State Colleges and Universities written of the paradox of rising public expectations but shrinking public support for public higher education? The sources of the blues felt by university officials are easy to detect. They flow from the secular decline in state support of higher education aggravated by the absolute cuts in appropriations expe- rienced by several public research universities in FY2003. The secular decline points to a funda- mental shift in state assessments of the contributions of universities to overall state objectives, even as the lure of science and technology (S&T) programs and initiatives centered around academic R&D continues to hold sway in the economic development quadrant of state government policy making and legislative budget considerations. The basic statistics on state support of higher education are straightforward. Data prepared by the State Higher Education Executive Officers (SHEEO) and reported first in the Chronicle of Higher Education (Selingo, 2003), indicate that nationally, even as state expenditures from general revenues for higher education increased from $19.1 billion in 1980 to $39.1 billion in 1990 to $56.6 billion in 2000, the portion of state revenues allocated to higher education declined almost continuously throughout this period. As indicated in Table 1, the percentage of state tax revenues allocated to higher education was 9.82% in 1980, 8.35% in 1990, and 6.94% in 2000. Given bud- getary rescissions since 2000 and projected absolute reductions in state support for higher educa- tion for FY2004, this percentage is likely to be even lower by 2004, even allowing for reductions in other state government functional areas. A consequence of these trends is that state appropriations constitute a shrinking proportion of total higher education revenues. As noted by Reindl and Bower (2001), “In 1988-1989, state appropriations represented 39.9 percent of current fund revenues at public four-year colleges and universities. By 1998-1999, they represented only 31.5 percent of such revenues” (p. 3). The drop is even steeper if a longer period is considered (Breneman, 1997). In California, for example, the percentage of state general fund expenditures to 4-year higher education institutions, including both the University of California System and the California State University System, fell from 11.3% in 1960 to 7.8% in 1995 (at which time, as Kerr [2001] has noted, it was only slightly above the percentage, 7.1%, spent on the state’s prisons [p. 189]). The Pennsylvania State Univer- sity offers an example of the decline in percentage of university general funds appropriations received in the form of state government appropriations. Even as state appropriations increased from 1976-1977 to 2001-2002, the state’s contribution to the university’s core educational opera- tions fell from 54% in 1976-1977, to 35% in 1996-1997, to 31% in 2001-2002. Even lower shares are reported for other major public research universities. In the 2002-2003 academic year, the Uni- versity of North Carolina–Chapel Hill received 25% of its general funds budget from the state; the University of Missouri, 21%; Ohio State University, 18%; and the University of Michigan, 10% (Kronholz, 2003). Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  7. 7. Feller / CONTRIBUTIONS OF PUBLIC RESEARCH UNIVERSITIES 143 TABLE 1 Share of State Tax Revenues Allocated to Higher Education, U.S. Total, Selected Years, 1980–2000 $ State Allocations % of State Tax Revenue $ State Tax to Higher Education Allocated toYear Revenue in Millions in Thousands Higher Education1980 194,622 19,102,817 9.821985 308,023 28,409,534 9.221990 468,650 39,109,108 8.351995 625,525 42,973,194 6.872000 815,776 5,659,115 6.94SOURCE: Grapevine (2002), McKeown-Moak (2001), U.S. Bureau of the Census (1980-2000). Several reasons have been advanced for these trends in state funding patterns, including, mostvisibly, growing demands on state budgets for elementary and secondary education, Medicaid andprisons, and shifting perspectives on the distribution of public and private benefits generated byhigher education (Duderstadt, 2000). Perhaps more subtly, the trend reflects the realpolitik butessentially accurate assessment by state officials that the ability of universities to shift the costs ofeducation to students and their families and to draw on alternative sources of revenues, such as cap-ital campaigns, means that the overall quantity, if not necessarily quality or affordability, of publichigher education services would not be as greatly affected by structural shifts in state appropria-tions as would occur for other functional areas of state government if the share of the state budgetgoing to higher education remained the same, while these other functions incurred relativelysmaller budgetary increases or larger reductions. Demographic pressures and the continuing estimated high rates of return to higher educationstill lead to increasing undergraduate enrollments. Increasingly though, too, are questions arisingabout the affordability of undergraduate education, especially as public universities responded toaustere state government appropriations for FY2002 by imposing the largest tuition increases in 10years (Young, 2002, p. A35). 