A Tale of Two Tech Cities
Why place-based innovation will be the crux to winning the U.S.-China technology competition
Hello, I’m Ylli Bajraktari, CEO of the Special Competitive Studies Project. In this edition of 2-2-2, SCSP’s Nyah Stewart and David Lin examine the role regional tech hubs play in the U.S. and PRC innovation landscape. Special thanks to former Research Assistant Asher Ellis for doing some of the initial research. We’re also pleased to announce that two leaders in spurring regional innovation will be speaking at our upcoming Summit 2023, find out who they are at the end of the newsletter!
Two Cities, Two Systems.
As an American "city on a hill" and a Chinese dynastic capital, Boston and Hangzhou are worlds apart at first glance. The two cities are separated by over 7,000 miles in distance and 1,000 years in age, and are seemingly only linked by a sister city pact signed in 1982. However, sitting on the coasts of their respective nations, both cities are bustling technological hubs that bring together research and development (R&D) organizations, investment mechanisms, and businesses to foster science and technology innovation. Boston and Hangzhou are both success stories — testaments to the very different approaches to place-based innovation in the United States and the People’s Republic of China (PRC).
Amid technological competition, the United States and the PRC are striving to secure the ability to invent, adopt, and adapt to next-generation technologies. Both nations vie to boost their innovation power by adopting national-level policies designed to strengthen their competitiveness. While the two nations have vastly different systems of governance, both recognize how the success of their national policies will largely depend on the strength and capacity of sub-national players on the frontlines of innovation: the nations’ states, provinces, localities, and citizens. Innovation ultimately plays out in the labs, the classrooms, and the makeshift industrial workshops and offices scattered across the country. As a result, the United States and the PRC do not want to leave the development of regional technological hubs to chance and are taking steps to harness place-based innovation for competitive advantage, albeit in different ways.
As the United States finishes its first year of implementing the CHIPS & Science Act, much of the federal funds authorized under the “Science” portion of the law, meant to jolt the development of tech hubs around the nation, remain unappropriated. On the other side of the world, the PRC, which has a long and complicated history with centrally-planned industrial policies, is now consolidating central control and asserting strict adherence to core Chinese Communist Party (CCP) ideologies into its innovation ecosystem in an effort to bring its regional tech hubs more in-line with Party interests. As the two nations embark on parallel paths in pursuit of national innovation power, it is worth examining how their respective approaches have bred past success at the sub-national level, and why both recognize a need to adjust those policies today.
The People’s Republic of China: The Party is in Charge
Within China, dating back to former CCP Chairman Deng Xiaoping’s “reform and opening up” era in the 1990s, CCP planners have approached the development of technology hubs through a mix of Western market-driven strategies and centralized socialist values. PRC leaders have long used economic development zones (EDZs) as a centrally-planned policy tool to concentrate industrial development within geographic areas. Numerous forms of EDZs exist, each with a different purpose, like High-Tech Industrial Development Zones that focus on supporting innovative companies and New Generation AI Innovation and Development Pilot Zones that encourage AI development. CCP planners have also used National Key R&D Projects (NKPs), which emphasize translating basic research into commercially-viable solutions, as another way to accelerate place-based innovation toward key technology sectors. These various zones and policies have generally proved to be successful in spurring the development of technological hubs, like Hangzhou.
The Hangzhou Economic and Technological Development Zone (HETDZ) played an important role in driving techno-economic growth in the city, boosted by the presence of Zhejiang University, one of China’s top-ranked universities, which has produced a record-setting number of patents, and houses ten PRC State Key Laboratories. Thanks to the rise of Alibaba, one of China’s most successful technology conglomerates — which, having been founded by Jack Ma in a small Hangzhou apartment, had humble beginnings — the city has attracted a consistent flow of investment both from domestic and overseas sources. The Hangzhou Municipal Government has also offered financial incentives and subsidies to spur AI innovation and forged strategic partnerships with local industry giants, including Alibaba. The constant investment has propelled the city onto the national stage – and arguably the international stage as well – becoming one of China’s leading regional tech hubs alongside Beijing, Shanghai, and Shenzhen. By bringing together critical nodes of the domestic ecosystem — academia, private capital, industry, and government — Hangzhou has been crucial to accelerating the PRC’s science and technology development.
Yet the sprawling growth of Hangzhou since the early 2000s, spurred by the city’s flourishing technology ecosystem, has recently taken a sharp turn toward increased centralization and control, guided by CCP ideology. For example, the CCP has taken steps to reorganize its national laboratory system by consolidating state key labs into “National Key Laboratories” and tightening control over universities, which are already managed, partially funded, and have their top officials appointed by the government and the Party. The CCP uses government guidance funds to shift capital into strategic technology areas by raising money with help from “social capital” or private investors. To assert government control in the industry node, both the central and local governments in China purchase equity stakes in companies like Alibaba and embed officials among firms’ corporate ranks.
Much of the success in Hangzhou today is due to the state-led yet market-driven approach that the PRC has used to guide its technological growth over the past few decades. The sharp turn toward greater centralization will likely create some efficiencies and may bring the country’s local stakeholders into closer alignment with national interests. However, the open question remains: will the tightly-controlled PRC model give local players the space to produce real innovative breakthroughs?
