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Miller Center Forum: "Higher Education as the Engine of the American Economy"

September 7, 2011

I'm here today to discuss how higher education serves as the engine, or driver, of the American economy. To give us an appropriate mental image for this topic, let me begin by describing a news story and photo that appeared on the CNN website on July 28.1 The story explained how the American economy had begun to languish in recent months, after promising growth in the earlier part of 2011. The story cited slow economic growth of 1.8% in the second quarter; falling consumer confidence; a slow-down in hiring; a drop in home prices; a reduction in manufacturing; and other symptoms of a sluggish economy.

The headline read: "Economy Still Stuck in the Mud." Under the headline appeared a black-and-white photo from the 1950s or 60s. The photo showed an old bus stuck in the mud, with all of the passengers — women and men in their dresses and suits — lined up behind the bus, trying to push it out of the muck.

Now, if we see the stuck bus as a symbol of the current state of the American economy, and if we think of ourselves and our fellow citizens as the stranded passengers trying to push the bus out of the mud, then all of us might wish for a better engine — an efficient, high-powered engine capable of driving the bus forward and getting us out of the mud.

Well, the good news is: we already have a high-powered engine for our economy. This engine has effectively propelled the American economy for the past half-century or more. This engine has been one of the great success stories in our national narrative. And — with proper, prudent investment — this engine can provide the necessary horsepower now to drive our economy out of the mud.

Of course I'm speaking of our higher education system generally and our research universities in particular. Our colleges and universities have the necessary elements — human talent; a culture of cross-disciplinary collaboration; and a long-view perspective — to lead to a new, sustained renaissance in American innovation and economic growth. Today I will talk about how that renaissance can happen.

Before we consider what higher education can do for the economy in the future, however, we should look back at what higher education has done for the American economy in the past. The past, as we know, holds lessons for the future.

The Success Story

It's a broadly-acknowledged fact that Federally-funded university research has been the driving force in the American economy since World War II. Funding to universities through the National Institutes of Health, National Science Foundation, Department of Energy, and other agencies has created jobs, improved health care, and led to the discovery of new technologies, new products, and whole new industries that have enhanced the human condition in every conceivable way.

In our daily lives, we are surrounded by the fruits of this work, but we often forget that so many of our everyday things grew out of university-based research. Consider this list of products, technologies, and medications that are the results of university research. These examples are culled from an unofficial list compiled by UVa's Patent Foundation2:

  • The method for fortifying food with Vitamin D was developed at the University of Wisconsin in 1925.
  • The first general-purpose electronic computer was invented at the University of Pennsylvania in 1946.
  • Fluoride toothpaste was invented by researchers at Indiana University in 1956.
  • The first retractable, locking seat belt for cars was invented at the University of Minnesota in 1963.
  • Gatorade was invented at the University of Florida in 1966. Researchers at Florida invented Gatorade after noticing that many of the Gator athletes seemed to be dehydrated during practices and games. Apparently, their invention worked: the football team won the Orange Bowl the following year.
  • Liquid Crystal Display, or LCD, which eventually would be used in digital watches and flat panel display screens, was invented at Kent State in 1967.
  • The CAT scan was invented at Georgetown University in 1973.
  • The Kentucky Bluegrass hybrid, which is now the turf-grass of choice throughout much of the US, was invented at Rutgers in 1977.
  • Adenocard , the drug commonly used in emergency rooms and emergency rescue vehicles to treat patients who develop dangerously high heart rates, was invented here at the University of Virginia in 1985.

Political leaders and policy makers who are searching for a solution to the sluggish American economy are surrounded by clues to the solution. The economic and societal impact of higher education should be apparent to them every time they drink a glass of Vitamin D-fortified milk; every time they brush their teeth; every time they buckle a seatbelt; and every time they walk across a plush expanse of Kentucky Bluegrass in their back yards.

In the last half-century, the impact of university research on the pharmaceutical industry alone has been remarkable. A recent study found that during the past 40 years, 153 new FDA-approved drugs, vaccines, or new indications for existing drugs were discovered through research carried out at public-sector research institutions.3 In addition to making rapid advances within existing industries, university research has given birth to entire new fields and industries, like biotechnology and the Internet.

