Virginia Falling Behind in R&D

Declining research funding in Virginia, 2010 to 2015. Blue bars=Virginia, gray=national. Source: TECconomy Partners LLC

Virginia universities are slowly gaining ground compared to their peers in R&D, but Virginia businesses are falling behind. Academia and industry need to cultivate closer ties, says strategic consultant Mitch Horowitz.

As a principal of TEConomy Partners LLC, a Bethesda, Md.-based research firm specializing in technology-driven economy development, Mitch Horowitz has had the opportunity to view a lot of technology-leading metropolitan regions close up. And Northern Virginia stands out… but not in a good way.

“I cannot recall a state that has a great technology hub like Northern Virginia that doesn’t have many great research institutes growing up around them,” said Horowitz while briefing the State Council of Higher Education for Virginia yesterday on the challenges in Virginia of linking university and industry R&D to stimulate new business formation and create jobs.

Despite strengths such as a highly educated workforce and access to venture capital, Virginia universities and companies have done a poor job of translating R&D into new business and jobs, said Horowitz.

All told universities, corporations and federal labs in Virginia conducted $10.5 billion in research funding in 2015, ranking it 13th highest in the country. But Virginia’s economy is larger than that of most states, so research as a percentage of GDP ranks the state only 21st nationally in R&D intensity. Even more worrisome, Virginia is losing ground. While research funding grew nationally between 2010 and 2015, it shrank in Virginia. Worst hit was “federal intramural” funding (federal labs). University R&D actually grew faster than the national average, but industry R&D declined 3.6% in Virginia while it surged 21% nationally.

“Decline in industry research and development in Virginia [is] not simply a reflection of strong dependency on federal R&D contracts, but weakness in company funding of R&D leading to the commercialization of new products and process,” stated Horowitz’s PowerPoint presentation.

A root problem is the lack of alignment between university strengths and industry strengths, which reflects the comparatively weak ties between Virginia universities and corporations, Horowitz explained. When Virginia universities do invent something that can be commercialized, Virginia companies typically are not the ones to benefit. Of 137 technology licenses issued by Virginia universities in Fiscal 2017, said Horowitz, 108 went to out-of-state companies.

While Horowitz did not specifically address the geographic imbalance between the location of Virginia’s leading research universities and its technology companies, his observations were entirely consistent with the observation on this blog that Virginia’s leading tech clusters are located in Northern Virginia while its leading research universities are located downstate. George Mason University, the sole public research university based in Northern Virginia, only recently passed the $100 million mark in R&D. The state’s R&D powerhouses, Virginia Tech ($504 million in 2015), the University of Virginia ($373 million), and Virginia Commonwealth University ($219 million) are located in Blacksburg/Roanoke, Charlottesville and Richmond respectively. However, it is worth noting that the rise of the promising Center for Personalized Medicine in Fairfax County under the aegis of the Inova health care system is developing institutional ties with the University of Virginia as well as with GMU and other institutions.

The good news from an economic development perspective, said Horowitz is that Virginia’s research universities have narrowed the gap with their national peers in recent years. The bad news is that all that effort is not translating into much economic activity beyond the research itself.

To stimulate local economic growth, says Horowitz, there needs to be a “line of sight,” or alignment between university research strengths and industry expertise. His analysis shows four broad areas where this alignment exists: life sciences; networking, communications, and data analysis; cyber and cyber-physical security; and system of systems engineering solutions.

“You can’t be a winner in every technology area,” says Horowitz. Virginia needs to build on fields in which it enjoys a competitive advantage.

To exploit these advantages, universities and corporations need to bridge the disconnect. Faculty researchers are scientists. While they are expert in the science, they cannot be expected to be experts in potential commercial applications. They need to partner with business. “We need our universities to build relationships with industry,” Horowitz says.

One small step lawmakers have made to bridge the gap is to create the Virginia Research Investment Fund, which dispenses $8 million a year to leverage other research dollars for projects showing a strong potential to create new enterprises and jobs. But the funding is small potatoes compared to the R&D commitment made by leading technology states. Massachusetts is investing $1 billion of public dollars to build its life-sciences sector. Texas has invested multimillions in its innovation ecosystems.

