The Color of Innovation

Innovation Economy and an Economic “Oasis”

        If America wants to be a healthy, smart, rich, globalized, high-tech powerhouse, we arguably have no better model than Massachusetts.

—— Mark Vanhoenacker

       After the outbreak of the financial crisis, it did not take long for many U.S. economists and business leaders to recognize that innovation economy would be the key to brake recession and make possible a resurgence.  Paul Krugman defined the “great recession” as “the third depression” in the world’s history, and clearly stated that nothing but a new technological revolution that transforms the lifestyle and modes of production for all humanity could lift us out of the recession and usher in a new wave of economic growth.  Economist Tyler Cowen from George Mason University expressed a very similar view in his book, the Great Stagnation. Failing to accurately predict the crisis and defuse it in a timely manner, economists from various schools have been under great pressure. Yet while continuing to quarrel over the causes of the recession and short-term measures against it, few questioned or challenged the above positions. In the business arena, Warren Buffett have stricken home his point repeatedly: the value of the American system lies in innovation which unleashes human potential; innovation will lead America out of the predicament.  Steve Jobs also showed his confidence and believed that “as long as we innovate, we will be fine”. Gary Shapiro, CEO of American Consumer Electronics Association launched the innovation movement, a coalition of 100,000 citizens, wishing for a revival of innovation economy to spur America’s Comeback.

Winning the 2008 presidential election by advocating “change”, Obama has launched a series of policies and measures to promote innovation and economic development. In September 2009, he released “A Strategy for American Innovation: Driving towards Sustainable Growth and Quality Jobs”. In his 2011 State of the Union Address, Obama proposed “Startup America Initiative”. In February 2011, he announced the “Wireless innovation and Infrastructure Initiative” and “Better Building Initiative”. The “Government Reform for Competitiveness and Innovation Initiative” was established in his Presidential Memorandum in March 2011. Very recently in March 2012, Obama advanced manufacturing initiatives to drive innovation, create job growth and ultimately improve America’s competitiveness in global trade. For the Democratic Party and the Republican Party who have plunged into an unprecedented political fight, innovation has been one of the two issues on which both can easily reach consensus (the other is said to be criticism on China’s human rights situation). These initiatives, rekindling Americans’ hope and refreshing their commitment to innovation, increased investments in basic scientific research and proved effective in supporting clean energy development. However, the two parties diverge again when it comes to the intention and impacts of such initiatives. Hardcore Republicans see Obama’s policies as a continuation of the Bush Administration, with no novelty in content or effectiveness in execution. Obama’s followers, on the contrary, firmly believe that America has finally made its way back on the right path. For them, it was due to the lack of foresight and the mistakes of the previous administration that the present polices are taking longer to show their effects.

Along with the increasingly raucous party brawls, America’s recovery has been full of twists and turns. The revolutionary breakthrough in science and technology, much longed for by everyone, seems unlikely to take place in the near future. The economy has not fared well in the past few months: high unemployment rate (risen to 8.3% in July 2012), slow growth rate (1.5% for the 2nd quarter of 2012), persistently low consumer confidence (latest reported to hit the bottom in July 2012) …… All of these not only fogged the prospects of the nation’s economic recovery, but also cast a heavy shadow on Obama’s efforts to seek reelection. Some have even begun to question if America’s competitive advantage, centering on innovation, is gradually lost. The 40th Republican National Convention, closed just this past Friday, not only made official the nominees for the 2012 Presidential election, but tirelessly hammered the Obama administration’s poor economic performance, especially when it comes to job creation and innovation.  Fortunately, there remain a few unyielding oases in the largely devastated desert, which somehow represent and indicate the future hope of a 21-century “innovation America”. Massachusetts is among the most convincing ones.

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       Although Massachusetts has to bear the same troubles and miseries brought by the recession, it was able to buck the trend and had a couple of good shows. In comparison to the nation’s flagging economic situation that has lasted for a while, Massachusetts’ performance, if not outshining all others, has certainly been eye-catching.