In recent years, university-based research projects have produced countless companies that are creating jobs and improving lives across the nation. A few examples4:

  • North Carolina-based SAS began as a USDA-supported research project to analyze agricultural data at NC State University. Today, SAS employs more than 11,000 people, and Money magazine ranked it as the #1 best US company to work for in 2010.
  • A123 Systems, founded by MIT researchers in 2001 with support from the Department of Energy, has helped lead development of the advanced-battery manufacturing industry in the US. A123 Systems now makes millions of batteries each year for hybrid-electric cars and buses and large-scale energy storage systems. The company employs about 1,000 people.
  • An NSF grant supported the basic research at Stanford that led to the creation of Google, which now employs more than 24,000 people. That investment cycle came full circle last year, when Google announced that it would begin investing in university research through its Focused Research Awards program.5 By the way, if you search the Internet for the CNN article that I mentioned earlier, Google will find the article for you in 0.16 seconds, along with a quarter-million other closely related search results. Next time Google brings precisely the right information to your fingertips in just a few milliseconds, remember to say thanks for university-based research.

Another success came to life here at UVa, when two of our faculty members, one from engineering and one from medicine, developed a new instrument that detects the genomic response of human blood cells to new drugs. With support from the Coulter Foundation, they started a company called HemoShear to produce the instrument here in Charlottesville. Just two weeks ago, HemoShear was awarded a $4.3 million Small Business Innovation Research grant from NIH to develop a database that will allow their researchers to profile the effects of 50 drugs on the human blood vessel system. The database they develop will help predict the safety and efficacy of new drugs. HemoShear is one example of the virtuous cycle of investment, discovery, and creation that improves the human condition.

Ground-breaking discoveries would not be possible without the unhurried, patient work of basic research. Just to clarify terms: basic research is research conducted purely to respond to scientific curiosity and to deepen our knowledge, often with no direct commercial benefits. Applied research uses accumulated knowledge from basic research to develop new solutions to problems and to create new products and technologies. Universities now conduct most of the basic research in this country. According to the National Science Foundation's 2010 Science and Engineering Indicators, universities conducted 55% of the basic research in the United States in 2008, while business and industry conducted less than 20%.6

There was a time in our history when corporations and major industrial labs, such as Bell Labs, conducted basic research. But gradually over the years, corporations have pulled back from basic research and focused on development. They have pulled back because of the business mind-set that fixates on immediate results and quarterly profits. "R&D" at most companies is now mostly "D" and very little "R."

This has left the "R" to universities. Fortunately, universities are well-suited to focus on basic research, because we have a culture that fosters the long-view thinking necessary for this kind of work. Universities encourage curiosity and creativity over the long term, as opposed to the short-term perspective that prevails in most companies. Because they are able to remain focused on the long view, university researchers have the freedom — and perhaps most importantly, the patience — to conduct the kind of disruptive, innovative research that becomes the foundation of technological advancements.

The past 30 years have been especially productive, thanks to passage of the Bayh-Dole Act in 1980. This legislation allowed universities to own the intellectual property, or IP, arising from federally-sponsored research, with royalties shared between the university and inventors. In the years since 1980, the number of startups and products based on university IP has shot up dramatically, because universities and researchers are now incentivized to commercialize their inventions.

Prior to 1981, fewer than 250 patents were issued to US universities annually.7 Now fast-forward three decades: according to the Association of University Technology Managers' most recent survey of US start-up creation and licensing activity,8 596 new companies were formed as a result of university research in fiscal year 2009, and 658 new commercial products stemming from university research were introduced in the same period. The survey showed that 3,423 university-based start-ups were operating successfully as of the end of fiscal year 2009. Another recent study estimated that university-based inventions contributed $450 billion to US gross industrial output and created 280,000 new high-tech jobs between 1999 and 2007.9

Beyond the value that new inventions bring to the economy, greater educational attainment among the population has a generative effect on the economy, too. A Brookings Institution policy brief cited a data analysis from 146 countries, collected between 1950 and 2010, that showed that each year of additional average schooling translates into at least a 2% increase in economic output.10 Here in Virginia, one of the key goals of Governor McDonnell's Top Jobs legislation is to increase the number of degrees earned by Virginians by 100,000 over the next 15 years. Why? Because more education equals greater economic output and better quality of life for all citizens.

All the complicated data that I just cited could be translated into a very simple recipe for economic growth: gather diverse human talent in a university setting; add proper financial investment; allow time for discovery through basic research; add incentives for commercialization — and stir vigorously.

We have seen the positive economic results of this formula for over a half-century. All of us have benefitted from the new discoveries and innovations that have emerged from university research. But the great success story of higher education as the driver of the American economy is now threatened by several factors. And this is happening at the worst possible time, because other nations are gearing up their systems of higher education just as these threats here at home are taking hold.

