Proposal would create 10 new innovation hubs across US

Brookings and the Information Technology and Innovation Foundation (ITIF) are proposing a new concentration of federal investment into 10 metros with a goal of creating new innovation hubs. The Case for Growth Centers is likely an early entry of what will be many suggestions between now and next November for “massive federal” policies, but may be one of the most directly relevant to regional innovation economies. More details on their proposal and its potential impacts follow.

In brief, Brookings and ITIF suggest investing $100 billion over 10 years into 10 cities. The majority of the funding, about $69 billion, would be for R&D provided through NSF. Few dollar values are clarified elsewhere, but include expanding graduate research fellowships, targeting SBIR, Regional Innovation Strategies, and other NSF research awards, and providing $5 million for workforce awards per city per year. The plan would provide a wealth of other incentives for these cities, including lower capital gains taxes, relaxed regulations, new R&D tax credits, and targeted business finance initiatives. Finally, cities would benefit from preferential treatment for additional economic development programs and be considered for new or transferred federal centers (such as USDA research facilities moving to Kansas City).

The case for this proposal is that too much concentration of innovation activity — America’s current reality — is harmful to the national economy, but too little concentration would also be inefficient. The concentration of the innovation economy is well-known. Beyond investment and patent data, the authors also identify that just five U.S. cities saw 90 percent of the nation’s innovation employment gains between 2005 and 2017. As evidence for the problems caused by concentration, the authors point to the linear relationship between a city’s innovation employment and its productivity; their hope is that improving innovation activity in more cities will lead to a better average productivity for American workers. The paper also includes assessments of average home values and commuting times, suggesting that costs and quality of life may be worse in these most innovative cities.

At the other end of the spectrum, the authors’ assumption that some concentration would be helpful is supported by research papers connecting concentration of inventors and R&D spending to economic outcomes. This is likely Brookings and ITIF’s best response to the most obvious counter proposal, which would be to spread $100 billion more evenly around the country, rather than concentrating the funding in a slightly larger pool of urban innovation hubs.

The details of how to spend a new $10 billion for innovation are critical — and need to be refined. To put the size of this proposed innovation investment to scale, $10 billion per year is roughly equivalent to the total of NSF’s spending for R&D and all of the federal government’s SBIR/STTR awards. Clearly, if invested well, the impact on the country could be substantial. Based on the description in the report, however, there are several areas that may benefit from further consideration.

• Reliance on only NSF to award the new $69 billion in R&D. A concern with this approach is that NSF has tended to have an exclusive focus on universities, yet the nation’s R&D infrastructure includes other significant partners. Some of the cities suggested by Brookings and ITIF are well-served by federal labs and nonprofit research institutions — and a few do not have a research-focused institution of higher education at all. Either a distributed approach or new agency may be required to successfully deliver these investments.
   
• Protecting quality of life in selected innovation hubs. The authors fairly criticize housing costs and commute times in existing innovation hubs, but propose just preferred access to smart planning and infrastructure grants to help new cities avoid these challenges. If the plan were to be successful, serious investments to create affordable housing, enable near-term mass transit investment, and facilitate rehabilitation of existing properties and brownfields will be necessary to avoid the displacement and exurban/greenfield development that is common in rapidly-developing cities.
   
• Selection process for the metros that will receive this investment. Brookings and ITIF name 35 metros that they deem as eligible to compete for this investment. Even setting aside that four of these are already included on their list of innovation superstars, the process for eligibility and selection will need greater clarity. Some questions that need to be answered are: if the R&D funding would go mostly toward universities, should cities without a major research institution be eligible; how would the process balance regionalism with qualifications (or, what is the closest that two winners can be to each other); and, how can the selection process be insulated from politics. To be fair, the authors indicate that they are thinking about answers to some of these questions, but the details will matter greatly — particularly to the cities that are left out.
   
• Consideration for the rest of the country. As the report notes, metros that are not innovation hubs have worse productivity and less-educated workers than those top cities. The same is likely true of non-metro areas. Yet, if the top 10 metros proposed by Brookings and ITIF are selected and the investments succeed, then just 3 percent more of the U.S. population will be living in an innovation hub. What happens to the rest of the country? Surely, some people will move to the new hubs, meaning that more of the population will benefit but likely compounding existing concerns. If we assume the investments do lead to a stronger national economy, that still does not mean that everyone will be better off. The repercussions of this policy need to be addressed — and as part of this initiative, not 10 years down the road.