The Fountain of Knowledge

The Role of Universities in Economic Development

Shiri M. Breznitz

• Publisher: Stanford Business Books
• Year: 2014
• ISBN:
  9780804791922
• Edition: 1
• Topic: Economia
• Subtopic: Economia dello sviluppo

Today, universities around the world find themselves going beyond the traditional roles of research and teaching to drive the development of local economies through collaborations with industry. At a time when regions with universities are seeking best practices among their peers, Shiri M. Breznitz argues against the notion that one university's successful technology transfer model can be easily transported to another. Rather, the impact that a university can have on its local economy must be understood in terms of its idiosyncratic internal mechanisms, as well as the state and regional markets within which it operates.

To illustrate her argument, Breznitz undertakes a comparative analysis of two universities, Yale and Cambridge, and the different outcomes of their attempts at technology commercialization in biotech. By contrasting these two universities—their unique policies, organizational structure, institutional culture, and location within distinct national polities—she makes a powerful case for the idea that technology transfer is dependent on highly variable historical and environmental factors. Breznitz highlights key features to weigh and engage in developing future university and economic development policies that are tailor-made for their contexts.

CHAPTER ONE

Introduction

Universities, viewed as fountains of knowledge, produce the world’s most important resources: young minds and an educated labor force, which in turn produce cutting-edge research and innovative ideas and products that contribute directly to economic development. Thus, universities contribute directly to a region’s economic growth, making universities a highly desirable and almost essential resource for a region.

The economic development effected by a university is evaluated by the amount of technology commercialization it generates. Patents, licenses, and spin-out firms are easy to quantify and use as a measurement of university productivity. Technology firms tend to develop near universities as a result of the knowledge spillover generated by university research. The mere existence of a university in a region, however, is not a guarantee of economic success.

So what determines how well a region benefits from the presence of an innovative research university? There are two main factors: the ability of the university to transfer knowledge to the public domain and to commercialize technology, and the region’s ability to absorb that information. Some regions are better able than others to innovate and commercialize technology. By focusing on university knowledge transfer and technology commercialization, the fountain of knowledge, we can evaluate whether the research that universities are expected to do is beneficial and valuable to local economic development—after all, it is demanding and requires many resources of these higher education institutions.

The Fountain of Knowledge analyzes two world-renowned universities, their investment in technology commercialization, and the outcome of that contribution in their local economies. This book has three main arguments. One is that the way in which a university goes about improving its technology-transfer capability matters. Conducting a focused and thoughtful comprehensive change that includes all sections of the university will improve commercialization. Second, by choosing a particular path of change, the university also changes its role and its ability to contribute to the region. Third, not all changes will positively affect the local economy.

THE ROLES OF THE UNIVERSITY

The evaluation of university technology commercialization is vital, considering that the traditional roles of universities have been research and teaching. These original roles of universities have been intensely discussed over the past century at both national and regional levels. Should universities remain islands of research, free of politics, economics, and social class? Or should they participate as active players in local economies and societies?

Historically, universities were the domain of the upper classes, who studied such esoteric subjects as literature and philosophy. Over time, universities began to serve the general public, offering more practical subjects, such as applied research, and training students for professions like medicine and law. By the early 1900s universities had become recognized as regional and national engines of growth.

The modern university, as it developed in the nineteenth century, is an important source of new knowledge and technologies, with the potential to be commercialized (Scott 1977). Today’s model of the university has a public-service component, offering a wider base for research and teaching—both of which have the power to promote social change. According to Scott (1977), the service component was a direct result of changes in modern society—that is, growth in the number of students and demand for skilled workers. The university service component was influenced by a neoliberal economic perspective. From that perspective, universities are evaluated on the basis of their contribution to the economy. Therefore, in most countries, universities that rely heavily on public funding are pressured to “pay back” the community and act like responsible citizens (Russell 1993).

The pressure on modern universities to pay back the community has created what is known as the “third role” of universities. Many universities are now obliged to make a contribution to society through research and development (R&D), collaborations, and technology transfer with industry (Minshall, Druilhe, and Probert 2004). Collaborating with industry is a significant change from the original mission of the university, representing an expectation of service that many institutions are not ready or willing to make. However, there is an apparent public benefit for industry collaborations. Universities are an important source of a skilled labor force that is often trained through public funding. Moreover, commercialization can be a solution for universities’ financial constraints as well as a way for students to gain industry experience. Hence, university-industry collaboration and proximity promote the formation of industry and economic growth.

