Business incubators and intangible assets

Speaking of economic development (see previous posting), last week, the House Small Business Committee held a hearing on Business Incubators and Their Role in Job Creation (see Chairwoman’s statement, witness statements, and video highlights).

I have long been a supporter of incubators. During one of the many meetings this winter over possible new innovation policies, I argued for an expansion of funding for incubators — and that some of that new funding should go to support programming, not just facilities (see previous posting).

Well, it looks like the President of the National Business Incubation Association, David Monkman, agrees. In his testimony, he stated:

Currently, federal funding for incubation programs focuses almost exclusively on bricks and mortar – the facilities themselves. But successful incubators provide much more than shared space. I urge you to consider ways to also provide operational funding for incubators committed to developing innovative programming and following industry best practices, which will allow them to provide continued and expanded services to high-growth companies.

That argument was echoed by Lou Cooperhouse, Director of the Rutgers University Food Innovation Center. As he noted:

The heart of a true business incubation program is the ongoing, personalized and comprehensive services that are provided to clients.

Timothy Early, President of the Hampton Roads Technology Council, also pointed out that:

The U.S. Small Business Administration, which provides funding for SCORE and SBDC programs, offers many important programs to help small businesses. However, SBA has no business incubator funding program, and it does not offer intensive, sustained services to the start-up and fledgling companies that are creating our nation’s new jobs and commercializing new technologies.

That is a great point – and SBA programs should be modified accordingly. Specifically, those services should include helping companies identify, develop, and better utilize their intangible assets and intellectual capital. Other nations are already doing this — for example, Glasgow’s Intellectual Assets Centre and Hong Kong’s Intellectual Capital Management Consultancy Programme (see also the press release). We should as well.

New reports on economic development

I would like to draw your attention to two new reports on economic development in the knowledge economy. The first is a study of what universities have been doing successfully to promote economic development. The report A New Paradigm for Economic Development was written for the new chancellor of the State University of New York (SUNY) system by SUNY’s Rockefeller Institute, but it’s lessons are universal. I specifically like that it looks at the roles of universities beyond what is normally categorized as “tech transfer”:

First, institutions and systems are advancing innovation— new technologies, new processes, new products, new ideas– in their local and regional economies. This focus on innovation sees university faculty and leaders thinking creatively about how to leverage their strengths in knowledge creation to yield tangible economic benefits.
Second, higher education institutions and systems are pursuing strategies to help employers prosper and grow. They do this by deploying their strengths in knowledge transfer— through worker training, management counseling, help for startups, and other initiatives.
Third, higher education institutions are playing a more vigorous role in community revitalization. Many are a significant factor in the life of their home communities, and take that responsibility seriously.
Finally, higher education’s most fundamental contribution to economic development lies in its traditional role: creating an educated population. The new economy is making the traditional academic mission ever more important.

I admit that the title of the report “A new paradigm” is rather old news and that the survey covers a lot of old ground. But nonetheless, it is a good compendium of information for those interested in the topic.

The second is a report from the Economic Development Administration A Practitioner’s Guide To Economic Development Tools for Regional Competitiveness in a Knowledge-Based Economy. A shorter volume — only 19 pages — it covers four tools that are important in understanding and planning for a local knowledge economy:

•  Industry Cluster Analysis: With a useful set of 17 clusters, this tool helps the practitioner see networks of businesses that are creating wealth in their local or regional economy. This tool enables economic development professionals to define their own regions. As such, it represents a major advance in both the ease and flexibility of industry cluster analysis.
•  Regional Innovation Index: Businesses generate new wealth through innovation. Until now, economic development practitioners had no practical way to measure the innovation capacity of their local or regional economy. This innovation index represents a breakthrough in regional economic analysis. For the first time, professionals can examine the capacity of their economy to support innovative companies. Like the industry cluster tool, practitioners can design their own region by deciding which counties to include in their analysis.
•  Occupational Cluster Analysis: One of the major transformations underway involves the closer integration of education, workforce development and economic development. For many economic development practitioners, this shift opens unfamiliar territory to their practice. The occupation cluster tool provides fast insights into the talent base that drives a local or regional economy. With this tool, economic development professionals can begin to structure effective collaborations with businesses managers, educators, and workforce development professionals. Like the industry cluster analysis and the regional innovation index, the occupation cluster analysis is flexible. It starts at the county level, but practitioners can assemble their own regions by grouping individual counties.
•  Guidelines for Regional Organization and Investment Decisions: In the new world of economic development, collaboration matters, but it is often tricky. The guidelines for regional organization and investment decisions help leaders move forward as a region. These guiding principles provide frameworks for establishing investment priorities and making investment decisions. Unlike general guides on collaboration, these guidelines are designed specifically to meet the needs of economic development professionals who must structure investments among cooperating partners.

