States Offer Funds, Know-How, And Research Aid to Firms

JOHN HODGMAN is a venture capitalist with a difference: He's part of the state government. As president of the Massachusetts Technology Development Corporation, he invests in high-tech companies that promise to bring jobs to the state but are having trouble attracting capital.

"The state has been doing this for longer than most people have thought," Mr. Hodgman says. The Bay State solidified its position as a technology innovator when it founded the Massachusetts Institute of Technology in the 19th century, he notes. From its founding, MIT has aimed to move research into private-sector applications.

In the last decade, many states tried to follow suit. Daunted by a severe recession in 1981 that revealed cracks in America's manufacturing base, states tried to foster high-tech companies and their high-wage jobs.

Forty-five of the 50 states have at least one state-run technology program. These include support for university research relevant to the local industry needs, venture capital funds, and technology transfer programs to help businesses adopt new or existing technology.

Analysts say the strength of these programs is their closeness to local businesses and the needs of the regional economies. But this can also be a drawback, in terms of the broad national interest.

The effort of localities to attract high-tech jobs and research activity with tax breaks or other economic incentives can become a bidding war, after which "very little has been accomplished," says Irwin Feller of Pennsylvania State University. For the most part, he notes, "states will fund the research centers [in industries] where they have a competitive advantage," Dr. Feller says.

Robert Atkinson, a senior analyst with the Office of Technology Assessment, views the state programs as largely positive. Dr. Atkinson suggests that states do best with programs that support research relevant to a local industry, while basic research or broader projects are best left to the federal government. A program like the Sematech consortium, for example, involves companies in many states, aided by federal funding, doing research in generic technologies for chipmaking.

Atkinson worries that some state venture funds aren't taking enough risks. In some cases they invest where the private sector would have done so anyway, he notes.

Hodgman says the Massachusetts fund only gets involved in companies - six or seven a year - that couldn't otherwise get going. When he finds private investors ready to do a deal, he simply passes the projects along.

Even after this, the state's investments have a strong track record. Of the 64 companies the state fund has invested in since its founding in 1978, 14 have gone on to make public stock offerings, 11 have been acquired by other firms, and three have bought out the state's equity. Only seven have ceased operations. The agency has been self-financing aside from a start-up infusion of $8 million.

The fastest-growing state technology programs, Atkinson says, are efforts to transfer new technologies from labs to small businesses. He says about one-third of the states have reasonably good "manufacturing extension centers," modeled on similar programs that spread agricultural techniques. But even the good programs don't have a lot of money.

The Clinton administration wants to create a Commerce Department network of 100 or more Manufacturing Outreach Centers, similar to the state ones, and to assist state extension programs. The centers would all be linked by computer to increase access to information.

"We need a balanced strategy," Atkinson says, supporting the state/federal mix.

High-tech outlays vary widely from state to state, according to a study by Atkinson. On a regional basis, the Northeast spends about $2.15 cents per capita each year, the Midwest $1.98, the South $1.48, and the West $1.

About half the total spending goes to aid university-based research. Most of that money is plowed into "university research centers," which often focus on an area of particular importance to the regional economy, such as biotechnology. A second, narrower, type of program gives "university research grants" for specific projects, often matched by industry funding. While some observers laud the new partnership with the private sector, Feller worries that universities will lose their focus on knowledge as a "public good" to be disseminated widely.