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Capturing Your Competitive Future in a Global Economy

  • Date: 09/30/2008
  • Author: Luis M. Proenza (President, The University of Akron)
  • Location: Henan University, China
  • Thank you for your kind introduction, and I bring you greetings from the United States of America. 

    I am pleased with the opportunity to be with you, as The University of Akron takes its initial steps in hosting a Confucius Institute to promote Chinese language and culture in our region and strengthen our relationship with the Chinese Ministry of Education.

    And, thank you for the invitation to share some thoughts and perspectives on the issues facing universities as we all work to advance economic development opportunities.

    With the Summer Olympics still fresh in everyone's mind, the People's Republic of China can take great pride in the way it showcased its country, its culture and its friendliness to one of the largest, global audiences ever.  In fact, the opening and closing ceremonies had production value of such high quality that it may never be duplicated. 

    You certainly made a positive impression on the world community.  And it is obvious that China is, and will continue to be, a major player in the rapidly evolving global economy. 

    In fact, China's astonishing economic growth is unparalleled.  And, it is no secret that China overtook the United States in 2003 as the top global recipient of foreign direct investment.1

    Today, "China is the United States' 3rd largest trading partner and the fastest growing market for U.S. trade exports."2

    "... (China's) world share of high-technology-manufacturing value added has more than quadrupled during the past decade"... and it "...is the highest ranked high-technology exporter of the six large developing economies.  According to the U.S. National Science Foundation, China was ranked fourth a decade ago, moving to second in 1999 and to first in 2002."3

    In a speech to a China-U.S. Relations Conference last year in Washington, D.C., former U.S. Secretary of Commerce Barbara Hackman Franklin stated that "...U.S.-China relations is the most important bilateral relationship in the world.  We must continue to work to build trust between our governments, our businesses, our educational institutions, our cultural activities and our people.  Our two countries can be an enormous positive force for economic growth and stability around the world."4

    The many transformations taking place worldwide - the "seismic rumbles of change," to use a phrase by Chuck Vest, the President Emeritus of MIT- are plunging research universities into cross-currents and rapids that already are transforming traditional paradigms for research and graduate education - to say nothing about the relationships between academia, industry, and government.

    Increasingly, as if on a roller coaster, we are thrown into peaks and valleys and sudden twists and turns - sometimes only to end up where we started.

    With these thoughts in mind, let me now share with you some of my perspectives on globalization and how we can capture our competitive future in the new global economy.

    Globalization is a process by which the peoples of the world are moving increasingly toward one another.  It involves dimensions of social, cultural, technological, and economic change, which characterize the movement of our civilization away from the parochial and toward the global or universal.

    As pervasive, new technology and innovation change the way we all do business, companies worldwide must retool and sometimes unbundle parts of their workforce, thus creating new job responsibilities and subsequent training needs . . . and stimulating economic growth, which adds new jobs at a rate just a bit faster than it destroys old jobs.

    Business Week magazine reports that globalization could well become the great equalizer. "(It) has created millions of jobs...and a cornucopia of affordable goods for Western consumers." 5

    "It has brought phone service to some 300 million households in developing nations and a transfer of nearly $2 trillion from rich countries to poor through equity, bond investments, and commercial loans."6

    "And now the Internet is poised to narrow the commercial and cultural gulfs separating rich nations from poor even further in the decade to come."7

    By making possible the sharing of vast amounts of information virtually instantaneously, advances in telecommunications and computers offer the world unprecedented opportunities to increase the international standard of living.  As we expand our knowledge, we expand our worth. Indeed, science and technology speak the universal language that is the driving force behind globalization.

    In his article, "Globalization and Higher Education: Challenges for the 21st Century," the vice chancellor of Kingston University in London, Peter Scott, states that "Globalization implies a radical reordering of the status quo as new regional blocs emerge and old enemies become new allies (and vice versa) and national boundaries are rendered obsolete by the transgressive tendencies of high technology and mass culture."8

    Globalization reflects the rise of market capitalism around the world, and involves an "intensified collaboration" as well as "a global division of labor." Further, Globalization "...transcends international borders and political subdivisions."9

    And much of the same phenomena are affecting nations, regions and cities whose economic interests and activities intersect to create "clusters."

