Supporting Innovation requires Multifacited Solutions

Reports on Innovation

Technology-related industries play a significant role within the California economy.  Reviewing research into what drives these industry sectors and the underlying considtions which support innovation may be useful in preparing for the hearing. Below is a summary of 15 key reports each includes a brief summary of the report's purpose, findings and recommendations.

Summary of Reports

California's Role in the Global Economy:  New Context-New Opportunity (Doug Henton, John Melville, Tracey Grose, Tiffany Furrell; Collaborative Economics, Inc., 2008)

This report provides a diagnosis of California’s current economic situation and its unique place in an emerging global innovation network. It also has implications on what can be done to help our state and regions in these challenging times. Findings, among other issues, include: 

  • The Innovation Economy has four key elements: expertise as in new discoveries, knowledge and insights; interaction in the form of exchange of ideas and surfacing of synergy that creates new business models, marketing plans, or products; diversity to enable the mixing of perspectives to create newer, more robust ideas; and the application of these ideas to proof their values in commercialization.

  • Individuals and businesses suffer but new opportunities also emerge when economic conditions shift. California, a global center of innovation, attracts companies from all over the world as a profitable location for their R&D operations with the devaluation of the U.S. dollar.

  • New concerns about pollution and climate change will create new opportunities for California’s green technology producers and service providers.

Recommendations include:

  • California should take advantage of its position at an important nexus of the global innovation network and as a broker in the global economy.

  • Key questions include, but are not limited to, the following:

  • How can California strengthen its innovation assets?

  • What efforts can be pursued to ensure the State’s educational system (K-12 and universities) is globally competitive?

  • How can we create and support regional innovation brokers?

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Innovation America: Investing in Innovation (National Governors Association, Pew Center on the States, 2006-2007)

This report identifies a wide range of strategies on states’ direct involvement in R&D, which can spur innovation that serve specific economic and social needs within their own borders. Moreover, it provides clear guidance on how to design R & D investments that work. Findings include, but are not limited to:

  • States are building expertise by building strong research capabilities and attracting world-class talent.

  • States are orchestrating interaction by cultivating strong networks, well-designed research facilities and compact geographical areas.

  • States put people from diverse knowledge fields and cultures together.

  • States are making the application or commercialization of research by requiring university-industry partnerships and peer review prior to making investments.

Recommendations include, but not limited to:

  • States must strategically choose areas most likely to pay off in new or expanding businesses, a well-educated workforce and high paying jobs. It is not enough to find opportunities for marginal gains. The goal is to be ahead of the competition by being the pioneer or the only player.

  • A key to industry’s heart is to persuade business leaders that there is something of value for them in the effort by involving them in the earliest stages.

  • Not only should states look to areas of strength, but also relevance to their particular needs. For example, California is tackling pollution. 

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Jobs, Infrastructure & the Workforce (Doug Henton and Julie Meier Wright; Think Long Committee for California, 2011)

The purpose of this report is to set forth how California can best adapt to challenges facing its economy. In order to do so, the authors analyzed the results of over 20 years of prior reports, conducted interviews, and held discussions with more than 50 business, government academic and labor leaders from regions throughout California. Findings include, but are not limited to:

  • California is affected by most of the same factors that affect the national economy. This includes consumer spending, business and government, and world economic trends.

  • California experienced larger job losses than the nation during the recession, resulting from nearly 600,000 job losses relating to the sharp decline in housing and other construction.

  • The key factors that affect California’s economic performance are prospects for and competitiveness of the state’s key economic base factors—those industries that sell goods and services to the national and world market.

  • The California economy is a collection of diverse regional economies, each with different strengths, demographic profiles, housing prices, climates and unemployment challenges, so different economic strategies are needed.

  • The largest pool of high-wage job growth is projected to come from professional services, including computer, R&D, scientific and consulting.

  • In addition, the tourism sector and creative work from the entertainment sector will benefit from global demand.

