Restarting America's Job Creation Engine

Friday, July 15, 2011
National Governors Association Annual Meeting, Salt Lake City, Utah

In seeking a solution to America's current economic quandary, it would be hard to think of any group closer to the action than the nation's governors: You carry an extraordinary burden of leadership, both in addressing the human suffering and budget impacts of the lingering global downturn, and in trying to chart a course to a brighter economic future for your states, so I join you today with a sense of great responsibility, as I share some thoughts about how to revive America's innovation-based economy.

I took a look at your state-of-the-state presentations, and I found, across the country, a sobering unity of concern:

  • From Maine's Governor LePage: "Our budget is a jobs bill."
  • From Governor Kasich: "The enemy in Ohio right now is joblessness."
  • Governor Snyder said Michigan's "Job One is Jobs."
  • Governor Sandoval declared that "The key is to get Nevada working again."
  • From Governor Bentley: "My highest priority for Alabama is creating jobs."
  • And Governor Scott called the Florida legislature into emergency session, because, as he put it, "For the 1.1 million Floridians out of work, it is an emergency."


I also learned, in the words of one NGA staffer, that, "Governors like to DO things." So there's really just one question before us: What can we do, together, to restart America's job-creation machine? I believe the answer lies in retooling the engine that has driven wave after wave of economic growth since the end of World War II: America's innovation system. Today, I want to provide a clear picture of how that innovation system works and outline what we can do to make it work even better.

Our innovation system comes to life from the spark of scientific discovery and invention. However, the kind of innovation that drives real economic growth goes beyond a cool idea or an incremental improvement on an old practice or product. We are driving for innovations that produce big new ideas, based in science or technology, that can be transformed into market-ready products, innovations that can create new markets, sometimes even new industries, and that create a future different from, and better than, the present.

Innovations like:

  • Realtime, networked computing, radical advances that transformed computers from overgrown calculators used by a handful of scientists into the communications infrastructure of our entire society.
  • Or PET scans, which allow doctors to pinpoint malignant tumors without invasive procedures.
  • Or lasers, which were once arcane scientific tools (no one knew what they'd be good for) that now lend their power to mere mortals as we scan barcodes at the checkout counter, burn CDs, or have our vision corrected.
  • Or drug-eluting coronary stents, among the medical miracles that reduced death from heart disease and stroke by 63% over the last 30 years.
  • Or the air traffic control technology that most of depended on to come to today's meeting.
  • Or GPS, a technology invented for positioning nuclear missiles that now offers a universal tool to find your way to a hospital, a job interview or the nearest Starbucks.
  • Or eBooks, which enable us to carry everywhere more books than we will ever have time to read.
  • And even a big-idea innovation like Google.


Today, these are all now routine tools, but each one represents a science-based innovation that made a big impact in the marketplace and in our daily lives. All these life-changing innovations have one thing in common: they grew out of advanced research, conducted with federal research dollars, at US universities, and they were translated into market-ready ideas by US entrepreneurs and companies that have made a dramatic impact on our economy.

That is America's innovation system at work. It is a direct descendant of the investment-based research and development system the US invented to develop the technologies, like radar and the atomic bomb, that won World War II. In effect, presidents Truman and Eisenhower, working with Congress and guided by visionary scientific advisors, recognized that the strategy of investing in advanced scientific research that had produced incredible, war-winning results could produce technologies that would win in peacetime, too. As a result, across the country, from Texas to Michigan, California to Georgia, North Carolina to Pennsylvania and Massachusetts, federal research investments re-invented American universities as powerhouses of modern scientific and technological research. The ideas that flowed out of academic labs helped deliver huge gains in productivity and employment, by fueling one innovation wave after another: Electronics and semiconductors in the 1960s and '70's; mainframe and mini computers in the 70's and 80's; personal computing and the Internet in the 90's, and, in the late 1990s, biotech.

The cumulative effect of the IT, or information technology, wave in the 1990s, for example, produced one of the most successful periods in our recent economic history. From 1995 through 2000, the US sustained annual GDP growth around 4.2% and productivity growth of 3.5% – stunning results for a mature economy. We also saw real income growth for everyone, not just those at the very top. The IT wave was transformative: over the decade of the 1990s, the US economy created 22 million net new jobs, or 2.2 million jobs a year. Comparing that to our current, lackluster jobs growth only underscores the importance of the innovation agenda today.

In fact, economists have shown that since World War II, more than half of US economic growth can be attributed to technological innovation, much of it springing from federally funded, advanced scientific research. Not surprisingly, technology-based companies often have a disproportionately positive impact on their local economies. When they sell products into national and global markets, they draw money into the local economy from outside, unlike a new service-based company, like a dry cleaner or restaurant. Those external markets also give technology-based firms the wherewithal to scale up. That represents a powerful engine of job creation. To give just one example: MIT alumni found new companies at a staggering pace – well over 900 a year. But of all the companies they found, those based on technology account for nearly 92 percent of the aggregate company revenues and 85 percent of all the jobs created. Technology companies simply pack a tremendous economic punch. What's more – and this is very important – economists with the Kauffman Foundation have determined that the companies that produce the most jobs are new ones. In fact, since 1980, nearly all net job creation has come from companies less than five years old.

