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The Smartest Places on Earth
Why Rustbelts Are the Emerging Hotspots of Global Innovation
By Fred Bakker
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Antoine van Agtmael and Fred Bakker counter recent conventional wisdom that the American and northern European economies have lost their initiative in innovation and their competitive edge by focusing on an unexpected and hopeful trend: the emerging sources of economic strength coming from areas once known as “rustbelts” that had been written off as yesterday’s story.
In these communities, a combination of forces — visionary thinkers, local universities, regional government initiatives, start-ups, and big corporations — have created “brainbelts.” Based on trust, a collaborative style of working, and freedom of thinking prevalent in America and Europe, these brainbelts are producing smart products that are transforming industries by integrating IT, sensors, big data, new materials, new discoveries, and automation. From polymers to medical devices, the brainbelts have turned the tide from cheap, outsourced production to making things smart right in our own backyard. The next emerging market may, in fact, be the West.
SHARING BRAINPOWER AND SMART MANUFACTURING
How a Rustbelt Becomes a Brainbelt
In the 1960s we had a space race. Today it is a robot race.
—DANISH TECHNOLOGICAL INSTITUTE
Despite all that we had heard and read about brainbelt areas such as Batesville and Eindhoven and many others, when we set off on our journey we confess that we still had the rustbelt stereotype in our minds. We expected to find crumbling industrial sites, to drive through dilapidated neighborhoods, to meet with people struggling hard to keep their heads above water, and to miss the enjoyment of a good glass of wine or a memorable meal.
What we discovered—about smart manufacturing and its technologies, sharing brainpower and the products being created in the brainbelts, as well as local cuisine—quickly blew those images out of our heads, even though the transformations are far from complete and have often created losers and gaping disparities in the process. A single conversation with Luis Proenza, for example, might have been enough to change our thinking (although we had many more like it). Proenza was then president of the University of Akron and had been instrumental in revitalizing the city, indeed, the whole region of Northeast Ohio, turning it into a center of excellence in the field of new materials. We met him and his group of international colleagues for dinner at a trendy restaurant in the renovated downtown area. Akron, Ohio, long the center of the global tire industry, had slipped into decline as tire production went offshore. But Proenza was brimming with enthusiasm for the region, its people and organizations, and the work they were doing, and he had a glowing vision of its future. He proudly told us that the 1,000 start-ups in the area employed more people now than the four big tire companies had in the region’s manufacturing heyday.
In Sweden, we visited Lund and the nearby city of Malmö, which had taken a serious blow in the mid-1980s when the major shipyard in the area went bankrupt, another victim of the low-cost advantage of manufacturers in Asia and elsewhere. In response, local politicians, entrepreneurs, and Lund University came together to create Ideon, Scandinavia’s first technology park, in Lund. Ericsson brought its research group to the park, as did many pharmaceutical companies. Today, the leaders of the cities of Malmö and Lund meet regularly, and Lund University is the engine that drives the corporate spin-offs that create cutting-edge products for the life-sciences industries.
In North Carolina, we visited the Research Triangle Park (RTP)—surrounded by the three university cities of Durham, Raleigh, and Chapel Hill—the first park of its kind in the United States. In its early days, the RTP had been a roaring success, attracting 170 companies and creating employment for over 40,000 people. But they operated in ways that were customary at the time—in isolated buildings hidden among trees, guarding their ideas, working in secrecy, keeping disciplines separated. As the emerging economies zoomed forward, the inevitable happened, and the RTP lost some of its cachet. What we found in 2013, however, was evidence that the new brainbelt model was spreading its wings right next door to the RTP. In Durham, Duke University had set up an incubator in the renovated buildings of the old Lucky Strike factory. In Raleigh, North Carolina State University’s Centennial Campus had become a whole new type of research campus where promising start-ups, big companies such as the Swedish-Swiss ABB and German Mann, have labs and offices right on campus, working jointly with university researchers on projects around new materials, clean energy, and smart grids. We could see young entrepreneurs everywhere.
