Chapter 10 INNOVATION CHALLENGES AND STRATEGIES IN CATCH-UP REGIONS Developmental Growth and Disparities in Georgia, USA Philip Shapira 10.1 INTRODUCTION This chapter examines innovation challenges and strategies in catch-up regions, drawing on the experience of the state of Georgia in the southeastern United States. The chapter begins by discussing the broader context of regional convergence in the U.S. and recent trends towards divergence. Current U.S. development debates and models are briefly discussed. The situation of Georgia is then examined, with an assessment of the state’s developmental strategies. 10.2 TRENDS IN REGIONAL CONVERGENCE AND DIVERGENCE IN THE UNITED STATES Over the past eight decades, there has been a significant convergence of the economic fortunes of U.S. regions, at least as measured by per capita income. Previously high per capita income regions (Mideast, New England, Far West and Great Lakes) have converged towards the U.S. average. Conversely, previously low per capita income regions (Southeast, Southwest, Plains, and Rocky Mountain) have been raised towards the U.S. average (see Figure 10.1). Similarly, at the state level, there has been a broad decline in per capita income disparities between the states, as shown by the long-run declining standard deviation in state personal income per capita (Figure 10.2). For example, in 1950, the highest per capita income state – Alaska – had a per capita income almost three times that of Mississippi, the lowest. In 1999, per capita income in Connecticut, the highest per capita income state, was about 1.9 times that of Mississippi, which remained the lowest (Bernat, 2001). 195 196 Philip Shapira Figure 10.1: Regional relative to U.S. per capita income, BEA regions, 1929-1999. Figure 10.2: Dispersion in state per capita income in the U.S., annual standard deviation, 1929-1999. Source: BEA, State Personal Income, 1929-1999, U.S. Department of Commerce, 2000. Cited in Wisconsin Department of Revenue, http://www.dor.state.wi.us/ra/perc0201.html. INNOVATION CHALLENGES AND STRATEGIES 197 Despite the consistency in the poorest state, there has in fact been considerable change in the geographical distribution of per capita income among the states. Five of the top 10 states were in the west in 1950, while the bottom 10 states were all in the Southeast. By 1999, states west of the Mississippi River comprise only two of the top 10 states, while in the Southeast four states (Georgia, North Carolina, South Carolina and Tennessee) had moved out of the bottom ten (Bernat, 2001). There are varied explanations for this long-run convergence in regional and state per capita incomes in the U.S. Neo-classical economists highlight the mobility of labor, capital, and technology in fostering long-run convergence towards equilibrium. From an evolutionary perspective, it has been argued that systematic learning and knowledge transfer has occurred, for example as states benchmark and replicate developmental strategies pioneered in other regions (Eisinger, 1988). Institutional and political theorists point to the role of public policy in reshaping regional economic fortunes in recent decades. This includes the contribution not only of explicit federal regional policies and inter-state regional groups (e.g. the Southern Growth Policies Board) but also more significant “implicit” federal regional policies such as the national highway system or the allocation of defense and federal R&D spending (Markusen et al., 1992) and the development of more inclusive, growth-oriented political leadership in previously lagging regions, especially in the “New South” (Allen, 1996). However, there are substantial limits to these arguments. In particular, it should be noted that most of the convergence in regional and state economic fortunes took place between the 1950s and 1979. Since then, convergence has ceased and new disparities have emerged. In the 1980s, a new round of defense spending may have disproportionately aided high-income regions, such as New England. In the 1990s, growth in new information and other high technology industries appears to have favored a subset of metropolitan areas in selected U.S. regions. In 1999, the 10 metropolitan areas with the highest levels of per capita income were located either on the east or west coast. Similarly, of the 10 fastest growing metropolitan regions by per capita income between 1997 and 1999, all had strong growth in new economy industries such as software development and advanced business services (Bureau of Economic Analysis, 2001). This group included San Jose (California) Austin (Texas) and Seattle (Washington). Over this period, per capita income gaps between urban and rural areas widened, with metropolitan per capita income averaging 1.4 times that of non-metropolitan areas in the U.S. Within metropolitan areas, central city and suburban disparities (often demarcated along racial and ethnic lines) in income, employment and opportunity continue to be of concern. 198 Philip Shapira 10.3 CURRENT U.S. REGIONAL ECONOMIC DEVELOPMENT POLICY DEBATES AND STRATEGIES Although extreme regional and state differences have been reduced, the cessation of convergence and the rise of new regional disparities have given rise to renewed analytical and policy debate about regional economic development in the U.S. For example, new growth theorists suggest that information, knowledge and human capital flow most readily among firms that are proximate rather than far apart (Krugman, 1991); this regional “stickiness” will continue to foster regional divergence in economic fortunes. Such arguments have been used to explain the development of high technology and other spatially concentrated industrial agglomerations in the United States. Similarly, social capital and industrial organization perspectives have been employed to account not only for the emergence of high technology clusters, but also for differences in performance between clusters. An example: Saxenian’s (1996) comparison of the success of the more flexibly-organized industries, innovative institutions and networked relationships of Silicon Valley in California compared with the vertically-structured and apparently less successful industries of the Route 128 complex focused around Boston, Massachusetts. Conversely, path dependency arguments – focusing on the cumulative effects of regional history and limitations in institutions – have been reengaged to suggest why lagging regions continue to lag (Salstron, 1997). These conceptual insights have, in turn, prompted a series of revised and new regional development strategies in the U.S. States, local governments, and institutions such as state universities and experiment stations have long sought to promote regional technology transfer or to develop new technology parks (one of the most notable being North Carolina’s Research Triangle, begun in the mid-1950s). More recently, states have considerably increased their investments in regional innovation policies, including applied university research centers, industry-university partnerships, technology incubators, the commercialization of research, grants, venture capital, financial awards, and other programs using research and technology for economic development (Coburn and Berglund, 1995). By the mid-1990s, states were spending at least $2.7 billion