By the way, the data for these tools can be found at the Innovation in America’s Regions website.

Dump Doha?

It has been a busy weekend in Washington. On Saturday, there was an anti-war demonstration. On Sunday, tens of thousands of immigration reform supporters gathered on the Mall (and many thousands of them marched past my house in a festive gala). And, of course, there was all the drama of health care reform.

So, is Washington ready for another controversial take on a tough issue? Trade attorney Bob Lighthizer thinks so and has proposed what some may see as a radical step on trade policy in an op-ed in today’s New York Times: Stifling the Economy, One Argument at a Time . In that piece he calls for pulling the plug on the Doha Round of multilateral trade negotiations and specifically re-focusing our trade agenda on four major problems: the US-China trade balance; currency manipulation; unfair tax rules; and, regulatory disparities.

I worked with Bob on trade issues decades ago on the 1988 Trade Act and the Uruguay Round negotiations when I was on Senate staff and he was at USTR in the Reagan Administration and later in private practice. Bob makes a good point. The basic premise of the Doha Round — as the development round — may no longer be central to the issues facing the trading system. I wondered if they ever were. Back in 2001, I wrote a paper on After Doha: What The WTO Is Not Talking About. In that piece I speculated that the Uruguay Round might have been the last major comprehensive round of multilateral trade negotiations. The complexity and range of issues now under discussion may be simply too big to handle in one package. These negotiations worked well when the issue was trading off tariffs on steel for tariffs on shoes — when the goal of the discussions are to push tariffs lower on everything. But when the trade-offs involve balancing environmental regulations with investment issues, the process is not as clear. This is a point I and others have made before (see earlier postings).

My 2001 piece also made the point that for all the various issues being raised in the Doha Round, a major piece is missing:

Not on the table is a comprehensive look at policies toward information and other intangibles. We are moving to a knowledge economy. Knowledge is both an increasingly important input into the production process and an end-use commodity in and of itself. As the role of information increases in both our economic and social systems, issues of control of information will become increasingly central to our policy and political debates. Parts of the issue are included in the WTO agenda, such as: Trade-Related Aspects of Intellectual Property Rights (TRIPS); the work program on electronic commerce; trade and investment; and the proposal for a new discussion on technology transfer. Missing from the discussions is the recognition of the interconnection between these areas.

So, I don’t know if Bob is right that we should pull the plug on Doha — or whether we should make a last push to wrap up something and call it a success. Nor am I sure that he has the right set of issues. For example, his concern over unfair tax policy focuses on the use of a value-added tax by other nations. Rather than fight this, I think we should be adopting it.

But I agree with him and many others that the major issues confronting trade policy are outside of and beyond the Doha framework. We need to re-orient our policy towards issues that matter, not simply continue on the same old path.

Forbes on America's Most Inventive Companies

Here is an interesting story from Forbes on America’s Most Inventive Companies. What was most interesting was not the fact that companies with patent make money — but the differential among companies:

foreign electronics manufacturers dominated the Top 10 in patent awards, but didn’t come close to the earnings power of the top U.S. companies. Look behind the raw number of patents, and U.S. companies far outperformed their foreign competitors on return on invested capital, a measure of how after-tax operating profits compare to assets invested in the business.
. . .
Measured according to earnings per patent, General Electric led with $11.3 million per patent, followed by Cisco Systems at $6.6 million and Hewlett-Packard at $6.3 million.

The story also notes the companies not on the list (of “most inventive”):

Big chemical companies like Exxon and Dow, and drug makers like Pfizer and Merck, who arguably derive more value from a given patent than any other type of company.

So, in other words, it is not how many patents you have but what you do with them that really counts.