What Sharing Brainpower Looks Like
The brainbelts of course look to leaders such as Apple and Google, Stanford University and the Massachusetts Institute of Technology (MIT), and the iconic innovation zones of Silicon Valley and Cambridge for inspiration and models, but each one develops in its own distinct ways. From our two years of research, we learned that every brainbelt—including those we visited and the many others we did not travel to—share a number of characteristics. In particular, they:
• Take on complex, multidisciplinary, and expensive challenges that could not be handled by any single player (an individual or organization) alone. The lone, iconic innovator is an outdated concept.
• Are driven by a connector, an individual or group with vision, relationships, and energy that is largely responsible for establishing and building the ecosystem.
• Operate in a collaborative ecosystem of contributors, with research universities at their center and typically composed of start-ups, established companies with a thriving research function, local government authorities, and community colleges or similar vocational institutions. Health-care institutions, such as teaching hospitals, are often a part of the ecosystem, as well.
• Focus on one, or just a few, particular disciplines or activities.
• Are open to sharing knowledge and expertise. To facilitate openness, the organizations are de-siloed. The walls between academia and industry and public governance have been taken down. The sharp separations between academic disciplines, such as chemistry, physics, mathematics, and biology, have been removed.
• Contain physical centers, such as incubators and start-up spaces, often within modernized factory or warehouse complexes, that house and encourage collaborative efforts.
• Foster an environment that acts as a magnet for talent. The area offers not only an existing talent pool in universities, research institutes, and start-ups but also non-work attractions and benefits, such as affordable housing, a variety of cafés and restaurants, good schools, and recreational activities.
• Have capital available. There is sufficient money available for investment in start-ups and spin-offs, as well as for facilities and incubators.
• Have an understanding and acknowledgment of threat. Unlike the days when corporate researchers did not worry much about outside competitive forces, people in brainbelts recognize that the region has been hit before and could be threatened again. This leads to a strong sense of identity, regional pride, and activities of continuous improvement.
Ecosystem: A Network of Organizations and Individuals, Linked by a Connector
A brainbelt is more than a collection of entities conveniently co-located in an appealing region. Each brainbelt is a tightly woven, collaborative ecosystem of contributors, typically composed of research universities, community colleges, local government authorities, established companies with a thriving research function, and start-ups, usually supported by a variety of supporters and suppliers, including venture capitalists, lawyers, design firms, and others. These different types of entities establish their own unique identity as they share knowledge, interact, form a community, grow, and improve.
Besides a major research university, a brainbelt ecosystem usually includes a major corporation, a global player, such as Intel in Portland, Oregon. Big companies bring a special and necessary ingredient to the brainbelt because they feel the cold wind of global competition more keenly than start-ups, and certainly more so than regional, technical, and educational institutions. Therefore, they understand that regional collaboration is often crucial to gaining a competitive advantage. Furthermore, researchers in big private-sector companies, like Intel, know viscerally that conducting research for its own sake is no longer tenable and their development efforts must lead to marketable products. They can no longer sequester themselves, as they once did, in the safety of well-funded R&D enclaves, devoting their careers to fascinating lines of inquiry that don’t create value for the company. The bottom line is top of mind for them, and R&D budgets are not what they used to be. These companies understand that corporate R&D, with its internal bureaucracy and hierarchy, is often stymied in developing unorthodox ideas, and thus the necessity arises to partner with outsiders that lack the capital and global organization to bring new products to market but also have fewer disciplinary barriers and bureaucratic complications. A company like Intel can offer its superfast computing in analyzing the new knowledge created by university researchers, who, in turn, are able to give them access to unique, massive data sets.
As a result, these big companies, ones that in earlier times might have worked in glorious isolation, come to feel a genuine connection with the brainbelt area. They invest in its facilities and people, which further strengthens both the company and the region. For example, Intel’s Portland campuses comprise the company’s “largest and most comprehensive site in the world—a global center of semiconductor research and manufacturing and the anchor of Oregon’s economy. The company has nearly 17,500 employees in Oregon, making it the state’s largest private employer.”1 During our tour, we saw firsthand how important the presence of global players is to all the brainbelts we visited.