of their own funds (excluding federal and industry dollars) on applied research and technology programs, mostly with regional economic development aims (Berglund, 1998). Although there is much variation in these strategies and many important nuances of implementation by local agencies, there are some broad characteristics of note. First, current strategies tend to emphasize innovation and technology-based approaches to regional economic development. Such strategies INNOVATION CHALLENGES AND STRATEGIES 199 tend to emphasize regional innovation systems and the development of local innovation demand and capabilities, rather than the technology-push methods of previous U.S. technology transfer programs. Second, strategies are highly decentralized, often with state and local organizations taking leadership roles. The federal role is typically one of offering frameworks and matching funding. In certain cases, federal agencies will provide additional funds to build capacity in states that severely lag in science and technology.1 Third, implementation through collaborative arrangements is common, for example through public-private partnerships or regional networks. A “layered” approach is typically employed, involving multiple organizations but often with lead institutions (such as a university or non-profit organization). In many cases, state regional innovation strategies are added to more traditional approaches of infrastructure development and industrial attraction (with these traditional approaches updated through such efforts as building high-capacity data networks and marketing to advanced service or cluster-supporting industries). A fourth characteristic of recent regional innovation strategies is what might be called the “rediscovery of the foundation.” To date, states have focused a great deal of effort and resources on developing new high-technology industries in their regions. This continues to be their greatest emphasis, albeit with some variations in the technologies of choice (for example, rather than semiconductors or computers, today the targets include biotechnology, ecommerce, nanotechnology, and various fusion technologies such as bioinformatics, bioengineering, or communication interfaces). However, this emphasis on the latest technologies notwithstanding, states have also increasingly recognized the importance of existing, mature industrial bases, often comprised of many small and medium-sized firms in industries such as carpets, food processing, plastics, metals, machining and engineering. To stimulate these industries to be more efficient, effective, and innovative, states (in concert with the federal government) have established industrial modernization programs. These programs, mostly organized under the umbrella of the U.S. Manufacturing Extension Partnership (MEP), engage public and private technology and business service providers to upgrade existing manufacturing enterprises. Nearly 70 MEP centers with more than 400 offices and 3,100 affiliates and serving about 30,000 firms a year are now in operation in all 50 U.S. states (Shapira, 1998; National Institute of Standards and Technology, 2002). A fifth characteristic is that, arguably, current state strategies seek to be more systemic than earlier efforts, sometimes known as a shift from retailing to wholesaling state innovation services. For example, whereas previously individual freestanding programs were developed in the states to promote high technology enterprises, today there is greater emphasis on the strategic 200 Philip Shapira planning and development of regional innovation capabilities. For example, in 2002, a business-led New Economy Transition Team in Northern Kentucky developed a detailed strategy to position the region as a center for life sciences and information technology, advanced manufacturing and financial services. Initiatives are planned to create a new public-private organization to invest in companies, products, technologies, and research commercialization in pharmaceuticals; to establish a technology and commercialization corridor and increase technology training; to develop advanced manufacturing and recruit information management intensive companies; and to develop seed, angel and venture capital funding for the region. The Northern Kentucky initiative will form part of a statewide strategy for the new economy, comprised of multiple regional strategies developed through bottom-up planning. Throughout the U.S., comparable strategies to coordinate new research, technology, and economic development initiatives are being put into place.2 Similarly, there has been a substantial growth in region-wide initiatives to foster industrial clusters. Indeed, promoting regional industry clusters has emerged as one of the most prevalent concepts in local and regional development in the U.S. Debates about new growth theory, networks and regional social capital, along with comparisons with European industrial districts, have boosted cluster-led initiatives. States that have developed industry cluster concepts include Arizona, California, Connecticut, Florida, Minnesota, North Carolina, Ohio, Oregon, and Washington, while hundreds of U.S. cities are reported to have developed cluster strategies (Bergman and Feser, 1999). Typically, clusters involve planning and analysis of existing and potential industrial linkages, assessments of hard and soft regional assets, strategy development, investments in key institutions and programs, social capital investment through the thickening of associations, and cluster promotion and marketing. Whereas in the past, many regional innovation efforts sought to mirror well-publicized successes (for example, Silicon Valley), today there seems to be a greater emphasis on “distinctiveness” – identifying and developing indigenous elements that will allow a regional cluster to assume a more distinctive (and up-market) competitive posture. A final feature of current U.S. regional innovation measures is an emphasis on learning, benchmarking, and discursive comparison. One of the features of federalism in the U.S. is the role that states play as “laboratories” for new policies and programs (Osborne, 1988). Policy and fiscal autonomy allows states and localities to pioneer new programs and concepts. While many fail, those efforts that look successful are rapidly borrowed by other states and often by the federal government itself. While this iterative experimentation and learning process is not new, it has been given new impetus by recent efforts to promote benchmarking and performance measurement, thereby providing a greater (albeit not perfect) analytical basis for compari- INNOVATION CHALLENGES AND STRATEGIES 201 son. Current and new organizations, such as the National Governor’s Association, the National Association of State Land Grant Universities, the Southern Technology Council, the Modernization Forum, and the State Science and Technology Institute, play critical roles in mediating and promoting exchange and processes of discursive comparison. 