Indiana: Land of Entrepreneurial Opportunity.

• Author: Kirk, Robert

Gary S. Becker, the 1992 Nobel laureate from the University of Chicago, wrote recently in Business Week:. "A successful entrepreneurial environment features continual `creative destruction,' to use (Austrian economist Joseph) Schumpeter's apt term. New companies prosper and help the economy in part by destroying the markets of established competitors."

In Indiana, there have been recent local and state initiatives to develop a successful entrepreneurial environment. In 1997, Stephen Goldsmith, mayor of Indianapolis, appointed a high tech task force which became the Central Indiana Technology Partnership, in cooperation with the Indianapolis Economic Development Corporation. Goals were to develop a culture to encourage technology-based enterprise, to develop links between innovation sources, to attract technology professionals, and to increase access to financial capital for technology entrepreneurs.

In spring 1999, the Indiana General Assembly appropriated $50 million for a 21st Century Research and Technology Fund. Governor O'Bannon appointed a Board of Directors for the Fund that will allocate the funds to promote high-technology business.

Where does Indiana stand in the development of an entrepreneurial type of environment?. This article focuses on patent issuance--one dimension of this type of environment. A patent is an outcome of an information-generating activity involving research and development (R&D) expenditures and efforts of scientific and engineering personnel. Indiana and selected states will be ranked by measures of patent issuance, R&D expenditures, and scientific/engineering personnel. Determinants of the geographic distribution of patent issuance will be identified. This topic is important because clusters of high-technology firms have been shown to generate benefits in terms of employment, income, and economic development. Understanding the determinants of the geography of. high-technology firms is important for regional economic policy.

We associate Silicon Valley with an entrepreneurial environment and creative destruction. Can Silicon Valley be transplanted to our Hoosier flatland? The birthplace of Silicon Valley, as designated by the State of California, is an old garage on Addison Avenue in Palo Alto where Hewlett-Packard originated in 1939. Frederick Terman, as Stanford University's dean of engineering and provost, played a critical role during the 1930s in fostering local business-university cooperative relationships based on the model of MIT's department of electrical engineering. His student entrepreneurs included Hewlett, Packard, and Charles Litton. Hewlett-Packard may have been the first university spin-off firm in history. Its growth was stimulated significantly by WWII military contracts--as were other fledging high-tech firms.

In the mid 1960s, a Silicon Valley model was attempted in northern New Jersey (involving Bell Laboratories, RCA's Sarnoff Research Center, Esso Research, Merck, Squibb, Ciba, Union Carbide, and others) but did not take hold. Some observers of high technology initiatives have concluded, "The timing was right," for Silicon Valley, implying that without the military contracts market of WWII and its direct aftermath, it will be a challenge to replicate Silicon Valley elsewhere.[2]

However, the two coastal high-tech concentrations mentioned above continue to be centers of innovative activity today. They have been joined by a variety of state and local initiatives to promote cooperation in research and development between industry and academia. The initiatives include industry-sponsored contract research, long-term university-industry research agreements, and industry-financed university research centers.[3]

Patent Issuance

The process of innovation is common to high-technology firms. Innovation is the commercial application of an invention. This process may be slow and expensive. In biotech, for example, there is the preclinical stage that involves discovery, patent filings, licensing technology, and investigational new drug application. The clinical stage follows and may last 6 to 7 years. The final stage is regulatory approval.

Inventors apply for a patent to protect their intellectual property. As the Biotechnology Industry Organization says, " ... patents are among the first and most important benchmarks of progress in developing a new biotechnology product."[4] Thus, patent issuance is used in this study as an indicator of innovative activity.

There are limitations in using patents: 1) many patents never become innovations, and many innovations are never patented; and 2) patents differ in their economic value or impact. To measure temporal and geographic impact, patent citations have been traced. Patents assigned to certain industries, such as electronics, optics, and nuclear technology exhibit high immediate citation but a rapid fading over time due to rapid technological change. University patents tend to generate more citations than corporate which, in turn, generate more than government.

Patent Issuance in Indiana

The issuer of patents is the U.S. Patent...