Higher Education -- A Key Economic Asset

President Charles M. Vest's address to Greater Boston Chamber of Commerce, January 22, 1996.

© Massachusetts Institute of Technology, 1996. To reprint or excerpt for publication, please contact the MIT News Office at newsoffice@mit.edu, or (617) 253-2700.
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One Example

It is no secret that Boston is a great university town, with more than a quarter of a million university students in the Greater Boston area.

In our case, being a university town means much more than that:

Simply put, universities are a key part of what the Chamber of Commerce has identified as the institutions that drive our regional economy: financial services, health care, high technology, and higher education. Everyone has some understanding of this relationship between higher education, high technology, and health care, but let me give just one example from the financial services sector.

Perhaps no one in any field has better demonstrated the value of the creative blend of theory and practice than the late Fischer Black, a former professor at MIT's Sloan School of Management, whose insights triggered what is now a $20 trillion dollar industry worldwide.

Drawing on his background in applied mathematics and working with colleagues Myron Scholes and Robert Merton in the late 1960s, Black developed a way to put an accurate price on financial options. The Black-Scholes formula not only served as the cornerstone of the new field of financial engineering, but also sparked an explosion of activity in the nascent options trading business.

Throughout his career, Black moved with ease between the university and financial communities, serving as a vital force for innovation in both worlds. In addition to his work in options pricing, his ideas and insights enriched our understanding of such varied practical issues as regulation, business cycles, and monetary policy.

This is just one example of how higher education has been, and has the potential to continue to be, one of this region's -- and this nation's -- key economic assets. But if we are to fully realize this potential, we must work together to adapt to fundamental changes now under way.

Changing Times

These are times of change. We have been vested very heavily in Cold War structures and industries. We all know the story of Route 128 and high-tech business. It is the success story not just of a region, but of an era.

But where are we today? Will we be nimble enough to change with the times? I believe we will. Indeed, we must.

We are entering an era in which knowledge and the people skilled in its use are the coins of the realm.

In such times, we will succeed by our wits rather than by our power and natural resources.

Despite the stresses and strains of change, this is a time to be optimistic and even enthusiastic:

Just scan last September's issue of Scientific American, which is devoted to key technologies for the 21st century--things like:

It is our good fortune that Massachusetts is home to many of the academic and industrial leaders in the development of these new technologies. We are in for an exciting time...if we have the will.

But this is not the whole story.

Our world has a rapidly expanding population, an economy that increasingly is integrated on a global scale, a world environment faced by a variety of threats and disparate cultural values. In order to live and work successfully in such a world, individuals, organizations, sectors, and nations must work together.

Cooperation is Key

Let's take biotechnology as a case study--one that demonstrates how a strong partnership between government, academia, and industry can provide dramatic benefits to the society and economy. It also is a good example of the strong economic return on the nation's investment in education and research.

At MIT, we recently completed a study of the biotechnology industry and the contributions of just one university, MIT, to that industry. The federal government invests about $43 million annually for biological research at MIT--funding that supports 138 different research projects and provides significant support for our graduate students who work on these projects.

What has the country gotten in return?

By any measure, the biotechnology industry demonstrates an extraordinary return on the investment in higher education and research. Indeed, we have only just begun to tap the potential returns of this rapidly advancing field.

Biotechnology is but one example of an important principle and challenge highlighted in the Chamber's report: The transfer of laboratory discoveries into viable products and services is a critical component of the region's economy.

The challenge is to maintain our leadership position. Meeting this challenge will not be easy.

A Broken System of Innovation?

All studies agree that at least 50 percent of all economic growth in this country since World War II has been due to technological innovation. The lion's share of that innovation has come from research universities, which not only develop the intellectual underpinnings for progress, they train the people who translate the discoveries into new products, processes, services, and industries. But the system that has produced this fountainhead of innovation is in danger.

Two great threats to our innovation system are imminent--the downward direction of federal research budgets, and the disappearance of "mid-range" research.

Federal Budget Plans

The first threat is the Federal government's plan to reduce its support of civilian research and development by 30-35 percent over the next six years. This is in dramatic contrast to the policies that, until recently, had operated since World War II, in which the federal government joined forces with the universities of this country to invest in research and education.