The Threats to Success

In recent years, Federal investment in university research has leveled off and even declined. The Federal government provided $31.2 billion, or 60%, of funding for academic R&D expenditures in 2008. In inflation-adjusted dollars, this represents only a 0.2% increase from fiscal year 2007 and follows decreases of 1.6% in fiscal year 2007 and 0.2% in fiscal year 2006. According to the Federal agencies that provide the funding, total federal obligations for academic R&D peaked in 2004 at $22.1 billion, and declined by almost 7%, to an estimated $20.7 billion by fiscal year 2009.11

At the same time that Federal support for university research has been waning, state support for public colleges and universities has been cut dramatically. According to a report from the Center on Budget and Policy Priorities12, at least 20 states proposed major cuts in higher education funding this year — including proposed cuts of as much as a billion dollars in California.

This year's cuts are just the latest bad news in a two-decade trend. State support on a per-student basis hit a 25-year low last year, according to the State Higher Education Executive Officers.13 In a Chronicle of Higher Education survey conducted last month, chief financial officers from 500 colleges ranked declining state support as "far and away the most worrisome factor facing their institutions."14

Because of the drop in Federal support and sharp reductions in state support, some college leaders say that stark financial realities will force colleges and universities to scale back their missions — to cut research and academic programs and other core facets of what we do. We cannot allow this to happen; the stakes now are simply too high.

While support for higher education is on the decline here in the US, support in other nations, such as China and India, is on the rise. These nations are investing in the research capacities of their universities because they know that this investment is the key to competitive success in the 21st century. In the US, we risk losing our edge because we are pulling back at precisely the time that other nations are investing heavily in scientific research and in higher education generally.

Another threat to higher education's role in economic growth is the belief that university research is incompatible with a great undergraduate education — that, in fact, research detracts from teaching and learning. This belief is grounded in a static and fundamentally under-achieving approach to students' abilities. I would argue the opposite point: that participation in research enriches and improves teaching and learning.

This argument is supported by a paper15 published in Science magazine this month, co-authored by four faculty members in the Curry School of Education and several colleagues at other universities. They studied research proposals created by two groups of graduate students: one group whose members had only research responsibilities, and a second group whose members had both research and teaching responsibilities.

The study showed that graduate students who conducted research and taught were much better at generating testable hypotheses and designing valid experiments. In other words, teaching experience contributes substantially to the development of research skills.

Just as government investment in research creates a virtuous cycle of innovation, connecting research to teaching creates another virtuous cycle — one in which research and teaching reciprocally improve each other.

Here at UVa, we have a culture that fosters this cycle. Our faculty members integrate scholarship and research in their courses, drawing no sharp distinction between teaching and research. This past summer, 24 of our students received Harrison Undergraduate Research Awards to support independent projects. Their work focused on a wide array of topics. One student studied the use of anti-depressants to treat post-traumatic stress disorder. Another student researched unlawful pre-trial detention in the Ugandan criminal justice system. One student researched how sensory information about taste is processed in the brain. Another student studied the effectiveness of a water-filtration system in a rural community in Guatemala.

These projects give our undergraduate students access to the labs, tools, and, most importantly, the minds of our faculty members. Research does not detract from students' undergraduate education. On the contrary, it enlivens the learning experience. It familiarizes students with the culture of research and the life of a scientist. This is a net gain for the students and for the universities.

So, we know that various pressures are threatening higher education's capacity to drive the economy: lackluster Federal support; a progressive collapse of state support; skepticism about the compatibility of research with undergraduate education. If these are some of the problems we face, what are the solutions?

What Needs to Happen Now

I believe we need a renewed national acknowledgement of the essential role that colleges and universities play in driving the economy, followed by appropriate investments to support that role. Federal investment in academic research and development is the surest means of ensuring our national security now and in future generations. We know that the recent debt-ceiling compromise could lead to serious cuts in federal R&D funding in 2013. This would be a grave mistake. Our economy will remain mired in the mud unless we re-invest in the research that drives innovation.

Once again, the past holds lessons for the future. 54 years ago, the Soviet Union launched the Sputnik satellite and triggered the Space Race. For years we had assumed that our nation was more technologically advanced than the Soviet Union. Sputnik proved we were wrong. In the US Congress, Clare Boothe Luce from Connecticut called Sputnik's beeping noise "an intercontinental outer-space raspberry to a decade of American pretensions that the American way of life was a gilt-edged guarantee of our national superiority."

Sputnik was a national wake-up call, and with the passage of the National Defense Education Act in 1958, we began a period of vigorous investment in education at all levels, especially in math and science. Funding for both the National Science Foundation and the National Institutes of Health grew dramatically over the next decade. Funding for NSF increased from $34 million in 1958 to $500 million in 1968, while NIH's funding grew from $210 million to $1.08 billion.16

Our global competitors are investing in higher education now, and we need to do the same — just to keep pace. Public/private partnerships should be an essential part of this renewed focus. The heads of Federal agencies know that universities are the linchpins of economic growth, and they know that connecting universities to private partners will accelerate growth.