Recommendations include, but not limited to:

  • Improving the infrastructure. Carefully evaluate alternatives to additional investment and identify innovative ways to invest.

  • Strengthen Higher Education and Workforce Development.

  • California should develop a fee structure for its Community Colleges, CSUs, and UCs that is gradual, moderate and predictable. Financial-aid packages should continue to be need based.

  • Work with the federal government to expand access to H1B visas to meet current skill shortages, favoring foreign students graduating with advanced degrees in STEM fields.

  • Continue California’s tradition of welcoming entrepreneurs, talented workers, and their families by minimizing permitting times, providing world-class customer service to residents and businesses.

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The Culture of Innovation: What Makes San Francisco Bay Area Companies Different?(Bay Area Council Economic Institute and Booz & Company Joint Report, 2012)

This report identifies the strategic, cultural, and organizational attributes that have led to the sustained success of the San Francisco Bay Area. Findings include, but are not limited to:

  • Innovation lies at the heart of the Bay Area’s economy, and the region is considered to be the world’s leading center for innovative activity, particularly in technology. In addition, the ongoing creation of new business paradigms also contributed to this distinction.

  • The Bay Area’s formula for success can be attributed to three critical factors: infrastructure (both hard and soft), finance, and culture.

  • The Bay Area hosts possibly the world’s greatest assembly of scientific research capacity. This includes five national laboratories (Lawrence Livermore, Lawrence Berkeley, Sandia, NASA Ames and the Stanford Linear Accelerator) and five leading research universities (Stanford, UC Berkeley, UC Santa Cruz, UC Davis, and UC San Francisco).

  • Another distinctive element of the Bay Area’s success is venture capital, an industry created there.

Recommendations include, but are not limited to:

  • Every company needs a clear, specific strategy—one informed by and aligned with customer needs.

  • The technical community needs to be fully aligned with top management, and technical leaders should report directly to the highest levels of the company.

  • The ability to innovate is a competitive advantage not just for companies but for entire nations.

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Entrepreneurship and Urban Success: Toward a Policy Consensus (Ewing Marion Kauffman Foundation, 2008)

This report provides a guide to policymakers and citizens to what is known about the effects of various local and state policies aimed at fostering entrepreneurially driven growth.  Findings include, but are not limited to:  

  • Policymakers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies’ growth.

  • Historically, state and local policymakers have put their energies into trying to attract existing firms from somewhere else, either to relocate to a particular area or to build new facilities there.

  • Local, state, and regional economic development centered on entrepreneurship, however, it is a fundamentally different phenomenon. The formation and growth of new firms, especially those built around new products or ways of doing things, is clearly a positive sum game, not just for the locality, but the nation as a whole.

  • Industry clusters are important to the growth of local, regional, and national economies. Universities often, but not always, are at the heart of this process, birthing new ideas and training the workforces needed to implement them.

  • State and local governments affect higher education in the direct funding of research, subsidies of student costs, and regulatory oversight.

Recommendations include:

  • The strongest consensus about the appropriate policy course occurs in the regulatory arena where there are significant gains from adopting speedy and simplified regulatory approval processes.

  • The interventions that appear to be important, but that need cost-benefit analysis, include local entrepreneurship encouragement and mentoring programs, and improvements to schools, local amenities including public safety, and transportation infrastructure.

  • State policies that target spending either on research programs or on particular industries or particular firms are the least attractive option.

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Where do Innovations come from? Transformations in the U.S. National Innovation System, 1970-2006(Fred Block and Matthew R. Keller, The Information Technology & Innovation Foundation, 2008)

The authors propose that if innovation policies are to be effective, it is critical that they are based on an accurate understanding of the U.S. innovation system, especially an understanding of where U.S. innovations come from. The purpose of the report is to gain this understanding by analyzing the sources of award-winning innovations over the past few decades. Findings include, but are not limited to:

  • Large firms are acting on their own account for a much smaller share of award-winning innovations, while innovations stemming from collaborations with spin-offs from universities and federal laboratories make up a much larger share.