SCHEV board member Tom Slater called Horowitz’s report a “wake up call that’s desperately needed.”

“It’s a call to action,” said Gene Lockhart, another SCHEV board member. “I think there’s a lot of kidding ourselves, a lot of complacency.”

“This kind of effort lifts all boats,” said SCHEV Chair Heywood Fralin. But, he opined, “none of this is free.”

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17 responses to “Virginia Falling Behind in R&D

  1. Great article. Thanks.

    It’s a useful reminder of the important role that our universities play in economic development and the importance of collaboration between the public and private sectors. This is how our tax money can be well spent in education.

    A question you might have insight into – why aren’t VT grads starting up companies around Roanoke? My understanding is that Pittsburgh’s revival is due, in large part, to Carnegie Mellon and UPitt tech grads staying in the neighborhood after graduation.

    A second question is whether we have an entrepreneurial and private equity investment culture here. I visited a friend in San Francisco a couple of years ago who took me to one incubator/accelerator after another. Everyone seemed to be involved in developing new ideas and creating new businesses. Do we have that spirit here? The meager funding of the state investment fund suggests not.

    • My sense is that VT grads are setting up businesses in Blacksburg and Roanoke. The problem is that the region does not have a fully developed innovation ecosystem. That includes not only venture capital but supporting professionals (such as intellectual property attorneys) and a cadre of business executives with experience in growing technology companies. Starved of these critical nutrients, tech companies either grow more slowly or they end up moving. Another issue may be the difficulty in recruiting executive and technical talent to a smaller metropolitan area like Blacksburg/Roanoke (which are technically two separate MSAs) where, if things don’t work out, there are relatively few job opportunities. Technology companies and tech talent are drawn to “thick” labor markets.

    • Metro Pittsburgh is 6X bigger than Metro Roanoke and 12X bigger than Metro Blacksburg. This population is the raw material of innovation. Neither Roanoke nor Blacksburg has sufficient population to provide that raw material in a meaningful way. This lack of population has a ripple effect. The limited population means that “world class” transportation (read:airports) capabilities are not available.

      The other point I’d make is that good universities in other small cities have not created major innovation hubs in those cities. Notre Dame has not turned South Bend into an innovative hot spot. The University of Virginia has not turned Charlottesville into an innovation powerhouse. Can progress be made in Roanoke? Sure. Can enough progress be made in Roanoke to have a material impact on the Commonwealth of Virginia? I don’t think so.

      I personally believe that Virginia would have better success strengthening its public universities already in urban locales than trying to create innovative hubs around public universities located in small towns and small cities.

      One approach might be a forced merger of public universities:

      Virginia Tech & GMU
      UVA & VCU
      W&M & ODU

      In the case of Virginia Tech and GMU it would become Virginia Tech, Blacksburg and Virginia Tech, Fairfax.

      As usual, our politicians in Richmond sat idly by while our top rated universities did little more than pay lip service to driving economic development in Virginia. So long as the flood of Federal dollars continued to flow this worked. Now that the flood has slowed it’s time to rethink the lackadaisical approach our legislature has taken toward optimizing the value of our public universities.

      Another possibility would be to move the state capital from Richmond to Roanoke. The last state capital move was Oklahoma (1910) but 24 other states have moved their capitals since they became states. Jim Bacon has convinced me that Richmond is an economic power that probably doesn’t need the added benefits of being the state capital. Beyond that, what does it say about modern Virginia to have our state capital located in the same city that served as the capital of the Confederacy? States like Texas (UT / Austin) and Ohio (Ohio State / Columbus) have been able to parlay the advantages of being a state capital and having a top flight university into considerable economic success.

    • “A question you might have insight into – why aren’t VT grads starting up companies around Roanoke?”

      While I agree with Jim that there is progress on this front, I long have suspected that there could be a lot more progress made on the Roanoke and Blacksburg VT connection, and suspect the incoming new Governor might be more focused on these issues.

