North Carolina tries to be a good place to start up businesses, particularly science and technology businesses. I am frequently talking to folks who are trying to help innovative startups. We have small business centers at the community colleges, and small business and technology development centers at the state universities. Recently, I wrote about the Manufacturing Solutions Center in Conover and First Flight Venture Center in Research Triangle Park.
The state’s Military Business Center is one of the most active players, and its Defense Technology Transition Office (DEFTECH) has a video meeting every Friday well-attended by startups trying to navigate the military acquisition bureaucracy.
Last week, the Defense Alliance of North Carolina had a session entitled “The North Carolina Innovation Ecosystem” that I attended. One of the presentations was by John Hardin, executive director of the North Carolina Board of Science, Technology & Innovation, an agency of the state’s Commerce Department. He talked about how we stand in comparison to other states, and the urban-rural economic divide in our own state. That is one of the jobs of the board and its staff, to assess how we’re doing and make recommendations.
Gov. Terry Sanford pushed for the board’s creation in 1963 because he said North Carolina was falling behind: “We missed the Industrial Revolution, and our people have paid for it. We don’t want to miss out on the new revolution in science and technology.”
The DANC conference was held in Research Triangle Park, one of North Carolina’s greatest economic development successes. But much of our state has missed out on the science and technology revolution.
One of Hardin’s charts jumped out. It showed population changes in each of the state’s 100 counties since 1930, and projections for 2050.
In 1930, there were bigger counties and smaller counties, by population, but they were all under 150,000. Guilford, with Greensboro’s textiles, was the biggest, at 133,000, and neighboring Forsyth, with Winston-Salem’s cigarette manufacturing, was right up there, with 111,000. Mecklenburg (Charlotte) had around 128,000 and Wake, with the state government in Raleigh, had 95,000, some 3,000 fewer than Buncombe (Asheville). Then Hardin’s chart showed what happened, as North Carolina’s economy shifted from manufacturing to science, technology and finance.
By the ‘90s, the Mecklenburg and Wake lines went up the chart, rapidly. Guilford, Forsyth and Durham lines went up, more gradually. The other 95 county lines bunched up at the bottom of the chart. Where there was growth, it was slow, except for some counties, like Johnston or Union, on the commuting edge of Raleigh and Charlotte, or a coastal retirement destination like Brunswick. For many counties, the lines stayed flat or sloped down.
Hardin’s chart was a visual representation of North Carolina’s biggest economic development problem, the urban-rural growth gap. By 2050, just five of 100 counties will have 36% of the state’s population. Wake and Meck will be closing in on 1.8 million apiece.
Some history
Gov. Luther Hodges was shocked when he became governor in 1954 to learn that North Carolina had one of the lowest per capita incomes among the 48 states. Science and engineering graduates of our universities often had to leave because there weren’t jobs here. Before IBM opened up in Research Triangle Park in the mid-1960s, it had an office near N.C. State to recruit engineering graduates to its facilities in New York and around the country. State leaders like Hodges responded by creating RTP on thousands of acres of woods and farmland in 1959, located strategically between N.C. State, UNC Chapel Hill and Duke.
The legislature created the science and technology board in 1963 with a $2 million, two-year appropriation (around $19 million in today’s dollars); it is now the longest-running state science and technology advisory board in the nation.
The board, in turn, helped create the NC Biotechnology Center, the NC School of Science and Mathematics for high school students, and the Microelectronics Center of North Carolina, now MCNC.
Over time, per capita income in North Carolina went up, from 47% of the national average in 1930, to 70% in the mid-1950s to more than 90% today. But this is a misleading number. It is a statewide number, and North Carolina is really two states. Some say it is three.
That is one of the challenges that Hardin’s staff faces when it compiles, every couple of years, a report called “Tracking Innovation.” The report measures how well North Carolina’s innovation economy is performing compared to other states, across 39 indicators.
On the surface, as a state, North Carolina has been improving over the past 20 years. If you averaged its rank on all the indicators, the average was 20. That’s up from 24th in 2013.