4 One other aspect of state government funding of academic R&D warrants note here. Althoughgrowth in the number of and expenditures for state government cooperative technology programs,a substantial portion of which flows to universities, has received considerable national attention foralmost 20 years, these programs have not resulted in any discernible increase in state governmentsupport of academic R&D. State government’s share of academic R&D has remained relativelyconstant at about 7% between FY1980 and FY2000 (Rapoport, 2002). Thus, the growth of theseprograms is perhaps better viewed as a shift in state priorities toward economic development thanas an enhanced view of the contribution of university-based research to overall state objectives—orindeed of the broader based but less programmatically manageable and politically visible aspectsof the contributions of university R&D activities to economic growth. THE CONTRIBUTIONS OF UNIVERSITIES TO STATE ECONOMIC GROWTH: COMPETING THEORIES Extended analysis of the state funding trends is beyond the scope of this article, however.Rather, what is relevant here is how these trends affect the research, educational, and technologytransfer roles of universities and, ultimately, the contributions made by universities to regional eco-nomic growth. As posed here, these questions relate not to long-standing debates about the relativeeffectiveness of the different variants of the cooperative technology strategies being followed bystate governments (Berglund & Coburn, 1995; Feller, 1992) or to the effectiveness or efficiency ofany single state program. Instead, they relate to the dichotomization evident in state budgeting pri-orities and subsumed in much of the academic and practitioner analysis and exegesis about statetechnology programs on one hand, and state support of the general research and educational Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  8. 8. 144 ECONOMIC DEVELOPMENT QUARTERLY / May 2004 missions of public research universities on the other. That such a substitution is going on seems inescapable, especially in states where governors tout their high-technology initiatives at the same time that they propose meager increases for public universities even in flush budget years and dis- proportionate cuts when revenue shortfalls arise. In fact, though, policies and analysis of state support of higher education and technology-based economic development cannot be separated. The dichotomization of state policies in technology-based economic development and higher education policy reflects (a) a narrow perspective on the ways in which universities contribute through their research and educational activities to economic growth and (b) an exaggerated emphasis on the ability of modes of strategic planning to anticipate and capture the economic benefits of academic research. In terms of their contributions to technological innovation and regional economic growth, uni- versities are far more than sources of licenses, patents, and start-up firms. Their more substantive contributions are in generating public knowledge and pools of educated and trained individuals. Florida and Cohen (1999) captured the essence of this broader perspective when they wrote, We want to suggest that the conventional metaphor of the university as an “engine” of regional economic development is misapplied. Instead of thinking of the university as an engine of economic development, it is more appropriate to conceptualize it as a pivotal com- ponent of an underlying infrastructure for innovation on which the system of knowledge- based capitalism draws. (p. 604) As a large and growing body of research literature and statements from industrial R&D manag- ers suggests, universities contribute to technological innovation primarily through “open” or “pub- lic” sources of knowledge dissemination, such as publications, public conferences and meetings, informal information exchange, and consulting (Agrawal & Henderson, 2002; Cohen, Nelson, & Walsh, 2002; Feller, 1997; Government-University-Industry Research Roundtable, 1991). Moreover, the transfer process from university research to commercial application is often closely tied to the tacit knowledge gained by the students engaged in this research. The establish- ment of a software industry specializing in computer-aided design and its location in California illustrate this process. As recounted by Don Pederson, professor of electrical engineering at the University of California, Berkeley, the diffusion of new simulation and testing techniques that con- tributed to the industry’s development followed the employment of the department’s students: “We eventually began to develop inroads into U.S. industry because my students were graduating and working for these companies. The students took the code and the bosses saw them using it” (Roessner, Carr, Feller, McGeary, & Newman, 1998, p. 132). Strikingly, to return to the analogy of the virtuous cycle, these links among faculty-driven research initiatives, graduate education, and public knowledge catalyzed additional support for the university, which increased its competitive standing for additional external funding.5 This example essentially repeats the statement fre- quently made by representatives of high-tech industries: The primary contribution that universities make to technology-based