However, there is still a debate over university-industry relationships. Studies of higher education institutions emphasize the ability of universities to become important contributors because they are centers of “free” thinking. The idea behind the tenure-track position was to allow faculty to work on new ideas without any constraints. Some of the most interesting innovations, such as electricity, started with a totally different research question in mind. In many cases the discoveries were even found in different schools of thought. Should we predicate what universities need to work on because we know they are capable of producing the next generation of technology? Are we not limiting the fountain of knowledge this way to a mere drizzle?

Some scholars believe that there should be a separation of university and industry. Those scholars claim that academics do not possess the business knowledge to determine which projects should be commercialized, nor should public universities provide services to a specific private market or a particular industry. Technology transfer requires universities to be attuned to, and work with, industry’s business perspective. Spin-out companies in particular require different business skills from those that universities are normally equipped with, such as expertise in entrepreneurship, business development, and venture capital. Furthermore, technology-transfer offices need to be able to assess inventions and decide whether they have a commercial value. Thus, they need to employ specialists or hire consultants to evaluate the technology, which is often expensive. Is this the knowledge we are looking for when we consider universities as fountains of knowledge?

TO MEASURE?

Many claim that by being fountains of knowledge, universities already contribute to regional and national economies. Hence, their contribution cannot be ignored and should be used to improve the quality of life and the economic situation of the region and community in which the university is located. There are two ways to measure the impact of a university on a regional economy. The classic, or “short run,” method is to determine the institution’s contribution to the annual flow of regional economic activity. The “long-run” method focuses on the contribution of the institution to the continuous growth of human capital in the region (Beck et al. 1995).

The short-run impact—actual dollars flowing into a region due to the mere presence of the university—can be measured by the purchases made by the university in the region: office supplies, rent, food, and services; salaries for employees, some of whom live in the region and spend their wages in the region. Outside funds like donations, grants, and state and federal government funding to the university are also considered in determining a university’s economic impact. In this way a university is measured only by direct input and output. University contributions that are not measured in dollar amounts, such as graduate students’ firms and firms’ products based on university research, are not taken into consideration.

The long-run impact measures “the future income stream of graduates who stay to work in the area” (Beck et al. 1995, p. 246) and the economic impact of graduate students’ firms and firms with products based on university research and patents. Measuring long-run impact provides a method to calculate the return on tax invested in higher education. Studies have proved that higher education leads to higher levels of income. In urban areas, the presence of universities seems to affect the growth rates, earnings, and composition of employment. Hence, the ability of a university to patent, license, and spin out firms has a direct impact on the long-run economic development of a region, which is the focus of this book.

THIS BOOK

This book examines the cases of two prominent universities, Yale University and the University of Cambridge, that have made policy, culture, and organizational changes to improve their abilities to commercialize technologies and to have a wider impact on their respective local economies. Interestingly, these two universities took different approaches to technology transfer and had different outcomes, both for themselves and for their local regions. Though previous studies have found university investment in technology commercialization to have a positive impact, I found that not all results have been positive.

I also consider other factors that may have been responsible for the changes at both locations. For example, a university’s ability to disseminate academic ideas to the private market and to contribute to regional economic growth frequently depends on internal mechanisms and resources rather than on formulaic technology-transfer models.

Moreover, universities do not exist in a vacuum—they are influenced by social and economic processes and politics. Each university should be analyzed in its historical and environmental arena. This kind of analysis is a more valid indicator as to the ability of a university to disseminate academic ideas to the private market and to commercialize inventions.

I have analyzed the two universities in lieu of the local biotechnology industry. This industry relies heavily on university research. As a result, ties between biotechnology companies and specific research institutes are easy to identify. Biotechnology is a “new” industry, with its earliest companies established in the 1970s,¹ but biotechnology itself is not a new phenomenon. What we know as modern was the result of several breakthroughs in molecular biology during the mid-twentieth century (Acharya 1999). In 1953, James Watson and Francis Crick, from the University of Cambridge, identified the structure of DNA. This breakthrough was followed by the development of monoclonal antibodies, on which diagnostic kits in the therapeutic industry are based. First developed at University of California–San Francisco and Stanford University in 1973, the process of cutting and rejoining DNA to produce recombinant DNA that could replicate a host cell—known as cloning—revolutionized modern biotechnology.

