CHIPS and Science Highlights: Regional Innovation
The passage of the much-discussed “Chips and Science Act” (CHIPS+) promises an injection of more than $50 billion to energize the U.S. semiconductor industry. This is a catalyzing moment. And yes, it represents an investment slightly larger than the Apollo Program, in real terms.
The long list of new programs funded and authorized in CHIPS+ includes a flagship program of the National Science Foundation’s Technology Innovation and Partnerships Directorate (NSF TIP), the first new Directorate to be created at the NSF since the C+C Music Factory was topping the charts. The NSF Regional Innovation Engines Program (colloquially called NSF Engines), now officially authorized by Congress, joins a series of aggressive investments in regional cluster development programs at other agencies. These contemporary programs include the Economic Development Administration’s Build Back Better Regional Challenge and Good Jobs Challenge, which represent a combined $1.5 billion in appropriations.
CHIPS+ also includes an additional authorization (if not funding) for the EDA’s work to develop regional innovation capacity across the country, including two major elements: a $10 billion regional tech hub program with outposts in every EDA region and a $1 billion tech hub development program intended “distressed communities” (originally included in the Recompete Act).
These three new programs, NSF Engines, Tech Hubs and Recompete, plus existing programs like BBBRC and GJC, represent a massive proposed investment in building regional innovation clusters. Both legislation and the zeitgeist dictate that these investments will be distributed across the country, virtually guaranteeing geographic inclusion. But as regional innovation ecosystems and cluster development efforts become the dominant mode of economic development strategy, we would do well to consider the degree to which these efforts drive broad wealth creation, creating inclusive opportunity in our communities.
But this bill’s least-discussed impact will likely be its most transformative. The CHIPS+ investment puts an exclamation point on an ongoing narrative–that the federal government has effectively declared cluster development to be the dominant way in which Washington thinks about supporting local economic development efforts.
This mode of targeting the co-location and creation of like-minded firms in a close geographic area was pioneered by Michael Porter, the father of modern competitive strategy. These groups, or clusters, of companies in a particular industry, share critical infrastructure like equipment, space, and talent in ways that maximize regional efficiency and increase firm productivity. “A cluster,” Porter said, “allows each member to benefit as if it had greater scale or as if it had joined with others without sacrificing its flexibility.” Building targeted, relevant, and world-class research and commercialization capacity at Universities was added as a prerequisite tenet over time. Modern cluster development theory–the economic development philosophy so central to CHIPS+–is the practice of engaging universities, government, corporations, capital providers, and entrepreneurs as stakeholders to create comparative local advantage in a global context by driving the development of a cluster of innovation-led companies.
Cluster development, however, is not always executed in an inclusive and equitable way, and it’s easy to see why. Today, many communities approach cluster development as a conversation between R1 universities, corporate executives, top government staffers, and elite economic development leaders. While these approaches are effective in driving short-term resources and focus to support these efforts, they often omit the voices and views of communities that have been systemically left behind–those that they allude to as benefitting from the increased productivity, efficiency, job creation, wealth creation, and research activity that these efforts promote. For instance: the creation of “good jobs” (and especially “good jobs” in STEM fields) is an oft-measured outcome of cluster development efforts, but people who identify as Black and Hispanic make up just 9% and 8% of the employment in STEM fields, respectively. This is a stark outcome that lays bare the failure of traditional economic development efforts to engage diverse communities in the work of cluster development. This will not change unless time and resources are dedicated to starting conversations that are shrugged off today.
Conversely, when communities that have experienced disinvestment start new innovation and small business support efforts, they seldom turn to the institutions that have left their communities underserved for decades. It is more common for grassroots efforts to emerge, led by determined local leaders, as they did in Kansas City with the development of G.I.F.T., La Placita, the Prospect Business Association, The Prospect, and others (these represent just a few of many such efforts in Kansas City alone).
This bottom-up approach has led to vibrant, innovative, and extremely well-networked small business ecosystems. In this context, trust (not funding) is the essential currency driving entrepreneurial ecosystems. Yet, trust-building is an inherently time-intensive, complex process that is seldom funded by government programs, philanthropy, or anyone else.
So how might cluster building efforts more scalably and thoughtfully engage in the trust building activities that are required to make their work more inclusive and equitable? How might the institutions leading cluster development conversations invite engagement in the process of cluster selection, when the cluster in question seems inaccessible, and therefore irrelevant to large swaths of their communities? How can we integrate the systems that have been created to support small businesses and those that support innovation-driven enterprises in ways that emphasize their interdependence, as is characteristic of true ecosystems? These are the questions that our next generation of cluster development efforts must address.
Today, as we begin to emerge from the COVID-19 pandemic, we can see the ways in which the impact has brought to light long-present inequities. For instance: only 8.6% of PPP loans were distributed to Black-owned businesses, but then again, Black-owned firms experienced persistent challenges in accessing capital relative to white-owned firms long before COVID, controlling for similar levels of creditworthiness. Yes, underserved communities were disproportionately impacted by the COVID-19 pandemic, but the systemic problems that these recent failures represent have been present for many years.
Perhaps even more troubling is the fact that we continue to build for the future without considering the fact that great ideas come from everywhere and everyone. The proliferation of new technologies is often impacted by old systems–which means that critical infrastructure for building innovation ecosystems is widening. Today, 20% of disproportionately low-income, Black, Hispanic, and rural Americans lack access to broadband–this represents, essentially, digital redlining. Clearly, the challenge of achieving equitable innovation outcomes is both urgent and systemic, as our solutions must be.
As we enter the age of cluster development and regional innovation ecosystem building, we can take comfort in knowing that geographic diversity has been designed as a condition of our investments. But to build a system in which innovation truly can come from anyone, anywhere will take trust-building. It will take time, care, and a willingness to engage unusual voices in coalition efforts. We will need to carefully consider how these efforts might have a more equitable impact than past movements to grow high-tech and deep-tech companies, in order to be successful.
We have an opportunity to design this approach into these new regional innovation funding mechanisms, just as we designed in geographic diversity. Just as importantly, we have the opportunity to proactively answer these questions in communities across the country. With that in mind, this author offers a humble prediction–that our next generation of breakout innovation clusters will be those that engage their communities most inclusively, not just those that develop efficiently.
Interagency Community Investment Committee agencies should partner with the Small Business Administration to use their existing authority and infrastructure to pilot a secondary market for their securitized debt instruments.
There are exciting things ahead for communities that participated in the NSF Engines grant program, even for those that missed out on securing funding.
At the beginning of April, the Congressional Research Service (CRS) released a landmark report outlining the scope of federal investments in regional ecosystems, something we have written about at FAS in the past. This CRS report, ‘Regional Innovation: Federal Programs and Issues for Consideration,’ does an excellent job covering the scope and scale of our massive federal investment […]
Economic innovation requires more sophisticated, focused, and better supported local economic planning. Here’s how to achieve it.