economic growth is through their training and educating of a skilled labor force; with some notable but infrequent exceptions, it is not in producing technological innovations. Where targeted state technology programs are consistent with these findings and where they add to the total level of funding available to support a university’s research performance, they can both reinforce and leverage a university’s core capabilities. But where they serve as an alternative for maintaining and, as needed, expanding this capability, they are more likely to produce isolated gains at best among more general erosion in either absolute or relative terms in a state university system’s national competitive competencies, and thus its ability to contribute to state objectives— economic development and otherwise. Concerning the exaggerated emphasis on strategic planning, “strategic” as used in state tech- nology-based economic development planning is as much the required rhetorical adjective needed in contemporary policy environments to justify or explain the programs and decisions of public- sector and not-for-profit organizations as it is a substantively meaningful predictor of future out- comes. State technology-based economic development programs are strategic primarily in the Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  9. 9. Feller / CONTRIBUTIONS OF PUBLIC RESEARCH UNIVERSITIES 145sense of concentrating resources on selected technological areas, not in the sense of taking intoaccount the actions of rivals. For all the current vogues of cluster analysis and cluster strategies,and allowing for state-specific variations in the coverage extended to traditional industries orresource-based industries, the dominant thrusts of targeted state investments in universities have . . . . the targetingfollowed national scientific and technological trends. In the process, these strategies have become strategy overlooks thenarrowed to picking winners and getting in on what appears to be the next wave of technology- unpredictable qualities ofbased economic growth. The leading edge of state initiatives has moved in somewhat predictable scientific discovery andfashion from microelectronics to biotechnology, telecommunications, and information technol- the links between suchogy to, most recently, nanotechnology. A priori, the very number of similar such initiatives raises discoveries andquestions about the likelihood of the competitive success of many undertakings. technological innovation, Moreover, the targeting strategy overlooks the unpredictable qualities of scientific discovery especially whenand the links between such discoveries and technological innovation, especially when conductedin university settings. In effect, state technology policy, and thus the emphasis on targeted, relative conducted in universityto general, support of academic research, may be enmeshed in what Christensen (2000) termed the settings.innovator’s dilemma, namely, the belief that the application of good management principles canlead to the right technological destinations. As Christensen’s examples of well-managed technol-ogy-intensive firms, such as Seagate Technology and Bucyrus Erie (which lost market share to so-called disruptive technologies) indicates, strategic planning precepts of selectivity, environmental Feeding selected areas ofscanning, and listening to customers may not work and indeed may be a source of rigidity because research while failing tosuch processes can lead to premature dismissal of seemingly peripheral areas of research. support the institutional Targeting may so concentrate, bleed off, and commit state government or university resources infrastructure necessaryto selected scientific or technology areas that the university has no discretionary slack to capitalize for a broader portfolio ofon, jeopardizing new, equally, or more promising scientific external funding or economically rich research undertakingsopportunities. Feeding selected areas of research while failing to support the institutional infra- weakens the institution’s,structure necessary for a broader portfolio of research undertakings weakens the institution’s, and and the state’s, ability tothe state’s, ability to catch up with first movers in already demarcated areas of scientific or techno- catch up with firstlogically relevant areas and renders it even less able to generate first-mover advantages in totally movers in alreadynew scientific and technological areas. From a strategic perspective, weakening of the core educa-tional capabilities of a university also overlooks the importance to firms in locating where there is demarcated areas ofan ample pool of trained scientists, engineers, and technicians, more commonly the outcomes of scientific orlarge, diverse undergraduate and graduate programs than of niche programs (Moretti, 2002). technologically relevant Moreover, for states in which public universities constitute the major sources of academic areas.research and science and engineering graduates, the strategy of supporting niche technology areaswhile cutting back on historic levels of support for these institutions flies in the face of the above-noted geographic and competitive distribution of research universities in the United States.Because it contains the University of Pennsylvania and