• Massachusetts was eleven months later than the nation to enter recession (recession in Massachusetts started in November 2008 vs. December 2007 for the nation); in March 2010, Massachusetts took the lead into recovery. Its economic growth rate is over twice the national average (growth rate 4% in Q2, 2012).
• Unemployment rate in Massachusetts has been far lower than the national average (June 2012: US 8.2%, MA 6%); it created the record of a consecutive 16-month job growth during the recession.
• In March 2012, Massachusetts regained the top spot on 11^th Annual State Competitiveness Report, issued by the Beacon Hill Institute at Suffolk University (it was the third in 2010).
• Massachusetts ranked the first on Kauffman Foundation’s 2010 State New Economy Index. Washington came in second with an obvious gap.
• Boston, Massachusetts’ capital city, successfully broke into Economist magazine’s Global City Competitiveness Index, ranking top 10.
• In October 2010, American Council for an Energy Efficiency Economy placed Massachusetts as the most “energy efficient” state, replacing California.
• According to Massachusetts Divison of Health Insurance Finance and Policy, the state’s insurance coverage ranks first in the nation: the uninsured rate has dropped to 1.8%, and the uninsured rate for children is as low as 0.2%.
• Massachusetts has the best schools in America. Education Week’s 2012 report ranks Massachusetts the second on the overall index; but on two of the index’s most important measures- a lifetime educational Chance for Success index and a K-12 Achievement index, the state leads the nation. According to 2011 Harvard survey, the reading skills of Massachusetts’ high schoolers is fifth worldwide, and math skills the ninth, ahead of both Japan and Germany.

Particularly noteworthily, Standard and Poor’s (S&P), in view of the state’s outstanding performance in fiscal control and budget balance for recent years, upgraded the credit rating for Massachusetts to AA+ from AA in September 2011. Previously, the state had gained ratings of Aa1 from Moody’s and AA+ from Fitch. Taken together, this set of ratings gave Massachusetts its highest credit standing in history, contrasting starkly to the fact that S& P downgraded the credit rating for America about a month earlier. Such hard-earned results truly made the government and state legislature leaders happy and excited for quite a while. Most importantly, it added new confidence and motivation to the future development of Massachusetts.

Aiming at promoting collaborative activities among government, industry, universities and research institutes as well as advancing the healthy development of a high-tech oriented knowledge economy, Massachusetts state legislature established a specific economic cooperation organization, Massachusetts Technology Collaborative (shortened as MTC). Ever since 1997, MTC has released Index of the Massachusetts Innovation Economy on a yearly basis.  Through a comparative analysis against other US technology leading states as well as other countries and regions with advanced science and technology, the Index makes an objective evaluation of the annual performance of Massachusetts’ innovation economy, clarifies the elements propelling or constraining innovation and economy, with the hope of providing some valid suggestions to policy makers, business managers and academic leaders. In 2004, MTC founded John Adams Innovation Institute, named after the second president of America, to lead the writing of the report. Beginning with a striking title, “Massachusetts USA leading the Innovation Revolution”, the preamble to the 2011 index fully recognized the state’s remarkable achievements in 2010 and further pointed out, “The Massachusetts Innovation Economy is one of the state’s key advantages in the global economy and an engine of prosperity for our citizens. It is also a source of resilience amidst national and global economic uncertainty.”

This preamble arouses one’s curiosity about the root causes and the historical origins of the economic prosperity and social progress witnessed in the Commonwealth.

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      When it comes to innovation in Massachusetts, almost all commentators would trace its history back to two or three hundreds years ago, or probably even four hundred years ago. Most of them would also be citing the many “best”, “No.1” and “leading place” that the state and the Greater Boston area have created in the history of America in order to reinforce Massachusetts’ position and image of an “innovator”. From the moment in the early seventeenth century when the pilgrims set foot on the continent of North America, settlers of the New England region, those in Massachusetts being the most representative ones, have begun their long journey of arduous pioneering. The dream and efforts of these early colonists to build a “City upon the Hill” reaped rich fruits on this not-so-fertile piece of land.