10.4 APPLICATION OF THE DEVELOPMENT MODEL: THE CASE OF GEORGIA To probe in detail the extent to which new U.S. economic development models are being applied and the effects of such models, the chapter now turns to the case of a U.S. state – the southeastern state of Georgia (see Figure 10.3). The state of Georgia has undergone a substantial long-term transformation of its developmental position. Following the Civil War in the midnineteenth century, the state was a poor agricultural region, not so fundamentally reconstructed from the pre-war plantation slave-based economy, with little industry and many of its towns in ruins (as indelibly portrayed through the words and images of Margaret Mitchell’s “Gone with the Wind”). Yet, beginning around the same period, business (led by such figures as Henry Grady), political and (at times) community movements got under way to modernize the state through technology and the development of industry, using the agency of government to promote change (McMath, 1991; Combes and Todd, 1995). These movements, albeit with turns and changes, have continued through to the present, as the state has moved through successive phases of infrastructure development, social modernization (especially in the fight for civil rights and the removal of racial barriers in the 1960s), and now to the promotion of innovation. In recent years, Georgia has aggressively pursued most aspects of the new development model. The state has been one of the fastest growing in the U.S. in terms of population growth and can now point to Atlanta (just a small railway junction in the nineteenth century) as an internationally-recognized city and business head-office location (Porter, 2002). Yet, despite significant success, the state still suffers from social, economic, and spatial inequities in part inherited from past patterns of development and, arguably, in part a function of how the new development models have been applied in the state. These trends and development issues are discussed in the following sections of the chapter. 202 Philip Shapira Figure 10.3: State of Georgia: Major cities 10.4.1 Context Georgia is the tenth largest U.S. states in terms of population and in recent years has been one of the fastest growing states in the nation in population and employment growth. Although state per capita income is still slightly below the national average, over the past half century Georgia (along with much of the larger U.S. southeast) has gone through a significant era of catch-up. A benchmark with New England (and the state of Massachusetts) is particularly interesting, given that in the early twentieth century Georgia competed aggressively with this northern region on the basis of lower wages so as to attract textile and other manufacturing. In 1929, Georgia’s per-capita income was just 38 percent of that in Massachusetts, but by 1978 it had risen to 82 percent. However, more recently, although Georgia has continued to move slowly towards the U.S. average, the state was unable to match a renewed growth spurt by Massachusetts, such that Georgia’s per-capita income INNOVATION CHALLENGES AND STRATEGIES 203 Percent of US Percapita Income 160% 140% 120% 100% 80% 60% 40% 1929 1939 1949 Southeast 1959 GA 1969 1979 New England 1989 1999 Massachusetts Figure 10.4: Per capita income trends – Georgia and other reference areas, 1929-1999. Source: Analysis of data from U.S. Bureau of Economic Analysis. had dropped to 74 percent of that in Massachusetts by the year 2000. (See Figure 10.4.) There are perhaps two parallel stories here, the second of which being one that this chapter will explore more deeply. The first story is, of course, how Massachusetts recovered in the 1980s and maintained its per capita income position in the 1990s. This story is not examined here, although others have written about it.3 The second story is about what happened to Georgia. After growing and catching up for many decades with a developmental model of industrial attraction and modernization, has Georgia more recently become constricted by the legacy of this model? Or, has the state – through massive investment in new innovation-based development models – laid the seeds for significant transformation of its economic base towards a higher value-added research and knowledge-based economy? Today, roughly 17 percent of the total employment base in Georgia is in manufacturing (of the rest, 26 percent is in services and 25 percent in wholesale and retail trade). The manufacturing sector has grown steadily over recent decades in employment and establishments (which now total about 12,000, most of which are small and medium-sized enterprises with have fewer than 500 employees). Much of Georgia’s manufacturing has involved traditional resource-intensive sectors such as pulp and paper and food processing, or modern but routine branch plants. Throughout the state’s manufacturing sector, the effects of the historic domination of industrial attraction 204 Philip Shapira strategies based on low costs can be seen. For example, the 1999 Georgia Manufacturing Survey suggests that Georgia manufacturers use rather standard technology strategies or low-cost strategies to compete in the market for customer sales. The 1999 survey asked manufacturers to rank six strategies from 1 (highest importance) to 6 (lowest importance): low price, high quality, innovation/new technology, quick delivery, adapting product to customer needs, value-added customer and product services. Nearly half of the manufacturers compete primarily through standard quality-related technologies and techniques. Only 8 percent of Georgia firms report competing primarily through innovation or new technology. The bubble chart (Figure 10.5) shows that manufacturers competing primarily through innovation strategies have both higher returns on sales and higher employee wages. However, most Georgia manufacturers use strategies associated with low wages and lower returns on sales. More broadly, industrial research and development (R&D) spending remains low, Georgia ranks in the bottom half of states in patent generation, and public R&D spending has been dominated by defense procurement. For example, the Rand Corporation estimates that the U.S. Department of Defense accounts for nearly 90 percent of federal R&D spent in Georgia. 11.0 Average Percentage Return on Sales, 1996-1998 Bubble size = % of Georgia manufacturers ranking strategy of highest importance 10.0 15% Quick delivery 8% Innovation, technology 9.0 High quality 13% Value-added services 49% 18% Adapting to customer needs 8.0 19% 7.0 6.0 $26,000 $27,000 Low price $28,000 $29,000 $30,000 $31,000 $32,000 Average Employee Wage 1998 Figure 10.5: Corporate strategies and associated returns, Georgia manufacturers 1999. Source: Georgia Manufacturing Survey, 1999. N=727. $33,000 INNOVATION CHALLENGES AND STRATEGIES 205 10.4.2 State Innovation Strategy For more than one hundred years, Georgia has pursued state development projects aimed at using technology to promote industrial and economic development. The earliest efforts included the founding of an engineering institution (Georgia Tech) in 1885 and the subsequent development of a state university system and technical colleges. In the 1960s, the state established an industrial extension service to transfer technology and know-how to existing industry through field offices of Georgia Tech. One of the first technology incubators in the U.S. – the Advanced Technology Development Center – was established by Georgia Tech in 1980 in Atlanta. Efforts in the 1980s and 1990s to strengthen the state’s research and scientific base were embodied in the establishment