      A lot has been written on this subject in posts and comments to posts here on this blog, both particularly and generally. Below are only two of many examples.

      http://baconsrebellion.com/the-new-wave-of-wealth-creation-snl/

      http://baconsrebellion.com/the-marketplace-is-speaking-is-anyone-listening/

      I believe there is great opportunity here. It’s a matter of assembling enough throw weight of Cultural Literacy on the subject into the neighborhoods of these places. My favorite example of this is Aspen. An article is here on that as well.

      • Fair enough. The question for innovation in Charlottesville is what the SNL employees with all the money do next. Silicon Valley was a bunch of fruit orchards until a guy name Hewlett and another guy named Packard built a one-time world beater company from within a garage. The pepole who worked there and made good money left HP and founded other companies. A guy named Gordon Moore graduated from Cal Tech and eventually joined the Schockley Semiconductor Laboratory in Mountain View. He and seven other Schockley employees (known as the traitorous eight) founded Fairchild Semiconductor Corporation. From there Moore founded a little boutique that became known as Intel Corporation. As far as I know 89 year old Gordo still lives in Silicon Valley.

        A big part of Silicon Valley’s quality of life is the weather. Another is the natural beauty nearby – especially in places like Marin County. However, California forbids non-compete agreements which improves the quality of life for those who would be prevented from competing against their previous employers. While the traffic on 101 is still a challenge there are now trains running down 101 that let you avoid that traffic and bike lanes pretty much everywhere. When new sports stadiums were needed for the Sharks and 49ers they were built in the suburbs – guess who funded and owns Levi’s stadium in Santa Clara where the Niners play? The good people of Santa Clara. I guess the California legislature somehow resisted the temptation to tell Santa Clara what they could and could not do. No doubt Silicon Valley is doomed by Santa Clara subsidizing a football team.

  2. Not surprising but I am glad that some Virginians are now recognizing this long standing challenge. The Northern Virginia economy is heavily driven by technology service but not basic research. It is the high tech service sector of federal spending driving the economy of the region.
    A more basic fact is that Virginia is ranked 30th among the states in patents per 100,000 population. And there are other facts slowing economic development. And our basic research is way behind North Carolina and Maryland and many other states.
    Only two Virginia universities have stated clear goals on expanding their research capabilities and they are Virginia Tech and George Mason. Both institutions have newer CEOs who are focused on that goal.
    U. Va has tried on several occasions to be more research focused (especially when they had a physics professor, Frank Hereford, as President) but have not had the necessary political support and funding.
    And, more than half of the states have, within the past two years, moved to make technical training at community colleges tuition free. I have seen no discussion in the commonwealth on either of these two initiatives – raising our research competitiveness or really focusing on dramatically increased focus on technical training at community colleges etc.
    But there are opportunities a waiting.

    • North Carolina’s answer to the loss of tobacco jobs was the establishment of Research Triangle Park in association with Duke, UNC and NC State. It was the kind of forward looking thinking with great execution that has been absolutely, totally and completely missing in Virginia. Of course, they didn’t have a flood of Federal dollars to prop up an inept state government. Later, NC would beat Virginia in de-regulating banking and make Charlotte one of America’s economic wonder cities. Once again, The Imperial Clown Show in Richmond was caught flat-footed.

      Maryland does have a strong flow of Federal money. However, they are also forward thinking. The University of Maryland, College Park was more or less a second tier commuter college 35 years ago. They certainly attracted some good students but they weren’t a national presence in any area I can remember. Over the intervening decades UMD made a very conscious and very successful push into technology in general and Computer Science in particular. They funded the chairs, recruited the professors and attracted top students. They send teams to top high schools looking for top students to recruit into their CS program. Two of my sons went to Gonzaga High School (in DC). Maryland came looking for students who loved computers. I asked my boys if any Virginia colleges showed up. “Nope”.

      So, what was the effect? US News & World Report rates the Best Global Universities for Computer Science in the world (not the US, the world). The University of Maryland is ranked #42. The top Virginia college in the rankings? Virginia Tech at #90.