The big company, however, is just one player in the brainbelt ecosystem. There is always a connector—usually an individual but sometimes an organization—with vision, relationships, determination, clout, diplomatic skills, convincing power, and energy who is largely responsible for catalyzing the sharing of brainpower among multiple entities. The style of that connector influences the way a brainbelt will develop. Sometimes the individual connector is an entrepreneur, sometimes a scientist, sometimes a local politician or administrator. Whatever background connectors may have, they have a vision for the region and the ability to take heroic action to realize it.
In Zurich, for example, the connector was Michael Collasius, CEO of the Swiss branch of the German company Qiagen Instruments.2 There were several companies in Zurich working in the field of laboratory equipment, but they did not collaborate extensively and no one of them alone could conduct the research needed to distinguish the area as a leader in the lab-equipment field. That changed when forensic researchers—major clients of the lab-equipment producers—wanted better, faster, and cheaper ways to do their work on DNA. In 2003, Collasius convinced the companies to join forces to create a research institution called ToolPoint. Today, more than thirty companies, all focused on some aspect of the creation of lab equipment (although not direct competitors), are part of the ToolPoint ecosystem. “Trust between all the participants is high,” Hans Noser, director of ToolPoint told us, “which is promoted by their proximity.”3
So, when big companies reach out, connectors bring groups together, and companies join forces in new initiatives, a community begins to develop. People start to feel a sense of identity and pride in the brainbelt. In various ways, they define a set of values and establish rules, some explicit and some tacit. Members of the brainbelt live by them in the knowledge that they can only succeed together.
Intriguingly, the strength of community often derives in part from an acknowledgment of threat. Unlike the days when corporate researchers did not worry much about outside competitive forces, people in brainbelts recognize that the region has been hit before and could be threatened again. Residents of Akron, Eindhoven, Portland, and elsewhere remember the good old days and also the troubled ones that followed. As things improve, the brainbelt comes to see itself as resilient and more able to take on new challenges as they arise.
Collaboration: Diverse Players Share Brainpower to Address Complex Challenges
The members of a brainbelt form connected ecosystems for a very particular reason: to take on complex and often expensive challenges that demand a multidisciplinary approach and cannot be handled by any single player alone. This requires a form of intensive collaboration that goes well beyond the kind of joint ventures and project partnerships we have seen in the past. These collaborations bring together people and organizations from the academic and business worlds—big companies and start-ups—with participation from government agencies as well as other players, such as philanthropists, venture capitalists, law firms, design studios, cultural institutions, incubators, public-private trade and industry organizations, and others.
This depth of collaboration between academia and commercial enterprises, in particular, is a relatively new phenomenon. Traditionally, academics and business did not mix. There were some important exceptions—most notably Bell Labs, NASA, and the US Department of Defense collaboration with industry in aerospace—but, as a rule, academics disdained entrepreneurs, and businesspeople distrusted anything that smacked of public-private partnerships.
Then, in the 1970s, that began to change. In Europe, Charles Weissmann, a professor at the Swiss Federal Institute of Technology in Zurich, founded Biogen, which became the first successful European biotech company. Now based in Cambridge, Massachusetts, it is the world’s third-largest biotechnology company. In the United States, Genentech was founded by Herbert Boyer, a biochemist, with Robert A. Swanson, a venture capitalist, to pursue work in the field of recombinant DNA technology. These firms and others presented a new model to the academic world: serious researchers with the instincts and drive of the entrepreneur creating for-profit companies driven by research and focused on the creation of breakthrough products.
Jealous of the dominance of East Coast manufacturing and finance, researchers and entrepreneurs in the West had long been eying an opportunity to make their own mark. Their breakthrough came when researchers at Stanford (with its dean of engineering, Frederick Terman, serving as connector, starting in the 1950s) teamed up with scientists-entrepreneurs to develop the transistor, the integrated circuit, the microprocessor, the PC, the inkjet printer, and the precursor of the Internet.4 Local entrepreneur Ralph Vaerst and journalist Don Hoefler coined the term “Silicon Valley” in 1971, to describe the area stretching between San Francisco and San Jose. There, where orchards once flourished, semiconductors made of silicon and lots of related, research-based industries became dominant, along with leading venture capital (VC) firms that backed many of the early start-ups.