Research at universities has led to the identification of many new antibodies, proteins, and potential drugs. In many respects, the biotechnology industry has been launched from universities and research institutes, thus creating a clear and direct connection between biotech industries and universities, and providing an excellent case study for this book. While university inventions are usually licensed to private companies, the companies stay in constant contact with the university researchers, especially in their early stages of research, to assist in product development (Kenney 1986).² Therefore, the biotechnology industry has been instrumental in the renewal of interest in university-industry relationships and in the commercialization potential of university research (Blankenburg 1998).

Both Yale and Cambridge have been cited as strong research universities in life sciences, instrumental to the development of regional biotechnology clusters. Yale is situated in New Haven County, which has the largest biotechnology industry agglomeration in Connecticut. The biotechnology industry in New Haven, which in 1993 consisted of only of six companies, had grown to forty-nine by 2004 and seventy firms by 2013, making New Haven seventh in the United States by number of biotech companies per capita and third in the nation by per capita research grants (Ernst & Young 2001; US Department of Health and Human Services and National Institutes of Health and US Census 2008). The majority of the biotechnology companies in this cluster have spun out of Yale University. Similarly, the University of Cambridge is located within Cambridgeshire County, with approximately 154 biotechnology companies in this county, representing about a third of all UK biotechnology industry (Sainsbury 1999; Greater Cambridge Greater Peterborough Enterprise Partnership 2013).

Despite its strength in the life sciences, Yale University did not promote technology transfer and commercialization until the mid-1990s. Moreover, its disapproving attitude toward applied research caused the university to lose many faculty members and patents to other universities. However, in 1993, with a change of leadership and concerns for the university’s eminence, Yale started to invest in technology transfer and local economic growth, and the investment paid off handsomely. Similarly, in the late 1990s, as a result of government pressure, the University of Cambridge made changes and investments in its technology-transfer policy. But, as we shall see, the university-industry relationships that were formed near Cambridge did not result in revenues for the university, nor did they lead to regional economic growth.

Why such different outcomes? Both institutions are distinguished universities conducting world-class research in the biosciences, and both decided by the late 1990s to make changes to their technology transfer mechanisms. The ways they implemented those changes were very different, however, and as a result, the changes produced significantly different outcomes. As the goal here is to investigate universities’ technology-transfer capability, rather than compare the two university cases by output, this book looks at their unique policies, organizational structure, and commercialization culture, all of which have influenced their technology-transfer capabilities.

THE LITERATURE DEBATE

Although many studies treat technology transfer as a single process rather than focusing specifically on policy and organization, the studies can be divided into two categories. First, some scholars view the university technology-transfer process, including organization, as a factor in the university’s ability to commercialize innovative ideas (Feldman and Desrochers 2003; Siegel, Waldman, and Link 2003a; Rothaermel, Agung, and Jiang 2007). Other scholars focus specifically on university technology-transfer output in the form of patents, licenses, and spin-outs (Di Gregorio and Shane 2003; Mowery and Sampat 2001a; Shane 2004).

In terms of the impact of technology transfer on the university itself, the role of the university as a public, nonprofit educational institution is becoming blurred. Universities are now considered leading players in today’s global economy, players that can promote and establish certain regions as leaders of the world’s economy. Thus, universities are being examined and pressured to prove their ability to innovate as well as to transfer their innovation to the public domain. By allowing universities to own and commercialize their innovations, their success is now measured by a new factor—technology commercialization.

This book continues the investigative tradition of the scholars who believe that to understand the ability of a university to transfer academic ideas to the private market, we must understand technology commercialization investment and processes as a whole. However, unlike other studies that analyzed one or two universities and reviewed one or two factors that affect technology commercialization (e.g., policy, employee characteristics), this book reviews factors identified by previous studies in a comparative study that adds the environment and history of a university location to its analysis. Technology commercialization functions differently in different universities, and as such it has been proved to make a difference in a university’s ability to patent, license, and spin out (Feldman et al. 2002; Kenney and Goe 2004; Shane 2004; Siegel, Waldman, and Link 2003a, 2003b). In most studies, universities’ investments in technology transfer and commercialization are viewed positively. Interestingly, studies show that although many universities invest heavily in technology transfer, not all show an increase in output as a contribution to their local economy.

A TALE OF TWO UNIVERSITIES

Enter the arena two of the world’s most renowned universities: the University of Cambridge in the United Kingdom and Yale University in the United States. During the 1990s both universities found themselves under pressure to make an impact and contribution to their local economies. Both institutions made a vast change in their policies and processes to be able to do so.

More specifically, the University of Cambridge, which had strong university-industry relationships and a large number of university spin-outs, executed changes to i...