February 1, 1999

The Knowledge Economy Comes Knocking
Entrepreneurial Spirit Knighted in UK's "Genome Valley"
Benchmarking in Upheaval
Partners in Networks: A Prescription for Growth

Clusters of Innovation: Minnesota, Looking Ahead

The Knowledge Economy Comes Knocking

Alfred Marshall and Alfred E. Neuman share their first name, but that's it. One was a stuffy Victorian economist and the other was a 1952 comic creation, a flap-eared freckle-faced goof best known for his take-it-easy attitude:

"What, Me Worry?"

Many of the baby boomers who grew up with Alfred E. Neuman, paging through MAD  magazine out of view of their parents, are now in positions of clout in government, education, business, trade, and public policy.

They are in something of a fix. They've never seen an economy like this one. They've never seen Wall Street bulls like these, either. Technology is hauling their "best practices" and benchmarking to the dump. Their offices are trafficked by young people, some oddly dressed with bad haircuts, who seem to know a lot about computers and networks. They would like to retreat to the essentially benign anarchy of MAD. They would like to, but they can't.

So they turn instead to the oracles of the past for comfort and guidance in the current gamma burst of change. One of the oracles is Alfred Marshall of Cambridge University, United Kingdom. In his scriptural Principles of Economics , published in 1890, Marshall wrote a simple sentence that has become a current mantra:

"Knowledge is our most powerful engine of production."

Recently I read the quote in his country's white paper on the economy. What a perfect concept to resurrect, dust off and put back to work. We are now in the "Knowledge Economy." That is, if you live in the UK or Canada. We are in the "Information Economy" if you live in Australia. We are in the "Digital Economy" if you live in the United States, or the "New Economy" if you live in California, or the "Innovation Economy" if you live in Massachusetts.

Each term corresponds with a massive report issued by the respective government that describes an emerging economic reality and outlines a course of action. To be sure, they all mean about the same thing. We are moving into a different  economy, one powered by information and communications technology, and Mr. Neuman's counsel to the contrary notwithstanding, we are  worried.

Minnesota's anxious state of mind has been evident in a number of public policy initiatives in recent years. The most recent, currently underway, was reported by columnist Dave Beal in the St. Paul Pioneer Press  in December. Several business and education leaders are seeking input from business, labor, government, and professional associations in an effort to build a global strategy for Minnesota. They fear we are falling behind in an era of what Beal calls "borderless technologies," among them, the Internet. An international roundtable event is being explored as one way to get all of us moving in the same direction.

For a state that's been moving in at least three directions in its politics, we will need to use our imagination to proceed beyond a future "Pretty Good Economy" you might find at Lake Wobegon. But we have imagination. We've proved that.

Entrepreneurial Spirit Knighted in UK's "Genome Valley"

The British report, "Our Competitive Future: Building the Knowledge Driven Economy," was released by the Department of Trade and Industry in December.

In an introductory letter, Prime Minister Tony Blair writes: "In Government, in business, in our universities and throughout society we must do much more to foster a new entrepreneurial spirit: equipping ourselves for the long term, prepared to seize opportunities, committed to constant innovation and enhanced performance. That is the route to commercial success and prosperity for all. We must put the future on Britain's side."

Suddenly everyone is clamoring for the "entrepreneurial spirit." Were the "spirit" material, it would rival Internet stocks on Wall Street. Indeed, the extraordinary valuation of those stocks probably owes something to the "spirit" alone. No area of entrepreneurial activity captures it better right now, even if the "casino capitalists," let's say Alfred E. Neuman himself trading Internet shares from his PC, "appear to be stark, staring mad." ("Why Internet shares will fall," The Economist , Jan. 30, 1999)

The spirit of entrepreneurship and innovation has not been nearly the force in Europe as in the U.S. or right here in Minnesota with its high-tech and biomedical industries and its entrepreneurial programs at the University of Minnesota and the University of St. Thomas. But Britain is determined to change that. The government is preaching the gospel of Silicon Valley, MIT and 3M Innovation.

Chapter 2 begins:

"Innovation is the key to growth because it delights customers, giving them something startling, new and valuable."

--Dr. William Coyne, 3M

The British government plans to create "a broadly-based entrepreneurial culture" similar to that of the U.S. Across the board, universities included: "Too few people with innovative ideas and know-how come out of universities and large businesses to start growth businesses."

