Economic Summit II - Remarks and Speeches

Wisconsin's Economy at the Crossroads:
Building Higher Paying Jobs for the Future

November 26-27, 2001
Midwest Express Center, Milwaukee

"Wisconsin Economic Development:
Progress since Summit I"
UW System President Katharine C. Lyall
November 26, 2001

Accompanying PowerPoint Presentation available here

Wisconsin's first economic summit, just one year ago, turned the spotlight on a number of economic development challenges: energy policy, the "brain drain," the need for venture capital, workforce development, and the image we present as a good place to live and do business.

At the conclusion of the summit, we identified a series of follow-up actions to be taken by government, educators and business. I want to update you on Wisconsin's progress since the first summit.

One year ago the Wisconsin economy was still humming along. At that time some people questioned the need for an economic summit. The economic environment today is quite different - a national recession and the World Trace Center attacks have affected Wisconsin as they have everywhere else. Significant lay-offs in many sectors, business failures, and a serious national slowdown in economic growth - make it all the more urgent for us to come together today and closely examine Wisconsin's current economic health and its future prospects.

What Summit I Set in Motion

The dialogue on the Wisconsin economy, triggered by the first Summit, set many things in motion. Selecting a few highlights, I would include:

The work of Regional Task Forces.
Formation of new organizations supporting technology transfer, including the Wisconsin Technology Council, WiSys (the new licensing and patenting agency for all UW system campuses to complement Madison's WARF), and WiCell, the WARF subsidiary for distribution of stem cell lines.
Creation of angel networks to provide venture capital.
A growing awareness of federal funding opportunities.
And the UW Economic Stimulus package contained in the latest biennial budget, and other gubernatorial and legislative initiatives.

But I would submit that the most crucial contributions of the first Summit were that we began discussing the state's economy in earnest in anticipation of the current economic downturn, and that it yielded a model for public officials, educators and the private sector to work together on economic issues.

Regional and Local Planning

Perhaps the most heartening development sparked by the first economic summit was a new imperative to discuss, plan and take action at the local and regional levels.

We started with a series of regional planning groups, each chaired by a UW chancellor or other UW leader but all involving the private sector, government officials and many others. I cannot possibly do justice to the work of these regions in just a few minutes. But I want to share a handful of outstanding examples of our regional success stories to date. And, having piqued your interest, I will refer you to Extension Chancellor Kevin Reilly's break-out session tomorrow morning, and to our summit website, where all of the regional reports are posted.

I'll start with TechStar, a new entity designed to commercialize the fruits of academic research in southeastern Wisconsin. TechStar is a joint effort of the Metropolitan Milwaukee Association of Commerce and a consortium of five educational institutions: UW-Milwaukee, the Milwaukee School of Engineering, Marquette University, the Medical College of Wisconsin and UW-Parkside.

An exciting example of regional collaboration, TechStar marks the first civic-business-university partnership dedicated to making southeastern Wisconsin more competitive in the New Economy. TechStar will act as a research clearinghouse, find seed money and provide access to expertise on marketing, management, patenting and accounting.

Lane Brostrom, the new executive director, promises that TechStar will be a catalyst for starting high-tech business in the region. TechStar was established as a non-profit agency with an initial $1.5 million commitment from the State. But Brostrom intends to create a for-profit arm with financial backing from area companies to provide business incubator services. Ultimately, of course, we hope that TechStar and the entire Southeastern Wisconsin Joint Venture for Economic Development will stimulate many new high-paying jobs.

Moving north and west, we highlight another partnership. The Chippewa Valley Initiative involves collaboration between education and area businesses. UW-Eau Claire, UW-Stout and Chippewa Valley Technical College are coming together to meet the needs of Wisconsin's technology valley employers so they can grow jobs here in Wisconsin and provide job opportunities to graduating students. As you know, Chippewa Valley is home to many high-tech companies, including Cray, Silicon Graphics, Silicon Logic Engineering and Tonbu. At the request of these companies, new training in the field of computer chip design verification engineering is being offered by UW-Eau Claire and Chippewa Valley Technical College.

The regional partners created a program tailored to meet local industry needs, allowing students to move seamlessly among six courses offered at these campuses. I am pleased to report that the first graduates of the new program are expected this May. And I should add that this is only the first of what promises to be a series of Chippewa Valley educational partnerships to help support and grow high-tech industry.

Down the Mississippi in La Crosse, regional leaders saw an urgent need for early-stage angel investment in new or expanding businesses. Regional leaders organized a series of strategy meetings, the UW-La Crosse chancellor's office identified a corps of potential investors, and the La Crosse campus Small Business Development Center provided ongoing support for the fledging group.