Carnegie Mellon University, Pennsylvaniamay be able to capture the economic benefits that flow from increased federal and industrial sup-port of academic R&D, even as it reduces its support of the Pennsylvania State University and theUniversity of Pittsburgh. However, Virginia, Michigan, and Wisconsin have few such supportingprivate research institutions. The ability of public university systems in such other states as Maineand North Dakota, which currently have modest research capabilities, to connect or hold on to vir-tuous cycle dynamics in the face of cutbacks in general levels of state support for higher educationis even more problematic. Lost in the attention devoted to state technology program support of academic R&D is theobservation that to play in the game of gaining federal research funds, universities must ante con-siderable sums. As indicated by NSF data (National Science Board, 2002), the most notable trendin these sources has not been the much-publicized increase in industrial funding of academic R&D(from about 3% of total academic R&D in 1970 to 4% in 1980 to 8% in 2000); it has been theincreasingly absolute and relative share of these expenditures derived from institutional funds. In2000, “institutional funds from universities and colleges constituted the second largest source offunding for academic R&D, accounting for an estimated 20%, the highest level during the past halfcentury” (Vol. 1, pp. 5-8). Absent these institutional funds, universities, as noted earlier, cannot maintain the physicalinfrastructures necessary to conduct state-of-the-art research or to compete for faculty. The Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  10. 10. 146 ECONOMIC DEVELOPMENT QUARTERLY / May 2004 problematic character of the ability of public research universities to retain (or improve) their com- petitive performance in the face of shrinking state government support also has the potential to alter what is now close to a 50-year pattern in the evolution of the American research university system. An important but subsumed component of the attention paid by state government to universities as sources of scientific discovery and technological innovation has been the growth in the number of “research” universities over the past 40 years (Graham & Diamond, 1997). If we abstract from recurrent issues about the criteria used to make such a classification, differences in the number of research universities estimated by different sources, and the recent changes in the Carnegie Foun- dation’s classification system that will blur existing distinctions, we see that this increase has largely reflected the development of public universities. Using the former Carnegie Classification, between 1970 and 1994, the combined total of public Research I and Research II institutions increased from 57 to 125, whereas that of private institutions increased from 35 to 40 (Carnegie Foundation for the Advancement of Learning, 1994). The position of public universities within the U.S. national system appears to be undergoing a slow erosion, in part caused by the structural shift in state government expenditures. As noted in the AAUP’s (American Association of University Professors) (Hamermesh, 2002) recent survey of the annual status of the professorate and Zoghi’s (in press) analysis of long-term trends in wage differences between public and private universities, salaries at public universities have lagged behind those at private universities. The AAUP data indicate a relative decline in public university salaries, controlling for type of institution, during the 1980s and early 1990s, but identical rates of pay between 1996-1997 and 2001-2002. Commenting on these data, Hamermesh (2002) poses the question of whether public higher education has simply had a respite resulting from the flush state budgets of the late 1990s, or whether its increasing relative impoverishment has finally ended. Experience over the next two years, with the expected tightening of state budgets, will answer that ques- tion. (p. ii) State budgetary actions for FY2002 and FY2003 indicate that the answer to this question is no. Zoghi’s (in press) data cover much the same period and likewise point to a widening gap between salaries at public and private universities. The adverse implications of this finding are stated directly: “While keeping faculty salaries low cuts expenditures, it also puts at risk the quality of public higher education, by inducing higher quality professors to seek jobs at comparable universities.” TRENDS AND EARMARKING Pressures for earmarking are historic accoutrements of federal support of academic R&D, espe- cially as the federal system began to shift from formula-based to competitive, merit-reviewed pro- cesses. These pressures derive from multiple sources—congressional representatives, entrepreneurial faculty, entrepreneurial university leaders, regional interest groups, and, more recently, lobbyists seeking new customers for their services. Earmarking is rationalized on many grounds—populist criticism of the concentration of federal academic R&D in a “small number” of “elite” institutions; frequently made if demonstrably inaccurate statements that concentration is becoming more pronounced; with the rich continuing to get richer; and repeated, at times grounded but often self-serving, criticisms about old-boy networks perverting the dispassionate rationality and objectivity of the merit-based peer review system (Chubin & Hackett, 1990; Feller, 2001; Silber, 2002). Some combination of new force to old factors, removal of old barriers, and emergence of new factors is at work, however. The growth in earmarking during the past decade is striking. The dollar value of earmarks has increased from about $300 million in 1990 to a record high of $1.84 billion in 2002—a fivefold increase since 1996—whereas the number of institutions receiving earmarks has increased from 117 in 1990 to 668 in 2002 (Brainard, 2002). Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  11. 11. Feller / CONTRIBUTIONS OF PUBLIC RESEARCH UNIVERSITIES 147 One increasingly used justification for these earmarks, as noted by Brainard (2002), is that theyare “key tools to try to jump-start technology-oriented businesses and create jobs” (p. A20). Themore that universities have come to be perceived by elected officials and have presented them-selves as engines of regional economic growth, the more frequently the argument is raised that con-siderations of equity in the distribution of the economic benefits flowing from federally fundedacademic R&D require that all states have a sufficient S&T base to compete. From this, it quicklyfollows that if competitive review processes do not provide for such a distribution, then alternativeallocation mechanisms are required. The argument on behalf of increased dispersion as a form of regional economic developmentpolicy, however, quickly segues from institutional capacity-building programs, such as the NSF’sExperimental Program to Stimulate Competitive Research (EPSCoR), which entails extensive useof peer-review procedures to review state-level proposals, leading on occasion to declination of astate proposal or some component of it, to the scattershot, catch-as-catch-can character of federallyearmarked projects. Although the rationalization of economic development is widespread, the evi-dence that these earmarked projects contribute to economic development, at least in competitivenongovernment markets, is unproven. Beyond questions about the quality of the research, the qual-ity of the performer, and the quality of the institution associated with earmarking or the realitiesthat selected earmarks emerge from congressional initiatives with little prior knowledge of orrequest for funds from the university, the research content of the earmark is more a function of leg-islative influence, primarily a state’s congressional delegation in House and Senate appropriationscommittees, augmented to a degree by institutional lobbying efforts than of ties to its economicagenda (deFigueriredo & Silverman, 2002; Payne, 2001; Savage, 1999). The fact that most ear-marks come from the Department of Defense’s budget also suggests a disconnect betweenresearch performed under earmarks and long-term economic growth absent the role of the federalgovernment. But perhaps most germane to the focus of this article is that federal earmarks are loosely con-nected, if at all, to a state’s higher education decisions and policies. In effect, earmarks shift respon-sibility for the maintenance and improvement of the competitive performance of a state’s publicuniversities from state governors and legislators to its congressional delegation. IMPLICATIONS AND CONCLUSIONS Trends and recent developments in state funding of higher education and technology-basedeconomic development point to a highly selective assessment by state government officials of the The currentcontributions of universities to state economic development. They point to an implicit strategy of dichotomization evidentseeking to skim the cream or to highly leverage federal and, to a lesser extent, industrial investmentin academic R&D by modest investments in selected technology programs and selected areas of in state policies runs thetechnology, leaving the larger institutional educational and research infrastructures to fend for risk of having thethemselves. In some states, structural shifts in levels of support for public research universities and effectiveness ofthe apparent substitution of targeted for general support in effect are elements of a strategy that technology-developmentattempts to promote technology-based economic development on the cheap. investments reduced by The strategy is fraught with risks. The current dichotomization evident in state policies runs the being uncoupled fromrisk of having the effectiveness of technology-development investments reduced by being uncou- larger, more sustainedpled from larger, more sustained investment in the general educational and research infrastructures investment in the generalof its colleges and universities. It also creates the risk of falling behind other states that adopt a educational and researchmore balanced strategy in competitive races to become the spatial locus of newly emerging eco- infrastructures of itsnomic activity. Florida (1999) voiced the widely held views of university leaders, (high-technol- colleges and universities.ogy) industrial leaders, and many economists when he noted that although there is nothing wrongwith policies that seek to commercialize findings from academic R&D, This view missed the larger economic picture: Universities are far more important as the nation’s primary source of knowledge creation and talent. Smart people are the most critical resource of any economy, and especially to the rapidly growing knowledge-based economy Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
