Introduction and Overview
Susan Hockfield, President of MIT, spoke to a sold out crowd at the November 9, 2011 Commonwealth Club meeting in Santa Clara, CA. The topic discussed is very dear to this author: “Revving Up America’s Innovation Engine.”
Ms. Hockfield is a noted neuroscientist whose research has focused on the development of the brain. She is the first life scientist to lead MIT and holds a faculty appointment as professor of neuroscience in the institute’s Department of Brain and Cognitive Sciences.
According to Hockfield, the U.S. rose as an economic power on the strength of its innovation system, especially after World War II. We pursued advanced scientific research, turned those discoveries into breakthrough innovations and manufactured them for markets around the world. What was conceived and invented in the U.S. was also made here, unlike today’s world of outsourcing manufacturing and production.
To restore American jobs, industry, universities and government must come together to reinvent and reinvest in key components of our innovation system, many of which have been neglected.
During her lecture, Ms. Hockfield discussed a range of “innovation economy” priorities, including federal government funding of basic research, immigration policy for foreign students, creating an entrepreneurial culture at universities and seizing the opportunities of advanced manufacturing. She believes that the intersection of the life sciences and engineering will be pivotal to innovation and economic growth in the 21st Century.
Innovation Tied to Economic Growth
Successful innovation was defined as new ideas, based on science and technology, that are transformed into commercially successful products, which create new markets and a better future. The United States became the world’s largest economy because we invented products and then made them with new processes.
Since World War II, federal government investments in scientific research have set off waves of job-creating innovation in aviation, electronics, computing, the Internet and biotechnology. Some examples of successful technologies made possible by U.S. government-funded research include:
- Real-time, Networked Computing, radical advances that transformed computers from overgrown calculators used by a handful of scientists into the communications infrastructure of our entire society;
- PET scans, which allow doctors to pinpoint malignant tumors without invasive procedures;
- Lasers, which were once arcane scientific tools — no one knew what they’d be good for — that now lend their power to mere mortals as we scan bar codes at the checkout counter, burn CDs or have our vision corrected;
- GPS, a technology invented for positioning nuclear missiles that now offers a universal tool to find your way to a hospital, a job interview or the nearest Starbucks;
- eBooks, which enable us to carry more books than we will ever have time to read everywhere we go (Ms. Hockfield indicated she was carrying several books with her that were stored in her iPad);
- Siri, the voice activated personal assistant in an iPhone.
These technologies all grew out of advanced research at U.S. Universities, which was later translated into products by entrepreneurs. (U.S. based research and DARPA funding also gave us the Internet, which was previously called ARPA Net). U.S. government funded research is a direct descendent of the defense related research, like Radar and the atomic bomb, which helped the U.S. win WW II.
The U.S. has experienced huge productivity gains since then based on innovative new technologies:
- Electronics and semiconductors in the ’50s and ’60s
- Mainframe and minicomputers in the ’70s
- PC and Internet in the ’80s and ’90s & 1st part of this decade
- BioTech from the ’90s till now
The cumulative effect of the IT wave in the 1990s, for example, produced one of the most successful growth periods in our recent economic history. From 1995 through 2000, the United States sustained annual GDP growth around 4.2 percent and productivity growth of 3.5 percent* — stunning results for a mature economy. We also had real income growth for everyone, not just those in the upper echelon.
The IT wave was transformative for the U.S. economy. Over the decade of the 1990s, the U.S. economy created 22 million net new jobs, or 2.2 million jobs a year! Comparing that to our current lackluster and dismal employment record underscores the need to kick-start innovation today.
Technology–based companies have had a disproportionately positive impact on their local economies. When they sell products into national and global markets, they draw money into the local economy from outside it (often from foreign countries), unlike a local service-based company, like a dry cleaner or restaurant, which only caters to those in the immediate area. Those external markets also give technology-based firms the ability to scale up production and employment. That’s a powerful engine of job creation.
Manufacturing is an important last link in the chain of innovation. For many years, U.S. industries made products here after conceiving and designing them. Semiconductors are a good example, with SEMATECH helping U.S. based IC companies compete with the Japanese in the mid to late 1980s. Of course this is no longer true. With the exception of Intel, almost all ICs today are made in Taiwan, China, Korea, Japan, or elsewhere in Asia.
Four Rules for Improving our Innovation Economy
Rule 1. Growing good new ideas into commercially viable products takes money – from the right source(s) at the right time(s).
Early stage start-ups need funding at the right time, but VCs may not be the source. From 2007-2010, cumulative VC investments dropped by 26% (and much more for early stage companies). “There is no substitute for sustained, strong, federal funding for advanced early stage research,” according to Ms. Hockfield. (She evidently assumes that such funding will trickle down to early stage start-ups, but didn’t say how).
There are several new innovative technologies ready to launch, but they all are in need federal funding of research:
- Clean Energy
- Advanced Materials
- Convergence of Life Sciences and Engineering Sciences, beyond biomedical
These (and other) emerging technologies have the potential to drive new innovation waves. Who will be the owner of these new technologies U.S. companies or the Rest of the World (RoW)? Unless decisive action is taken on several fronts, it looks like RoW, according to Ms. Hockfield!
Hockfield expressed a huge concern that, in its current deficit reduction drive, the U.S. Congress may slash federal funding of many research projects. These anticipated federal research spending cuts will have a negative impact on future economic growth and “produce stagnation for a decade,” according to Ms. Hockfield.