The result is Origin Investment Group, a new angel investor network that meets monthly on the UW-La Crosse campus to assist entrepreneurs in the area.

A final example, the Wausau area is the focal point for a coalition known as the New Economy Workforce. Its aim is to provide post-high school education in information systems, finance and communications. The coalition members are Marathon County businesses led by Wausau Insurance (a member of the Liberty Mutual Group) and Associated Bank, UW-Stevens Point, UW-Marathon County, and North Central Technical Colleges.

The NEW Coalition is exploring both distance learning and on-site education options that will provide employees with convenient, relevant learning opportunities.

Clusters

Some local economic planning has focused on identifying "clusters" of economic opportunity. No, not made of chocolate, caramel and peanuts, these clusters are groups of businesses facing similar opportunities and challenges. Ideally, the strengths of firms in a cluster mutually reinforce each other. Silicon Valley is one highly visible and fantastically successful cluster. Wall Street is another.

Clusters can act like magnets, attracting additional businesses, skilled workers and venture capital. Using the cluster model, planners and policy-makers can identify clusters within Wisconsin, determine and work to remove the barriers to their growth and success.

John Torinus, CEO of Serigraph, and UW Economist Don Nichols, joined by a handful of others involved in the first summit, have taken the cluster model from the theoretical to the very practical. In fact, John Torinus has already put cluster planning into action in his home community of West Bend, and has been spreading the gospel across Wisconsin. John conducted an excellent pre-conference workshop this morning on cluster economic development for counties, and both John and Don will share more of their ideas about clusters tomorrow morning at a break-out session.

What other progress has been achieved since Summit I? Let me suggest a few areas of significant change, and then briefly delve into each:

Venture capital
Energy resources
Transportation
Educational initiatives and the "Brain Drain"
Workforce development
Technology transfer
Wisconsin's image

Investing in Wisconsin's Entrepreneurs

One message repeated loudly and often at last year's Summit was the need for more investment capital in Wisconsin - particularly venture capital for early-stage start-up companies. A recent study by David Ward's NorthStar Economics compared the amount of venture capital raised in each state, relative to that state's population. Wisconsin, at $21 per person, did not come close to the national average of $72 per capita.

Despite the economic slowdown, however, there have been some promising signs over the past year, in terms of investing in Wisconsin's entrepreneurs:

Angel investor networks, like the one mentioned earlier in La Crosse, are popping up across the state. Angels, who focus on financing the earliest stages of businesses, have formed groups in Madison, Milwaukee, La Crosse and Green Bay. I'm told others are under discussion in Marshfield and Eau Claire.
As promised last year, Governor McCallum held the state's first Summit on Venture Capital last February, drawing more than 500 participants. The Governor also led a domestic trade mission to California to make fundors there aware of our best Wisconsin ideas.
We've begun traveling to both coasts to seek more venture capital. In May the State Department of Commerce took 14 Wisconsin start-up companies to Boston to seek investors. A similar venture mission to Silicon Valley is scheduled for next February.
Venture conferences have been held regularly in Madison for at least five years. But this year, for the first time, a venture conference was also held in Milwaukee. (About 325 people attended the conference in Milwaukee in May.) The Wisconsin Innovation Network's successful fall venture fair in Madison was devoted exclusively to biotechnology and the life sciences.
Legislation to make an additional $100 million in venture capital available to small Wisconsin companies under the Certified Capital Company (CAPCO) program recently passed the Assembly and has gone to the Senate. The program, created in 1998, originally authorized $50 million in venture funds provided through tax credits to insurance companies. If enacted, the pending legislation would triple the CAPCO funds available to Wisconsin start-up ventures.
Finally, the Wisconsin Technology Council, a public-private partnership of leaders in business, government and education started after the first Summit, has endorsed this expansion of CAPCO; the Council also recommends that a Wisconsin Venture Capital Association be formed, and that the State do even more to promote Wisconsin investment opportunities to out-of-state venture capitalists.

Energy Resources

At the time of the first Summit, California's energy problems were only beginning to appear on the radar screen. But by January, northern California was experiencing rolling blackouts and Governor Gray Davis declared a state of emergency. The costs of the power shortages were staggering. It has been estimated that when Sun Microsystems lost power during the blackouts, it cost the company an estimated $1 million per minute.

Wisconsin policymakers are continuing to closely examine the complexities of utility deregulation in light of California's recent experience. In the meantime, California's nightmare has added a sense of urgency to our own power supply assessments.

Wisconsin's electricity demand has been increasing by 2.8 percent a year for the past decade, but no new large power plants designed to operate 24/7 have been built since 1985.

