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Investing in Manufacturing Innovation & Competitiveness: Will the next Silicon Valley be located in the United States?

manufacturing innovation silicon valley

Editor's Note: In this guest blog post from Adams Nager, of ITIF (Information Technology & Innovation Foundation), he stresses the importance of fostering innovation and spurring competitiveness of American Manufacturing by focusing on more R&D from both the public and private sectors. This guest blog is appropriate to address once again so that we in the manufacturing community and service providers, like Cerasis who makes manufacturers efficient in transportation management, remember to always look towards efficient and investing in the long term, as the current tepid growth we're experiencing could quickly go away if we don't stay vigilant.

Manufacturing is hearing reports this month of much slower growth in the regional flash PMIs, and as Forbes reports that Manufacturing still has gains yet to be seen due to smart investments in projects like the Advanced Manufacturing Hubs. We stand on the fact that manufacturers must continue to make smart investments more in technology to stay more efficient, such as the use of 3PLs for better transportation management to reduce costs which often make up 4 to 5% of total revenue.  This post is a reminder to all manufacturers, that in order to help yourselves, and help the economy, we cannot keep our eye of the long-term or investing for it. 

Will the next Silicon Valley be located in the United States?

In 1956, an American engineer, William Shockley, had an idea that silicon could be used to make transistors, and founded a company in Mountain View, California. The rest is history. The area experienced explosive growth after the invention of the silicon semiconductor sparked waves of manufacturing innovation. Other firms developed around the Shockley’s first company, also developing and improving on the invention. Continual support from nearby Stanford University, along with collaboration between local firms, created an innovative environment ideal for fostering growth. By the 1960s, 31 semiconductor firms had been established in the country, of which only five were located outside the region. Smaller firms providing research, specialized services, and other inputs located nearby the larger companies. Innovation thrived, the local economy boomed, the center of high-tech innovation shifted from the east coast to the west, and the Silicon Valley was born.

The Silicon Valley is a prime example of how advanced R&D tends to focus in clusters- geographically concentrated industries that maximize spillovers from firm to firm and between public and private researchers. Once research concentrates in an area, it is hard to displace, which is why DOE and other publicly funded labs can have such important influences on local economies. Local firms can share ideas generated by R&D, most of which have broad-reaching benefits only partially captured by the firm conducting the research. The rest of the benefits ‘spillover’ to neighboring firms, benefitting the whole industrial community and bolstering the local innovation ecosystem. Once established, clustered industries can grow quickly in the concentrated region. New entrants will want to locate close by to be a part of the innovative, collaborative environment, intensifying the cluster further. This phenomenon equates to a ‘first-mover advantage,’ which can give the geographic region where the invention occurred the momentum to remain a hub for the production, development, and continued improvement and evolution of the industry.

The Silicon Valley’s success is not unique. After all, over a hundred years after Henry Ford revolutionized car manufacturing, automobile R&D and production are still tightly clustered in Detroit. And the Boston biotechnology cluster, developed in large part by intense, concentrated research by the 40 area universities which offer advanced degrees in life science fields (notably among them Harvard and MIT), is certainly among the most innovative locales on the planet.

Innovation Driven By Concentrated Industry Clusters

In fact, much of U.S. innovation is tucked into concentrated, industry specific pockets. Recent data released by the National Center for Science and Engineering Statistics illustrates where research and design (R&D) spending by large companies takes place. The top 24 metro areas for R&D produce almost three-quarters of all utility patents filed in the United States and 83 percent of R&D performed by large companies at their primary R&D locations. The Silicon Valley by itself accounts for 16 percent of all utility patents with just 1.4 percent of the U.S. population.

Not only do these cities excel in R&D, they tend to specialize in R&D surrounding specific industries. The Silicon Valley specializes in semiconductors and electronic components. Seattle and New York specialize in software publishing research, Boston, and San Diego in pharmaceuticals and medicines, and Houston in mining research. Focuses on specific industries can derive from ground-breaking inventions or from concentrated support for research in specific areas.

Where Will the next Semiconductor be Invented? Maybe not the US......

However, it’s important to remember that the Silicon Valley is located where it is because of superior American innovation following World War II. Unfortunately, that advantage has largely disappeared. The next Silicon Valley will most likely spring up around whatever firm, lab, or university invents the next semiconductor. Unless the U.S. revamps support for R&D in advanced industries, the next innovations and that create dynamic, high-tech clusters like the Silicon Valley will come from Germany, China, or Korea.

To keep the U.S. competitive, we need a coordinated National Manufacturing Strategy. In addition, the United States should also continue to sponsor public/private regional research initiatives like the National Network for Manufacturing Innovation (NNMI), which is supporting research and partnerships in emerging, advanced industries in Youngstown, Raleigh, Chicago and Detroit. NNMIs provide early encouragement that help clusters develop in emerging, cutting-edge industries through geographically-concentrated, publicly-funded research (which frequently spawns dramatic private sector innovations) and partnerships between public and private researchers, enabling advanced localized industries to maximize spillovers and collaboration and take advantage of the first-mover advantage.

Only through these kinds of actions- such as providing public support for R&D, both public and private, facilitating research partnerships, and instituting policies to encourage innovation in high-tech industries- can we ensure that the next Silicon Valley, and for that matter the 10 after that, will be located in the United States.

How do you think we can foster and drive more manufacturing innovation? Let us know in the comments section below!

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Adams Nager
Adams Nager is an economic research analyst at the Information Technology and Innovation Foundation. Areas of interest include international competitiveness, macroeconomic theory, STEM education policy, and high-skilled immigration issues. Prior to ITIF, Adams was a student at Washington University in St. Louis, where he earned an M.A. in Political Economy and Public Policy and a B.A. in Economics and Political Economy.
Adams Nager
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