Impact of Research Universities Equals a Stronger Michigan Economy

05-31-2007

Michigan’s economy continues to lag. A week ago, Standard & Poor’s became the third investor service this year to downgrade the state’s credit rating as lawmakers wrestled with a huge gap in the current fiscal year budget until late last Friday. This week, the Legislature is back in Lansing addressing the $1.6 billion revenue shortfall projected for the 2007-08 fiscal year.

These are intense pressures, and it is difficult in such times to keep both the short and long term in equal view. Yet if Michigan is to recover and, ultimately, to thrive, this is precisely the lens through which the state’s budgeting decisions must be seen.

In mid-April, I wrote in this space about the need for the state to view higher education as a key investment in Michigan’s competitiveness rather than as an expense. Now a new, independent analysis from Anderson Economic Group (AEG) underscores the importance of looking at the state’s nationally recognized research universities with medical schools in this light.

Six months ago, Michigan State University, University of Michigan and Wayne State University formed an alliance called the University Research Corridor. The objective of the alliance is to maximize the impact of our universities’ collective assets by encouraging collaboration and coordination of activities that spur innovation and economic development and that attract businesses to Michigan.

AEG’s analysis shows that these three universities have operations of $6.5 billion per year, or 2 percent of the state’s economic activity, and that we spend more than $1.3 billion each year on R&D. The URC universities account for 94 percent of federal research dollars flowing to Michigan. You can view preliminary findings from the AEG report at www.AndersonEconomicGroup.com

Most important, the analysis shows that in terms of resources for a knowledge economy, Michigan can compete with some of the most touted research and development regions in the country, like North Carolina’s Research Triangle and Boston’s Route 128 Corridor. In essence, we have the raw materials, but other states are pulling ahead, making more strategic and sustained investments in their high power, higher education economic engines, while Michigan is cutting higher education spending.

MSU also has secured independent analysis of its individual economic impact, part of our dedication to continuous improvement through self-study and to providing our constituents with information about the investment they make in us. The study, also conducted by AEG and released earlier this month (available at http://news.msu.edu/story/788/), showed that economic activity in the state related to MSU’s activities was $3 billion in 2005 and that Michigan’s residents are more than $2 billion richer annually as a result of our operational expenditures, additional earnings as a result of increased human capital, and graduate medical education payments to hospitals due to our medical schools.

This shows a tremendously positive impact. But it’s important to note that it doesn’t even capture the value of additional economic activities that could not easily be quantified—such as Extension and Experiment Station activities; technology transfers; research and knowledge creation; and cultural, arts and entertainment events. AEG has a well-established reputation as the gold standard in this line of work. They use a rigorous and quite conservative methodology. These numbers, then, may really be regarded as the low end of the range that represents MSU’s economic impact. The same can be said for the URC study given AEG’s approach.

The main message of both of these studies is that our research universities have a dramatic economic impact today and that this impact can be leveraged into something much more powerful for tomorrow—if we choose to invest wisely. Ironically, Michigan devotes significant resources to keeping million-dollar companies in the state, and we should. But lawmakers are currently cutting millions of dollars from the budgets of research universities that provide billion-dollar impacts and the best hope for our future.

Competition in the knowledge economy isn’t just between states. It’s rapidly becoming as global as manufacturing, and Michigan already knows well the corrosive results that global competition can bring. We must invest now—and sustain that commitment to investment— to establish a lead in areas of emerging strength and feed the pipeline for innovation and entrepreneurship. We must do this to create a better Michigan.

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