    If you look at a nighttime satellite photo of the Earth, you will see many illuminated clusters shining brightly from urban centers and other high concentrations of population and business activity.

    What you do not see, however, are boundaries - no boundaries to define Henan Province; no boundaries to separate my hometown of Akron from other major cities in that region.

    I have been privileged for many years to work with the Council on Competitiveness in Washington, DC, and serving on a steering committee for the Council's Clusters of Innovation Initiative, which was headed by Michael Porter of Harvard.10

    Porter tells us that "Cluster boundaries rarely conform to standard industrial classification systems, (because such systems) fail to capture many important actors in competition as well as linkages across industries."11

    In short, economies transcend artificial political boundaries and reflect regional concentrations of industrial activity that capture strengths and economies of scale.  And, somewhere strategically centered within the cluster, one usually will find a university that is helping drive that economic activity. 

    That said, let me focus on universities as engines for economic development through research and the production of new knowledge. 

    There are four principle ways in which higher education contributes to local and regional economic development.

    The FIRST and perhaps the most widely understood economic development role of higher education is in workforce development. Successful economic development, first and foremost requires successful workforce development, and worldwide it remains the number one issue for business.

    Whether by taking what they have learned in our classrooms and laboratories and applying it in their new jobs, or by moving from one workplace to another after college, people bring what they have learned into the workplace. 

    It is estimated that approximately 95 percent of all transfer of knowledge and know-how occurs by people interacting as they move from one place to another.

    In today's knowledge-based economy, you see, human capital is business capital.

    The Council on Competitiveness reports that jobs requiring technical skills will grow by 51% in the next decade, and it cautions that - with the exception of the life sciences -- undergraduate science and engineering degree production in the U.S. is expected to remain flat or even to decline.

    The SECOND role that higher education plays is as a basic revenue-generating industry with all of its related "multipliers" - that is, university revenues from sponsored research, tuition, support service fees and appropriations, all providing jobs and paying for services in the community.

    For example, according to Business Week magazine, international students constitute the fifth-largest export industry in the service sector of the U.S.  economy.

    And higher education is a growth industry worldwide because the market is increasingly sending a signal to everyone who needs gainful employment: Education pays!

    The THIRD way in which universities are engines for economic development is through the production of new knowledge through research.  By competing for federal and corporate dollars, the talented men and women who comprise university faculties bring to their communities monies that would not otherwise be there. 

    Successful economic development requires progressive innovations that will improve the competitiveness of existing industries, as well as lead to the creation of new industries.

    Indeed, economists agree that creation of new technological knowledge through research is our most direct economic avenue for acquiring added value.

    When that new knowledge is quantified in a market environment, it creates fuller employment, capital formation, growing profits, and surpluses for reinvestment.

    In other words, it is from research that new companies are born, that new jobs are created; it is from research that new wealth is created and the economy expands.

    So it is only natural that research should be considered as a fundamental driver for economic development, and that is why higher education is the infrastructure of their new economy.

    According to the U.S. National Academy of Sciences, science-driven technology has accounted for more than one-half of the growth in the U.S. economy over the past 50 years, and two-thirds of the 80% growth in economic productivity since 1995 can be attributed to information technology alone.

    At The University of Akron, for example, research provided the intellectual property that served to fuel and diversify the industrial base of Akron, transforming it from the rubber capital into the polymer capital of the world, and helping to reinvent our region through its discoveries in polymer research.


    Founded 138 years ago, in 1870, The University of Akron grew up alongside the rubber industry that emerged in Akron in the mid 1870s. It offered the world's first academic program in rubber chemistry and continued to shape its R&D interests alongside those of industry. Today, The University of Akron's intense focus on polymers has enabled us to take significant leadership among our industrial and medical partners.

    Whether by publishing the results or by consulting, college and university faculty enable the discovery and dissemination of new knowledge.

    Yes, universities are powerful engines that drive economic development, and they do so because of their role in new knowledge creation and the innovation that it brings about.

    The FOURTH role of universities in economic development is through intellectual property transfer, such as the licensing of patents, copyrights, process know-how, and the start up of new businesses.

