Brookings: State government must guide Pennsylvania’s innovation-driven economic growth


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Re-energizing Pennsylvania’s stagnant innovation economy will take more than a one-off investment, according to a newly released report from the Brookings Institution, as well as “catalytic steps” by the state government.

“Having lost its focus on innovation in the last 15 years, the commonwealth needs to refocus on innovation as the best way to unlock its economic possibilities,” according to the report, entitled “Commonwealth of innovation: A policy for revitalizing Pennsylvania’s economic dynamism.”

The report’s authors point out that the Pennsylvania State government seems to lack a clear commitment to innovation and has let its core innovation programs languish. For instance, no well-researched strategy document appears regularly, nor does the state invest much in promoting its innovation economy, they write.

At the same time, they said the state reduced its investments in innovation programs by nearly two-thirds during the Great Recession and has failed to rebuild it in subsequent years. In turn, the reduced investment has weakened efforts to bolster entrepreneurial ecosystems, support the formation of new firms, and help companies scale, according to the report.

“Pennsylvania must reclaim its history of supportive policy innovation,” wrote the report’s authors. “Such assistance remains a crucial aspect of the kind of ecosystem-building critical for the state’s innovation enterprise.”

Even increases for innovation programs requested by Gov. Tom Wolf in the fiscal year 2023 budget “have only modestly restored some of the reductions,” the report says, though the final budget does include several innovation-related investments, such as a $5 million increase in the cap on the state’s R&D tax credit; $2.35 million in first-ever state funding for the Invent Penn State program; and an additional $1.5 million in funding to the Manufacturing PA program for grants to the state’s industrial resource centers to foster innovative service delivery, among other items.

“In the short run, then, Governor Wolf’s FY 2023 budget items are common-sense investments. In the longer term, though, more will need to be done to ensure that Pennsylvania can regain its place as a national innovation leader,” the report says. “In this regard, it’s time for policymakers from both parties to embrace an innovation-oriented growth agenda that supports all Pennsylvania residents, from the largest metro areas to the smallest townships.”

Toward that goal, the state government can “catalyze Pennsylvania’s innovation potential” and restart its “entrepreneurial dynamism” via four recommendations from Brookings for the next administration, which it says:

1) Should quickly elevate the importance of innovation by embracing the cause of innovation and articulating a strong vision; centering innovation in economic development activities; and rebuilding the state’s innovation budget.

2) Enact a bold initiative aimed at assisting the state’s major innovation regions in scaling up strategies that would convert startups into growth. For instance, top administration leaders could design and support a Pennsylvania Innovation Hubs program as a challenge grant to help regional innovation clusters in key university-based innovation hubs promote tech-based economic growth and job creation. They also might consider expanding the state matching fund for federal Small Business Innovation Research/Small Business Tech Transfer awards that provide funding to small businesses engaged in federal-agency-relevant R&D with the potential for commercialization while emphasizing support for underrepresented groups.

3) Design and fund a competitive challenge grant to spur innovation and entrepreneurship in 20 regions outside Pennsylvania’s major metro areas, and establish an advanced industries innovation voucher program that would help firms across the state access research from Pennsylvania universities. Both could help more of the state’s smaller cities, towns, and rural areas tap into the benefits of the innovation economy, the report says.

4) Focus on enhancing inclusion in its innovation economy across three themes: growing a more inclusive entrepreneurial ecosystem by providing more state-level funding; growing access to advanced industry careers via competitive funding, for example; and making STEM education more equitable through specific policy actions such as creating a new program to attract diverse STEM professors to state higher education institutions.

“To generate sustained and consistent investment over time, the state can explore a variety of revenue options,” according to the report.

One option, for instance, would be to channel a portion of the growth in personal income tax receipts received by the state from advanced industry workers into a new Keystone Advanced Industries Growth Fund that would finance future investments in innovation and advanced industry growth without raising taxes, suggest the report’s authors.

Another option could include tapping the state’s budget surplus or taxing transactions tied to legal marijuana to fund an inclusive innovation agenda, they wrote.

“In order to build a more competitive and inclusive economy in the coming years, the commonwealth must act now to reclaim its former position as an innovation leader,” the report’s authors conclude.

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