Updated 2:56 p.m.
COLUMBUS, Ohio — Late in its middle-age, the Ohio Third Frontier project has created $6.6 billion in economic impact and 41,300 jobs (pdf) in seven years, an independent research institute told members of the Third Frontier advisory board and commission during a joint meeting this morning.
From 2003 through 2008, the Third Frontier and Ohio universities invested $681 million in research, development and commercialization projects at academic, research and development institutions and companies, entrepreneur-development organizations and venture capital funds, said SRI International, the Menlo Park, Calif., firm hired by the Third Frontier to do the economic impact study.
Overall, that represents an investment return of 10-to-1, said Jennifer Ozawa, senior economist at SRI’s Center for Science, Technology and Economic Development, in her firm’s presentation to the Third Frontier groups. Federal research and development awards, private equity investments and foundation grants provided the leverage beyond the state investment, Ozawa said. By comparison, simply returning the $681 million to taxpayers rather than invested it in technology would have created an economic impact of $935 million and 6,400 jobs, she said.
Third Frontier is the $1.6 billion, 10-year project, aimed at developing Ohio’s economy by developing its technology, first in the biomedical industry, and then in the advanced and alternative energy, advanced materials, instruments-controls-electronics, and advanced propulsion industries. Started by Gov. Bob Taft in 2002, the project got a $500 million infusion in 2005 after voters approved a bond issue, which failed its first time around.
The first generation of the project, which invested a majority of its biomedical dollars in Northeast Ohio, is set to end in 2012, though project and government leaders expect to ask voters to approve a renewal of the program in May 2010. Because the Third Frontier is a complex program, it’s been a difficult one to communicate to the public. So at the behest of the Ohio Department of Development, SRI and its partner, the Georgia Institute of Technology’s Enterprise Innovation Institute, tried to answer the question of whether the project has been worth taxpayers’ money. By the way, the department paid $325,000 for the SRI analysis.
To answer this question, SRI and its partner analyzed economic, research and development data, did case studies of 20 grant recipients, and interviewed more than 80 stakeholders in the project, said David Cheney, director of SRI’s Science and Technology Policy Program, which is part of the science, technology and economic development center. SRI looked at the Third Frontier’s efforts to invest in industry clusters within growing industries it has targeted.
SRI had some challenges while doing its analysis. For instance, new Ohio technology clusters it studied — such as medical imaging – are immature. That means it’s early to be measuring the economic impact of these developing clusters. Most industry development is measured in decades, not years. “That the impact is already being seen so well, so quickly is an important story to tell,” said Brad Whitehead, president of the Fund for Our Economic Future in Cleveland, Ohio, during a panel discussion that followed the analysis presentation.
Another challenge: The decline of manufacturing in Ohio masks many of the major economic impact trends, Cheney said. Expect greater returns in years to come, Ozawa said. A significant amount of Third Frontier money remains to be spent, and the products and processes so far commercialized through the project should add strength to the state’s economy as the nation emerges from its economic recession.
Here are the the eight desired outcomes of the Third Frontier that SRI studied through an input-output model that estimates direct and indirect economic impacts:
Did the project generate a positive return on Ohio’s investment?The project is estimated to have generated $6.6 billion in economic activity, 41,300 jobs, and with that, $2.4 billion in employee wages and benefits. In addition, Third Frontier awardees attracted an additional $4.2 billion from private, federal, foundation and local sources. So far, $10 has been generated by each $1 invested by the Third Frontier.
Did the project make more early stage capital available to Ohio technology companies? Early stage and seed investments have increased from $32 million in 2003 to $298 million in 2008 for average annual growth of 18.5 percent, according to a study by the Fisher College of Business Center for Entrepreneurship at Ohio State University. Several Third Frontier programs, including the Ohio Capital Fund and Entrepreneurial Signature Program, which enables organizations like JumpStart Inc. in Cleveland to invest in young companies, have aimed at increasing capital for technology companies.
Does Ohio have a better environment for technology entrepreneurs? Several Third Frontier-supported programs, such as its Wright Centers of Innovation, have helped more than 350 start-ups with a range of services. The availability of more investment dollars for tech companies also has created a better entrepreneurial environment. During a press briefing following the analysis presentation, Mark Collar, chairman of the Third Frontier Advisory Board, said he has seen “a fundamental change in the culture of the state to become more tech-based and entrepreneurial.” That comes not just from more dollars being invested in technology, but from the people fostered by the investments, Collar said.
Has Third Frontier helped produce better research and development collaboration? A key aspect of effective technology-based economic development is how strongly a region’s research institutions are connected to local industry. The Third Frontier is helping to improve the state’s research infrastructure and research collaboration, creating many university-industry collaborations and networks, according to the SRI analysis. Licensing income at Ohio universities more than doubled from $16.1 million in 2002 to $39.6 million in 2007, and the number of university-based business start-ups has increased.
“What I heard was the admonition that we’re not there yet,” but Ohio academic institutions are working a lot more with companies than they were seven years ago, said Eric Fingerhut, Ohio Board of Regents chancellor and a member of the Third Frontier Commission.
Has employment grown in Ohio’s high-tech sector? This is where SRI studied four clusters: biomedical imaging, flexible displays and electronics, fuel cells, and photovoltaics. SRI found 4,387 more jobs in these clusters in 2008 than in 2004. According to another analysis, high-tech jobs in Ohio grew about 1.7 percent in 2008, compared to a drop in all types of jobs of about 0.5 percent.
Has Third Frontier helped Ohio manufacturers be more diverse and competitive? Direct investments in Ohio companies are helping manufacturers retool and take to market new products for new markets, according to SRI.
Has the project recruited companies to Ohio?Companies like Philips Medical, Rolls Royce Fuel Cell Systems and Zyvex Performance Materials have cited the Third Frontier as a reason for relocating businesses to Ohio, according to SRI.
Has Third Frontier helped Ohio develop world-class technology clusters? The Ohio Third Frontier project shares all the elements, such as strong commitment to the public sector and research commercialization, that are considered best practices in technology cluster development worldwide, SRI said.
Looking ahead, SRI recommended the renewal of the Third Frontier as a program that continues to respond to changes in Ohio’s economy and industries, Cheney said. SRI also recommended shifting more dollars toward entrepreneurial support and company attraction efforts. Networks, such as supply chains that develop and produce medical imaging equipment, are key to technology-based economic development, so network building activities should continue and be expanded, Cheney said.
A few ways Third Frontier has fallen short: communication among the state’s five regions and full inclusion of Ohio’s institutions, such as Ohio State and Battelle, he said.