of the Georgia Research Alliance (GRA), a private non-profit organization that coordinates university research efforts to generate technology-based economic development (Combes and Todd, 1995; Lambright, 2000). The efforts evolved into a targeted technological development strategy focused on chip and broadband areas (Yamacraw). The state invested roughly $40 million in fiscal year 2000 in these initiatives, with nearly all of this investment going to GRA and Yamacraw. These programs have been supported by physical and human capital initiatives. Public and private investments have been made in high-speed telecommunications (e.g., the Georgia Statewide Academic and Medical System). The state has invested in intellectual capital through the HOPE scholarship program, QuickStart training of technical and service-level workers through the Georgia Department of Technical and Adult Education, and the University System’s Intellectual Capital Partnership Program (ICAPP), which provides expedited educational programs for companies with university-level workforce needs. No single body manages or coordinates these technology development activities. Some key programs are managed by units of Georgia Tech (e.g., the Economic Development Institute (EDI)) and the GRA, while other state agencies, educational institutions, and non-profit organizations manage others. Partnerships and multiple interlocking relationships enable these organizations to work with other state and local organizations (as there is considerable private-sector technology-based association activity in the Atlanta area). Private-sector technology associations such as the umbrella Technology Association of Georgia have offices on the Georgia Tech campus. GRA board members and Georgia Tech administrators also serve on the boards of directors of state and local economic development organizations. Interlocking boards are part of the state’s strategy to establish complementary relationships among Georgia’s technology development organizations programs. 206 Philip Shapira 10.4.3 Innovation Programs There are many publicly-sponsored innovation programs in Georgia. Indeed, a recent study uncovered more than 100 programs with a technology outreach component (Youtie et al., 2000). An analysis of these programs indicates the following profile (see also Table 10.1): • Most technology-related programs are located in Atlanta or its suburbs. Less than 30 percent can be found outside the Atlanta Metropolitan Statistical Area. • Seventy-five percent were established in the 1990s, with the median year of establishment being 1994. • The majority are run by academic institutions. • The most common capabilities these programs emphasize are business association, training, expert assistance, applied research and financing. Some programs support inter-firm collaboration assistance, while a small number aim at promoting technology leadership. To illustrate the range and depth of Georgia’s larger innovation-related programs, a summary of four key programs follows: Georgia Manufacturing Extension Program Georgia was one of the first states in the country, along with North Carolina, to set up a state-funded industrial extension program. The Georgia General Assembly created the program at Georgia Tech in 1960, and the first field office opened in Rome, Georgia, in 1961. The program, located in Georgia Tech’s Economic Development Institute (EDI), currently operates 17 field offices concentrated in rural Georgia and has partnerships with regional economic development groups, state labor offices, private-sector consultants, trade associations, and other contacts. Its statewide service activities include various assessments, feasibility analyses, problem-solving guidance, direct technical assistance, referrals and resource matching, implementation assistance, information dissemination, training workshops and seminars, and demonstrations. The field offices provide a gateway to EDI’s more specialized services such as information technology, ISO 9000/quality, lean manufacturing, industrial marketing, environmental technology, and specialized sponsor programs such as Trade Adjustment Assistance (U.S. Department of Commerce). In addition, EDI calls on researchers and faculty at Georgia Tech and regional national laboratories (e.g., Oak Ridge National Laboratory, NASA) with which Georgia Tech has formal agreements to serve as the designated technology transfer agent for the state. Full-time personnel with engineering, INNOVATION CHALLENGES AND STRATEGIES 207 Table 10.1: Summary of Georgia technology programs (2000) Georgia Technology Program Number of Programs Share of State Total Location Atlanta 63 63% Atlanta suburbs, exurbs 10 10% Athens 12 12% Augusta 5 5% Other Georgia cities 10 10% Year Established Before 1980 9 9% 1980-1989 15 16% 1990-1994 26 27% 1995-2000 46 48% Median Year Established 1994 Organization Type Academic institution 51 51% Nonprofit organization 17 17% Private company 17 17% State government 8 8% Private association 6 6% Local government 1 1% Area of Emphasis* Business association 71 71% Training 53 53% Expert assistance 51 51% Applied research 45 45% Facilities 37 37% Financing 32 32% Entrepreneurial development 27 27% Inter-firm clusters 21 21% Technology leadership 11 11% *Percent with strong emphasis in area. Multiple responses are represented (that is, the percentages do not add to 100 percent). Source: Youtie, Shapira, and Mohapatra (2000). technology transfer, management, economic development, and industrial experience staff EDI’s regional offices and technical centers. In 1994, Georgia joined the national Manufacturing Extension Partnership (MEP), administered by the National Institute of Standards and Technology (NIST) of the U.S. Department of Commerce. Georgia now operates an $8.5 million manufacturing extension program (about $3 million of which 208 Philip Shapira comes from the state). Today, the Georgia program typically serves 700 to 900 manufacturers a year, which puts the program in the top quintile of all MEP programs in the U.S. Customer survey information since 1994 indicates that more than 80 percent of Georgia MEP clients take action as a result of the assistance. The most common benefits are in owner and employee skills. Evaluation studies have found that Georgia MEP clients tended to have higher productivity growth than did non-clients (Shapira and Youtie, 1998). Advanced Technology Development Center (ATDC) Established in 1980, ATDC was one of the nation’s first technology incubators. It offers entrepreneurial services including space, guidance, and support for early-stage new technology companies. ATDC also supports corporate R&D units through a “landing party” program. The Faculty Commercialization Program (small grants to support faculty research with commercial potential) is also run by ATDC. In 1997, ATDC started Netcelerate, a virtual incubator that provides Web-based membership, electronically provided services, mentoring, and linkages with venture capital sources to some 200 entrepreneurial members. ATDC is a unit of Georgia Tech/EDI. It has nine staff associates and receives about $1.5 million a year in state funding. Atlanta has been the main focus of ATDC activities (with incubators at Georgia Tech and in alliance with Emory University). But there have been efforts to establish incubators