For more information on how China views the current technology competition, listen to SCSP’s recent NatSecTech Podcast with Trivium China’s Kendra Schaefer
The United States: The Government Guides
In the United States, the federal government has traditionally played the role of a guide — rather than a centralized director — in building regional innovation systems. As such, America’s regional technology hubs have grown in a more organic fashion. The federal government provides localities with infrastructure or financial investment for other nodes within the ecosystem to build upon, but rarely hands down strict development directives. This relatively bottom-up approach secured America’s technology leadership for decades.
For example, Boston’s potential to become a technological hub grew in the early 20th century with the building of Route 128, or "America's Technology Highway," which connected the city with the surrounding metropolitan area. Spurred by New Deal programs, the highway was foundational for the surrounding area's growth as industrial parks surfaced and technology firms settled in with increased access to local university labs. Today, Boston draws billions of dollars in private investment. The city is now home to 44 higher education institutions and a booming biotechnology industry with nearly 1,000 biotechnology firms headquartered in the greater Boston area, including industry giants like Moderna – the developer of one of the most successful mRNA coronavirus vaccines. These various nodes — academia, private capital, and industry — shaped Boston's innovation ecosystem along with, not simply by directive or in response to, the federal government.
Today, American innovation is concentrated in a select few regions throughout the country, making a handful of cities the primary generators of America’s technological advantages. Meanwhile, previously bustling U.S. industrial cities have suffered as manufacturing jobs moved offshore, and other parts of the country feel that innovation has left them behind altogether. Recognizing this problem, the federal government passed legislation like the Inflation Reduction Act, Infrastructure Investment and Jobs Act, and the CHIPS and Science Act to create federal programs focused on place-based innovation in a range of promising emerging technologies, such as the Economic Development Administration's Regional Technology and Innovation Hubs and the National Science Foundation’s Regional Innovation Engines. However, these federal programs currently face bureaucratic red tape and funding shortfalls. To date, a handful of promising regional initiatives are on the cusp of receiving federal assistance, but other steps can also be taken — at the national and sub-national levels — to advance the development of technological hubs across America.
Building a New Geography of Innovation
This ‘Tale of Two Tech Cities’ illustrates that both the U.S. and PRC systems have their strengths and weaknesses in catalyzing innovation and aligning national and sub-national stakeholders to build competitiveness. The United States should not underestimate the PRC’s seemingly rigid, hierarchical approach because it has proven malleable and willing to take the necessary risk to produce results. In the United States, it is apparent that every region, state, city, and town in America has latent, untapped innovation potential to bolster national competitiveness. In many of these communities, the local innovation ecosystem only needs a nudge to be activated.
At least 102 locations across America are prime contenders for producing technological innovation, and there are certainly many more. The key to unlocking these locations’ potential is strengthening the connections between each node of the local innovation ecosystem in tandem with support from the federal government. Even the U.S. innovation ecosystem’s greatest success stories, like Boston, have built bridges to better connect the talent, ideas, and resources in their midst. For example, venture capital firms like MIT’s The Engine are trying to move promising “deep tech” projects out of university labs and support them across the valleys of death that imperil capital-intensive, high-risk bets. State and local governments, along with other regional public agencies, can also help connect critical nodes within regional innovation ecosystems. For example, initiatives like the Massachusetts Technology Collaborative, which builds connections between local industry, government, and academia to grow the state’s technology sector could be scaled and replicated across the country. A similar local bridging mechanism could help Knoxville, Tennessee, become a national leader in renewable energy and develop new forms of energy storage and generation by expanding upon the University of Tennessee's partnership with Oak Ridge Laboratory to include private companies and the Tennessee Valley Authority, a federally-owned electric utility corporation. Unlocking Logan, Utah’s ecosystem through stronger nodal connections could turn the city into a hub for the aerospace industry as foundational pieces — like the Space Dynamics Laboratory — are ready to capitalize upon. Even small cities with fewer than 50,000 people could become the drivers of technological progress, like Midland, Michigan, which has cultivated a local, vibrant ecosystem of chemical manufacturing and production over the past hundred-plus years as the home to Fortune 50 company, Dow Chemicals. These examples just begin to scratch the surface of America’s underlying potential for regional innovation.
The Open Road Ahead
Only time will tell if China’s balancing act between innovation, regime protection, and national priorities will give way to an upper hand in today’s technological competition.
Meanwhile, America’s strength is evident: its diversity of talent and ideas is spread across and throughout each of its states and territories. Fostering more dispersed technology clusters and innovation hubs will not only be a force multiplier for American innovation but will also add to the country’s dynamism by creating a more equitable and diffuse technology ecosystem. If we follow through and double down on the place-based innovation model envisioned by policymakers in the CHIPS and Science Act, America as a whole will be an even stronger contender in the global tech competition for decades to come.
Global Emerging Technology Summit 2023
We are excited to announce that Governor Kristi Noem of South Dakota and Governor Eric Holcomb of Indiana will be joining us as speakers at the third annual Global Emerging Technology Summit on September 21, 2023. Visit us at our website to request in-person attendance or attend virtually. Be sure to follow SCSP on Twitter, LinkedIn, and Instagram for the up-to-date announcements about event speakers, agenda, and logistics.