  12. 12. 148 ECONOMIC DEVELOPMENT QUARTERLY / May 2004 on which the U.S. future rests. Misdirected polices that restrict universities’ ability to gener- ate knowledge and attract and produce top talent suddenly loom as large threats to the nation’s economy. (p. 24) These dynamics, unfortunately, appear to dominate the linkage between higher education and technology-based economic development policies in many states today. NOTES 1. In 2003, for example, New Jersey proposed elimination of the New Jersey Commission on Science and Technology, one of the earliest and largest state government programs for funding university-industry partnerships (“New Jersey Creates Commission,” 2003). 2. Private universities also held 7 of the 10 top and 12 of the 22 top spots in the Lombardi program’s ranking of top Amer- ican research universities (Lombardi, Craig, Capaldi, & Gater, 2002, p. 26). Private universities, especially in New England and the mid-Atlantic regions, either constitute the state’s nationally competitive research university (e.g., Yale University in Connecticut, Brown University in Rhode Island, Dartmouth University in New Hampshire) or represent a significant por- tion of the state’s academic R&D activity (e.g., Columbia University and Cornell University in New York, University of Pennsylvania and Carnegie Mellon University in Pennsylvania, and Johns Hopkins University in Maryland). 3. Empirical assessment of these contending perspectives does not exist at present. Conceptually, it is possible that some number of states may gain by a targeted strategy both relative to what they would have achieved had they focused more on providing higher levels of general support to their research universities and with respect to other states in gaining competi- tive advantages in becoming the locale for future economic activity associated with specific newly emerging technologies. Certainly, for private universities, especially those with a strong science and engineering orientation that participate in state programs, the shift in state strategies provides them with access to state resources and thus is a net gain. However, as sug- gested below, the number of states seeking competitive advantages in the same technology niches suggests that some goodly number of them will find that they have missed the target. 4. The National Center for Public Policy and Higher Education (2002) report card of state educational performance assigns a majority of failing grades in terms of affordability. Only one state (California) receives an A grade. Four states receive Bs, 12 receive Cs, 21 receive Ds, and 12 receive Fs (p. 26). 5. “The design engineers were impressed, and in turn their companies provided support to the EE department. Eventu- ally we were able to build the fifth floor addition to the EE building from the $8.5 million in contributions from industry and former students” (Pederson, as quoted in Roessner et al., 1998). REFERENCES Agrawal, A., & Henderson, R. (2002). Putting patents in context: Exploring knowledge transfer from MIT. Management Science, 48, 44–60. American Association for the Advancement of Science. (2003). Research and development FY2004, Intersociety Working Group, AAAS Report XXVIII. Washington, DC: Author. American Association of State Colleges and Universities. (2003, April 11). State budget and tuition update. Washington, DC: Author. Association of University Technology Managers. (2001). AUTM licensing survey: FY2001. Northbrook, IL: Author. Berglund, D., & Coburn, C. (1995). Partnerships: A compendium of state and federal cooperative technology programs. Columbus, OH: Battelle. Brainard, J. (2002, September 27). Another record year for academic pork. Chronicle of Higher Education, p. A20. Breneman, D. (1997, March 7). The “privatization” of public universities: A mistake or a model for the future. Chronicle of Higher Education, pp. B4–5. Cantor, N., & Courant, P. (2001, May 22). Scrounge we must: Reflections on the whys and wherefores of higher education finance. Paper prepared for the Cornell Higher Education Research Institute Conference on Higher Education Finance, Cornell University, Ithaca, NY. Carnegie Foundation for the Advancement of Learning. (1994). A classification of institutions of higher education. Prince- ton, NJ: Author. Christensen, C. (2000). The innovator’s dilemma. Cambridge, MA: Harvard University Press. Chubin, D., & Hackett, E. (1990). Peerless science. Albany: State University of New York Press. Cohen, W., Nelson, R., & Walsh, J. (2002). Links and impacts: The influence of public research on industrial R&D. Man- agement Science, 48(1), 1–23. deFigueriredo, J., & Silverman, B. (2002). Academic earmarks and the return to lobbying (NBER Working Paper No. 9064). Cambridge, MA: National Bureau of Economic Research. Duderstadt, J. (2000). A university for the 21st century. Ann Arbor: University of Michigan Press. Downloaded from at FLORIDA STATE UNIV LIBRARY on October 14, 2012
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