A Clear and Compelling Vision for Economic Growth

You can tell from the nearly constant attack ads on television during the evening news that we’re in the middle of at least two contentious campaigns this fall here in Maine: one for Governor and one for the 2nd Congressional District, where a Republican Congressman is trying to keep his seat. Both races are very close. However, in all the noise, one thing is startlingly missing: a clean and compelling vision for how to improve Maine’s economic prospects. This is because the choices continue to be framed as less taxes and regulation for business against more rights and benefits for workers.

I recently reread Rob Atkinson and Stephen Ezell’s 2012 book, Innovation Economics, which reminded me that the answer is something completely different from this false paradigm. There are only three ways to get an economy to grow: increase productivity, create new firms or add activities that create new value. You increase productivity by increasing the revenue of each employee: improve processes, add technology to increase output, or add new products and services. Similarly, new firms or activities that create new value boost economic activity overall. Atkinson and Ezell say there are three things that build vibrant, healthy business establishments in globally traded sectors in order to improve economies: business leaders who will take risks, do research and development or create new products, and add new plant and equipment; workforce that supports these changes instead of being afraid of new technology; and government that supports investing in the future.

There are bright lights in many of the communities where I work, where entrepreneurs are taking risks, where business leaders recognize the need to invest in creativity and where civic leaders are adopting innovation and entrepreneurship as guiding principles for their cities, towns and states. Here’s hoping that grassroots change will save the day.

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Seize the Day

Summer is fleeting in Maine. One minute, it’s the first warm beach day; the next, it’s what my grandmother called “the Fall-ish change.” We learned quickly to get in as much outdoors time as possible in June, July and August, take every opportunity to eat lobsters, corn-on-the-cob, and blueberry pie, and savor each moment against the reality of winter ahead!

Many involved in economic development, however, don’t recognize how fleeting their opportunities are. But the world around us is changing so fast that by the time we understand what’s happening, the window to act is already closing. Policy windows, especially, can be very narrow. The time leading to a gubernatorial election, for instance, is short, but often the only real chance in eight years to influence an incoming administration. The time when an industry or region is in crisis, and previously antagonistic players are willing to work together is also usually short.

Fear can interfere with the willingness to “Seize the Day.” But we must overcome this fear in order to take advantage of the opportunity. So, I’m taking the afternoon off to go kayaking. What are you doing to do today that you might not be able to do tomorrow?

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Don’t Fall in Love with your First Idea

I have had the great privilege of working with an entrepreneur since February as a mentor in Maine Center for Entrepreneurship’s Top Gun accelerator program. We were part of the first ever aquaculture cohort, in cooperation with Focus Maine, the Gulf of Maine Research Institute, Maine Aquaculture Association, Maine Aquaculture Innovation Center and CEI.

The entrepreneur and I worked on customer discovery during the 16-week period, and by the end, we thought we had come up with a great idea that really addressed an important problem in aquaculture. Imagine our surprise when he pitched the whole idea at one of the sessions and the feedback was, “We don’t get it. What problem?”

Our first reaction was annoyance, and denial, but then we thought, “We’re not telling the story well enough.” We went back to the source (customers!) and refined our problem statement. In fact, we uncovered a much bigger and more important problem, one that meshed even better with our idea.

When the entrepreneur pitched at the regional pitch-off, the final version with this bigger and “badder” problem statement was well received, and he is continuing to have productive and impactful conversations with potential backers using the pitch deck we worked on.

Lesson learned: Keep digging. Keep asking questions, especially of potential customers. Don’t fall in love with your first idea, a better one may be just around the corner.

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Maine’s Innovation Progress (or lack thereof)

Our new study, Maine Knowledge Economy: A Snapshot of 2017 shows an increase in the relative importance of the state’s technology sectors, but also a corresponding lack of progress in the state’s economic competitiveness overall. All of the seven targeted technology sectors designated back in 1999 except forestry, exceeded Maine’s economy as a whole over the last decade. As predicted, those sectors with high science and engineering content, even those with a natural resources connection such as agriculture and aquaculture, have thrived.