in other areas. An incubator at Warner Robins has been in operation for several years, and there are now new initiatives to create incubators in Savannah and Augusta. Several external studies of ATDC’s impacts have been conducted (Culp and Shapira, 1997; Phillips, 2003). However, ATDC mostly relies on client surveys to gather impact information. Key measures are amount of venture capital raised, sales generated, and number of jobs created. Since 1986, more than 120 firms have been admitted. Fifty member firms have raised $38 million in venture capital and employ 370 people. As of 1998, ATDC graduates generated a reported $350 million in sales and more than 4,000 jobs. Georgia Research Alliance The Georgia Research Alliance (GRA) was formed in 1990 as a collaborative research initiative among six major research universities in Georgia (Lambright, 2000). GRA was charged to invest in building the state’s research infrastructure in targeted areas. The investments were designed to generate economic development results—new company start-ups as well as hightechnology firm relocations and retention of existing industry. INNOVATION CHALLENGES AND STRATEGIES 209 GRA has several programmatic elements. Eminent scholars, of whom there are 32 as of April 2000, are recruited in targeted areas based in part on a GRA supplementary endowment to be used for facilities, equipment, and other non-salary expenses. GRA also invests in facilities and specialized equipment such as the 150,000-square-foot Georgia Center for Advanced Telecommunications Technology (GCATT) building. GRA’s Technology Development Partnership program funds industry-university collaborative research with significant commercial potential. A private non-profit organization consisting of a small staff (president, two program managers, and administrative support) forms GRA management. This group functions as a virtual holding company for the program, develops strategy, finds financial resources, and interacts with state and local economic development organizations. GRA has a board of trustees composed of presidents of the member universities and executives from technology and other businesses who have served in state and local leadership positions. Besides its direct programmatic elements, GRA has made investments in key aspects of Georgia’s technology development infrastructure. In 1994, GRA encouraged the formation of Alliance Technology Ventures, the first public initiative to establish an early-stage venture capital fund in the state. GRA has supported investments to expand ATDC to convert GRA’s research investments at member universities into commercial applications. GRA employs indicator monitoring and benchmarking to assess program impacts. The program uses three main sources for monitoring and benchmarking: the National Science Foundation’s Academic Institutional Profiles, the State Science and Technology Institute’s state-by-state program descriptions, and PricewaterhouseCoopers MoneyTree Surveys. In addition, the program has gathered some 50 research and commercialization success stories attributed to its support. Through to fiscal year 2000, the state of Georgia invested $276 million via the GRA in research and development programs at its six member universities, matched by $65 million in private funds. In turn, GRA reports that this investment has helped to attract over $600 million in additional sponsored research. Yamacraw Initiative Yamacraw is a public-private partnership in broadband, digital signal processing, and systems-on-a-chip technologies. The venture includes (1) marketing and promotion of a high-bandwidth communications business cluster by the Georgia Department of Industry, Trade, and Tourism, (2) expansion and retention of the pool of qualified electrical engineers and scientists in the state by the University System of Georgia, and (3) a GRA/GCATTestablished electronic design center and research consortium. 210 Philip Shapira Yamacraw received $14 million for fiscal year 2000. Specific goals over a five-to-seven-year period include (1) creation of up to 2,000 electronic design and software engineer jobs, (2) attraction of four times the venture capital currently available to companies, and (3) establishment of 10 highbandwidth communications companies/divisions in Georgia. Assessment and Outcomes Georgia’s investments suggest that the state places substantially more emphasis on research infrastructure investment rather than on technology transfer/infusion activities. Of the state’s technology budget, only about 10 percent goes directly to technology transfer activities, with the remainder allocated to research (Youtie, Shapira, and Mohapatra, 2000). The most concentrated, formal set of technology transfer programs is at EDI - the manufacturing extension program and the ATDC. Georgia’s technology development and transfer programs are for the most part located in or near Atlanta. Universities, particularly Georgia Tech, are the dominant organizing mechanism for technology development and transfer. The GRA also plays an important role, although this private nonprofit organization again works primarily through universities to encourage collaborative research initiatives. Examining the effect of these programs by linking investments to technology and economic development outcome indicators is difficult. A mixed picture of good performance in some areas but lags in others is presented by measures such as venture capital attraction, patent output, the percentage of employees working in technology-based jobs, or levels of wages and educational attainment (see Table 10.2). The amount of venture capital in Georgia has grown such that the state ranks among the top in the nation. A PricewaterhouseCoopers MoneyTree Survey placed Georgia among the top five states in terms of venture-backed investments. The American Electronics Association has ranked Georgia among the five fastest growing states in high-tech employment growth. The state also ranks relatively high for new spin-offs. Three research universities, (Georgia Tech, University of Georgia, and Emory University) are ranked among the top 50 in total R&D expenditures in the U.S. Public and private technology-based incubator programs and services have supported an expanding number of start-ups (mostly in the Atlanta area). Other indicators are not as strong, however. Georgia ranks in the middle or near the bottom of states in terms of patent output per capita, percentage of employees working in technology-based jobs, and private research and development. Perhaps the greatest success of Georgia’s state economic development efforts has been the growth in and around metro Atlanta of a significant high INNOVATION CHALLENGES AND STRATEGIES 211 Table 10.2: Georgia’s economic development and technology performance Value State Rank Human Capital High school completion rate (percent), 18-24 year olds (1998-2000) PhD scientists & engineers employed per 1,000 workers (2001) 83.5 2.8 40 36 Employment, Pay, and Business Vitality Employment growth, percent change 1992-2002 Job growth (000) in new businesses < 500 employees (1999-2000) Average annual pay (in $ 000) per employee, all sectors (2001) 30.5 112.7 35.1 5 8 17 Science and Technology Expenditures Federal R&D $ per capita (2001) University R&D $ per capita, doctorate-granting institutions (2001) Private