What worries me especially is that today, just as the US is on a course to disinvest in civilian R&D, Japan is increasing its investment. And every rapidly developing nation in the world is banking on technology to move it into competitiveness on the world stage. The US cannot afford to lose its edge, and our region most of all cannot afford for this to happen.

Our traditional national political power may have eroded, but fortunately our region is blessed with strong, bright politicians of both parties who understand--and act on--the importance of education and research to our future.

The support of research has traditionally been bipartisan. We now need continued bi-partisan political action. We also need concerted effort by our colleagues in business and industry to shore up our national investment in these areas.

The Disappearance of Mid-Range Research

The second danger to the vitality of the innovation system in this country stems from the economic pressures that our industries have been facing over the last several years.

The nation, at least for now, remains strong in scientific research--research that generates basic knowledge whose commercial and societal potential lies many years in the future. This research is dominantly conducted at research universities and national laboratories.

In response to intense global competition, however, our large corporations have completely transformed their research and development activities to concentrate on short-range matters--incrementally improving products, reducing product development cycles, improving quality and productivity.

These actions have been essential and effective in the near term. But they are resulting in the disappearance of the mid-range research that builds a common knowledge base of developing technologies, and that is the source of much of America's innovation.

Strength in long-term research, corporate self-optimization in short-term research, and the disappearance of institutions like Bell Labs: That is the picture, and it is a dangerous one.

A New Innovation Ssystem Will Come From New Partnerships

We need to establish a strong new innovation system for these times, as we did in the past. One way to do so is for universities to establish new partnerships with industry. An example is MIT's Leaders for Manufacturing Program.

This is a program in which a group of American industries have joined with MIT to build research and educational programs that are providing new approaches to the practice of manufacturing while preparing students who have both the technical and managerial expertise to lead tomorrow's manufacturing industries. Inventing more such partnerships will allow us to capture the benefits of new ideas on the horizon.

Many emerging areas of research hold real promise for significant economic and social benefit. Examples are the brain and cognitive sciences, information technology, environmental technology, and biotechnology.

In the brain and cognitive sciences, for example, we can look forward to the day when advances in these fields will offer respite and even cures for mental illnesses, in much the same way that research in molecular biology has led to dramatic progress in the fight against a host of physical diseases. Such advances will provide the real path to reducing the social and economic costs of health care.

Fulfilling these promises requires support of the research that takes place in universities, to be sure, but it also requires the participation of industry in transferring the research results from the laboratory to the economy. Long term success also requires active involvement and appropriate support for industry and academia from our state government. In sum, new partnerships in new fields hold the key to our economic vitality.

We in this region know how to do this. We have done it in the past. And we will do it in the future.

In noting the positive effects of our universities on the economy, we must remember that the most important assets have been people and a supportive infrastructure.

The research conducted in universities has astounding effects over time. But more important still are the students that we educate. It is their knowledge (gained in the classroom), their skills (honed through the discipline and excitement of research), and their entrepreneurism (fostered by our ethos), that can lead us to a vibrant future.

Higher Education - Our Greatest Asset

In closing, I would remind us all of Michael Porter's argument about the importance of "core clusters" of talent and infrastructure for economic health. Of all the "core clusters" that our region can claim, higher education and preeminent research universities remain our greatest asset.

But it is an asset that requires a continued and strengthened partnership with business and industry if this region is to regain its position as the flagship of innovation in this country. A key to this is strong investment in higher education and research.

As I have noted, we are working with business and industry to create new partnerships for education and research. But we cannot depend on industry alone for such intellectual and financial investment. The nation--through the federal government--must renew its investment as well. We in the universities are working hard to make that case. But, quite frankly, we cannot do this alone.

We need your help--to make sure that the federal investment in new knowledge and educated citizens is sustained. I am greatly heartened by the Chamber's call for greater cooperation among the business, industrial, governmental, and academic sectors in order to take full advantage of our region's tremendous resources.

We in Massachusetts live by our knowledge, our wits, our innovation, and our ingenuity. I can think of no better climate for creating renewed partnerships that will benefit the region and the world. We at MIT look forward to joining you in this great endeavor.

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