  • The number of innovations that are federally-funded has increased dramatically.

  • The U.S. innovation system today is much more collaborative than it was several decades ago and the federal government is playing a much more supportive and important role in innovation. This phenomenon is due to the following factors:

  • Growing global competition shrinking technology life cycles

  • The complexity of emerging technologies is beyond the internal R & D capabilities of even the largest firms

  • The expansion of R & D capability in more industries is causing R & D investment to spread vertically in high-tech supply chains.

  • A growing number of nations are responding to the above trends by implementing new mechanisms that increase the efficiency of R & D.

Recommendations include:

  • To succeed in the future, U.S. innovation policy must help support and reinforce our natural national advantage in collaboration.

  • Funding for the U.S. government’s technology initiatives must be expanded and made more secure.

  • The coordination of these technology initiatives across the federal government, particularly those that support partnerships between firms, universities, federal laboratories, and state governments must be improved.

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California’s Edge: Keeping California Competitive, Creating Opportunity (California’s Edge Campaign, 2006)

The purpose of this report is to provide recommendations to combat the challenges that California faces. Increasingly global markets and international competition, rapid technological advancement, and an aging workforce confront this state with a critical challenge. Findings include, but are not limited to:

  • California is not one economy but a set of economic regions, so economic and workforce development needs vary widely across the state.

  • Californians with a high school diploma or less will be less able to enter high wage jobs than in the past, yet California has failed to provide all residents access to high quality postsecondary education and skills training.

  • For many Californians, there are no visible paths to high wage jobs. California’s education and training system does not ensure that individuals can progress efficiently over time from lower to high levels of skill, toward a career with a future.

Recommendations include:

  • Invest in the capacity of local/regional institutions (including Workforce Investment Boards, employer organizations, unions, community-based organizations) to connect employers, unions, individuals, and educational institutions.

  • Invest in career technical education at both high school and postsecondary levels that is responsive to the needs of the California economy and leads to high wage jobs.

  • Provide clear career pathways to and through postsecondary education and training by offering continuums of courses that provide the skills needed for high wage, high growth careers.

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An Economic Growth and Competitiveness Agenda for California (Lieutenant Governor Gavin Newsom, 2011)

This report outlines how California can retake control and drive forward again, moving California back into the lead on sustainable growth and real job creation, given that for more a decade, California has lacked a strategic, statewide economic plan. Findings include, but are not limited to:

  • The 11 largest metro areas in the state generate 92% of the goods and services sold abroad. In 2009, the Los Angeles County Economic Development Corporation engaged more than 1,000 stakeholders to develop what it considered as the first consensus-based comprehensive economic development plan for the region.

  • The clean energy economy is creating new markets, but there is global competition from Europe and Asia.

  • Regional clusters offer a powerful organizing framework for rethinking state economic development and policy programs. “Clusters, in short, provide a timely and useful lens through which to clarify what matters in economic affairs.”

Recommendations include, but are not limited to:

  • In order to accelerate the clean economy in California, the state should:

  • Apply the purchasing power of the public sector to help scale up clean tech through directives to state and local governments to move rapidly to green their operations, fleets, facilities, and construction.

  • Expand R & D investments, such as those involved in the extensive partnerships between universities, federal labs, and industry.

  • Designing a cluster-driven approach as the foundation for the state economic plan requires embracing key approaches:

  • State government must ensure that whatever policies are adopted are value-added and do not impede the good work being done on the regional level.

  • Target clusters with state-level significance and attack specific, documented constraints, institutional deficiencies and shortcomings for the allocation of resources at the state level.

  • Adjust state and regional governance structures to foster collaboration and let the private sector lead.