R&D $ per worker (2000) 404.0 115.8 392.9 7 22 33 Technology Development Metrics Patents per million population (2002) Percent of employment in high technology employment (2001) Venture capital, $ per worker (2002) Initial public offerings, proceeds in $ per 1,000 firms (2002) 179.0 6.5 136.5 6.9 29 20 7 10 Source: Public and private statistics as reported in the 2003 Development Report Card for the States, Corporation for Enterprise Development (2003). technology research and business complex – all the more remarkable bearing in mind that this was a location that two-to-three decades ago had very little innovation capability or employment. Yet, there is another less successful side of the picture. The Corporation for Enterprise Development (2003) in its Development Report Card noted well below average performance in human resource development for Georgia. K-12 public school systems in many parts of the state continue to perform weakly, with low high school graduation rates (Table 10.2). There is a relatively high proportion of working poor households and poor performance on a series of quality of life rankings. Other reports have noted the emergence of “multiple Georgias” – going beyond the contrast between the “two Georgia’s” of booming metropolitan Atlanta and the stagnant rest of the state to the “five Georgias” identified by the state Rural Development Council. Based on an economic vitality index, these five Georgias comprised 8 rapidly developing counties (19 percent of the state’s population), 42 developing counties (49 percent of the state’s population), 48 existing and emerging growth center counties (23 percent of the state’s population), 43 lagging rural counties (8 percent of the state’s 212 Philip Shapira population), and 8 declining rural counties (0.5 percent of the state’s population) (Georgia Rural Development Council, 2000). 10.4.4 Unequal Growth and Sub-Regional Disparities Notwithstanding precisely how the sub-regions of the state are divided, the clear point is that a structural divergence in growth paths has emerged in Georgia. The Atlanta metropolitan region has clearly changed its position, adding more than 2.1 million new residents from 1969 through 1999, to reach its current size of about 3.9 million people (or 50 percent of the state’s population). In many ways, Atlanta has built its growth on the attraction and immigration of human capital and skills from throughout the United States and internationally. Every expectation is that metropolitan Atlanta will continue to grow, raising significant concerns about transportation congestion, environmental problems, and urban management. Much of Atlanta’s growth has occurred in the northern and ever expanding peripheral rings of the city, with much less development in older black neighborhoods (although parts of the central city are now undergoing revitalization and gentrification). While significant problems of poverty remain in Atlanta and many residents have not seen improvements in income, the overall metropolitan-wide picture is one of growth. However, interestingly, the story outside of Atlanta is not one primarily of decline. Seven medium-sized Georgia cities grew by 33 percent in population between 1969 and 1999 and now house a total of 2 million people (or about 26 percent of the state’s population).4 Each of these medium-sized cities added people. In aggregate, the state’s rural areas have also added population. In short, the challenge facing Georgia is not so much population (or even employment) decline, but one of poor quality of growth and low quality employment in many parts of the state. This challenge is illustrated by disaggregating per capita income trends within the state (Figure 10.6). The Atlanta metropolitan area held steady at the national average per capita income between 1969 and 1981, then grew sharply in the 1980s and 1990s, reaching a per capita income of 114 percent of the U.S. average in 1999. Conversely, mid-sized Georgia metropolitan cities saw relative per capita income growth in the 1970s and early 1980s, but since 1984 their per capita income level has been stagnant when compared with the U.S., and remains at 85 percent of the national average.5 The state’s non-metropolitan areas saw little change in their relative per capita position in the 1970s and 1980s, some relative improvement during the economic boom of the early and mid 1990s, with a tail-off more recently to 74 percent of national per capita income. Of course, these averages mask considerable variations, from the wealthiest county in Georgia (Fulton County in the INNOVATION CHALLENGES AND STRATEGIES 213 Percent of US Percapita Income 120% 110% 100% 90% 80% 70% 60% 1969 1972 1975 1978 State 1981 Atlanta 1984 1987 1990 Midsized metro 1993 1996 1999 Non-metro Figure 10.6: Georgia per capita income trends, 1969-1999. Source: Analysis of data from U.S. Bureau of Economic Analysis. Atlanta metro region) with a 1999 per capita income of $45.5 thousand to $13.8 thousand in Long County in the southeastern part of the state. The recognition of these regional inequities has prompted a parallel set of developmental measures in Georgia. Again, there are many programs, but to simplify these efforts tend to focus at two targets. The first target comprises the poorest, mostly rural areas of the state, where efforts are geared towards upgrading infrastructure, education, and social services and to attracting incoming employers. There is little capability in many of these areas to sustain innovation. The second target comprises the mid-sized cities of the state, where it could be said that modernization has already occurred, there are branches of major international companies, university and college infrastructures exist, and where the quality of development needs to be upgraded. Here, in most of these locations, there is some capability for innovationbased development, although it is often weak. Among the programs that focus on these mid-size metro and rural target regions are the following: Regional Advisory Councils /Regional Development Councils These are the traditional mechanisms of regional economic development coordination used in the state. Currently, Georgia is structured into twelve multi-county regions. Each region has an advisory council of public and private sector representatives. These councils advise the State in the development and implementation of regionally significant community and economic 214 Philip Shapira development initiatives. Appointments are coordinated by state development agencies. The councils have long been conduits to channel federal economic development funding. Recently, the functions of these councils have expanded. They now include coordinating strategic economic development planning; maximizing the effectiveness of development resources through the collaboration and advice of local private and public sector leaders; promoting public and private sector partnerships at the regional level; seeking local input; identifying regional solutions for natural resource and other management issues; and aiding regional leadership programs, workforce development strategies, downtown revitalization, rural development initiatives, and existing industry support programs. Rural Development Council The Rural Development Council was established by the Governor in 1999 to serve as an