THE AVENUE FEBRUARY 24, 2011
Yesterday, we noted the extreme concentration in just a few metropolitan areas of the leading-edge U.S. cleantech firms honored in the Global Cleantech 100 list of the most promising start-ups. We noted that a whopping 39 of the 58 U.S. firms included in the list are hyper-clustered in just four metropolitan areas—San Francisco, San Jose, Boston, and Los Angeles, in that order. It goes to show the significant power of proximity in innovation.
And yet, at this point in economic history it’s not just the fact of such clustering that bears consideration but also the reasons why it occurs.
There are many possible explanations for this. As we have pointed out in recent reports, and mentioned in an earlier blog, industries benefit when companies are clustered together. The reason is that clustering facilitates matching, sharing, and learning, as summarized nicely by the work of Giles Duranton and Diego Puga. The theory is that similar companies accidentally create benefits for one another when they chose to locate nearby. For example, they may trade ideas through meetings or collaborative projects; suppliers might become more efficient if they can visit their buyer more frequently. And that likely contributes to the dynamic here.
However, most traditional theories of clusters assume that the firms create the benefits. A variant of cluster theory is that the region itself has specific assets that attract companies in the same industry. Research by Maryann Feldman and others shows that university research promotes innovation and that firms cluster around industries that share a common scientific research base. It follows that leading research programs in a relevant field could facilitate the most important commercial breakthroughs for that industry. Such programs would consistently turn out graduate students with cutting-edge skills and knowledge, who could then partner with entrepreneurs to commercialize their ideas or overcome technical obstacles.
One way to test this is to use the new data from the National Resource Council’s (NRC) assessment of research-doctorate programs. There are six fields that are particularly relevant to the clean economy: Civil and Environmental Engineering; Earth Science; Materials Science; Material Engineering; Mechanical Engineering; and Oceanography, Atmospheric Science, and Meteorology. Beginning with those, we measured top ranked programs as those scoring in the 90th percentile for their field on the average of the two major rankings used by the NRC.
It turns out that top-ranked doctoral programs in energy and environmental research are also highly concentrated spatially. Twenty nine of the 53 top programs are in just 11 metropolitan areas. Boston and Los Angeles have four each out of a possible six; San Francisco, San Jose, and Chicago each have three, and Trenton (i.e. Princeton), Atlanta, Champaign, Gainesville, Providence, and Santa Barbara all have two.
So, the question naturally arises, do metros with high-ranking research programs in energy and environmental science also have more cleantech startups?
The answer is yes, as implied by the overlapping city names. There is a very high correlation between the number of top research programs and the number of cleantech start-ups, as the graph belowshows. For every top-ranked program there are 1.5 globally recognized cleantech start-ups.
The relationship is even stronger after adjusting for the number of energy and environmental university programs, the number of energy and environmental related federal labs, the size of the metro workforce, and the metro’s state. An interesting result is that the sheer number of research programs has no relationship to the number of leading cleantech firms. Only the number of top-ranked research programs is predictive of top start-ups. Apparently, mediocre technical expertise is good enough for successful employment, as implied by federal data on wages and unemployment rates by education attainment, but only the best skills matter in starting cutting-edge cleantech firms that attract the attention of venture capital firms and global industry experts.
It should be emphasized that these companies are new and don’t reflect the location of the larger and more mature multi-establishment firms—like GE, Vestas, Siemens, and First Solar—that comprise much bigger portions of the cleantech economy. It may very well be the case that the academic advantage is only relevant for the early stages, but then again, San Jose and these metros still house leading companies that were start-ups decades ago. The bottom line: Top-flight, leading-edge expertise matters a lot to regional cleantech prowess and commercialization.