In addition, Wisconsin has only four major electrical transmission lines coming into the state. By comparison, Minnesota has 18 and Illinois has 25. Fewer transmission lines mean less reassuring redundancy in our system.

Over the past year we have seen an enhanced public awareness of Wisconsin energy issues, thanks, in part, to a We the People/Wisconsin project focusing on the State's energy future. A few encouraging steps have been taken recently to address Wisconsin's energy needs:

Governor McCallum unveiled a new energy plan, calling for adding 6,300 megawatts of electrical generating capacity over the next 15 years and doubling the use of renewable fuel sources by 2010.
The State Public Service Commission approved construction of the proposed 240-mile transmission line between Duluth and Wausau. It is a controversial project, however. It faces legal challenges from landowners in northwestern Wisconsin.
Assembly Bill 584, creating shared revenue incentives to communities that agree to host power plants, passed the Assembly and is headed for hearing in the Senate. The bill would not be a state budget-buster because the additional shared revenues would come from future utility tax collections. If passed, the measure could make it easier to build power plants, ensuring an adequate energy supply for economic growth.

Transportation

The latest state budget authorized property tax exemptions for Midwest Express and Air Wisconsin. The property tax exemptions for Wisconsin airlines headlined a group of recommendations emerging from the first Summit that were intended to improve the State's overall infrastructure.

The State Department of Transportation's "Plan 2020" originally forecast an 85% growth in commercial air passenger service by the year 2020, an annualized growth rate of four percent. Clearly the current circumstance of seriously reduced air travel since September 11th leaves airport expansion planning somewhat in limbo.

Moreover, we seem to be in something of a chicken and egg situation with regard to commercial air service into and out of Wisconsin. Some say it is the absence of convenient high-quality air service, as measured by numbers of direct flights, that hampers the state's economic growth. While others claim that more airline service would naturally follow greater demand. Surely we need to both support the airlines that currently serve Wisconsin, and track airline restructuring, airline security and related issues closely to ensure that Wisconsin business and commerce are not disadvantaged.

Educating the next generations of workers

At the first summit, the UW System made some promises. We said we would educate more university students in areas of highest demand by the private sector, and we would develop a more seamless approach to the overall education of our citizens, from pre-school through higher education.

I'm extremely gratified to report that, with the assistance of Governor McCallum and the Legislature, we are delivering on both promises.

The University of Wisconsin's Economic Stimulus package, a major initiative contained in the latest biennial budget, sharply increases student access to course areas considered vital to the state's economy. By next fall, there will be more than 2500 additional UW students enrolled in biotechnology, computer science, engineering, telecommunications, and other key areas.

The state budget also funded new faculty positions to increase both course offerings and research in areas of economic importance such as e-commerce, technology and design visualization, molecular imaging, environmental hazards and biomedical engineering.

While educational and training programs spring up around the state to meet present and future demand, there is clearly a need for an overarching, collaborative group that can identify educational gaps and address them comprehensively.

Such a group came into existence this year. The statewide PK-16 Leadership Council, co-chaired by Elizabeth Burmaster, state superintendent of public instruction, and me, is a voluntary policy group. The State Department of Public Instruction, the Wisconsin Technical College System, the Wisconsin Association of Independent Colleges and Universities, the UW System and important educational constituent groups are all well represented on the Council.

Initially, we are focusing our time and energy on three critical areas: early childhood development; the senior high school year and transition to college; and the supply of and demand for teachers. The Council seems destined to be a powerful partnership of educators who jointly address key issues.

The "Brain Drain"

Of course, even if there is a seamless educational system, a complete array of New Economy-related educational opportunities, and plentiful investment capital, Wisconsin companies will find it difficult to grow jobs in this state if they don't have a reservoir of skilled workers to fill them. And the perception of at least some skilled workers, both here and across the country, is that they will not find the best jobs in Wisconsin.

We learned more about brain drain issues this past year. A Wisconsin Policy Research Institute study of UW-Oshkosh graduates, issued in August, suggested that those who leave Wisconsin make more money than those who stay. The study showed that Oshkosh alumni with full-time jobs in Wisconsin earned an average of $51,000 a year, while those who moved to other states averaged nearly $63,000 a year in income - a 23 percent difference.

Oshkosh alumni in science and math-related fields were also 50 percent more likely to leave Wisconsin that other grads, according to the study, heightening the perception of a brain drain of our most marketable workers.