      If you would have told me in 1977 when I was deciding on colleges that U Maryland would be materially ahead of the top Virginia college or university in Computer Science by 2017 I would have laughed. But back then I had yet to realize just how incompetent Virginia’s state government really was.

      https://www.usnews.com/education/best-global-universities/computer-science?page=5

  3. Jwgilley says “And, more than half of the states have, within the past two years, moved to make technical training at community colleges tuition free. I have seen no discussion in the commonwealth on either of these two initiatives – raising our research competitiveness or really focusing on dramatically increased focus on technical training at community colleges etc. But there are opportunities a waiting.”

    I agree totally with your comment,

    • I agree as well. Back when I was in the software start-up space the very best developers came in two flavors – those that dropped out of college and those pursuing their PhD in some aspect of CS (in my case, usually distributed data bases). The drop outs staying college long enough to learn two things:

      1. They absolutely loved technology in general and software in particular and …
      2. They could make a lot of money without a 4 year degree

  4. I agree with both Inthemiddle and Jwgilley.

    and I see no reason why Va could not invest in Blacksburg to create Va’s version of a Research Triangle. . NoVa is not only traffic hell-hole.. but not a real R&D location – more of govt “consumer” of technology.

    In the age of the internet – I see no reason why Va Tech can’t grow to become our Carnegie Mellon … if Pittsburg can remake itself from a Steele manufacturing place… so can Roanoke/Blacksburg.

    Roanoke/Blacksburg is where young folks with good technology educations wants to be – it’s near the mountains and rivers and venues for their active outdoor lifestyles…

    NoVA may well be the economic powerhouse of Va but it’s a terrible location for innovation , incubation of startups and new technology entrepreneurship. It’s a place overrun with traffic and govt and contractor bureaucrats… and 100-mile a day solo commuters.. and almost no affordable housing.. I’d pick Richmond over NoVa for new technology startups – Clown Show and all..

    • ” … and I see no reason why Va could not invest in Blacksburg to create Va’s version of a Research Triangle.”

      Minimum 50 year problem.

      First, there is no triangle; RTP is 3 cities and 3 universities), Blacksburg is only one university. Second, Raleigh is the capital of North Carolina and that provides a base level of employments, funds flow and attractiveness to business. Third, Blacksburg today has the same population Raleigh had in 1940. Today, Raleigh has 10X the population of Blacksburg.

      A single university in a small town / tiny city with very limited transportation capacity does not create a meaningful innovation hub – no matter how much people wish it to be so.

      And remember, Baltimore is closer to DC than Roanoke is close to Blacksburg.

      As far as NoVa not being a “real” R&D location … that misses the point on two areas …

      It’s not NoVa that matters, it’s the DC Metropolitan area. For example, consumer sentiment analysis company ComScore (in Reston) was founded by University of Maryland graduates. The DC area has a lot of non-government R&D including CommScore (Reston), Fugue (DC), AppAssure Software (Reston), MicroStrategy (Tysons), Motley Fool (Alexandria), Verisign (Reston), Blackboard (DC), Clarabridge (Reston), RainKing Solutions (Bethesda), etc. None of these companies are focused on the Federal Government.

      Fixing the traffic in NoVa and making it the pre-eminent technology zone of the Baltimore – Washington Metroplex is vastly more likely to work than waving a magic wand and making Blacksburg the next San Jose.

      • Hope you are right Don. You may be. But I’m thinking a magic wand is what Northern Virginia needs about now.

        • Virginia needs a magic wand right now. If you follow the flows of funds through the state I think you’ll find the whole state is addicted to federal spending. The fact that the fire hoses of Federal funds point at NoVa and Hampton Roads doesn’t mean those Federal funds stay in those areas. The socialist Republicans in the General Assembly do an amazing job of sloshing those funds across the state through an innumerable number of opaque mechanisms. Crimp those two fire hoses and the who state becomes parched of money. Even the con artist socialist Republicans playing three card monte with the state’s money need a steady stream of money from those dumb enough to play their game. No money, no more three card monte.

