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Job Creation with Cluster Economic Development - Life Sciences example

Economic development for new jobs often starts with scientific research and a cooperatative approach to cluster company development. Life Sciences provide a recent case study in collaborative job creation strategy.

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Virtually every State in the U.S. has or is investing in the life sciences as an economic development strategy. This can be attributed to many of the following factors:
  • The impact of the study of human genomics
  • The impact of States’ settlement with tobacco companies
  • The precipitous demise of the dot.com revolution
  • The growing interest of citizens in human health and disease prevention
  • The doubling of research funds available from the National Institutes of Health

Strong research universities start this life sciences process of economic development. Programs to transfer government-funded basic research into commercial activity follow that basic research with additional funding. Pharmaceutical companies have provided access to early stage capital.

Several other factors enter the equation: availability of specialized facilities and equipment; highly skilled workforce and a supportive public policy structure.

Some of the unique resources that paved the way for state investment in life sciences came from funding sources such as massive invstemtn to tobacco settle ment funds; the growing influence of life sciences trade associations and networks; modification of state tax and regulatory issues to encourage life sciences industry growth; growth of life sciences-related research parks and innovation centers; high priority given to life sciences commercialization and businss development initiatives; and greater focus on specialized workforce development and retraining programs.

In fact, twenty states invested tobacco settlement funds heavily in life sciences economic development.

In California, the California Public Employees Pension Funds established the California Biotechnology Program capitalized at $500M.

States learned that life sciences clusters do not grow or sustain themselves without strong research universities and state of the art facilities, equipment, and world class research talent, such as found in San Francisco or San Diego.

Ten States used traditional economic development programs (loans, loan guarantees, industrial development bonds) to finance life sciences facilities.

Over 34 States have a statewide or regional life sciences trade association and networks to educate, advocate and provide a clearinghouse for information on the industry.

These cooperative organizations create a network so that newer companies learn from more established firms, are made aware of suppliers and service providers, and draw on talent from existing sources. They provide services like purchasing cooperatives, small business insurance plans, and executive recruitment advice. And they provide access to role models for younger entrepreneurs and reinforce the notion that firms can grow and prosper in a given locale

State tax policies and structure

Tax and regulatory environments make it possible to develop cluster industries that have specialized needs. Some of the strategies used include:
  • Sales and use tax exemptions and /or deferrals
  • Investment and research and development tax credits
  • Capital gains tax reductions
  • Net operating loss carry-forward provisions
  • Tax credit transferability
  • Incentives for job creation, cooperative research ventures, worker training, R&D expenditures

Regulatory issues include specific industry issues such as privacy, research parameters, price controls and export/import guidelines.

Innovation Centers

"What industrial parks were to economic development in the 1950s, research parks, incubators and innovation centers will be to the 21stcentury state policy-maker." Joe Alviani, former Massachusetts Secretary of Economic Affairs, 1989 Address.

Many innovation centers make early stage investments in resident companies to accelerate commercialization. No longer just a real estate development; these parks PLUS innovation centers are now a tool for innovation and economic competitiveness.

Universities, too, invest in technology transfer functions to increase royalty revenues and contribute to commercialization as a tool for cluster growth.

State governments have explored ways to increase commercialization of university research by providing incentives for cooperative ventures and by seeding creation of “common technology transfer” offices for multiple research institutions (e.g. Oklahoma Technology Commercialization Center)

Funding Sources

Government support for new research follows themes set by the Administration and agencies. Other out of favor areas can languish as funds are flooded into specific areas, such as life sciences, or renewable energy.

Requirements to Build Innovative Companies and Clusters

  • Government research support
  • Legislation to authorize transfer of technology and IP ownership rights (Bayh-Dole legislation in the United States)
  • An institutional technology transfer process with defined policies and smart people
  • Experienced entrepreneurs and role models
  • Strong relationships with the firms in the region to identify interests and needs and to facilitate communications
  • Business and trade associations that enable effective networking
  • Smaller business support programs, space, and services
  • Knowledgeable local money, including “angels” and venture capitalists with expertise in the specialized technology and business start up process the specialty companies

Among the many things learned in the life sciences development process over thirty-some years, one tenet that applies to all innovation development is, "Entrepreneurial clusters feed themselves in a form of 'virtuous cycle,' where role models encourage new company formation, new founders emerge from mature companies, employees for new companies acquire invaluable experience in former companies --and more venture investors move into town".

Paraphrases of a presentation, "Life Sciences Cluster Development: U.S. Trends and Practices" March 30, 2004, by Joseph D. Alviani, Alviani & Associates

Edited by Carolyn Allen
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