Rule 2. If we want innovation systems to thrive, we need to attract talent from all over the world. This requires a more relaxed U.S. immigration policy for foreign scientists and engineers.
Several illuminating examples were cited:
- Over one half of Silicon Valley start-ups have been launched by entrepreneurs born outside the U.S.
- At MIT, 40% of undergrads, 55% of Master Degree recipients, 63% of new PhDs are foreign nationals.
Current U.S. immigration law requires foreign students to return to their native countries after obtaining their degrees. Then they can apply for an H1b Visa to work in the U.S. This should be changed to permit those graduates to work in the U.S. “Foreign talent should be permitted to stay in the U.S.,” said Ms. Hockfield. “We should stamp a Green Card to their diploma,” she said.
The U.S. needs a full, comprehensive immigration policy, which we are far away from achieving at this time.
But, we also need to improve our science and math education and make it culturally more desirable to enter those fields. That requires a major trend reversal. Currently, 40% of all science, math, and engineering undergrads change their major to something else prior to graduation.
In conclusion, Ms. Hockfield said that the U.S. should attempt to attract brilliant strivers (both American and foreign nationals) and help them get all the education and hands-on experience they can handle. But, she offered no prescription on how this could be done.
Rule 3. Scientists and engineers can make great entrepreneurs, but an entrepreneurial culture is needed to make them flourish and push great ideas into the market place.
Such a culture should encourage innovative thinking and new ideas, tolerate failure (mistakes are OK), and offer connections to business people and money.
Every research university, public and private, can do more to build up its entrepreneurial culture. Here are a few suggestions offered:
- Encourage faculty and students to launch startups and build curricula and mentor networks to teach them how to do it;
- License technology seamlessly and fast, to get products into the market;
- Run startup competitions to inspire, test-drive and showcase entrepreneurial teams;
- Organize alumni entrepreneurs to advise the fledgling ones — they do it for free and then they thank the university for the opportunity.
The MIT Venture Mentoring Service, started and run by alumni volunteers with less than $3 million in funding over 10 years, has helped launch 142 ventures that have raised $850 million in external financing.
The Deshpande Center for Technological Innovation was also cited as a successful effort in creating an entrepreneurial culture. By funding novel-early stage research and connecting MIT’s innovators to the business community, the Deshpande Center helps emerging technologies to become a commercial success.
Rule 4. We need to make products here, not just conceive them here. That means revving up advanced manufacturing in the U.S., in lieu of outsourcing production.
The U.S. is still number two in the world in manufacturing, with $1.6T or 13.4%, to our GDP and 12M direct manufacturing production jobs in 2007. But, as we continue to outsource manufacturing, we are losing our competitive edge.
According to Ms. Hockfield, it is imperative that the U.S. restart the virtuous cycle of invention and manufacturing. A new era of advanced manufacturing requires more high school and community college graduates with greater proficiency in science, technology, engineering and mathematics. There are some excellent models for preparing workers for 21st century manufacturing – some right here in California- and we need to build on those. Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone. To make our economy grow, sell more goods to the world and replenish the work force, we need to restore manufacturing — not the assembly line jobs of the past, but the high-tech advanced manufacturing of the future.
Ten years ago, we enjoyed a trade surplus in advanced technology manufactured goods; today, that category accounts for an $81 billion annual trade deficit. Countries that used to make inexpensive goods at low cost have developed the capacity to produce high-value goods, making it ever more tempting for American companies to design at home but manufacture abroad.
The United States remains a top producer of advanced technology products. But, our dominance has eroded significantly. Over time, manufacturing off shore leads to innovation off shore, according to Ms. Hockfield.
Highlights of Q and A Session
- MIT is collaborating with Singapore and Abu Dhabi United Arab Emirates on (undisclosed) research projects.
- “Hubs of innovation” are sprouting up all over the world, e.g. Shanghai, Singapore, India.
- While other countries have an industrial policy, Ms. Hockfield is skeptical about the U.S. having one. However, she said “some tweaks were in order.”
- Congress should make R & D tax credit permanent.
- U.S. should promote and encourage investment and research in “long cycle” industries, such as biotech and clean energy.
- U.S. has embraced a “spend or save” mentality, rather than investing in research with a longer-term payback. We have lost the sense of investing for future economic growth (a huge mistake).
- U.S. needs a full-fledged immigration policy which includes retention of foreign graduates to work in the U.S.
- U.S. needs to make engineering and science education more interesting and not be perceived as being so difficult to master. Those fields drive innovation and economic growth.
- Convergence of life sciences and engineering sciences will be the story of the 21st century.
- Biology parts lists are being picked up by engineering science fields. One third of MIT engineering faculty are using life science tools, including medical devices, imaging technology and nano particles (for hunting and destroying malignant cells).
- Example of biological research combined with engineering technology: Batteries are being made at room temperature by viruses with no toxic byproducts. Viruses could be used to make solar cells in the future.
* [Editor’s note, McKinsey suggested that the productivity growth in the 1995 to 2000 time frame was closer to 2.5%, while the Federal Reserve Bank of New York suggested it was more on the order of 2.8%]
1. Podcast of the talk + Q and A session- CLICK “play now” in Podcast box, top right of page: http://web.mit.edu/hockfield/speeches/2011-revving-up.html