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Innovate 2 Innovation: An Assessment of California's Innovation Ecosystem Phase I Report(California Council on Science and Technology, 2011)

It is important for California to maintain a competitive edge in Global Innovation.  In an effort to keep California at the forefront of innovative ideas, thoughts, and trends, The California Council on Science and Technology (CCST) prepared a report for a non-partisan group of legislators, including the Chair of the Assembly Committee on Jobs, Economic Development and the Economy.  The purpose of this report was to assess California's innovation ecosystem.  Phase I serves as a preliminary survey to water issues and the role science and technology plays in California's water based industries, such industries include; agriculture, efforts to reduce greenhouse gas emissions, and air quality.  In this report, among other things, the CCST identified three opportunities for action, these initiatives include:   

  • A California Education Innovation Consortium to develop and deploy digitally enhanced tool and practices for K-16 education.

  • A Water Innovation Road Map that engages a broad segment of the science and technology community in finding innovative solutions to the water issues facing California in the next 50 years.

  • A California Innovation Initiative to cultivate our entrepreneurial ecosystem and promote the translation of research into job-creating products and services.

Recommendations include:

  • Bringing together public and private leaders charged to focus on California's innovation and competitiveness infrastructure.  

  • Create an intermediary for California's innovation ecosystem which would spur the innovation process by better leveraging the state's many research, development and business assets.

  • Produce a comprehensive California Science and Technology Index that will provide as a tool for tracking the state's progress in growing its innovation assets, improving its processes for innovation, and producing better outcomes for its communities.

  • Support the development of communities of innovation through the co-location of federal, state and private science and technology assets to address the state challenges and to promote innovation, entrepreneurship, knowledge transfer, and job creation.

  • Identify a new kind of digitally designed education process and associated products.

  • Catalyze the creation of new public-private partnerships able and willing to go to the next state of implementation.

  • Improve water-use efficiency across the economy to ensure the state's continued prosperity in the 21st century.

  • Identify opportunities for expanding markets, in and outside the state, for innovative California products that will help the state and others improve water efficiency.

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Innovate 2 Innovation: An Assessment of California's Innovation Ecosystem Phase II Report (California Council on Science and Technology, 2011) 

This report focuses on an innovation strategy and provides next steps that should be completed to help advance the three core initiatives of the Phase I report. 

California Education Innovation Consortium:  The report proposes that schools be transformed into "incubators for learning and innovation."  First steps recommend that the Consortium work with state agencies, the Legislature, and private sponsors to agree on terms of reference for an implantation plan and to secure a mandate from the state to proceed.

Water Innovation Road Map:  Primary findings related to California's water include: agricultural issues, urban issues, the connection between water, energy, and air, remote sensing and modeling, and sustainability, environmental balance and the impact of climate and population pressures.

Next steps include: Securing a state mandate to demonstrate the Legislature's interest in the CCST collaborating with the Department of Water Resources, State Water Recourses Control Board, California Energy Commission, the Public Utilities Commission, the California Air Resources Board, California Department of Food and Agriculture and other agencies and constituencies to develop the California Water Future Innovation Road Map.
A plan looking ahead 10, 25, 50 years in the future that should identify where science and technology can be applied to long-term management of California's water system. 

California Innovation Initiative:  California's future competitiveness depends on addressing three fundamental challenges:

  • Educating, retaining, and attracting enough scientists and engineers to grow our innovation economy.

  • Ensuring that our educational institutions research labs, and industries work collaboratively to translate the state's research into products that generate jobs of Californians.

  • Support entrepreneurial leadership and create a statewide business climate that supports the formation, growth and retention of innovation industries.  

  • To address the challenges identified the CCST recommends that the state develop a California Innovation Corporation to be defined by the following characteristics: collaboration, and advisory board, establishment of a nonprofit corporation, and obtaining adequate funding.

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The 2010 State New Economy Index: Benchmarking Economic Transformation in the States (Robert D. Atkinson and Scott Andes, The Information Technology and Innovation Foundation, 2010)

The purpose of this report is to measure the economic structure of states and focus narrowly on one question: To what degree does the structure of state economics match the ideal structure of the new Economy? Overall, this report finds, among other things, that a total of twenty-six indicators can be classified under five categories.