The success of Silicon Valley demonstrated that patents generated by government-sponsored research should not stay on the shelf (as they often did) but that close collaboration between the government, universities, and entrepreneurs would stimulate the commercialization of unorthodox ideas as long as the required incentives were in place. This notion became the guiding principle behind the Bayh-Dole Act of 1980, which allowed researchers and universities to benefit financially from research undertaken under government grants and would allow the Silicon Valley model to spread like wildfire all over the United States.
It took some time for the new models from Switzerland and Silicon Valley to take hold. Scientific research continued to be seen as sacrosanct and commercial application as a violation of the holy separation of science and commerce. But as new scientific insights, such as the mapping of the human genome, presented new opportunities for commercial applications, the application of academic research accelerated. Gradually, it became an accepted option for engineers, computer scientists, biologists, chemists, or physicists to start companies, and they usually did so by focusing on a specific activity related to their research, such as a new technology, drug, or material.
In Europe, regulatory changes forced the acceptance of such collaborative efforts. In 1991, for example, the Swiss government created a shock wave with a new law that required state universities, including the Federal Institute of Technology, to apply their research to the development of commercial products. Researchers had little choice but to seek new sources of funds, and contract work with commercial companies became a major source. It was the beginning of a trend, as other national governments in Europe cut the budgets of state-funded educational institutions.
Within large companies, the move for collaboration—with academics and with other business organizations, particularly start-ups—has been accelerated by corporate chief technology officers (CTOs) in companies as different as Shell, Philips, ASML, Fokker, DSM (State Coal Mines), and Xerox. Leaders in these companies told us that cooperation with universities and start-ups, especially in the early stages of product development, is now standard practice—indeed, a no-brainer—for them and their companies. DSM, based in Heerlen in the southern Netherlands, for example, is a leader in the development of new materials. Marcel Wubbolts, chief technology officer of DSM, told us that his company had long been seeking to develop an energy source that did not rely on fossil fuels. “It is too complicated and too expensive to develop a second-generation biofuel on your own,” Wubbolts said.5 DSM partnered with the small American company POET and in early 2014 opened the first biofuel plant (using corn waste rather than corn) in Emmetsburg, Iowa, a town better known at the time for its gambling casino than for technology development.6
There is another important reason that companies cite for the move toward collaboration with outside partners: to keep abreast of what is happening in their industry and in adjacent fields of activity. There is so much research and innovation going on in so many places, it is impossible for any single organization to be aware of every development that might be relevant, including those developments that might pose a competitive threat. With the proliferation of startups and tiny companies working under the radar, the threat of a new technology emerging that could make a company’s own research obsolete is ever-present. Pharmaceutical companies, in particular, see this kind of industrial reconnaissance through collaboration as essential. That’s why Medtronic, Novartis, and Roche have established offices in science parks in Lund, Oulu, and Zurich (and of course have a major presence in Cambridge, too), where they can keep an eye on dozens of potential partners or competitors with the aim of investing in start-ups that do not have sufficient resources to test a new medicine. This, in turn, gives them access to the smaller company’s knowledge and expertise beyond the specific project itself.
Focus and Openness: And the Necessity of Trust
The sharing of brainpower among a diverse set of players in a brainbelt ecosystem is most effective when the entities have the right mix of focus and openness. Focus means they concentrate their energies on a particular discipline or activity. Openness means they are open to sharing their knowledge and expertise with others.
Sharing is not known as a typical organizational behavior. What would compel an individual or a company that has focused its energies and resources on creating new knowledge to share it openly with others? One reason is obvious: necessity. There is no other way to pursue the kind of big, complex projects that characterize brainbelt initiatives. Mutual dependency demands that collaborators open up to each other. Another reason is less obvious: when a company is sharply focused, its commercial activities don’t significantly overlap with those of its partners, so sharing knowledge is less likely to create a competitive threat.
