You say you want a research institution, eh?

The buzz this week in Idaho Economic Development land is the newly formed Idaho Technology Council. You can read all about it at the Idaho Business Review.

This is a great and welcome effort, and desperately needed in our state. The only thing that immediately concerns me is that the players in this effort do not seem to understand the price of the things they hope to achieve. What is it that they are asking for? Here’s some snippets from the IBR’s reporting:

“Idaho’s growth as a technology center has cooled, and the Idaho economy cannot afford that,” stated ITC Chairman Rich Raimondi, a recently retired vice president at Hewlett-Packard. “We know the priorities to re-energize growth in this critical sector are human capital, public policy, financial capital and research and development, and we have formed committees with leaders from across the state to work those issues.”

and

“Growing an innovation economy starts with the government, whether it’s federal or state; then it’s research institutions; then it goes to the commercialization of intellectual property. From there you get industry, access to capital and the last part is quality work force.”

Human capital. Research and development. Research institutions. That’s what they want.

And that IS what will work to drive the economy here.

But does anyone realize what this will cost? I do. Here’s the current (at least as of 2007) financial capacity of the WAC and Mountain West Universities as measured by endowments:

1. Hawaii - $ 3 billion
2. Texas Christian University - $1.1 billion
3. BYU $1 billion
4. San Diego State - ($115/ but shares Cal State pool of $875 mm)
5. University of Utah - $700 million
6. La. Tech - ($656 shared)
7. UNLV - $500 million
8. University of New Mexico - $385 million
9. University of Wyoming - $304 million
10. Reno - $240 million
11. Colorado State - $193 million
12. U of Idaho - $188 million
13. New Mexico State - $175 million
14. Utah State - $130 million
15. Fresno State - $113million
16. Boise State - $74 million
17. San Jose State - $50 million
18. Air Force - $15 million (only has a 2 yr old endowment)

So - the picture here is pretty clear. BSU is at the bottom of the pack when it comes to having a big pot of money to fund world-class faculty, graduate students, and lab space. U of I isn’t much better. In this group, the University of Utah is clearly the research powerhouse - but look what they have to operate with: a $700 million endowment.

Don’t get me wrong - in a perfect world we’d do what was necessary to achieve the vision of the Technology Council. However, as I have noted before, there certainly isn’t the private capacity in Idaho to do what this group hopes. If there was sufficient private ability to fund Idaho’s universities at the level of say, the University of Utah, then the “Destination Distinction” capital campaign at Boise State would have a far bigger goal than $175 million. But that goal is the realistic capacity of the private sector in this state.

So that leaves government (and research grants which is another topic entirely) to make up the difference. But with current state support of Boise State running about 22% of BSU’s budget, it’s pretty clear that the requisite financial support of Idaho’s universities is not going to come from the public sector.

Mind you, the Mountain West and the WAC are two of the poorer conference in academe. What if we wanted Idaho’s Universities to be competitive with say, the PAC TEN (which is every Bronco fan’s dream conference) or the Big-10. Well here’s what the financial picture looks like for those schools:

PAC 10

1. Stanford University - $17.2 billion
2. University of Southern California - $3.7 billion
3. University of Washington - $3.2 billion
4. University of California - $2.8 billion
5. University of California, Los Angeles - $2.6 billion
6. Washington State University - $678 million
7. The University of Arizona - $519 million
8. University of Oregon - $498 million
9. Oregon State University - $476 million
10. Arizona State University - $407 million

Wanna be a player in Stanford’s league? Never gonna happen. Even if Boise State is successful in its capital campaign, it still won’t even have half the endowment of ASU. In fact, BSU and U of I combined don’t have the money that ASU has.

What about the Big-10?

Michigan - $7.1 billion
Northwestern - $6.5 billion
Minnesota - $2.8 billion
Ohio State - $2.3 billion
Purdue - $1.8 billion
Penn State - $1.6 billion
Wisconsin - $1.6 billion
Indiana - $1.6 billion
Illinois - $1.5 billion
Michigan State - $1.2 billion
Iowa - $1.0 billion

There is a reason that Michigan, Northwestern, Minnesota, and Wisconsin have world renowned schools of business and/or economics. There is a reason that Illinois has a legendary super computer center. There is a reason that Indiana graduates armies of engineers. MONEY. These schools are rich, rich, rich and can attract the best faculty in the world to their ranks. That is another reason that even the “poorest” school on this list, Iowa, attracts TEN TIMES the research grants of Boise State (Iowa hauls in about $400 million ANNUALLY in research grants and contracts; Boise State is nearing $40 million). They have a lot of money to hire killer faculty that do cutting edge research.