Our problem is at least two-sided. A significant number of our Wisconsin college graduates leave the state to find what they perceive to be higher paying jobs. And our state has one of the poorest records for attracting college graduates from other states to work here. Of course, the reasons for all this are complex. Surely the business climate, the image of Wisconsin as a place to work and live and the competition from other states for our graduates are all factors. But there are steps we can take to reverse these trends.

The Wisconsin Alumni Association estimates that roughly 20 percent of UW-Madison's in-state students move out of state within seven years of graduation. And while we attract a substantial number of students from outside Wisconsin to attend college here, many of them leave after graduation.

We're working on a UW System-wide job bank. More on that at a later date.

Workforce Development

This year the bipartisan Legislative Council completed the work of a Special Committee on Labor Shortage. The results of that committee have now been reduced to a series of three bills that were introduced in September.

The bills call for tax credits to encourage businesses to pay for employee job training and apprenticeships, a series of new programs such as a workforce diversity grant program, a job retention skills development program to be offered by technical colleges, an apprenticeship marketing program and new informational reports on the status of the labor force. All three bills passed the Assembly and are in the Senate Committee on Labor and Agriculture.

Assembly Speaker Scott Jensen (R-Waukesha) and Sen. Mark Meyer (D-La Crosse) are promoting a separate bill giving tax credits to employers who pay college tuition costs for their employees. AB 320 was passed by the Assembly and is now in a Senate committee.

An array of new programs intended to train Wisconsin workers at various levels also came to fruition this year. Among them:

The teaching of manufacturing technology received a boost with an $820,000 National Science Foundation grant awarded to the Fox Valley Technical College on behalf of the Wisconsin Technical College System. The three-year grant will advance teaching and learning of manufacturing technology, both in the classroom and on the Internet;
The Center for Advanced Technology and Innovation will be built on 3-4 acres in a Racine-area business park. The Center will house a business, education and advanced technology jobs program that organizers say will be the first of its kind in the U.S.;
Marquette University and the Medical College of Wisconsin jointly established a new Master of Science degree in bioinformatics. The two-year program, one of only a few in the nation, is in one of the hottest fields for young scientists and engineers today. Bioinformatics is the science of gathering, analyzing and managing large databases in biomedical research.
Joint programming initiatives are also under way between the Wisconsin Technical College system and the UW two-year colleges to provide training to Wisconsin workers. Discussions are taking place at UW-Barron County, UW-Marshfield/Wood County, UW-Richland and UW-Rock County regarding these efforts.

Transferring Technology

Without a doubt, the biggest Wisconsin technology transfer story of the year has been UW-Madison Biologist Jamie Thomson's stem cell research. Thomson and his team first isolated human embryonic stem cells in 1998. But the technology and its potential for addressing diabetes, Alzheimer's, and heart disease, took center stage this year when the federal government, encouraged by former Wisconsin Governor Tommy Thompson, found a way to fund at least part of the research by using existing stem cell lines.

Jamie Thomson, who appeared on the cover of Time Magazine as "the man who brought you stem cells," and the Wisconsin Alumni Research Foundation (WARF), the UW-Madison's non-profit independent patenting organization, made international headlines.

WiCell, a WARF subsidiary overseeing distribution of the stem cells to researchers around the world, reached a groundbreaking agreement with the National Institutes of Health, allowing NIH scientists who work with UW cells lines to publish their work and retain ownership of discoveries that might arise. But WiCell would profit from the drugs or treatments developed from the UW stem cells.

While stem cells grabbed the headlines, there were a number of other milestones on the road to transferring Wisconsin research to commercial application. Earlier I mentioned the formation of TechStar here in southeastern Wisconsin earlier. In addition:

Wisconsin is strengthening its participation in the federal Small Business Innovation Research Program. UW-Extension's Small Business Development Center, the state Department of Commerce and the Wisconsin Small Business Innovation Consortium are working to create and staff a FAST grant award office. The office will help businesses understand the potential for obtaining federal seed money supporting research and development within start-up companies.
Formation of the WiSys Technology Foundation, Inc. as another subsidiary of WARF. In the past year WiSys has become fully operational and able to offer its patenting, copyright, trademark protection and commercialization services to faculty across the UW System.
WiSys provides services to patent, market and license inventions. There already have been 14 faculty and staff ideas accepted for patenting and licensing.
Regional business technology networks are being established in western, northeastern and southeastern Wisconsin. Extension's Small Business Development Center expects to open its Chippewa Valley office in January, and the Green Bay and southeast Wisconsin offices next July. Working with WARF and its subsidiary, WiSys, these centers will provide business development and technology transfer services to these three regions, including advice on patenting and licensing and outside funding sources.
In August the University Research Park opened an additional 51,000 square feet of incubator space to accommodate new biotech start-up firms and acquired another 113 acres for future expansion. The 250-acre Park on Madison's west side is experiencing an aggressive growth spurt. There are now 88 companies with 2500 employees in the Research Park.
The University Industry Relations office, UIR, is the UW-Madison agency that works with industry and special government technology transfer programs. New this year is UIR assistant director Allen Dines, who has been hired specifically to work with faculty and staff who are considering spinoff companies.
The Wisconsin Technology Council is, of course, examining many aspects of the technology transfer process. The council's recent report contains a series of recommendations intended to support and enhance technology transfer, including an overall effort to aggressively seek academic research funding to explore technologies with the greatest potential for commercialization.