But Hardin said, “To the extent that we’re strong, and to the extent that we’re improving, almost all of that is occurring in major metro areas.”
Not only is much of the population growth happening in metropolitan areas like Raleigh and Charlotte, “it’s even more concentrated when you look at factors specifically related to innovation.”
This widens the gap between urban and rural areas because employment in innovative science and technology industries grows faster and pays more.
Hardin said 96% of the state’s venture capital is in eight counties; 85 percent of the state’s academic research and development is at three universities -— Duke, N.C. State and UNC Chapel Hills.
“In general, we have two kinds of economies in the state. One is based primarily in the more research-intensive areas. They have large populations, growing fast. And they have the innovation assets and activities and outcomes that are well above the U.S. average.
“Raleigh, Durham, Chapel Hill — even surroundings — ranked in the top 10 or top five on everything,” said Hardin.
“But this region represents a tiny fraction of the state. Most of the state is relatively rural. Their economic outcomes are lower than the U.S. average.”
Defense innovation
There are things that can help. One is an initiative to bring more defense contracting dollars into the state, because they don’t necessarily wind up in the biggest cities.
Hardin talked about the proposed North Carolina Defense Innovation Network, a $5.75 million, two-year funding request that is just one item in budget negotiations between the N.C. House and Senate. This proposal came out of a couple of years of work by Hardin’s board.
The board has a program that supplements grants to small businesses from 11 different federal government agencies. The Small Business Innovation Research grants and Small Business Technology Transfer grants are prized by R&D startups because the government doesn’t ask for a piece of the business.
The board noticed that North Carolina hasn’t done that well in the grants from the Department of Defense — which awards around half the SBIR/STTR money each year. Even though North Carolina has the 4th largest population of DOD personnel in the country, we were historically ranked 20th in SBIR/STTR grants from the military services. Equally problematic, even though we ranked 9th in population and 10th in GDP, we were 22nd in DOD contract spending, 29th in defense spending as a share of GDP, and 33rd for DOD research and development contracts. The board created a task force to study the problem, and it reported its results last year.
The problem, Hardin said, was that while there are a lot of “great players” in the state working to improve the situation, “they were under-coordinated and under-resourced. That was the biggest issue. And there wasn’t leadership, at least with respect to DOD innovation funding.”
If North Carolina spent the amount of money and effort focused on defense innovation that the state has spent on biotechnology, “we would be a leader in defense innovation,” he said.
“We’ve had a 40-year sustained focus on biotechnology and life sciences. We’ve had a zero-years sustained, heavy focus on defense innovation.”
The Defense Innovation Network, under the board’s proposal, would be led by the NC Commerce Department, with the help of the Military Business Center and DEFTECH. Around a third of its initial funding would go to support expanded activities of organizations that are already promoting defense innovation in North Carolina, and two-thirds would go for grant programs to boost innovation among defense-related companies.
This is separate from another proposal, by NCInnovation, a non-profit that is seeking legislative funding to help universities commercialize academic research, especially institutions outside the Triangle. Lawmakers are mulling a potential $1 billion-plus investment in the new program.
The science and technology board and NCInnovation are working, independently, on the same overall problem captured in Hardin’s population chart. Other folks, like Golden LEAF Foundation, myFutureNC and Global TransPark have been working on it. There’s a lot of investment in broadband coming to rural areas that will help support an innovative ecosystem.
“This is what we’re trying to energize,” says Hardin. “We’re trying to help people take their innovative ideas and discoveries, and turn those into innovative products and practices. Hopefully, that’s going to lead to new organizations, but [also] existing organizations that become more innovative.
“In order for innovation to happen, you need to have the whole ecosystem providing inputs. You need to have the right R&D inputs, like funding and policies and equipment.” Help with commercialization, and a well-trained workforce.
“The ecosystem is a living, breathing thing that needs constant care and feeding, and needs a lot of training.”