  • Knowledge jobs.  Indicators measure employment of IT professionals outside the IT industry; jobs held by managers; the educational attainment of the entire workforce; immigration of knowledgeable workers; migration of domestic knowledge workers; employment in high-value-added manufacturing sectors; and employment in high-wage-traded services.

  • Globalization.  Indicators measure the export orientation of manufacturing and services, and foreign direct investment. 

  • Economic dynamism.  Indicators measure the degree of job churning (which is a product of new business startups and existing business failures); the number of Deloitte Technology Fast 500 and Inc. 500 firms; the number and value of initial public stock offerings by companies; the number of entrepreneurs starting new businesses; and the number of individual inventor patents issued.

  • Transformation to a digital economy.  Indicators measure the percentage of population online; the degree to which state and local governments use information technologies to deliver services; use of IT in the health care sector; Internet and computer use by farmers; residential business access to broadband telecommunications; and the use of information technology in the health care system. 

  • Technological innovation capacity.  Indicators measure the number of jobs in technology-producing industries; the number of scientists and engineers in the workforce; the number of patents issued; industry investment in research and development; non-industry R&D; venture capital activity; and movement toward a green-energy economy.

Recommendations include, among other things:

  • A focus on innovation to spur job creation.

  • A shift from low-skilled low-wage jobs.

  • A Shift from our traditional industrial manufacturing makeup to a twenty-first-century mix of employment in high-tech fields. 

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Urban World: Cities and the Rise of the Consuming Class (Richard Dobbs, Janna Remes, James Manyika Charlers Roxburgh, Sven Smit, Fabian Schaer, McKinsey Global Institute, 2012)

This report focuses on the major expansion of consuming classes in cities, particularly those of emerging economies, and examines the impact of their increased demand of investment in buildings and infrastructure, including ports and municipal water supply.  Finding include but are not limited to:

  • The Global Economic Balance is shifting to emerging cities.

  • Expanding urban economies are creating waves of new consumers.

  • Growing emerging market cities require investment to build capacity.

  • Businesses need to use science and art in their strategy for emerging cities.

  • The policy agenda differs in developed and emerging cities.

Recommendations include, among other things:

  • Policy makers understand that the shifting urban economic landscape is creating new challenges for governments across the globe.

  • Policy makers find ways to manage that shift in order to maximize its benefits and avoid future constraints on growth.

  • Large cities looking to sustain growth need to forge close commercial, trade, and personal links with emerging markets.

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How to Compete and Grow: A Sector Guide to Policy( James Manyika, et. al., McKinsey Global Institute, 2010)

This report seeks to prove fact – based insights to help governments make the right decisions and trade – offs, drawing on a bottom – up, sector – based approach.  Among other things, key findings in this report include:

  • The competitiveness of sectors matter more than the mix:  Countries that outperform their peers do not have a more favorable sector mix that propels them to higher growth.

  • To generate jobs, service-sector competitiveness is the key:  Service based jobs are critical for job creation – In high-income economies, service sectors accounted for all net job growth between 1995 and 2005.

  • Policy impact nontradable sector competitiveness directly – in tradable sectors, getting policy right is more complicated:  Policy maker should take into account the fact that their influence on largely nontradable "domestic" sector is more direct that it is in those sectors that compete globally.

  • Competitiveness in new innovative sectors is not enough to boost economy – wide employment and growth:  Innovative emerging sectors themselves are too small to make a difference to economy – wide growth.

Recommendations include, but are not limited to:

  • Policy makers will boost their odds of success if they take a sector view and draw on experience to learn what kinds of approaches to improving competitiveness have been effective in different sectors. 

  • Governments need to tailor policies and the rand of available policy tools to suit each sector and then implement policy in close collaboration with the private sector.