On the other hand, when compared to the other New England states, this growth is not as robust. Maine continues to lag in the percentage of firms and employment that are “high technology” compared to our neighbors. The percentage of our jobs that are science, technology, engineering or mathematics (STEM), is lower than our neighbors, contributing to our lower per capita income.

Explanations for this lagging growth include the low level of investment in research and development, both at our academic institutions and in our businesses, with resulting lower patenting, venture capital and SBIR awards. While our rate of business formations is reasonably consistent with our neighbors, many of these new businesses in Maine are in non-technology sectors such as real estate, construction and hospitality.

The growth of some of the technology sectors with high employment, such as Information Technology and Engineering Services, is constrained by the lack of qualified workers: the level of working age adults, 25-44, with Bachelor’s degrees is lower in Maine than in the rest of the region, although there is some progress here. Almost 35% of degrees in Maine are in STEM fields, approximately the same as in MA.

Given that Maine has had a strategy to improve many of these indicators dating back over 20 years, the continuation of past trends is discouraging. And, it begs the questions, is it time for a different strategy? Or, is it simply that past public investments are been too low and erratic to be effective.

The answer is probably yes to both questions. Looking at the national landscape (and, indeed, some international models), those states and regions that have improved their competitiveness in the Innovation Economy are largely places that have invested heavily in research and development, entrepreneurial support, access to capital and workforce preparedness. Examples include Washington, Virginia, Maryland, Colorado, Utah, Connecticut, all in the top 10 states according to the 2017 New Economy Index. Laggard states, without significant state investment in innovation, include all but two of the bottom ten states. (Maine is number 36 of 50 on this list, down from rankings in the high 20s for most of the past twenty years.)

However, another critical difference between the successful state initiatives and Maine’s effort is how the money is spent. At some point, Maine policy makers started equating investment in research and development with investment in buildings where research and development occurs. And, because getting bonds approved in the legislature and through the public approval process is easier than identifying new money in the biennial budget, and bond money is constrained in its use to capital investments, over the years one-third of the $715 million of public investment went towards buildings. In contrast, only one percent went to the entrepreneurial support organizations that directly work with startup companies. The only program dedicated to encouraging businesses to patent was completely defunded a number of years ago. In contrast, most other states have significant investments focused on startups, and commercializing the research coming out of their universities.

What would I do? Here’s several thoughts:

1. Continue to fund the Maine Economic Improvement Fund. This is critical to keeping our level of research and development at UMaine high. Expansion would encourage other campuses, notably USM, to do more research, an effort that has been abandoned in recent years. Add $1 million/year to fund earmarked for patenting support statewide, to be provided by UMaine Orono to other schools as well.
2. Dramatically increase the funding available for entrepreneurship programs, up from $100,000 to $750,000. Use this funding to deepen the capacity of existing programs to serve more entrepreneurs across the state.
3. Rework or replace the existing R&D tax credit so that more companies in Maine can take advantage of this incentive. Expand the amounts available (by corresponding decreases in Pine Tree Zone, BETR and BETE programs), to get companies to increase their focus on innovation and bringing new products and services to market.
4. Support Maine Technology Institute at their current level, but use some existing funds for program equivalent of old Maine Patent Program.
5. Help companies scale-up past the startup phase by establishing funding (at MTI or FAME) for businesses to apply for substantial loans for purchase of equipment, training for workers, patenting, and marketing to expand product and service offerings.

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Innovation First

Recently, I was emailing with a friend of mine who lives in Cheyenne, WY. We’ve been following an initiative of the Governor of Wyoming for economic development in the state. In December, the recommendations came out. “Rick,” I wrote. “This is great! They included some entrepreneurship strategies.” “I don’t agree,” he wrote back. “There’s nothing on innovation.” At first, I was taken aback. After all, the recommendations were pretty standard stuff. But then, I realized that Rick was 100% completely right.

We tend to focus on entrepreneurship, and sometimes R&D, but rarely on innovation in our public policy recommendations. And, innovation is actually the critical step. It’s the link between ideas and the market. It’s the key piece that allows companies, big and small, old or new, to produce something meaningful for their customers. Without innovation, there’d be no entrepreneurs! So innovation has to come first.