From the establishment of “Mayflower Compact” to that of the first state constitution, from the first shot in the Independence War to the United States Declaration of Independence (documents record five Massachusetts residents signed it), numerous founding fathers dedicated themselves to the Great American Experiment, drawing the blueprint and laying the rudiment for a future America. By founding Harvard University and opening the first public school in the nation (Boston Latin Grammar School), through building the first free public school (Dorchester Mather School) and opening the first public library (Boston Public Library), Massachusetts has been brave in educational innovation and reforms, finally growing into a world-renowned intellectual city. Inventions in Massachusetts are simply impossible to enumerate: the electric light, the telegraph, the telephone, the computer, the sewing machine, the typewriter, the microwave and the razor; the initial clinical applications of the smallpox vaccine, the anesthetic ether and the penicillin; the first email successfully sent out and the smooth launch of liquid fuel powered rocket- the list goes on and on. Hundreds of thousands inventions and creations as such revolutionized the lifestyle and mode of production of Americans and of people around the world. Besides, Massachusetts was home to the first lighthouse, the first railroad, the first motorcar, the first man-made canal and the first subway line. It also took the lead in introducing the park, the cemetery, the seaside bathing spot, the countryside golf club and other public facilities alike. It was in Massachusetts where the first Thanksgiving was celebrated and the first Christmas card was printed. People in Massachusetts also had the privilege to watch the first basketball and volleyball matches as well as the marathon in 1890s. The “American system of manufacturing”, featured by interchangable parts, later sweeping the world and preceding Ford’s assembly line, claims Massachusetts as its cradle, so does the modern industrial park and venture capital. In one word, invention and innovation are inseparable from the Massachusetts history and have become an engrained cultural gene, unique to the region.

American English has a special word to describe the innovative characteristic of residents in Massachusetts and in the New England region as a whole: Yankee Ingenuity. Merriam-Webster Dictionary defines it as “the self-reliance of early colonial settlers of New England, United States”. The phrase is further elaborated as an attitude of make-do with materials on hand: it is “inventive improvisation, adaptation and overcoming of dire straits when faced with a dearth of resources”. I find it not fairly hard to locate an accurate equivalent in Chinese to fully bear the wealth of implications. Indeed, “Yankee ingenuity” is in fact where the nowadays much-lauded  “entrepreneurship” and “innovativeness” derive from. In the Bay state, one sees everywhere the upholding of tradition by the “politically-oriented” Massachusetts people. They not only have “the Spirit of America” engraved on their license plates, but also composed a song with “the Spirit of America” as its title and sing it widely as the unofficial state song.

With a deep understanding of and a warm respect for the history and culture, incumbent Massachusetts governor, Deval L. Patrick, stated proudly so in his first inaugural address: “Massachusetts invented America. American ideals were first spoken here, first dreamed about here… In so many ways, our struggle, our sacrifice, our optimism shaped the institutions and advanced the ideals of the nation.”  “Massachusetts invented America”, how boldly declared! This declaration, causing statewide and lasting resonance in the Commonwealth, was spread and eulogized broadly.

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       It took a long process of gestation and development before the “innovative spirit”grew into an “innovation economy”. With indomitable entrepreneurship, early pilgrims survived the many hardships and promoted the prosperity of business. Massachusetts and throughout the New England region have been leading America’s industrialization ever since they became the birthplace of the nation’s First Industrial Revolution in the mid-nineteenth century. As early as 1920s and 1930s, Massachusetts had witnessed economic transformation and industrial restructuring, both of which quietly carried on during the Great Depression. Starting from the latter part of World War II, as traditional industries accelerated outward migration and the federal government increased R & D investments, high-tech industries began to burgeon and grow in the Bay state. In 1950s and onward, scientists and engineers from the Massachusetts Institute of Technology set out one after another to found high-tech enterprises in suburbs along Route 128, and a variety of resources that had long been stored up in the Greater Boston area swiftly integrated. A large number of entrepreneurial scientists and science-minded entrepreneurs embarked on the journey to open up the brand new field of “innovation economics” with innovative practices.