If our innovation system has such power, then, where is it now, when we really need it? How can we crank it up to produce more new, job-generating, economy-building companies? I am happy to report that our innovation system is alive and mostly well. At the same time, I believe that we could make it much more effective. So let me offer a quick case study that shows how the system works, at its best. This example happens to come from MIT, but the same kind of story is unfolding at research universities in your own states. As we go along, I'll draw out five underlying rules we can build on, to rev up America's innovation economy.

Like many great American tales of innovation, this one begins with a family that came to the United States for our political freedom, for our educational opportunities and for our economic possibilities. As a boy of six, Yet-Ming Chiang arrived with his family from Taiwan; by 16, he was a naturalized US citizen. He got into MIT, and, thanks to significant financial assistance, he earned his bachelor's degree in materials science. (That's the study of the structure of substances like metals, plastics, and concrete and of how to improve them, to make them stronger, lighter, less expensive or less toxic.)

As a student, he learned to do frontline, hands-on research by working in an MIT professor's lab. At MIT, more than 85 percent of our undergraduates do this kind of advanced research, side-by-side with faculty; they're learning by doing, at the frontiers of human knowledge.

So, Rule One: Attract brilliant strivers and help them get all the education and hands-on experience they can handle.
Continuing at MIT, Yet-Ming earned a doctorate and joined our faculty in 1984. As a product of MIT's intensely entrepreneurial culture, within a few years he had started his first company, while continuing to teach and to run his MIT research lab.

Rule Two: Scientists and engineers can make great entrepreneurs – but an entrepreneurial culture helps them flourish.
In 2001, supported by a Basic Energy Sciences grant from the US Department of Energy, Yet-Ming made a fundamental breakthrough in how to manipulate the structure of lithium ions at the nanoscale, to improve the performance of batteries. MIT's Technology Licensing Office helped him secure the proper patents, and he connected with veteran entrepreneurs in the MIT community who helped guide the development of a new company. Within a year, with $8.3 million in venture capital, they launched a new start-up. The following year, thanks to another DOE grant for "Small Business Innovation Research," they hit on another, and ultimately far more important, breakthrough battery concept.

Rule Three: Growing new ideas takes money – from the right source at the right time.
Today, Professor Yet-Ming Chiang continues his teaching and research at MIT. He is also the co-founder of A123 Systems, a young, rapidly growing company that's helping to invent the future of batteries for electric cars. With almost 400 issued or pending patents and more than $97 million in annual sales, A123 Systems is already manufacturing millions of batteries a year, for power tools, aviation, motor bikes, Formula One race cars and, most recently, the Fisker Karma hybrid electric car. A123 batteries also power hybrid bus fleets in New York City, Houston, San Francisco, Seattle and other cities. With 100 million road miles logged to date, that represents the largest lithium ion vehicle effort in the world.

On the research side, A123 employs 250 people at sites close to MIT, so they can stay plugged into a clean-tech innovation cluster that includes an ambitious university research community; educated workers; small and large firms in related sectors; and supportive state and local government. (Massachusetts is now home to more than 400 clean-tech companies – 44 in MIT's hometown of Cambridge.)

Rule Four: Innovation clusters are powerful – and they get stronger as they grow.
A123's manufacturing story is instructive, too. Important advances in conventional lithium-ion battery technology emerged from federally funded research at the University of Texas at Austin and at the California Institute of Technology. Even with these innovations in hand, however, the US lost the market advantage because we allowed the manufacturing to go abroad to Korea, China and Japan.

When A123 started up, they knew it would be tough to enter electronics fields dominated by those nations, so they hit on an unusual niche for their advanced batteries: power tools for Black and Decker. They used this niche to master their technology and production and then moved on to making batteries for transportation. Their sophisticated new plant in Livonia, Michigan, makes batteries for hybrid and electric vehicles – the largest lithium-ion battery factory in America. This advanced manufacturing plant employs nearly 800 Michigan workers, about half of whom were jobless until A123 came to town.

Rule Five: If we want to make US jobs, we can't just make ideas here – we have to make the products here.
That is the A123 story so far. What can we learn from this? That there is nothing wrong with America's innovation system that we cannot fix, together, but we need to re-commit to each of its elements. Let me wrap up by reviewing those rules, once more – this time with a few "to-dos."

Rule One: Attract brilliant strivers – and help them get all the education and hands-on experience they can handle.
To serve our homegrown "brilliant strivers," we must dramatically improve science and engineering education and increase the number of US graduates in those fields. The US now trails more than 16 nations in Europe and Asia in the proportion of 24-year-olds with bachelor's degrees in engineering and the natural sciences. What's more, from 1989 to 2003, the number of American science and engineering PhDs remained constant, at an average of 26,600 a year. Yet over the same period, in the same fields, PhDs awarded in China shot up from 1,000 to 12,000. The trend speaks for itself.

