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Originally published September 23, 2012 at 7:58 AM | Page modified September 23, 2012 at 8:02 AM

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Innovation requires creative leadership

Special to The Seattle Times

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The month has been big on innovation, from the “Titans of Innovation” series at Seattle Center to the Pacific Northwest Innovation Summit.

“Innovation” is the economic coinage of the moment in nearly every state and metro area outside of the prospering Oil Patch, as they struggle with the aftermath of the recession. The Puget Sound region is among the fortunate places where it’s more than a word or aspiration.

Innovation here extends far beyond the geeky precincts of software engineering and biomedical research, as critical as those are. It goes beyond Boeing and one of the world’s top aerospace clusters. It’s happening at Nordstrom and REI, Starbucks and Paccar. Amazon is moving beyond retail to reinvent fundamental business models as a technology company.

Washington ranked No. 2 among states in patents per 100,000 residents in 2010; No. 5 in venture capital per nonfarm worker in 2011; and No. 6 in research and development as a percentage of GDP. It was second nationally in the Kaufman Foundation’s New Economy Index, which measures knowledge jobs, globalization, economic dynamism, the digital economy and innovation capacity.

Despite these impressive showings, nothing can be taken for granted. Washington suffers from a stubborn unemployment problem. Job creation went backward in August.

Worse, the state’s unemployment rate in the second quarter was 17 percent using the broadest measure, which includes discouraged workers and part-timers who want full-time work. Just seven other states showed the same or higher broad joblessness.

This chasm can exist in highly innovative places, such as California. But it’s not the Washington most citizens want. And it’s another sign of a fundamental turning point in the economy. This lesser depression or Great Disruption could last a long time.

Real innovation, which creates many new companies, technological breakthroughs and good jobs could break the stasis. Thus the national buzzword, which leaders here are hoping to implement as real policy.

“Our vision is to make Washington state the rock star of global innovation by 2020 and [execute] strategies to get there and keep our competitive edge,” said Egils Milbergs, executive director of the Washington State Economic Development Commission.

In collaboration with numerous companies, unions, educational institutions and government agencies from around the state, it is finalizing an updated strategic plan to help make that happen. The first report was released in 2009.

Few here need instructions in the new facts of life: The state is competing for two assets that can go anywhere, talent and capital. The future is not going to be a repeat of the recent past, as we’re seeing with a business cycle unlike any in the post-World War II era.

Also, it will take some innovative policymaking and priority setting to provide effective public help to sustain and expand this quality economy in a time of tight budgets.

The draft report states: “The architecture of the innovation ecosystem must be driven by private-sector jobs, and fueled by investment in innovation, new workforce skills, modern infrastructure, and exports.

“This requires a fundamental reset of policy focused on the talent we need, innovating in high-potential areas, producing and manufacturing more of what we invent, and exporting more. No single institution will lead the way. The next economy will be led not from the top, but from the bottom up.”

It’s good stuff, although some leading from the top actually will be necessary. We wouldn’t have aerospace and software clusters without Bills (Boeing and Gates) leading from the top. The same is true for Paul Allen’s transformation of South Lake Union into an urban innovation hub and Jeff Bezos’ decision to move there.

Political leadership will also be necessary, for one thing just to keep these plans from gathering dust on a shelf. A modest proposal: Stop gutting one of the state and region’s most important competitive assets: higher education, especially the University of Washington.

We’re playing in the bigs, where the real competition is places such as San Francisco, New York, Toronto and Singapore. Last week, San Francisco nabbed a Johnson & Johnson — you got it — innovation center to connect with local entrepreneurs and scientists. J&J placed the others in Boston, London and China.

San Diego, which has emerged as a technology powerhouse since its days as a sleepy Navy/tourist town when I lived there, wants to turn a neighborhood adjacent to downtown into an innovation district. It is using Barcelona’s 22@barcelona as a model, which spawned 1,500 startups and 56,000 jobs on 500 acres of a former textile area.

Then there’s the growing evidence of a slowdown in American startups.

A Kaufman Foundation report found that in 1980, firms less than 5 years old accounted for half of all going concerns. By 2010, this share was 35 percent and business “births” had peaked even before the recession.

Barry Lynn and Lina Khan, writing in Washington Monthly, dug deeper into census data and laid out evidence of a stunning drop in new business formation.

A telling number: 35 new businesses that employed people were created for every 10,000 Americans over the age of 16. That was in 1977. But a steady erosion set in, so that the businesses created averaged 25 in the 1990s. By 2009, the number had fallen by 50 percent from 1977.

Other data disprove the notion that U.S. entrepreneurship has turned to self-employed free agents. No wonder we have a jobs crisis.

This is fodder for political debate. Is government over-regulating? Or has it failed to halt the consolidation of industries and rise of quasi-monopolies that game policy at the expense of entrepreneurs?

Either way, it’s also a cautionary note in innovation-ville. Make no mistake, we’re in for the fight of our lives to continue as a star performer.

You may reach Jon Talton at jtalton@seattletimes.com. He’s on Twitter @jontalton

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About Jon Talton

Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@seattletimes.com

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