Analyze policies that demonstrate increasing intensity of intervention; examples include: setting ground rules and direction, building enablers, tilting the playing field, playing the role of principal actor.
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Finding the Sweet Spot:  Green Energy Incentives and Job Creation( The Senate Office of Oversight and Outcomes, Nancy Vogel and Korber, 2012)

At the request of the Senate Pro Tempore, this report was created to address the link between green energy incentives and job creation.  The purpose of this report is to answer one main question:  Is there a sweet spot where the state's public investment in renewable energy also captures the jobs associated with making renewable energy products?   Key findings include but are not limited to: 

  • Manufacturing jobs, subject to strong global economic forces, may be elusive for fleeting regardless of how much taxpayer money a state invests to keep them.

  • The many California policies that favor renewable energy incidentally help generate thousands of jobs in sales, design, installation, and maintenance.

  • Manufacturing jobs are a small subset of the state's renewable energy workforce.

  • The only ongoing California incentive program specifically aimed at green industry manufacturers - a sales and use tax exemption on equipment – has been used most heavily by solar companies that do small-scale production near their Silicon Valley research facilities.  Meanwhile, most operate larger factories in other states or countries.

  • In recent years, many California renewable energy companies announced plans to expand in Oregon, Mississippi, and other states offering lucrative incentives.  Some of these out-of-state expansions have been withdrawn, delayed, or short-lived. 

  • Several solar manufacturing companies, stressed by global economic forces, have failed even to use the loans or tax breaks they were awarded by California.

  • The Public Utilities Commission in 2010 awarded a massive $208 million subsidy to a single fuel cell company that now employs 1,000 in Sunnyvale – but also plan to open a 900-worker factory in Delaware.  The report documents how the company that dominated the program benefited from tailored legislation and regulatory waivers.  

Recommendations include but are not limited to:

  • Public dollars are used to maintain the state's investment in the universities and basic research that feed our culture of innovation. 

  • Program recommendations for legislator and regulators:

  • Consider creating a public green bank that would offer loans to promising young companies facing he challenge of bring a new technology to market. 

  • Include provisions in new incentive program, whenever feasible, to ensure taxpayers are compensated if subsidized companies fail to deliver on promises. 

  • Review current incentive programs carefully to make sure they will be effective.

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Impact at Scale, Policy Innovation for Institutional Investment with Social and Environmental Benefit (David Wood, Ben Thornley, Katie Grace, The Rockefeller Foundation, 2012)

This paper is designed to facilitate effective policy making catalyzes impact investment from institutional asset owners.  This report will respond to these key points:

  • Institutional asset owners offer the potential for capital at scale, though carefully crafted public policies are likely necessary to achieve this potential.

  • To be successful, policy must take into account the rules and conventions that guide institutional investment practices; and

  • There is a relatively robust body of practice on which impact investment policy can build.

Findings for a policy framework for institutional impact investing include but are not limited to:

  • Direct capital to invest ancillary goals in mind.

  • Provide support for the creating of new intermediaries and products.

  • Disseminate information on the social and financial performance of impact investments.

This report recommends policymakers and advocates keep several points in mind as they engage asset owners around impact investing.

  • Institutional asset owners have a set of shared characteristics to understand how to mobilize institutional capital.

  • A number of institutional asset owners already engage in impact investment, but often by other names such as responsible investment or economically targeted investment.  The impact investment community cab build on this history and these practices.

  • As a starting point for policy development, policy makers might focus on the social and environmental impacts institutional asset owners and their beneficiaries already care about.  If these impacts serve a public purpose and can be realized in capital markets, a strong case can be made for policy that addresses the legal market barrier that suppress this activity. 

  • Applying the policy framework to U.S. institutional investors reveals a breadth of activity in investing for social and environmental benefit and a potentially expansive approach to engagement strategies and policy tools for government to build more robust and sustainable impact investing markets.

To most effectively engage institutional asset owners, policymakers should consider the various points of leverage they have in the investment ecosystem.

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