I know the NGA is developing a range of ideas for making public higher education more accessible and more relevant. MIT is contributing with something we call OpenCourseWare: we put the materials for 2,000 of our courses online, open to anyone in the world, free. We even have a special set of course materials, Highlights for High School, geared to serve high school students and their teachers, with some terrific material for AP courses and exams.

We also need to capitalize on this country's ability to attract talent from all over the world – a secret of America's success for centuries. Forty percent of MIT's current faculty members were born abroad. More than half of Silicon Valley start-ups are launched by people who were born outside the United States. We should insist that Congress encourage this dynamic by revamping the arcane immigration laws for highly educated workers. We must make it simple for foreign students who earn advanced degrees here, to stay here, so they can start companies and create jobs.

Rule Two: Scientists and engineers can make great entrepreneurs – but an entrepreneurial culture helps them flourish.
Every research university, public and private, can do more to build up its entrepreneurial culture:

  • Encourage faculty and students to launch start-ups, and build curricula and mentor networks to teach them how;
  • License technology seamlessly and fast, to get products into the market;
  • Run start-up competitions to inspire, test-drive and showcase entrepreneurial teams;
  • And organize alumni entrepreneurs to advise the fledgling ones. They do it for free, and then they thank you for the opportunity.


That last idea may sound crazy, but at MIT, our Venture Mentoring Service, started and run by alumni volunteers with less than $3 million in funding over 10 years, has helped launch 142 ventures that have raised $850 million in external financing. Our "VMS" has also helped more than 20 other groups launch their own venture mentoring services, from the University of Miami and Mississippi State to economic development agencies in St. Louis and Chicago.

Rule Three: Growing new ideas takes money – from the right source at the right time.
From his time as a venture capitalist, Governor Snyder can tell us that there is surely a "right time" for VC money to back a new idea. However, if we want big, breakthrough innovations to drive our economy, there is no substitute for strong, sustained federal funding for advanced, early-stage research. That kind of funding generated the IT and biotech innovation waves. Today, new technology sectors, now on the launch pad, are poised to spur new innovation waves and the jobs that go with them: clean energy, robotics, advanced materials, the convergence of the life and engineering sciences in biomedicine and beyond. These innovation waves are hanging in the balance; will we let other nations lead them, or will we seize their potential for American workers? If we let Congress take away research funding, we will lose out on the innovation waves and the jobs that come with them.

Rule Four: Innovation clusters are powerful – and they get stronger as they grow.
Fortunately, innovation clusters don't pop up randomly: We can build them, if universities, business and government work together to amplify the density and intensity of their research communities. North Carolina's corporate, academic and government leaders triggered an economic boom by building Research Triangle Park in the space between their three leading universities and filling it with technology companies that could benefit from university research. Between 1970 and 2007, employment in that region more than tripled.

Rule Five: If we want to make US jobs, we can't just make ideas here – we have to make the products here.
Unfortunately, no amount of innovation will be enough if we ship all of our manufacturing abroad. America remains the world's second largest manufacturer, but with so many nations copying our innovation model, we must stake our bets on the kind of advanced manufacturing the future demands.

President Obama recently asked me, and Dow Chemical CEO, Andy Liveris, to co-chair an industry-university task force to accelerate America's progress in advanced manufacturing. At the six universities and eight companies now on the steering committee of the Advanced Manufacturing Partnership (AMP), there is much enthusiasm and lots of great work emerging on this new frontier. However, the workers for this new era of advanced manufacturing will predominantly come from your high schools and community colleges and engineering schools, so I invite you to join us in making this a true national effort. In the NGA report released today, you outline ways to get American companies working closely with community colleges so that American students will be prepared for tomorrow's jobs. I welcome any other ideas you may have for how we can use advanced manufacturing to deliver the most value from our innovation system.

I want to close with a reflection on our cultural assumptions and a call to change them. At a recent panel on innovation, the moderator asked me why any entrepreneur would go to college, since we all know the legends of some very successful college drop-outs. Let me be clear: innovations that drive lasting economic growth emerge from the most advanced science, mathematics and technology. A123's nanophosphate lithium ion battery technology draws on chemistry and engineering that is simply not taught in high school.

We need our brightest young women and men to value advanced education and invention as much as they love football and basketball. We need them to understand that the smart phones and video games and music players they covet were invented by real people – just like them – and that science and engineering can offer them the power to become not merely the world's consumers and spectators, but its makers and doers, the inventors and creators who will restore American prosperity.

As we focus on the hard work ahead – of making higher education more affordable, of reforming immigration, of leading the charge for federally funded research, of building entrepreneurial ecosystems and innovation clusters, and of seizing the opportunities of advanced manufacturing – I urge you to do something simpler, too. Please: Celebrate your states' inventors and entrepreneurs. Make them your students' heroes today, so your students can be the heroes who turn the lights on in America's factories tomorrow.

Watch the video on C-SPAN