advocacy and leadership organization to reduce the inequities facing many rural areas of the state. The Council has a membership appointed by the Governor from rural communities, business, and state agencies. Its responsibilities include advocacy for rural Georgia, the promotion of economic diversification, the avoidance of “one size fits all” strategies, promotion of equal opportunity, fostering of innovative solutions and economic, social, and environmental balance, support for local initiative, and promotion of collaboration and cooperation. One of the most useful functions of the Council has been to prepare a series of information and benchmarking studies that highlight spatial contrasts and inequities in the state and argue for stronger state vision, coordination, and investment to aid lagging rural areas. OneGeorgia Authority This is the largest and most ambitious “flag-ship” initiative to reduce regional, economic, and social inequalities in Georgia. OneGeorgia was created by the Governor and state legislature in 2001 to assist the state’s “most economically challenged areas.”6 The OneGeorgia Authority will use one-third of Georgia’s tobacco settlement funds. Over $60 million per year is anticipated for the Authority, with total funding of $1.6 billion projected over 25 years. To allocate these resources, a 4-tier ranking of Georgia counties has been developed, based on average rates of unemployment, per capita income, and percentage of residents in poverty. OneGeorgia will focus its efforts on the disadvantaged counties in Tier 1 (72 counties) and Tier 2 (34 counties), with some projects eligible in Tier 3 (35 counties) and none in Tier 4 (18 counties). This scheme includes economically lagging rural areas and the central districts of most medium-sized Georgia cities. At present, two types INNOVATION CHALLENGES AND STRATEGIES 215 of project funds are available. An Equity fund provides matching awards and grants to eligible communities to help build the necessary infrastructure for economic development. The Equity fund is broad and can be used for a variety of activities to help eligible communities to assist economic development preparation. Eligible projects include traditional projects such as water and sewer projects, road, rail, and airport improvements, and industrial parks as well as workforce development projects, technology development or tourism development proposals. A second fund, known as the EDGE (Economic Development, Growth and Expansion) fund is used to assist Georgia communities compete for a business with another community from outside the state. It is of course too early to assess OneGeorgia, and it is likely that this ambitious program will evolve. Interesting, while the mission statement of OneGeorgia emphasizes the values of collaboration, innovation, cooperation, adaptation, and regionalism, the major funding programs are rather traditional in orientation (infrastructure, business development, and business attraction), although the organization does have the flexibility to accept a variety of project applications. Greater Georgia At the other end of the funding scale (i.e. with very limited funding) is Greater Georgia, an initiative to develop cluster strategies in mid-sized cities in the middle part of Georgia.7 The Greater Georgia project aims to use a regional industry cluster focus to enhance local organizational, leadership, planning, and project management capabilities for technology-based economic development; strengthen strategies and opportunities to grow and attract technology-based enterprises; and ensure that participating cities are deploying world-class best practice approaches to fostering technology-based development. Four cities are currently involved in the project: Augusta, Columbus, Macon, and Savannah. The project is implemented by the Economic Development Institute of Georgia Institute of Technology (Georgia Tech) in conjunction with the Georgia Tech School of Public Policy. The Georgia Department of Industry, Trade, and Tourism is the project sponsor. The development of International Partnerships is an integral element of the Greate Georgia program. International benchmarking is being undertaken to provide matched city comparisons and to establish linkages for technologydevelopment capacity building. Four European cities are being invited to participate as International Partners: Cork, (Ireland), Dundee (Scotland), Heilbronn (Germany), and Pisa (Italy). These European cities share similar characteristics with their Georgia counterparts, including similarities in population size, relationships to larger metropolitan areas, industrial structure, 216 Philip Shapira higher educational facilities, and technology strategies. In addition to benchmarking and sharing of information, representatives from International Partner cities will be invited to participate in exchange activities with Georgia cities. This will provide opportunities to learn about each other’s technologybased economic development strategies, to discuss issues, and to consider opportunities for enhancement and further collaboration. Greater Georgia began activities in Summer 2001 and has continued through to 2004. While small, Greater Georgia is an explicit effort to strengthen the use of benchmarking, reflective, and learning strategies to Georgia’s medium sized cities – to try to move them beyond traditional business attraction strategies and competition with one another. If successful, Greater Georgia should result in strengthened capabilities and leadership in the four cities and a collaborative and internationally-aware approach to identifying new innovation-based opportunities.8 Among the promising outcomes of the project has been a commitment by the Governor to establish innovation centers in midsize cities which can serve as nuclei for new public and private applied research, development, and commercialization initiatives in targeted technologies. Assessment The Georgia case confirms that the changing of regional development trajectories is not an easy task to accomplish: where there is progress, it takes considerable time and effort, and a sustained public role. Moreover, the benefits are not necessarily equally shared. The state’s innovation and technology developmental initiatives have had discernable and positive effects in boosting research, innovation, and high technology employment in Georgia. But the benefits from these policies have been secured by a segment of the population, with strong benefits going to talented scientists and engineers, research universities, high technology enterprises, and high technology employees (whose wages are significantly above the Georgia average) particularly in the Atlanta region and including a large proportion of new-comers. Black residents in Atlanta and all social groups in regions outside of the Atlanta metropolis have gained less and “trickle down” impact has been limited: indeed the success of Atlanta has made more visible the static or lagging economic conditions found elsewhere. Yet, it is notable that the state government has responded to these inequities and developed a parallel set of policy mechanisms to address regional disparity. Are the state’s efforts to foster greater regional equity in the state likely to be effective? Time will tell, but already some serious issues can be raised. In