From a policy perspective, what can be done to support innovation? First, we can educate. Everyone can learn to be more innovative. It’s a process. There’s a system. Second, we can incentivize companies to do innovation. One effective tool is R&D tax credits, but likely they need to be redefined to include all innovation activities, not the old style R&D alone. Other tools include grants and loans to support innovation learning and implementation, grants and technical assistance for patenting, and for market research.

Thanks Rick, for the insight.

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Size Doesn’t Matter

When discussing economic growth, many politicians talk about the importance of small businesses and their importance to the local region. This is particularly true in rural areas, especially ones that have lost major, large manufacturing employers over the last fifteen years. While this sounds right, and reflects the federal focus through the Small Business Administration and programs like the Small Business Development Centers and small business set-asides, it’s not actually true.

According to a forthcoming book by Robert D. Atkinson and Michael Lind
titled “Big is Beautiful: Rebutting the Mythology of Small Business” (MIT Press,
2018), on virtually every economic indicator, including wages, innovation, exports, and even job creation, large firms in the United States outperform small ones. Moreover, states with larger average firm sizes outperform states with smaller firms.

Furthermore, many small firms stay small, and that’s what their founders intend. They have no desire to grow; they just want to work for themselves. So small business lending and other preferences aimed at businesses just because of their size are not contributing to economic growth.

What matters is intent and execution. Does a new business want to grow? Does it bring outside money into an economy, rather than just from local clients? Does the business have a demonstrable and meaningfully unique advantage that will add value, increase productivity or solve a critical societal problem? These are the businesses to invest in and accelerate, regardless of their age or size.

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Why Universities Matter

Empirically, regions with universities grow faster than those without, and in smaller places, the university’s role is even more important. Universities “heavily influence the ability of regions to attract and retain technology-intensive firms, to provide the regional labor force with modern knowledge skills, and to respond flexibly to…. economic circumstances.”
University research spurs the creation of new firms and thus affects regional employment. Research partnerships with universities expand and complement the absorptive capacity of the firms, increasing their innovation and competitiveness.
For regions to be competitive,
“The key event is the creation of an entrepreneurial university, whether from an existing academic base or a new foundation, which takes initiatives together with government and industry to create a support structure for firm formation and regional growth.”
The entrepreneurial university is characterized by a focus on industry-partnerships, technology transfer of research discoveries to interested and capable industry partners, including startups, support for entrepreneurs, whether students, faculty, or community-based, and support for the ecosystem, often in the form of research parks, incubators, and other capital-intensive infrastructure.
University spin-offs are an important part of the picture since they provide innovative products, new jobs, induce corporate investment in university R&D and have highly localized impacts. Eighty percent of spin-offs operate in the same state as their host institution. However, technology transfer efforts such as these are most effective if they are located within a strong innovation ecosystem and when university reward systems are aligned with desired outcomes.
There is also rising interest in entrepreneurship among students. Increasingly, campuses are involved with supporting entrepreneurs, including student-led companies as well as those from the community. Universities that support entrepreneurs and new businesses, including those generated both on and off campus, also support a flexible and creative workforce, and can significantly leverage economic revitalization. Indeed, students with entrepreneurial skills and knowledge are themselves a valuable output of any university.
The role of a university in its community seems to have changed along with many other institutions in our society. The ivory tower image of a university with a sole focus on teaching and research has given way to an understanding that universities are important place-based assets that can help a region be competitive in a knowledge-based economy. The linear science-push model has given way to a more nuanced and complex understanding of entwined interests among universities, industry and government, and a new contract has arisen, one that suggests than in return for public funds, universities must address their “users” – society and the economy – and be more accountable.
For a recent project, we looked at how high performing regions organize themselves to support innovation and entrepreneurship, especially the interactions between the anchor innovation assets like universities and the surrounding business community.
We learned:
• The places studied that are doing better seem to have accomplished an integrated approach to economic development that embraces traditional business attraction as well as innovation and entrepreneurship support, workforce development, and place-making. Transportation, excellence in K-12, arts and culture all play a part in the approach.
• For many universities, moving from a model of teaching, research and service to one that more explicitly includes economic development is a long-term evolution. Each of the universities highlighted was in some stage of this evolution, with most having significant research, technology transfer, entrepreneurial support, and research commercialization activities.
• The places studied vary in the tightness of the connection between the university and local/regional economic development, with most having a greater relationship in the university’s home community and diminishing impact in rural communities farther away.
• The areas vary considerably in their attention to the issue of inclusion, with two explicitly and prominently seeking to extend economic prosperity to all of its citizens, regardless of their location (urban and rural), and actively seeking ways to connect the poorest to better jobs, higher skills and more supportive neighborhoods.
• Two of the places studied have made significant investments in broadband, and two have focused on air service, both essential infrastructure for a knowledge-based or creative economy.