Eight new federally funded science enterprise centers, located in universities, will inject entrepreneurship training and business skills right into the science and engineering aorta. Business start-up philosophy will permeate the corpus of laws and principles of natural science drummed into nascent brains. A new dawn of economic vitality and limitless growth will appear as graduates, infused with entrepreneurship, tear into the fabric of the "old economy." Or so Britain hopes.

Areas of entrepreneurial activity in biotechnology, around Oxford, Cambridge, and Dundee, constitute what has been dubbed "Genome Valley." A huge investment by the Wellcome Trust in the Human Genome Project and, together with the government, in Britain's bioscience research infrastructure is designed to spur the development of a number of biotech clusters around the UK.

Britain is determined not to lose its European lead "in the commercial exploitation of biotechnology and genome research" according to the white paper. A brand new initiative, "Biotechnology Means Business," was launched to raise broad public awareness of biotechnology's revolutionary potential.

Little surprise that Silicon Valley is investing in Genome Valley. Both Microsoft and AT&T have set up research centers next to Cambridge University, the birthplace of molecular biology in 1953 just as Alfred E. Neuman was making his début.

Information chasing information. A valley flowing into another valley, laying down countless acres of rich topsoil on which to grow new economies from genes and silicon.

The idea of a sort of next generation biotechnology community, which is what "Genome Valley" is all about, was floated to former Minnesota Governor Arne Carlson in a private meeting with University officials that I slipped in on in 1995. It would grow out of University strengths in new cellular and genetic therapies. Some time later I asked an executive of one of the medical device companies for his views on the possibility of such a community growing up alongside Medical Alley. "That's not what we do here," he answered dismissively.

But that was then. Today the idea of seizing emerging technologies and industries like biotechnology is embraced by nearly all forward looking public officials, policy makers, and business executives in every state in the country. They are beginning to see the future now, in broad outline. They can see the sun peeking over the horizon. And many are anxious.

Benchmarking in Upheaval

A couple years ago I attended an economic development conference at the Humphrey Institute, my first. I had no qualifications, only an interest.

It seemed to me that the rise of the Internet, which I was conspiring in then as a so-called webmaster, was going to be important for the way regions develop and compete against each other within and outside of national borders.

In a roundtable discussion it was acknowledged that economies are moving into uncharted territory. The familiar ways of measuring economic performance--the Standard Industrial Classification (SIC) system, for example--are to the Knowledge Economy what the abacus is to the computer. Where do you put software in the SIC system? How do you benchmark knowledge workers?

Knowledge workers are dominating the economy of the 1990s. Who are they? They are "individuals whose primary responsibilities are the acquisition, transformation, and dissemination of information" and they form an organization's "key assets," according to James Ware and Peter Degoey of the Walter A. Haas School of Business at UC Berkeley. Management guru Peter Drucker and former U.S. Labor Secretary Robert B. Reich predicted their arrival many years ago. And now they're here. In droves, but still not enough for employers.

Yet no one knows how to benchmark their performance. "Perhaps one of the most difficult--and least examined--aspects of knowledge work is how the performance of knowledge work can be assessed," write Ware and Degoey in their paper "Knowledge Work and the Information Economy." Few standards exist. The challenges are many. For example:

• It is difficult to quantify their output. Measuring the number of lines of code written by a programmer indicates "very little about the programmer's effectiveness in creating a high-quality program."

• Project outcomes in which knowledge workers participate often take months or years to materialize.

The British report concludes benchmarking is best done "by drawing on a range of experience and expertise, not least because many of the activities that the analysis in this paper shows are rising in importance are hard to quantify reliably. For those that can be quantified, and appear in the official statistics, measurement is often in its infancy."

The British recommend a model based on one developed by Massachusetts. The "competitiveness indicators" to be measured would include:

• the macroeconomic business environment

• resource indicators -- human and physical capital, technology, and R&D

• innovation process indicators -- technology transfer, entrepreneurship, and knowledge diffusion

• bottom line indicators -- per capita GDP, productivity, employment, incomes, and sustainable development.

Benchmarking worker performance in an expanding and diffuse labyrinth of global markets, cyberspace and e-commerce will be like navigating in fog. It must be attempted to get anywhere, but you never know where you might end up, or how you got there.

Perhaps some aspiring PhDs will come up with a system of packet tracking that can chase down discrete data packets, investigate their origin and author, and determine their worth to the economy.

Let the chase begin.

Partners in Networks: A Prescription for Growth

More important than chasing packets is the plain recognition by governments that something worth notice is afoot.

