Universities and Regional Development

Austan Goolsbee (a professor in economics at the University of Chicago) advises regions in the US to think twice about jumping the ‘Sillicon Valley Bandwagon’. In an article in the New York Times he claims that funding local universities as a strategy for regional economic development is not likely to work. The need for caution is based mainly on the mobility of graduates and researchers.

Students from local colleges, frequently move out of state when they graduate:

If Stanford can hatch world-famous companies around Palo Alto, politicians assume, their colleges can, too. But with so many trying to spin universities away from their traditional academic focus into engines of economic development, it is worth considering whether investing in local universities can achieve that goal. This strategy is based on the view that research done by professors can form the basis for local start-up companies and that the graduates of the university can supply the entrepreneurs and employees.

But advocates should remember an old maxim of economic development: Beware of investing in things that can move. As it turns out, graduates and research ideas both tend to move around a lot. Subsidizing teaching is problematic as a development strategy because graduates frequently move out of state.

And ideas and inventions – even in the form of patents – are of little use when the scientists that invented them, leave. Or in the words of Lynne Zucker and Michael Darby, when they become ‘disembodied discoveries‘:

They looked at such factors as having successful patents at universities or where highly influential science articles had originated. They found little evidence that the ideas helped local businesses any more than businesses in other areas. The one thing the study does find to be consistently associated with high-tech start-ups is the presence of star scientists – not the ideas, which can be copied, but the scientists themselves. This seems to be the one way in which a university can be used as an engine of business growth.

The importance of star scientists brings Goolsbee to the comparison with American Baseball:

Trying to make some town into the next Silicon Valley by attracting the best scientists is rather like trying to start a new baseball team and turn it into the New York Yankees. If dozens of sports-mad billionaire team owners can’t do that, how easy would it be for the economic development office at the University of Texas, Arlington?

What is worse, it is a safe bet that as these development incentives become a primary motivation for financing higher education, the competition among universities for stars will start looking much more like today’s baseball scene. Ambitious state university systems will find it easier to steal the stars of another team than to develop their own prospects. As a result, salaries will go through the roof – just as in baseball. And while everyone pays more, only a tiny number of cities will ever win the World Series. One will increasingly hear about how the costs of college are rising everywhere and that local economies have little to show for it.

The university’s role in regional development is popular issue in higher education and innovation policies around the world, especially in Europe. So will these arguments be valid for other countries as well? I think it depends a bit on how you define the region. In the narrow definition of regions this can be the case. For instance, supporting a university in northern Finland might benefit the Helsinki region in the south more than the investing region itself. So yes, the local and regional governments should think about these arguments when planning for their own Silicon Valley. However, because the funding of universities in many countries comes to a large extent from national sources (not local or regional) the creation of these high tech areas are usually elements of a larger national innovation policy (especially in smaller countries).

If we compare the US states with countries, the mobility of graduates and star scientists might present a serious problem. If star scientists and graduates move to other countries, the national investments in these graduates and in the research of the scientists will not benefit the investing country but the host country. On the other hand, I think the mobility of graduates and scientists between the US States and between the US universities is significantly higher than between other countries and their universities.

Maybe the concept of the ‘star scientists’ is even very American in itself… One thing is for sure. Luring top scientists with the salaries of baseball players won’t help a lot outside the US. The salaries of football players and a comparison with the Champions League might do a better job at that.

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