          Time is the great avenger. Over 50 years a lot of things are possible. However, over a ten year horizon, NoVa is the best bet Virginia has. But turning that bet into a winner will require a vastly different approach. The 2017 elections were a breath of fresh air. Those elections put a real dent in the Good Ole Boy network within the Imperial Clown Show. There needs to be an even bigger disruption in 2019 to give Virginia a chance of success.

  5. The problem is much deeper than thought. In examining the glut of obsolete office buildings in the county, Fairfax County government is concentrating on repurposing them as housing for low-income people. I think this is a good idea and served on a subcommittee to help address land use issues raised by this proposal. The goal is to help nonprofits add affordable housing in locations served by transit and with some neighborhood shopping within walkable distances.

    But where is a similar effort to help repurpose some of the buildings for start-ups and cooperative laboratories? There a decent size empty building in McLean that has sat empty for years. I’ve suggested for several years that the Chamber of Commerce, the landowner and the County look into a McLean-based hub for startups. Nothing, nothing, nothing. But mention a chance for a new government contract and people will line up three deep.

    Fairfax County is addicted to the federal pipeline of cash, despite what it says.

    • That is an extraordinary comment, TMT, carrying so much information and implications in so many ways. For example, imagine how the dynamic tolls affect those low income people.

      And, who would have imagined this state of affairs even 20 years ago in Fairfax County. Equally startling, is the apparent lost of entrepreneurial spirit and initiative there now, so totally contrary to the spirit of the place when I worked there in 1980s and 1990s. One apparent message is that the Federal government’s dead hand can make supplicants of us all.

      There is a fascinating article in the latest Weekly Standard on the President of Frances effort to retool a number older very large buildings in Paris into homes for incubators for tech start-ups where there is space for development, teaching and collaboration all in one place under one roof, akin to a type of new urban university.

    • While non-governmental private enterprises in NoVa have not made up for the loss of Federal monies the list of successful non-governmental technology start-ups in Reston and Herndon is long. I’ve listed some of those companies in my reply to Larry (above). The real problems are:

      1. Lack of a top tier technology university in NoVa. If Fairfax County ever does make start-up incubator space available they should advertise that space at the University of Maryland.

      2. Venture capital is available although not in the kind of well organized manner as is the case in Silicon Valley, Silicon Alley, Austin, etc. This is being addressed slowly by people like Ted Leonsis with his DC – focused venture fund but it’s still a challenge.

      3. Quality of life. People who make their fortune in Silicon Valley stay in Silicon Valley. There have been a lot of very successful tech companies in NoVa – UUNet, TNS, AOL (in the day), MCI (in the day), Legent Corporation, AMS, etc Many, many tech entrepreneurial millionaires have come out of companies in NoVa. However, The Imperial Clown Show in Richmond along with the Fairfax County Board of Kleptovisors have long put lining their pockets ahead of serving their constituents. The net effect is a place with all of the ingredients needed for an innovation hub except one – the people who make the money can’t wait to get out.

      4. The Federal contractors overwhelm the start-ups. I used to attend the Northern Virginia Technology Council (NVTC) meetings. They were a waste of time for a start-up executive (which I was at the time). One Federal Contractor employer after another would take the stage and babble. I also attended similar tech meetings in Cambridge, MA and San Jose. No comparison. DC needs a tech council where Federal contracting companies are banned.

  6. re: the 50-year plan for Va Tech…. or UVA

    is that any different that trying to stand-up a real Tech University in NoVa?

    I’m glad to hear you say that NoVa is basically overrun with Federal agency employees and contractors and their “technology conferences” are basically “how to use” existing technologies in meeting the current needs of the Federal govt…

    as opposed to start-ups trying to incorporate basic research developments into new technology businesses..

    but HEY there are MORE higher ed in Blacksburg and Charlottesville than the two Universities… and UVA with it’s Medical could well become a major tech center for Medicine… and Tech for things like Smart roads and cars… that need a fair amount of landscape to do .. something you’d not be able to do in “downtown” NoVa.. with land prices the way they are.

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