The cover of the February 1st edition of Newsweek  magazine, behind the header "Your Next Job: How Careers Will Change in the 21st Century," features three people: a desktop analyst, a personal trainer, and an Internet technology consultant. Nobody in manufacturing or retail.

All the governmental reports cited above call for measures that will upgrade the technical skills of workers. All call for government - education - business partnerships to get the job done. All dangle an expressed or implied consequence of not keeping up in an era of global competition. The tacit term is "toast," although etymologists, so far as I know, have yet to pin down how twice-baked bread has come to mean unmitigated disaster.

To avoid the prospect, all governments and organizations with a stake in economic development are trying to come to grips with the new economic reality.

"In a world of global competition," reports the British white paper, "a country like the UK cannot compete on cost alone but must concentrate on high value-added goods and services and the component of production that cannot easily be transferred - namely, the skills of the workforce and the tacit knowledge possessed by employees and embedded in corporate systems and cultures."

The "extraordinary progress in information and communications technology" has changed fundamentally the economic development landscape. It is the inescapable starting point for any discussion of the subject, and it is shaking up conventional thinking, including in Minnesota. The state's Office of Technology, in its "Beacon to Our Future" Master Plan released last April, includes economic development as one of five key areas for the strategic use of digital technologies.

The Twin Cities Citizens League is calling for complete rethinking. In a research report last November, it recommends that public and private economic development efforts "shift their focus away from job creation to improving the productivity or 'value added' of workers and companies in Minnesota." Otherwise the critical labor shortage in the Twin Cities "will jeopardize the region's global competitiveness, which in turn jeopardizes the standard of living in the region and state." The League's concern about the skills level of the labor force is backed up by state planners in 1998: Economic Report to the Governor released last month.

An approach advocated by the Citizens League would be to support an "industry cluster" strategy in which training programs would be tailored to meet the needs of these "high-value, high-growth industries." Industry clusters "create pools of experienced workers, stimulate innovative ideas and partnerships, and promote inter-industry efficiency through tough competition as well as cooperation."

The British white paper, also recognizing the value of industrial clusters, strikes a similar chord: "Local education and training institutions can help create a pool of skilled labour to meet the cluster's needs." In addition, cultivating a culture of knowledge sharing within and among organizations, particularly those located closely to each other, can result in local and regional competitive advantage.

It is a paradox, writes Harvard economist Michael Porter, that "the enduring competitive advantages in a global economy lie increasingly in local things--knowledge, relationships, motivation--that distant rivals cannot match."

Industry clusters can't be created by government, the British white paper concedes, but government "can create the conditions that encourage their formation and growth." Britain's university-based science enterprise centers are designed to play this role. The University of Minnesota has recommended the creation of in-house "safe zones" for the pre-commercial development of technology, at least until an affiliated incubator or innovation center is developed. The Internet makes possible collaborative electronic networks such as Minnesota's MBBNet and the UK's Cambridge Network that link industry with academia, enhance the diffusion of knowledge and help spur entrepreneurial activity.

Britain has joined California, Massachusetts, Minnesota and others in embracing publicly funded science and technology as vital to sustaining technology-based industries and building new ones. If universities are to extend the campus and help build "mini-Silicon Valleys," they need to "identify areas of research, foster collaboration, and invest to turn wispy ideas into full-fledged innovations." ("The 21st Century Economy: The Innovative Edge," Business Week , Aug. 24-31, 1998)

Local high-tech companies such as Medtronic, now Minnesota's leading firm in terms of market capitalization ($35 billion), tend to purchase research services and hire graduates from universities located nearby. Renewed state investment in the University of Minnesota--in molecular and cellular biology and digital science--means better prospects for generating new knowledge companies like Medtronic want.

The new knowledge takes the form of new technologies and newly hatched graduates.

"Our success depends on how well we exploit our most valuable assets: our knowledge, skills, and creativity... We must put the future on Britain's side," declares Tony Blair boldly, throwing down the glove and buffing up the lion for the post-imperial global challenge.

"To reap the maximum benefits of the digital global society of the 21st century," reads a summary of Governor Jesse Ventura's proposed budget, "Minnesota will need to achieve a common vision for information technology."

Transatlantic visions making their way into an uncertain future.

In the end, the economic future of any country, state, or region will depend more than ever on the "knowledge, skills, and creativity" of its people. To the extent that managerial hierarchies, legacy interests and governmental short-sightedness impede their growth and expression--in Britain, Minnesota, or anywhere else--economies won't prosper.

To that extent, the future belongs to others.

    --William Hoffman    hoffm003@tc.umn.edu