    Indeed, at the turn of the century, it was knowledge creation and its transfer that enabled the agricultural and industrial revolutions in the United States.  And during World War II, research was vital to the war effort.

    Such research laid the groundwork for technological leaps in medicine, aviation, energy and electronics - developments that today affect virtually every realm of our human endeavors.

    And with the development of transistors, the era of microelectronics commenced, and from such modest beginnings, we are now immersed in the information age.

    U.S. research related to the Space Race not only resulted in Americans walking on the moon...but also gave rise to the Space Industry and enabled new technologies in satellite communications, computer science, robotics and miniaturization.

    As recently as 1970, a single discovery in molecular biology initiated the new industry of biotechnology, an industry from which we are now seeing dramatic advances in medical science and the introduction of effective new technologies such as the production of human insulin by factories of microorganisms.

    University technology transfer in the U.S. was first publicly recognized with the Morrill Act of 1862 that created our Land Grant schools, giving them the responsibility of advancing "agriculture and the mechanical arts."

    In the 1920s, many U.S. universities established research foundations as they recognized that research discoveries had proprietary value that could be licensed or sold and that they could then use the proceeds to help fuel more research.

    With the emergence of the microelectronics and biotechnology revolutions, the United States Congress was persuaded that much federally funded research was not being effectively utilized because few investors were willing to risk the resources needed to launch major new ventures without that proprietary interest, so that much intellectual property went by the wayside.

    Congress therefore enacted the Bayh-Dole Act in 1980 and granted to recipients of federal funding, such as colleges and universities, title to any discovery based on that funding, adding the responsibility to do everything possible to see that such discoveries found themselves to the public through the private sector.

    The passage of Bayh-Dole brought about a dramatic increase in the patenting and commercialization of intellectual property by colleges and universities. We have seen a more than 10-fold increase in the rate of patenting, from about 250 per year to more than 3,700 patents issued per year to academic institutions. Concomitantly, there are now over 7,500 revenue-generating licenses, and the annual rate of new company formation is now approaching 400.12

    Indeed, recent testimony before the United States' President's Council of Advisors on Science and Technology (PCAST), on which I serve, shows that Bayh-Dole has been a resounding success, and intellectual property is fast becoming the property right of greatest economic value over real and personal property rights.

    You see, it is no longer only a company's tangible assets such as equipment, land, and inventory that matter in its valuation by market analysts. 

    A significant portion of company value is now tied to its intangible assets, including human capital and intellectual property, and corporate CEOs now worry that their most valuable assets go down the elevator and out the door every night!

    However, the game of technology transfer presupposes that there is something to transfer.  Nothing can happen without an exceptionally strong research base or in the absence of an entrepreneurial environment, because the number of technologies to be transferred is directly proportional to the size, or horsepower, of the research engine.

    The Association of University Technology Managers has studied the average conversion ratios between the size of research portfolios and the number of intellectual properties produced.

    Specifically, at the best U.S. universities, it can be shown that approximately $5 million of research activity is needed to generate one patent.  Therefore, the larger the research portfolio, the better the probability of tech transfer.

    So it follows that several of our U.S. universities, including Akron, are forming new enterprises, and the process is continuing.

    In today's global-based economy, knowledge is universal, and staying close to the source of knowledge creation is not just a good idea; it is a business necessity.

    That is why Donald Alstadt, the former chairman and CEO of the Lord Corporation, maintained an office at each of 10 or 15 universities, so that he could be the first to "mine" new knowledge and technology and thus gain a competitive edge for his company.

    Yet the reverse is also true.  Knowledge needs to stay close to the marketplace and its workforce.  Duke University's Fuqua School of Business is developing a network of branch campus around the world of what its Dean calls a "physical presence of real scope and scale."13

    Finally, we have initiated a significant commercialization engine: The University of Akron Research Foundation - consisting of our own technology transfer personnel coupled with our programs in intellectual property law, science, engineering and business. The non-profit University of Akron Research Foundation is a model for working flexibly with industry and establishing long-term relationships that lead to future opportunities. It has achieved success through the efforts of an impressive team of professionals who understand and appreciate both the academic and commercial worlds.

