Fed Considers Connection between Universities, Economic Growth

It won’t come to any surprise to Digest readers that there’s a connection between universities and economic prosperity. In addition to educating students and advancing science and technological innovation, the localized economic impact of institutions, alone, provides a buffer to economic swings for many mid-sized and smaller cities and college towns. How best to incorporate universities into regional tech-based economic development strategies without compromising core missions is an art not every community has mastered. The issue has captured the attention of the Federal Reserve. The Federal Reserve Bank of Kansas City has long championed rural economic growth through entrepreneurship and innovation, witnessed most readily through the Main Street Economist.

In October and November of 2006, the Federal Banks of Chicago and Cleveland each hosted two-day conversations about the rich, diverse roles universities play in regional development, and how these institutions can nurture industry clusters.

The conferences featured several models of development that take into account the full range of university contributions. In Chicago, Richard Lester of the Massachusetts Institute of Technology and the MIT Industrial Performance Center Local Innovation Systems Project, outlined four dimensions to local development: creating new industries, industry transplanting, diversifying old industries into related new industries, and upgrading mature industries. Universities can play a vital role in each of these dimensions, Lester explained, and they do so through four different types of activities. Institutions create new knowledge and technologies that are commercialized or otherwise passed into the public sphere, they educate and provide a skilled workforce, they provide a public space for interaction and networking, and universities can lend their assistance to solve particular problems faced by the business community. Lester’s view ingrains the university in the dynamics of regional development far more than the traditional model of degree-granting and technology transfer.

In Cleveland, Donald Smith, vice president of the Mellon Pitt Carnegie Corporation, reinforced the idea that universities must embrace a broader view of their role in regional development. Although important, university tech transfer on its own cannot drive economic growth. Local talent is the key element in growing and attracting industries, and universities are the most important means for creating a talented workforce and entrepreneurial community. In order to maximize their benefit to the community, institutions should pursue a balanced approach to economic outreach, one that includes technology transfer, strong academic programs and executive training, attraction of companies, tech parks and incubators, and targeted cluster initiatives.

Several presenters were on hand in both Chicago and Cleveland to provide examples of university involvement in regional growth. Sean Safford, associate professor at the University of Chicago Graduate School of Business, spoke in Chicago about a study conducted through the MIT Local Innovation Systems Project which analyzed the role of institutions of higher education in transforming mature and declining industries in Akron, Ohio, and in Rochester, N.Y. The study concluded that universities are most effective in such regions when they focus their efforts on providing forums and space for industry interaction than when they attempt to focus university research on specific types of technology.

Michael Luger, director of the Center for Competitive Economies at the University of North Carolina-Chapel Hill, described his center’s effort to develop a series of metrics to evaluate university success in exerting a positive role on business and policy decision-making. These metrics include the ability to attract federal and state funding, to produce publications and conference speeches, and the ability to attract increased attention to the region to improve its reputation as a center for industry.

Richard Mattoon, senior economist and economic advisor at the Federal Bank of Chicago, summarized the Chicago proceedings by observing that, although no set of best practices exists to shape university policy, there is now a broad consensus that institutions should pursue a balanced approach that goes beyond a focus on technology commercialization. Universities must understand the whole range of roles they fulfill in their communities and tailor their economic development policies to the needs of the region.

Read Richard Mattoon’s summary of the Chicago conference at: http://www.chicagofed.org/publications/fedletter/cflaugust2006_229.pdf

Many of the presentations and papers from the Federal Bank of Cleveland Conference are available at: http://www.clevelandfed.org/Research/EdConf2006/index.cfm