The Risks of Betting Wrong

The upside of the public discussion over the American Recovery and Reinvestment Act (ARRA) is that the President’s pledge of transparency is being played out faithfully at the State and Federal levels. The downside – to those in the business of innovation – is that the wisdom of the bets being placed can be so quickly second-guessed.

These bets being placed are plainly visible in California. To their credit, the State has published a map of projects funded by the stimulus package. What is disproportionately clear at first and extended glance, however, is that the State’s top priority is overwhelmingly transportation.

These investments have included some effort in the applications of innovation and in the life sciences more broadly, including the Governor’s allied health workforce initiative launched in April. The Bay Area regional response, admirably assembled amidst the choir of voices by our colleagues at the Bay Area Economic Institute, includes one joint venture between UCSF and BayBio member Tethys Bioscience which holds unique promise for the use of the power of biotechnology for public health benefit. The share of these investments being devoted to innovation falls far short of the need, however.

Federally, there are a host of stimulus investments with direct implications for the life sciences. From tax benefits to the NIH to science education, there are ingredients that will have long-term meaning to this industry.

Federal Information on ARRA

Learn more about science in the ARRA on these Departmental Sites:

http://www.nsf.gov/recovery/
http://www.hhs.gov/recovery/
http://www.nih.gov/recovery/
http://www.nist.gov/recovery/
http://www.energy.gov/recovery/
http://www.nasa.gov/recovery/
http://www.sba.gov/recovery/
http://www.commerce.gov/Recovery/

To stimulate private sector investing, a bonus depreciation or partial tax rebate for capital expenditures is extended for life sciences companies. For training, the Department of Labor receives $3.95 billion for training, most of which is general. Of specific interest to the biotechnology industry are a $750 million category for high-growth industry training and $1.25 billion for re-training of dislocated workers into new professions.

NIH will receive $8.5 billion for research grants and $1.5 billion to upgrade research facilities. Life sciences researchers and patient groups have been pushing for higher NIH funding in recent years, as the agency’s budget failed to keep up with medical inflation after doubling from 1998 to 2003.

An additional $21 million over two years has been allocated for educational opportunities in NIH-funded laboratories for students and science educators. In addition, the NSF receives $400 million for upgrading science classrooms through new research equipment and facilities.

California’s share of the global life sciences industry has always been a point of pride. Investing in the infrastructure to support the R&D phase of an industry’s development and maturation does not ensure the capture of its downstream opportunities, however.

Does California have an interest in the downstream applications of the life sciences? An infinite interest, might every researcher, environmentalist and policymaker assert (these diverse perspectives align on many life sciences applications. Please see related story, “Redefining Triple-Bottom Line”).

Even in the climate of this dramatic budget situation, California can and must do better to develop its innovation portfolio. The State’s organization of its investments falls short of peer governments, especially considering the economic prowess of the seventh largest economy in the world.

Peer states with a cabinet level post in innovation are too numerous to mention. A few examples are given below, but it is equally poignant to consider – before everything else – that in the home of Silicon Valley, the birthplace of biotechnology, and around the headquarters of Google, Apple, Cisco, and so many investors who define innovation worldwide, California ranks below its peer states in the role of innovation in its policy agenda – when it should be concerned with being first, above all others.

National economies of similar size range from the UK and Germany to France, Brazil and Spain. At a level below the supergovernmental Lisbon Agenda, the role of innovation is very clear in economic strategies across the globe.

In Japan, the priority placed on innovation is embodied in the Innovation 25 Agenda.

In the United Kingdom, the innovation portfolio is managed by the Department of Business, Innovation and Skills.

In Germany, the same programs are administered by the Federal Ministry for Economics and Technology and the Federal Ministry for Education and Research. Between them, a national innovation strategy emerges.

In Brazil, the innovation agenda is run by the Brazilian Innovation Agency.

There could be those who suggest that these parallels are imperfect, as each of these is a sovereign power. Back here on the domestic front, California is much larger than states with better plans to build around innovation.

Between entities like TEDCO and the Maryland Biotechnology Center, Maryland has organized the execution of its innovation strategy like few others. Texas is developing its investments in six critical innovation sectors through the Texas Emerging Technology Fund.

Why is this level of management important? To begin, regions, states and nations which do not place an emphasis on innovation are bound to find themselves competing for second – or fiftieth. Michigan is in a great deal of economic trouble, and its automotive industry has missed decades of opportunity to innovate.

Twice in the last two years, the Governor has visited an innovative company in Union City which received some R&D funding from the California Energy Commission. As a result, it pays royalties for discoveries made from those projects (a common practice worldwide, to be sure). Where do those royalties go? Who is the steward in the Administration responsible for putting this program together with other R&D investments made by the State? Who watches to identify opportunities for these proceeds to revolve into new innovation investments? At present, there is no single, unifying, go-to person in the State Government.

We work with partners in the legislative and executive branches of government every day. They work hard, and they are doing the best they can. Unfortunately, they are not given much to work with.

California is the home to countless world-leading examples of innovation in the private sector. It is high time the public sector found its way to placing innovation at the heart of its entire strategy, and established its place as a world-leading example at the same time.

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Interested in getting involved in this debate? Available to visit Sacramento or Washington with BayBio? Contact the BayBio team at (650) 871-7101 or express interest in becoming involved to info@baybio.org.