Wisconsin's Image

At the first Summit, PR pro Marsha Lindsay raised some eyebrows when she suggested that Wisconsin might want to launch a new branding campaign.

She observed, provocatively, that Wisconsin is currently known to the rest of the country through its "cheeseheads," beer, brats, and by the fortunes of the Green Bay Packers.

Since Lindsay's wake-up call, some people have begun seriously to evaluate Wisconsin's image and the potential for enhancing it.

Forward Wisconsin commissioned a study of how business executives here and in 20 other states view Wisconsin's "Quality of Business Life." Asked to rate Wisconsin on 20 variables that comprise the quality of business life, they found that in-state business leaders were, as you might expect, more favorably disposed to quality of life measures here than their out-of-state counterparts. Supply of skilled labor, workers' attitudes and stability, and proximity to major markets were the most important factors, the executives said.

On the other hand, executives from out of state ranked Wisconsin's tax climate more positively than Wisconsin executives. Jon Udell, the UW-Madison business professor who authored the study, concluded that if Wisconsin wants to attract jobs and skilled workers to the state, we must do a better job educating business executives in other states about Wisconsin's attributes.

Image improvement is reportedly also the top priority of Spirit of Milwaukee, Inc., a group that promotes the city. This organization is commissioning a study of nationwide perceptions of Milwaukee and plans to launch public relations and advertising campaigns to promote the positive developments of this major metropolitan region.

Meanwhile, seeing higher education as an important "export industry" for Wisconsin, the leaders of nine Milwaukee-area colleges and universities are joining forces in a marketing campaign to promote the benefits of going to college in Milwaukee. Their aim is to attract students from outside greater Milwaukee who will study here and stay to enhance our workforce.

And the Wisconsin Technology Council, expressing great interest in improving Wisconsin's image, recommended a national advertising campaign for Wisconsin and generally a higher level of visibility for Wisconsin leadership in selected technology sectors, both within and beyond the state's borders.

Unfinished Business

As you can see from all I've described, there is no shortage of ideas for improving economic development in Wisconsin. One year after the first Summit, there has been encouraging and even inspired activity on many fronts.

Still, we can hardly be complacent. There is much unfinished business. In the past year we have harvested some low-hanging fruit. But many of the best ideas remain untapped.
I will take just a few moments to list some of the unfinished business that could be on our collective agenda:

Last year there was general agreement that Wisconsin ought to attract more dollars from Washington. On behalf of the UW System, I must admit that while we have begun, we have yet to fulfill our part of the commitment to make a full court press on obtaining federal funding. We will move aggressively on this in 2002. Tomorrow, we will have an opportunity to ask our Congressional delegation to help Wisconsin attract more federal investment.
Looking at Wisconsin's manufacturing and agricultural sectors, last year we said that we needed to build on traditional strengths by infusing more technology into them. Perhaps as we go forward we need to focus on evolving more higher-paying, higher-technology jobs in manufacturing by transitioning to high-end suppliers and markets.
Last year we said we needed an energy reliability policy and a plan for continually upgrading Wisconsin airports. Add to that, I suggest we need a more comprehensive state transportation strategy, one that addresses both high-speed rail and the fate of commercial aviation service.
A year ago we worried aloud about the brain drain issue. It behooves us to get serious about it, employing a variety of strategies, including informing our current students about job opportunities and reaching out to people who might truly have the desire to return to Wisconsin.
In the past year there has been talk about establishing a "competitive intelligence network," a way to link people and businesses together to share a common information pool. Forward Wisconsin has taken an important first step with its web-based network for the plastics industry. But much more can be done on a statewide scale, identifying and linking existing databases and combining web and human resources.

In so many areas, we are poised to move to the logical next stage -- selecting the superb ideas from the simply good ones, and finding the will and the resources to pursue the most promising leads.

Clearly the state's current financial situation in both the public and private sectors will limit what can be done. At the same time, however, economic conditions will lend further urgency to what ought to be done. Thank you for joining us here today.