The thirty years from 1950s to 1980s steeled Massachusetts and got it well prepared for a powerful display of high-tech economy in mid 1980s. Overnight, Route 128 was known as “America’s Technology Highway”, and “Massachusetts Miracle” became a buzzword. However, such happy days did not last long. In late 1980s, Massachusetts once again sank into recession and stagnation. Compared to the shower of praises on Silicon Valley, Massachusetts and Route 128 were mourned by many. It was a moment when the Massachusetts people showed extraordinary courage and calmness. Self-collected, they adhered to a unique path of development and meanwhile, looked to other regions for successful experiences. A desperate counterattack was going on under a seemingly tranquil surface! From the birth of “Massachusetts Miracle” and its disillusionment, to the economy’s resurgence in late 1990s and finally to its prominent position nowadays, the ups and downs are worth a careful study.

Innovation economy has taken on new features in Massachusetts. Firstly, the industrial structure shows a tendency of diversification. Massachusetts’ high-tech industry, commonly viewed as being dominated by computer, information technology and the defense industry, actually includes other areas like financial services, bio-medicine, medical equipment, precision machinery, robotics industry, clean energy, architecture design and social media, all of which have achieved a leading place in the nation. Secondly, a multi-polar industrial layout has developed in Massachusetts. Route 128 remains the core location for high-tech industries, but has extended to Interstate 495. Areas along the subway Red Line and the Innovation District in South Boston have also attracted a considerable number of enterprises and research institutions. In addition to Boston and Cambridge, such satellite towns as Springfield, Worcester, Bedford and Woburn too formed industrial parks with distinctive functions. Thirdly, multilateral collaboration constitutes the impetus for econimic development. While solidifying its own edge, Massachusetts draws on development lessons from other emerging high-tech industrial clusters, Silicon Valley being only one of them, and has nurtured a positive cooperation mechanism made up by universities, research institutions, financial and consulting agencies, enterprises and the government. Cross-industry, cross-sectoral and interdisciplinary scientific and industrial development projects came up in an endless fashion, contributing to the regional economic prosperity. These new trends and features are all built upon innvation economy; in other words, the innovative practices carried out by the various economic elements on all level of economic activities are the fundamental driving force. Put differently, economic growth relies primarily on knowledge creation, technological innovation and entrepreneurship. Scott Kirsner, an active Massachusetts economist and columnist on innovation economics, articulates in his article “Innovation City”, “Boston is a city that attracts people who want to work in industries that have existed here since Massachusetts was a British colony; it is also the city for those who believe that the only industry worth working in is the one they’re about to create.”  Referring to Boston, these words are in fact a true portrayal of the entire Commonwealth of Massachusetts.

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      “Innovation economy” is a new term born from the unremitting exploration and successful practice of innovation in Massachusetts. The term makes most frequent appearances in innovation economy index reports and is largely promoted through the efforts of media and consulting agencies in the Greater Boston area. The academic discussion of “innovation”, however, needs to be traced to the classical definition in Joseph Schumpeter’s 1942 book Capitalism, Socialism and Democracy.  In Schumpeter’s opinion, “creative destruction”, as an intrinsic factor of capitalism, describes the phenomenon that commercial enterprises under capitalism destroy and eliminate old technologies and production systems through innovation competition (rather than price competition), break the original market equilibrium and establish a new production system and market order, gaining lucrative profits in the process. Such a concept opened the gate to innovation, from where a novel school of economics-innovation economics- emerged. Attending closely to knowledge, technology, entrepreneurship and the role innovation plays in economic growth, innovation economists, however, rarely use the term “innovation economy”. Similarly, the word “innovation”, in spite of being widely applied in the daily lives of ordinary Americans and broadly employed in the fields of politics, economy, culture and education, is in definition still mainly confined to the scope of technology and economic activities. When I was exploring a new regional development strategy for Changping in 2007 as mayor of the district, I looked extensively for the word “innovation economy” in the literature of innovation economics, but failed to find any. So I summarized my strategy as “ to vigorously develop laboratory economy and build an integrated regional innovation system of industry, academia and research”. As I did not have the access to documents in Massachusetts, I chose “laboratory economy” to carry my idea. Now thinking about it, “Innovation economy” would have been a more appropriate pick.