In Portland, for example, an academic institution—the state-funded Oregon Health & Science University (OHSU)—entered into a collaborative research project with a decidedly for-profit entity, the chip maker Intel, which has a major presence in the Portland area. The purpose of the initiative was to analyze a vast amount of cancer-related patient data that OHSU had gathered from around the world. The university did not have the capacity to manage “big data” at this scale and had no interest in developing it. Big data is the term for massive and complex collections of data, typically generated from many different sources and often in real time, that cannot be analyzed by the human brain or through traditional data-processing applications but require instead enormous processing power, high-level analytics, and sophisticated algorithms to yield proprietary and practicable insights. Intel did not have the kind of supercomputer power typically applied to the management of big data in medical research, but it could link computers together to manage OHSU’s data in smaller batches, which was sufficient for the needs of the research.
In this extraordinary partnership, Oregon Health & Science University entrusted Intel with its huge store of patient data. In return, Intel allowed OHSU into its inner computing sanctum. The two were eager to work together because both parties needed the other’s expertise, but there was virtually no risk they would end up competing. Added to those practical considerations were the sense of pride and identity in the Portland brainbelt and an understanding of the values and rules that prevailed. The collaboration, therefore, was based on commercial necessity and mutual trust. Both parties were so committed to working together and so unconcerned about potential violations that the project began before the formal contract was even finalized—almost unheard of in a big technology deal.
The importance of sharing brainpower and the necessity of openness has, as you can imagine, forced a change in structure and working relationships in business and academic organizations. The two had similar characteristics that got in the way of collaboration and innovation. They were typically hierarchical in nature, operated with organizational silos, and fiercely protected their intellectual property. In brainbelts, we found that entities—like OHSU and Intel—that have focused missions are very open to sharing their knowledge with other focused partners and collaborators. And they will do so at a very early stage of product development, when, traditionally, they would have kept the doors to the laboratory tightly shut.
Not only has the evolution of the innovation process changed the attitudes that business and academic entities have toward one other, it has caused a shift in how academics work together within their own institutions. As Shirley Ann Jackson, a Bell Labs veteran and now president of Rensselaer Polytechnic Institute, put it to us: “Cutting-edge research is now completely interdisciplinary. The major new discoveries are between the academic disciplines.” So the sharp separations between academic disciplines—such as chemistry, physics, biology, mathematics, and engineering—are crumbling, and as new knowledge is gained, organizational silos are, as Jackson put it, “dying a slow, natural death.”7 As the walls crumble, collaboration blossoms still more luxuriantly.
Environment: Attracting People and Catalyzing Ideas
A brainbelt is more than an ecosystem of disparate entities that have developed collaboration skills and mutual trust: it also features a distinct environment, one that acts as a magnet for talented people and focused businesses, and that supports their collaborative initiatives.
These environments feature physical elements that bring people together in appealing ways. Science parks, start-up incubators, shared-working facilities, and offices in renovated factory complexes are all there, sometimes grouped together in innovation districts. Such environments attract a young, mobile, and diverse talent pool of graduate students, entrepreneurs, engineers, corporate researchers, venture capitalists, designers, and others. Beyond the work environment itself, people choose a brainbelt area because of the availability of affordable homes and nonwork attractions and benefits, from cafés and restaurants to good schools and recreational activities. They have many informal opportunities to meet, interact, and stimulate each other’s thinking.