So. You say you want a research institution, eh? Now at least, you know what it’s gonna cost.

Blanchard v. Florida: Why Patents per Capita is a Poor Economic Indicator

I am not the first person to question assumptions Richard Florida made in his path-breaking book Rise of the Creative Class, and I will not be the last. That is how science works. One scholars lays out a theory and his evidence, and others begin testing that theory and that evidence. So this is not an attempt to hammer Professor Florida’s research, which is clearly one of the most important economic development theories of the last decade. What I hope to do here is show that the research has limitations and economic developers using it should be aware of that.

In Rise of the Creative Class Florida uses the oft used indicator “patents per capita” as a proxy for a city’s capacity for innovation. That metric shows that Boise is #1 in the United States in patents per capita, and regional leaders and economic developers make decisions based upon what they THINK that metric means. But “patents per capita” as an indicator isn’t only not useful, it’s not helpful - in fact it’s harmful. Here’s why.

Patents are a negative right.

What does that mean? As my colleague David Gabrieli, the former director of licensing at Amazon.com points out, it means that patents don’t grant the right to commercialize an invention, it grants the patent holder the right to exclude everyone else from commercializing that invention or innovation unless granted a license from the patent holder. That is very different. Many companies simply make tweaks to products and technologies they already control and file for patents to build their “patent portfolio.” For example if ACME technologies has a patent on LED technology it is in the company’s best interest to file as many patents as possible in that field to 1) keep competitors at bay, 2) strengthen its ability to sue suspected infringers, and 3) to maximize the profits available from licensing deals on said patent. A patent is no guarantee that anyone will commercialize anything so if it is economic development or economic potential you are trying to measure, this is the wrong metric.

A current patent report is five year old information.

A patent application takes YEARS to go through the process, so by the time we get the Stoel Rives Patent Report for Idaho, the information we are looking at is for patents that were filed as many as a half-dozen years ago. Is any of that technology even current anymore? We don’t know that. But what we do know for sure is that the even the most recent report showing awarded patents is not a valid indicator of current capacity because it is measuring past activity.

On to the Florida specific critique:

Florida’s analysis doesn’t throw out the outliers.

Let’s say that we accept the idea that ‘patents per capita’ is a valid measure of a City’s ability (although it isn’t). But if it were, we’d still need the numbers to be calculated in a reliable manner and they aren’t. let me illustrate. Let’s say that I am a mortgage broker and I have three men in a room that I want to qualify to purchase homes in a fancy new gated subdivision, and the data I have says that the average (arithmetic mean) income of the three is $366,000. Exciting news! Or is it? What if I told you that one of the men earned $1,000,000 per year, and the other two each earned $50,000 per year. Hmmm. That’s not so good - the only guy that can qualify on anything more than a 1976 single wide is the millionaire. Point of the story is that the “mean” income statistic is almost totally useless. Same with the “patents per capita” statistic. It’s simply patents awarded divided by Boise’s population - an arithmetic mean - and in Boise’s calculation you’ve got a couple millionaires (Micron and HP) and a whole bunch of poor people.

The fact is, Micron and HP account for nearly 70% of all patent activity in Boise. Aside from that there isn’t much going on on the patent front. So if we want a reliable gauge of the overall innovation potential in the Boise Valley we HAVE to throw out the outliers - Micron and HP.

Patents per capita is a bogus way to measure innovation capacity because too many people equate innovation with commercialization - and patents are not a valid measure of commercialization potential. I’d like to see Professor Florida’s crew get rid of that metric in future editions of Rise of the Creative Class, but they probably won’t. But they could spend some time throwing the outliers out and refactoring the analysis to paint at least a reliable picture of a city’s supposed innovation potential. The problem with leaving the analysis as-is, is that people listen to Professor Florida’s ideas, and well they should - Rise is one of the most discussed and implemented pieces of social science to come out in a long time. Because of that it is critical that the numbers reflect actuality and not give cities a false impression of innovation capacity.

For Boise, the message should be clear: read Florida and believe the hype about having more patents per capita than any city in America, or acknowledge that HP and Micron are carrying all the weight around here and get to work developing some new sectors. That hype won’t pay the bills, and patents per capita is no measure of a city’s ability to innovate.