    If, as I said earlier, 95 percent of all technology transfer takes place as people move from college into the workplace or from one company to another, why do we seldom include in our economic development discussion the first responsibility of every university - our responsibility as educator? What is the economic value of the role we play in teaching and training members of society, in a way that will make them productive, proactive, and inventive?

    For years, technology has held dominance in economic development discussions, perhaps because of the sheer velocity of its progress. As one analogy-happy Washington Post writer put it, if universities had progressed at the same rate as that of information technology, then a high school and college education-which still takes a total of 16 years and about $120,000-could today be completed in less than 10 minutes for about 5 cents!

    Now, I cannot imagine that we will measure the rate at which our students learn in megabytes-per-second, but I do think that we, as educators, should be giving more thought to the way in which our educational systems are structured for economic-development purposes.

    Compared with virtually all other value-producing endeavors, methods of education have developed at an extremely slow pace.  Despite the fact that the first responsibility of every university is that of educator - teaching and training members of society in a way that will make them productive, proactive and innovative - most devote precious little attention to research designed to demonstrate what works educationally.

    This paradox can perhaps be expressed if we look at how companies have optimized nearly every aspect of their supply chain. Through what I refer to as the Wal-Mart effect, large multi-national corporations have achieved unprecedented profits through systematic partnerships with suppliers to cut the pesky "middle man" expenses that had long plagued industry.

    Business has squeezed almost every ounce of efficiency out of managing time, raw materials, quality, price and performance and they have the data to prove it.

    How do we reconcile industry saying that workforce is its highest priority with its apparent inability to optimize its talent supply chain asset?

    Industry says workforce is its number one issue, but doesn't pay the same attention to its human capital supply chain as it does to the supply chain of materials and components.

    "Business" partners with "business" to improve the transfer of goods, but it fails to adequately partner with universities to facilitate the transition of students into the workforce. Indeed, there are few specifications for what industry expects from the droves of individuals entering the workforce each year.

    Since American companies spend an average of $1,000 per year per person on enhancing the skills of workers, you can understand that our economy could save about $150 billion dollars and increase its return on investment by a similar order of magnitude by managing the talent supply chain as diligently as the supply chain of materials and components.

    Thus, I suggest that it is the responsibility of universities to develop a serious academic approach to the concept of talent supply chain management.

    This topic of talent supply management leads me to a related matter. At The University of Akron we often say that "our expertise creates the new materials for the new economy," by which we mean to convey a double meaning - both with regard to our expertise in materials science and our ability to create human capital.

    For example, we know that entrepreneurs launch hundreds of thousands of new firms annually, and these new firms create 50 percent of all new jobs in America. Yet, failures in business are the norm, rather than the exception. Clearly, improved training in economics, entrepreneurship and small business ownership would be useful to improve the success of entrepreneurial efforts.

    Thus, many universities are reorganizing their entrepreneurship programs, moving them outside the Colleges of Business and into efforts that incorporate more and more students across other departments and colleges throughout a university.

    The University of Akron is creating a wide-reaching entrepreneurship program integrated in all academic and research units. It is our version of "entrepreneurship across the curriculum", if you will. The effort is a radiating, three-tiered system that includes: an awareness program that lets students  discover entrepreneurial potential, appreciation of entrepreneurial activities, and availability of resources for entrepreneurial development.

    Through our expanded efforts, we are teaching all students about the importance of entrepreneurship and, thus, advancing the role of innovation in America's economic competitiveness.

    Certainly, in this global, competitive environment, the winners enjoy success because of their ability to create and sustain new wealth. And the key to that success has been a more highly educated populace. 

    Investing in our future means investing in education, research and infrastructure, and those who don't, fall behind.  If we all are to fully utilize the talents of our students, we must make the tools of education available to more.

    "We cannot be measured by how many students we exclude, but rather by how much value we add in enabling the success of our students.

    We cannot be measured by the barriers we erect between ourselves and our communities, but by the collaborative impact that we create for each other and for our common future.

    And, we cannot be measured by the isolation of our disciplines, but by their integration as applied in solving the problems of today."

