A Brookings Institution report says the Keystone State is falling behind when it comes to innovation.
Photo: Reading Eagle, Bill Uhrich | Working in the LaunchBox incubator at the GoggleWorks are left to right Kim Monjoy, Rich Gripprich, Dele Olawe and Mimi Kolb
WRITTEN BY ADAM RICHTER
SUNDAY OCTOBER 6, 2019 01:27 PM
READING, PA — The distance between Philadelphia and Pittsburgh is 300 miles and change, depending on which route you take.
That gap is more than just geographical. It's also economic.
In August, the Brookings Institute released a report looking at the state of Pennsylvania's innovation economy, warning that the commonwealth is falling behind in the knowledge-driven economy that propels most advanced industries.
This conclusion is significant because, according to the report, titled “Ideas for Pennsylvania's Innovation Economy,” advanced industries conduct the most private-sector research and development, hire the highest proportion of STEM (science, technology, engineering and math) workers and produce the majority of American exports. Workers in those industries earn nearly twice as much on average as their counterparts in other industries.
Most of that growth is taking place in the Philadelphia and Pittsburgh metropolitan areas say Robert Maxim and Mark Muro, the authors of the Brookings Institution report.
“And while advanced industries employment is more diffuse throughout the state due to the presence of advanced manufacturing and energy industries in some smaller counties, Philadelphia and Pittsburgh still have a disproportionate share,” the report says.
“Even if Pennsylvania's topline innovation performance is improved, if the benefits are concentrated in only a few areas then it will depress the overall positive impact for citizens and communities.”
So what does that mean about the middle?
“Berks County is getting ahead of the game,” said Kevin Murphy, executive director of the Berks County Community Foundation.
Murphy noted that the county fared well in jobs growth and in the number of patents per person — two measures that the Brookings Institution report weighed in evaluating the state as a whole.
The report also noted that the only counties in Pennsylvania that saw net employment growth since 2008 are those with 250,000 or more people. Berks County's population was 420,152 according to the 2018 U.S. Census estimate.
The state of innovation
Pennsylvania has a strong contingent of research universities. The University of Pennsylvania, University of Pittsburgh and Carnegie Mellon University are ranked in the top 25 of schools nationally for technology transfer and innovation. The state's higher-education institutions outperform the country when it comes to research and development as a share of gross domestic product, the Brookings Institution says.
The report cites the Ben Franklin Technology Partnership, created during the administration of Gov. Dick Thornburgh, as a “national model for technology-based economic development.”
But the state hasn't developed an innovation strategy in nearly a decade and a half, according to Brookings. In 2005 the state published TechFormation, a report that looked at the innovation economy. It was the last report the state commissioned on that sector of the economy.
More significantly, Pennsylvania stopped investing in innovation. After the 2008 Great Recession, the legislature reduced funding for Ben Franklin Technology Partners. The 2019-20 appropriation of $14.5 million is nearly half of the pre-recession amount of $28 million.
Pennsylvania's overall investment in research and development, technology transfer and commercialization fell 71% from 2009 to 2016, the report says: From a little over 0.6% in 2009 to less than 0.2% in 2016 — and the latter was an increase from 2015.
The Brookings Institution report says it's not about the money: “Continuing disagreement over the state's role in economic development remains a major reason why state public support for innovation initiatives remains below pre-recession levels. However, that is not the case elsewhere in the country.”
The report looked at four obstacles that Pennsylvania faces that keep it from becoming more competitive with other states:
Lack of a state innovation strategy.
Stagnating R & D.
Declining venture capital, meaning less money available to invest in startups.
The aforementioned gap between the state's two big innovation centers and the rest of Pennsylvania.
How businesses grow
Laura Eppler, chief marketing officer for Ben Franklin Technology Partners of Northeastern Pennsylvania, agrees that the state needs to do more to encourage innovation.
“Pennsylvania needs to continue to shore up its investment in innovation,” she said.
Philadelphia, cited in the Brookings Institution report as a bright spot in the state's innovation economy, has a different ecosystem than the northeast region — which, as defined by Ben Franklin Technology Partners, includes Berks County.
As the Brookings Institution report notes, though, the state has not funded Ben Franklin Technology Partners at nearly the level it did before the Great Recession.
Eppler said a recently commissioned report showed that Ben Franklin returns $3.90 to the state for every $1 invested.
Innovation in Berks
Connie Faylor is the Ben Franklin Technology Partnership's regional manager for Greater Reading and Berks and Schuylkill counties. From her perspective, Berks County is doing well when it comes to innovation.
“I'm really pleased with a lot of the progress we have been seeing in the city,” Faylor said.
Most of what Faylor sees with local companies is “process innovation” — that is, changes to how things are made rather than the invention of new products. That might explain why, as the Brookings Institute report points out, Pennsylvania lags behind the rest of the country in producing patents — a key indicator of innovation.
“I really feel like the companies I work with are focused on innovation,” Faylor said.
Reading's Jumpstart Incubator, a space for startups in the Berks County Community Foundation building at North Third and Court streets, is part of the Ben Franklin Business Incubator Network. The space has been home to 60 companies since opening in 2012, 46 of which are still in business, according to the incubator's website.
It's not the only one in Berks. Penn State Berks has its own startup incubator. The Berks LaunchBox opened in the GoggleWorks Center for the Arts in January, just two blocks away from the Jumpstart Incubator.
Walt Fuller, Penn State Berks' director of continuing education, said much of the R & D in Berks is already happening at some of the largest companies in the county: Carpenter, East Penn and EnerSys, to name three. EnerSys recently moved its R&D to the area, Fuller said.
“I think that there's stuff that's going on that isn't getting picked up in the Brookings report,” he said.
Murphy also noted progress in the county that wouldn't appear, citing the innovations in the battery industry that makes up a huge part of the local economy.
Fuller said that the LaunchBox is ideally located — a short drive from the Penn State Berks campus as well as close to resources in downtown Reading — and provides startup businesses the resources they need to grow.
“LaunchBox is trying to further develop the entrepreneurial ecosystem within the community,” he said.
As part of that, the facility has been working with the Reading School District, Fuller said, and offers classes in 3-D printing that are open to the public.
What can be done?
There is no single right answer to Pennsylvania's innovation problem, Instead, the report's authors point to examples from other states as ideas the commonwealth could adapt.
Take venture-capital funding, which in Pennsylvania has been decimated since the 2000s, according to Maxim and Muro. Colorado has an Advanced Industries Accelerator, which provides grants to support startups, promote product development and “enhance the state's advanced industries ecosystem.”
Tennessee, meanwhile, offers tax credits for investors that put their own money into early stage companies.
While not many states are as geographically split as Pennsylvania, others do face the challenge of innovation centers isolated from the rest of their respective states. And some of them have come up with ways to fix it.
North Carolina gives grants to selected cities outside its two big innovation centers (the Raleigh-Durham-Chapel Hill triangle and Charlotte) to develop and enhance innovation capacity.
Massachusetts has an initiative to expand broadband across the state. Connecticut established a public-private partnership to help support startup companies and share knowledge in four communities.
Whatever solutions state officials find, Maxim and Muro warn against the perils of doing nothing: Pennsylvania will continue to fall behind other states in competitiveness. The state can improve its standing, they write, if officials can set aside political differences and come up with a new and inclusive economic strategy.
“This will require not only proactive investments,” they write, “but also a recognition that every region in the state — rural, urban, and everywhere in-between — has a shared interest in mutual success.”
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