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5 Ways to Get to Successful Implementation

We’re all familiar with strategic plans that gather dust on a shelf (or these days, never even get printed out). What’s the difference between plans that get implemented and those that don’t? Plans that get implemented are designed to be executed. Here are five steps to successful implementation:

1. Get the do-ers involved in the planning. While many of us think we know the answer before we start the planning process, both the process and the execution will be stronger with broader involvement throughout. This is because diversity of thoughts and experiences held by the various stakeholders will improve the ideas themselves, but also because of the “Ikea Effect” – people are attached to things they help build.
2. Test the ideas during the planning process. Just because a strategy works somewhere else or just sounds good doesn’t mean it will be a good fit for your community. Test the ideas – hold a public hearing on proposed strategies; conduct a survey on social media; run a pilot program. All of these are designed to learn about concerns, unintended consequences, and alternative approaches. Don’t take forever to test, and learn from the results, by improving the strategies and tactics based on the input received.
3. Measure, measure, measure. Include metrics along with your plans, so you will be able to demonstrate progress and identify problems towards implementation. Commit to and provide resources for regular measurement of key metrics, and report to your stakeholders on progress. Use this process to surface issues, concerns, or opportunities for improvement.
4. Have a System! Good planning should be a process, not an event. It should be part and parcel of how you operate your organization. Make annual reviews of the environment you are in a part of your work and implement annual planning retreats with your Board. Collect data and review progress on the plan and prioritize next steps at least quarterly. Encourage staff and stakeholders to stay alert to and share changes in your competitive landscape, best practices and emerging opportunities.
5. Treat the plan as a living document. Make improvements to the tactics along the way. Take advantage of new opportunities that arise. Adjust to changing circumstances, technologies, and challenges. Build into the plan a way to get approval and buy-in to major shifts and retain the flexibility to do what seems right.

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Science and Technology Got It Right

In the past week, we’ve seen the awesome potential of nature with a solar eclipse and now a historic flooding event. Here in Brunswick, we also had the Blue Angels flying overhead at the Air Show on the weekend. The former two events were predicted by science; the latter is enabled by technology (and some incredibly skilled pilots). So, it’s cool to believe in science and technology right now, after a period where many felt under siege.

One of my cousins (a Texan, by the way), informed me earlier this month that climate change was real, but there was no evidence that humans caused it. For the sake of peace in the family, I didn’t quote him chapter and verse of the evidence that has lead 98% of scientists to disagree with him. “Scientists can be wrong,” he said. But guess what. They’re much more often right. That’s the whole point of the scientific method and peer review – to keep getting better at our understanding of what’s going on around us.

While we support our fellow citizens in Texas in their time of need (and try to forget that Texans legislators voted against support for the victims of Hurricane Sandy), let’s also hope for renewed belief in the importance of science and technology.

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Chville on my mind

It so happens that I’m in Charlottesville, VA today, just a few days after the horrific violence here, and the same day as the memorial service for Heather Heyers, the woman who was run down by an alt-right protester. The mood down here on the Downtown Mall is somber. Lots of people are wearing purple, Heather’s favorite color. There are flowers in profusion at the spot where she died; and signs in most every store window: “heart” Heather and “heart” Chville.

The good news seems to be that this event has once again brought people together in a common vision of what’s morally right and wrong. It’s too bad, however, that we can’t seem to remember these lessons collectively for very long, as we also seem incapable of addressing the issues that lead people to the conclusion that hate is the only solution to their problems.

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