Once word gets out about a brainbelt environment, it may start to take off. The number of start-ups increases. Large companies create spin-offs. More business plans are filed with potential investors. The global players who are in the area invest anew in talent and facilities and even open new units and initiate new endeavors, attracted by the availability of talent and the relatively low cost of operating in a former rustbelt, when compared to doing business in Silicon Valley or Boston. Forgotten downtown areas are developed
- "This book upends conventional wisdom about how the global economy works and which places are primed to thrive and prosper. Van Agtmael and Bakker capture the complex market dynamics that are revaluing the formidable assets of U.S. and European older industrial cities: advanced industries and networks of universities, companies and governments that collaborate to compete. These are refreshing insights that build on real world experience and evidence rather than antiquated group think."—Bruce Katz, Brookings Institution Centennial Scholar and co-author of The Metropolitan Revolution
- "The authors offer a compelling and insightful look at how companies and communities are turning ashes into silicon valleys."—Harold L. Sirkin, Senior Partner, The Boston Consulting Group (BCG)
- "The riveting story of how failing rustbelts in the Unites States and Northern Europe have transformed themselves into emerging brainbelts through the triumph of collaboration and ingenuity to become promising models of bottom-up innovation."—Hilda Ochoa-Brillembourg, Founder and Chairman, Strategic Investment Group
- "Energetic.... Offers a hopeful perspective on how imaginative economies can become pacesetters in the fast-forward Knowledge Economy.... Longlisted for the Financial Times/McKinsey Business Book of the Year Award, SMARTEST PLACES is receiving well-deserved attention among corporate leaders and financial strategists - and it ought to be required reading for every would-be policymaker."—WorldBank.org
- "The book contains an abundance of insightful information.... A strong selection for those interested in high-tech industries or community economic revival."—Library Journal
- "The perspective here on the transformation of 'rustbelts' into 'brainbelts' has an outsider's freshness toward America and an international expansiveness...Akron glitters like never before in these illuminating pages."—Kirkus Reviews
- "The authors make a strong case that a renaissance in the development and manufacturing of 'chips, new materials, and biosciences' is happening not in tech or major urban centers, but in reclaimed factories and settings like the revitalized American Tobacco Campus in the North Carolina Research Triangle. For anyone looking at trends in technology or manufacturing, or at the future of global business, this insightful work will provide food for thought."—Publishers Weekly
- "In every chapter of economic history, unexpected places have cultivated the dynamism that transforms society at large. Antoine van Agtmael and Fred Bakker describe how the next generation of emerging hotspots are located in unlikely places, as industry connects with the energy of universities and academic medical centers to transform rustbelts into 'brainbelts.' This scouting report will interest students of the future taking shape today."—Dick Brodhead, President of Duke University
- "This eye-opening account of innovation in unlikely places will raise the spirits of anyone discouraged by the gurus who keep telling us the future belongs not to the established democracies of the capitalist world, but to emerging powers mostly in Asia. No, Van Agtmael and Bakker tell us, the 'smartest places on earth' may be in little-heralded cities in the United States and northern Europe, where business people, scientists and creative managers are inventing smart new products and ingenious new ways to manufacture them. They tell us that many of the old economies of the developed world 'are entering a revolutionary new phase' because 'the global competitive advantage is shifting from cheap to smart.' I found their arguments, and the facts they have gathered to support them, both intriguing and convincing. And their book is fun to read."—Robert G. Kaiser, former Managing Editor of the Washington Post
- "An absolutely fascinating tour of cities in the United States and Europe that were once traditional centers of manufacturing which are now reinventing themselves as hubs of innovation. If you want to understand how economies at the local level can transform themselves, this is the book to read."—Liaquat Ahamed, author of Lords of Finance
- "van Agtmael and Bakker paint an exciting picture of the future based on progress made possible by cooperative processes they call 'brainsharing.' Citing unheralded developments in specific places and specific industries, this extraordinarily well researched book challenges the conventional view of a developed world in relative decline. The authors make a compelling case for the role of connectors, who bring together a diverse collection of players required for collaborative success. This compellingly argued and lucidly written book is a must read for anyone who cares about the future of the planet."—David F. Swensen, Chief Investment Officer at Yale University
- "A lively, lucid story of innovation and transformation powered by brainpower and business, academe, and regional governments working together.... The smartest book on one of the most important and promising trends in the American and global economy."—Strobe Talbott, President of The Brookings Institution
- On Sale
- Apr 3, 2018
- Page Count
- 336 pages