part, Georgia’s efforts meet earlier calls for “dual agenda” state programs, to broaden the scope and targets of innovation policies (Bozeman, 2000) and INNOVATION CHALLENGES AND STRATEGIES 217 the state has gone further than many in developing compensating programs. However, while the state’s innovation programs seek very much to “break the mold” and establish Georgia as a global location for leading-edge technology and business development, the major parallel programs for disadvantaged regions (excluding small efforts such as Greater Georgia) are very much consistent with traditional strategies of infrastructure development and business attraction. Even if successful, such strategies may reinforce the modern but routinized nature of work in these regions, but not significantly raise the value-added quality of development (and associated living standards). On the other hand, it can reasonably be argued that, due to an accumulation of historical and institutional factors, the basis for alternate development strategies remains lacking in much of peripheral Georgia. While that may be true, the most hopeful exception to this could be in the state’s medium-sized cities where there is some foundation, albeit at present weakly developed and supported, to leverage innovation assets and capabilities for higher valueadded growth. 10.5 CONCLUDING POINTS Georgia has adopted many of the features of the new U.S. regional economic development models discussed earlier in this chapter. The state has certainly focused on innovation and technology in its approach to economic development. There is a strong emphasis on implementation through public-private partnerships. There is some attention to the technological and business foundation of small and mid-sized enterprises, particularly through the state’s extensive industrial extension system. Benchmarking and comparison has also been prevalent. At the same time, other features of the new models have been more faintly applied. While the state has emphasized innovation and technology, this has tended to be on a sector basis (i.e. information technology or life sciences) anchored by major research universities, rather than working more broadly on the strengthening of regional innovation systems (especially outside of Atlanta). Moreover, while there is attention to technology transfer for existing and mature small and medium-sized firms, the level of investment is far lower than that accorded to high technology research and new venture development. It can also be added that while the state has promoted publicprivate partnerships, often the most successful technology-based efforts have been those where the state has made a sustained and long-term public commitment (as for example with the development of its research universities). Given Georgia’s historical context of a weakly developed private innovation infrastructure, the ability of the state to pursue sustained goals is a strength, 218 Philip Shapira although at times the goals are perhaps narrowly constructed (for example, again for historical and constitutional reasons, the state has not been able to take such a direct role in the strengthening of K-12 public education systems where control is largely in the hands of local school districts). Finally, while there has been benchmarking, this has rarely been extended to explicit evaluation of state innovation and technology programs. What insights are there from the Georgia case with regard to the debate about path dependency versus regional breakthrough? One hates to have to say this, but there is a fair measure of “it depends” in assessing the state’s position on this axis. Viewed from a long-term perspective, relative to where the region started, Georgia has very substantially changed its regional position, aided by state (as well as federal policies not yet fully discussed in this chapter). On the other hand, with some exceptions (e.g. research services, information technology, multimedia, soft drinks, transport and logistics), the state is still not a recognized innovation leader. Yet, it could fairly be argued that the Atlanta metropolitan region has broken through the urban hierarchy and has emerged as a regional, national, and international center. In understanding where there has been significant change, it has frequently required the creation of new institutions and organizations, not necessarily strongly connected with the old (for example, in the development of new technology research centers not connected with old-line industries or in the rise of CNN in Atlanta which pioneered fresh approaches to the broadcasting and marketing of news). Additionally, new human capital resources have been drawn into the state (more than 3 million people, leading to almost a doubling of the state’s population over three decades), which has been a vital element in bringing in new skills and ideas. Unfortunately, many existing communities, both in Atlanta and outside, have been constrained by their own past developmental experiences and inequities and have not fully participated in the state’s growth. In sum, Georgia does not present a clear-cut case where path dependent structure beats out policy planning and change agency or vice versa. Rather, it is surely an example of the continued tension between these two dynamics, with both forces being reflected in the developmental results obtained. That might be said to be the inevitable state of a catch-up region that is closing some (but not all) gaps. NOTES 1. An example is EPSCoR – the Experimental Program to Stimulate Competitive Research – sponsored by the U.S. National Science Foundation in conjunction with several U.S. states to promote sustainable science and technology infrastructure and research improvements, so that EPSCoR researchers can compete for Federal and private sector R&D funding. See http://www.ehr.nsf.gov/epscor/. INNOVATION CHALLENGES AND STRATEGIES 219 2. For updated information on U.S. state and regional innovation initiatives, see the State Science and Technology Institute, http://www.ssti.org. 3. For example, Lampe’s (1988) volume highlights the ability of Massachusetts to draw on long-established strengths in research and new product development in engineering an economic turnaround in the 1980s. 4. The mid-sized Georgia metropolitan areas are Albany, Athens, Augusta-Aiken, Chattanooga-Dalton, Columbus, Macon, and Savannah. 5. Based on an adjusted analysis, not including parts of these cities that extend across state lines. 6. See: http://www.onegeorgia.org 7. Note: the author of this chapter is a principal in the Greater Georgia Project. The project was initially named CyberGeorgia, with a rebranding to its current name in 2003. For more information, see http://www.cherry.gatech.edu/mid 8. The Greater Georgia project has counterparts in earlier regional networking efforts such as the European “Four-Motors Project” and its spin-offs in Canada (Wolfe and Gertler, 2001). However, one difference is that Greater Georgia focuses on lessfavored, traditionally non-innovative areas. REFERENCES Allen, F., Atlanta Rising: The Invention of an International City 1946-1996. Longstreet Press, 1996. Berglund, D., State Funding for Cooperative Technology Programs. Columbus, OH: State Science and Technology Institute, 1998. 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