Guided by the “innovation prophet” Schumpeter, a series of glittering names such as Paul Romer, Elhanan Helpman, Brian Arthur, Robert Axtell, Eric Beinhocker, Richard R. Nelson, Richard Lipsey, Michael Porter and Christopher Freeman stand one after the other as signposts on the “innovation avenue”. The latest progress and breakthrough with innovation economics would have to be Michael Porter’s theory of national and regional competitive advantage. The aforementioned state competitiveness index issued by Suffolk University is exactly based on the measurement system put forward by Porter in discussing national and regional competitive advantage, i.e. eight groups of more than forty indicators altogether with a stress on per capita income and the capacity of sustainable economic growth. Schumpeter was a Harvard professor, so is Porter. From regional competitiveness to innovation economy index, the two reports echo each other, on both of which Massachusetts singles itself out. Can we conclude then, “innovation economy leading regional development” will be the next research subject for innovation economics?

No matter how the academic prospects of “Innovation economics” turn out to be, Massachusetts in THE place to feel the tremendous vitality brought about by “innovation” and “innovation economy”.  Thanks to my previous career experience, I have kept paying special attention to Governor Patrick’s political agenda and performance since I arrived here. His overall political agenda does revolve around “innovation economy” and his daily schedule is filled with innovation businesses: laying the foundation for innovation district, cutting the ribbon of school innovation laboratory, addressing at an annual student conference of history and innovation, proclaiming Massachusetts “innovation month”, writing an open letter to encourage student entrepreneurs and signing Social Innovation Compact with non-profit non-govrenmental agencies, to name only a few. Hardworking, pragmatic and full of pioneering spirits, the governor has won good wills and respect from his citizens. A vigorous advocate for the use of clean energy, an enthusiastic participator in the Race to Top program funded by the US Department of Education, a top leader in the social innovation program Pay for Success, Patrick has been faithfully practicing Obama’s innovation initiatives all along.

Deval Patrick, a Democrat, an African American, is rumored to have very close personal connections with Obama. Will this Democratic political star help Obama keep Mitt Romney, former governor of Massachusetts, away from the White House? How much would Massachusetts, as a preliminary manifestation of the power and significance of innovation economy, assist Obama with his final race in November? Let’s wait and see!

References:

Cowen, Tyler. The great stagnation: how America ate all the low-hanging fruit of modern history, got sick, and will (eventually) feel better. New York: Dutton, 2011.

Kao, John. Innovation Nation: how America is losing its innovation edge, why it matters, and what we can do to get it back. New York: Free Press, c2007.

Kirsner, Scott. “Innovation City”. The Good City. Ed. Emily Hiestand and Ande Zellman. Boston, Massachusetts: Beacon Press, c2004. 58-73.

“MIT’s 150 Ideas, Inventions and Innovations that Helped Shape Our World.” May 15, 2011. < http://www.boston.com/news/education/higher/specials/mit150/mitlist/ >

Porter, Michael E. The Competitive Advantage of Nations. New York: the Free Press, 1990.

Saxenian, Annalee. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge, MA: Harvard University Press, 1994

Schumpeter, Joseph A. Capitalism, Socialism and Democracy. New York and London: Harper & Brothers, 1942.

Vanhoenacker, Mark. “Don’t Mess with the Bay State” . May 14, 2012. <http://www.slate.com/articles/news_and_politics/politics/2012/05/massachusetts_is_the_best_state_in_the_union_.html >

A Chinese version of the article can be found at Sina Financial and Economics Blog.