    As William Brody, president of Johns Hopkins University, wrote in Foreign Affairs magazine last year, "... the walls between academic disciplines within universities are being torn down . . .  The frontiers of research, whether in the sciences engineering or the humanities, are increasingly those places where teams of experts from multiple disciplines work together."14

    At The University of Akron, we call this concept shared leadership, and whether the collaboration is across campus or across the ocean, shared leadership is increasingly the process that fuels creative progress.

    Shared leadership is:

    • A process that derives its strength from a community working together toward a common vision, not from vested authority;
    • A process that learns from mistakes and welcomes change as the challenge of opportunity, where communication is not from the top, but throughout an organization and is disciplined by ambitious goals and aspirations;

    Shared leadership is:

    • A process that is inclusive of all, because information is shared, and each person comes to know how their individual actions contribute to the whole;
    • A process that values diversity, because two heads are better than one, and because complex organizations require multiple sources of expertise and creativity.

    Shared leadership is:

    • A process wherein there is no limit to what one can accomplish, because there is no need to take personal credit;
    • And a process wherein values are integral to the vision and where commitment is eagerly advocated because shared dreams challenge and inspire.

    History has taught us that to improve our lot as a civilization, we must make use of our collective wisdom, and that we must make use of our accumulated and emerging knowledge - rather than to rely on mere opinions or on the pretense of authority.

    In short, government is an exercise in shared leadership.

    Over time, we have come to agree as a society that those things that add value for the common good are three in number, namely investments in education, research, and infrastructure.

    This covenant that we make with ourselves is a promise that must be constantly renewed and one that must be progressively adjusted as we continue to learn and advance our knowledge.

    However, I know that it is not easy for governments to deliver on ideals.

    Although peace and prosperity are goals for every government, history shows us that they are fragile commodities. Indeed, even after this remarkable century of progress, world news tells us about warfare, starvation and sickness in many developing countries, and economic upheavals in various world markets.

    Societies, it seems, are slow to learn that prosperity is often a prerequisite to peace, and that knowledge and its dissemination are the common elements that drive economic and societal progress.

    In today's knowledge-based economy, higher education is society's infrastructure.

    Higher education is that internal system that, like the tiny pieces of a fine watch, is the basis for what makes our society tick.

    Higher education gives individuals the basis for generating the ideas and technologies that enable both personal and economic progress.

    Higher education creates knowledgeable individuals who can apply their analytical and problem-solving skills to shape our industries and our society.

    So, if a region is to become a leader in science and technology, it should follow that it should value the very mechanism that would allow it to achieve prosperity.

    And that is imperative, because science and technology will continue to play an increasingly important role in our future if we are to effectively compete in that fast-changing marketplace - if we are to capture our fair share of economic progress.

    And as the process of globalization advances, we must remember that the future is what we make of it, and I believe that the challenges of global change bring new opportunities.

    Ladies and Gentlemen, the task before us is not easy, but I say to you . . .

    Be cheerful, and plunge ahead!

    Thank you!

    ******

    References

    • 1. "Innovate America," Council on Competitiveness National Innovation Initiative Summit and Report, 2005, p. 38
    • 2. Hackman Franklin, Barbara, former U.S. Secretary of Commerce, speaking at the George H.W. Bush China-U.S. Relations Conference, October 2007, Vital Speeches of the Day, September 2008
    • 3. Science and Engineering Indicators 2008, Chapter 6, Industry, Technology and the Global Marketplace, National Science Foundation
    • 4. Hackman Franklin, Barbara, Ibid
    • 5. Business Week, November 6, 2000, p 72-100
    • 6. Business Week, Ibid
    • 7. Business Week, Ibid
    • 8. Journal of Studies in International Education, "Globalization and Higher Education: Challenges for the 21st Century", Spring 2000, p.3-10
    • 9. Journal of Studies in International Education, Ibid
    • 10. See, e.g., his recent book "On Competition," Harvard University Press, 1998, pp 197- 287
    • 11. Ibid, p. 204
    • 12. Booz Allen Hamilton, The Customer Connection, PCAST, 2007
    • 13. "Redden, Elizabeth, "An Ambitious Approach to Overseas Expansion, Inside Higher Education, September 18, 2008
    • 14. Brody, William, "College Goes Global," Foreign Affairs, March/April 2007, p. 122
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