Doing What Comes Naturally: Economic Growth

Editor’s note: This article is part of an occasional series on the connection between investment in universities and economic growth. Jay Schalin’s paper “State Investment in Universities: Rethinking the Economic Impact” includes an appendix summarizing the history of three key high-tech areas, Silicon Valley, Massachusetts’ Route 128, and North Carolina’s Research Triangle Park. This article is adapted from the discussion of the Route 128 Corridor. See below for additional Pope Center articles on economic growth. 

If there’s one thing establishment politicians seem to agree on, it is that high-tech economic development needs to be a coordinated effort between government, universities, and the community’s business leaders. After all, businesses must be attracted to an area from somewhere else, and it takes careful planning and additional incentives to do so, right?

Actually, no, according to MIT economist Nancy S. Dorfman, whose research focuses on innovation and high tech industry.  Way back in 1983, she reviewed the history of the Route 128 corridor as a “regional high-technology economy” (in an article for the journal Policy Review). And she discovered that the emergence and later resurgence of Boston’s Route 128 high-tech corridor occurred “indigenously” and “spontaneously.”

By indigenously, she meant that the expansion depended on “the growth of existing firms and the start-up of new ones by entrepreneurs with roots in the state,” instead of from companies moving operations into the area. “Spontaneously” refers to the way this growth occurred naturally within the business community (with an assist from the large number of universities in the area)—“unabetted by efforts on the part of local interest groups or government.” 

The lack of involvement includes the universities’ administrations. While the existence of Harvard and MIT was crucial to the establishment of Boston as a high-tech center  (Dorfman cites MIT’s staff and graduates as the “single most important source of entrepreneurs to the region”), neither Harvard nor MIT explicitly sought to involve themselves in local economic development, she writes.

Instead, Dorfman credits Boston’s boom in the late 1970s to what she called “agglomeration” effects, or “external economies of scale.” This means that local growth in the size and number of the firms in a specific industry (and its related industries) make an area an attractive place for a firm in that industry to conduct business. As Dorfman suggests, there are “important advantages in locating near to complementary and competitive enterprises.”

Natural resources play almost no part in determining whether an area is suited to development of a high tech cluster. The two most important factors are a labor force with the appropriate skills and an existing “technological infrastructure,” Dorfman says.

The Boston area satisfies both of these requirements. It has perhaps the country’s highest concentration of institutes of higher learning, producing large numbers of potential knowledge workers. Harvard and MIT are among the world’s preeminent research universities—their faculty and graduate students are at the forefront of scientific knowledge.

The city has also been a center of the electronics industry since the turn of the twentieth century. Dorfman cites Edward Roberts, the founder of the MIT Entrepreneurship Center, who “located more than 175 new Massachusetts firms that had been founded by former full-time employees” of MIT “during the 1960s alone.” Roberts also felt he had not discovered every such firm. And 80 percent of the firms survived at least five years. Roberts also “found 39 firms that had spun off from one large employer alone in Massachusetts.”

The 1970s were a difficult time for manufacturers in the United States. Overseas competition was ending U.S. domination of the international markets, and the end of the Vietnam War meant a severe downturn in military contracts. Boston’s manufacturers faced the same problems as the rest of the country.

But because of its educational facilities and industrial past, the city was fully poised to take advantage of the start of the high tech’s rise in the 1970s and 80s. It already had what Dorfman identifies as the essential elements of a high tech infrastructure: a network of “job-shoppers” who could custom-make circuit boards, precision machine shops, electronics components manufacturers, and a university faculty able to perform cutting-edge research and consulting.

Starting a high-tech enterprise is much more difficult in an area where these elements are not present, according to Dorfman: “While parts and sub-assemblies can, in principle, be ordered from out-of-state, in the design stage, close contact with suppliers is more than a convenience….”

Other resources that can help are a good transportation system, venture capital, the availability of buildings or building sites and a good quality of life to attract and keep professional workers.

But at the heart of an economic cluster is entrepreneurship. And entrepreneurs tend to come from two sources: academia and existing industries. The Boston area had both.

Other recent Pope Center articles about universities and economic growth:

 A Conversation on Innovation with a “Master Inventor” by Jay Schalin

The Quest for Economic Growth by Jane S. Shaw

Magic Elixir for Growth or Economic Snake Oil? by Jay Schalin

True Believers by Jay Schalin