National Broadband Plan

Yesterday, the FCC sent its National Broadband Plan to Congress. The goals of the Plan are:

Goal 1: At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second.
Goal 2: The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.
Goal 3: Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose.
Goal 4: Every community should have affordable access to at least 1 Gbps broadband service to anchor institutions such as schools, hospitals and government buildings.
Goal 5: To ensure the safety of Americans, every first responder should have access to a nationwide public safety wireless network.
Goal 6: To ensure that America leads in the clean energy economy, every American should be able to use broadband to track and manage their real-time energy consumption.

It is an ambitious undertaking – but one that I think is needed it the US is to remain competitive in the I-Cubed Economy.

For much, much more comment on the Plan, see the Benton Foundation’s reading list.

How better communications helps heavy industry

One of the bias’ out there is that heavy industries – such as shipbuilding – are the dinosaurs of the information age. They could not possibly be cutting edge on work processes or technology or any other intangible asset. But here is an interesting story in the Wall Street Journal on how one company is using its communications infrastructure (an intangible asset) to be more productive (High-Speed Wireless Transforms a Shipyard):

The challenge [of efficiency] is magnified at Hyundai Heavy, where more than 8,000 workers build as many as 30 ships at a time, using millions of parts as small as rivets and as large as five-story buildings. The shipyard sprawls over 4.2 square miles and includes nine drydocks, the biggest of which is longer than seven football fields.

But over the past few months, Hyundai Heavy deployed a high-speed wireless network across the yard, one of the first such installations in an industrial setting anywhere in the world. Data zips around the complex at four megabits per second, about four times as fast as on a cable modem that is common in U.S. homes.

Now, the company can use radio sensors to track the movements of parts as they go from fabrication shop to the side of a drydock and onto a ship under construction. Workers on a vessel can also access plans via notebook computers or handheld phones and hold two-way video conversations with ship designers in the office more than a mile away.

. . .

In large part, the new technology is designed to help Hyundai Heavy reduce expenses and streamline production. Mr. Hwang [Hyundai Heavy CIO] says the company estimates it will save around $40 million annually in reduced labor costs and improved efficiency.

. . .

As part of the network, Hyundai Heavy this month began testing a communications link with workers who are inside a vessel that is below ground or sea level. Previously, workers with a problem inside a ship had to climb up topside to talk to someone by phone or walkie-talkie.

To change this, the company connected its new wireless network to the electric lines in the ship, which then convey the digital data to Wi-Fi transmitters placed around the hull during construction. The Wi-Fi system can then reach PCs, independent Web cams and Internet-based phones used by workers.

Now, workers inside a ship under construction simply use Skype numbers to call their colleagues on the surface. Designers in an office building a mile or so away, meanwhile, can take control of Web cams to look in on problems.

Intangible are just as important in heavy industries as anywhere else in the economy — and are the key to making these sectors more productive. That is a lesson we need to continually keep in mind.

IP as trade retaliation heats up again — US v Brazil

As I mentioned last September, the WTO ruling on US cotton subsidies allows Brazil to impose counter penalties on US trade. Those countermeasures could include penalties on services and intellectual property. Now Brazil has announced that is exactly what it will do. According to the Economist (Brazil, America and trade: Picking a fight):

Brazil’s government says that it intends to do this with measures later this month, to the value of $238m–the “remaining annual amount of retaliation to which Brazil is entitled”–which will be applied to intellectual property and services.

Business Week (Brazil Raises Tariffs on U.S. Goods, to Break Patents) adds:

The government of President Luiz Inancio Lula da Silva plans to take additional steps and break U.S. patents as part of the $829 million retaliatory measures, [Brazilian Foreign Ministry official Carlos Marcio] Cosendey said. The ministry will publish a draft for public consultation of sanctions over intellectual property March 23, he said.

However, this may backfire. As Joff Wild at the IAM Blog asks:

if I were a US IP owner I would also be asking myself whether I wanted to have anything to do with Brazil in the future. Why on earth would I want to invest in a country that is prepared to use IP as a political football in this way when there are other countries I can go to where I will not have this problem?

Brazil seems to understand the dangers here. According to a story in Bloomberg:

“These measures don’t change policies or our commitment to protection of intellectual property,” Carlos Marcio Cosendey, head of Foreign Ministry’s economic department told reporters in Brasilia. “These are temporary measures aimed to force a change in the U.S.”

Given that the US seems to be in no hurry to change its cotton subsidies, that “temporary” measure may be around for a long time. And other nations may be tempted to use the same tactic in the future. It could get very interesting.