On July 28 — the same day that CNN published a story portraying the American economy as a bus stuck in the mud — the National Science Foundation announced a plan to spend $1.25 million this year on a program to connect 100 of its university grantees with members of the private sector to help convert academic research into marketable products.17 The initiative, called Innovation Corps, or I-Corps, will identify scientific and engineering discoveries that have practical applications from among the NSF's recently financed projects, and provide researchers with networking opportunities outside the laboratory. This is a good idea; we need more ideas like this one.

We have two examples of effective public-private partnerships here in Virginia. We are now part of an innovative partnership that brings the state together with UVa, Virginia Tech, Virginia State University, the Virginia Community College System, and Rolls Royce to collaborate on a variety of fronts in engineering and business. The partnership is resulting in the creation of two major research centers that will support the needs of industry: the Commonwealth Center for Advanced Manufacturing, or CCAM, which will be adjacent to a new Rolls-Royce factory in Prince George County; and the Commonwealth Center for Aerospace Propulsion Systems, which will bring together best-in-class researchers to collaborate on research activities critical to jet engine design. This public-private partnership leverages the assets of higher education to pave the way for innovation and new technologies that will generate new jobs in Virginia.

Another example is the annual UVa Venture Summit, which brings venture capitalists representing at least $15 billion in active capital funds to Grounds each year. At the summit, potential investors hear pitches from start-up companies and entrepreneur teams, and they provide live feedback. This year's summit drew venture investors from Singapore, San Francisco, Boston, New York, and other places around the globe.

A West Coast example of public-private partnership is the CONNECT program, based in the University of California-San Diego. This program connects inventors and entrepreneurs in the San Diego region with the resources they need to commercialize products. The program has been a great success for a quarter-century: CONNECT has assisted in the formation and development of more than 2,000 companies since 1985.

Economic Engines, and More

We know that universities are engines of innovation and economic growth, but this characterization may over-simplify and under-value their contributions. Yes, universities transfer research to industry; yes, they generate new inventions; yes, they spin off technologies that lead to the formation of startup companies. But they do more than that.

Richard Florida, author of the book The Rise of the Creative Class, writes that universities supply to our nation the "three T's": technology, talent, and tolerance.18 In addition to being engines of innovation, universities attract talent in the form of teachers, researchers, and students, while luring entrepreneurial people who are attracted by the university's resources. At the same time, universities foster a tolerant culture that is open to new ideas and diverse perspectives. Students and faculty from a wide range of racial and socio-economic backgrounds and from various national origins come together in a meritocracy that encourages tolerance for new ideas and experimentation.

The three "Ts" allow universities to create what Florida calls "creative hubs" that foster regional development. We see these creative hubs in the greater Boston area; in the Silicon Valley; in North Carolina's Research Triangle; here in Charlottesville; and in other areas across the nation where universities invigorate and stimulate the economies of the regions that surround them.

Perhaps more than ever, we need our universities to function well and to receive adequate support, because universities are uniquely well suited to tackle the big, complex problems we are facing as a society — issues like climate change, disease control, economic turmoil, and other multi-faceted problems. University researchers and scholars are able to work across disciplines and to draw connections between their areas of expertise to arrive at solutions for these complex problems. Universities are built around a spirit of collaboration that today's problems demand.

One multi-disciplinary project at UVa is bringing faculty from engineering, architecture, chemistry, and business together to address major energy issues. Known as ESPRIT (for Energy Systems Prototyping, Research, Innovation and Translation) this team is applying systems approaches to develop energy-conservation solutions, including low-loss energy transmission and energy-efficient buildings and communities.

ESPRIT is just one example of similar programs here and at other universities that draw together faculty from various disciplines to tackle real-world problems. This is where today's and tomorrow's discoveries and innovations will emerge — not just in isolated fields of study, but also in the spaces between disciplines.

Time to Get Going

While talking today about higher education as the engine of our economy, I've focused mainly on the past half-century. But the increasing role of universities in our nation's economic growth is a result of much older, fundamental forces that have shaped our nation since its beginnings.

Over the past two centuries, we have seen the shift from an agricultural economy to an industrial economy in the 19th century, and then, in more recent years, the shift from an industrial economy to a knowledge economy. In the past, natural resources and factory-style manufacturing were the drivers of economic growth. Now, knowledge, creativity, and innovation are the driving forces of economic growth.

Our nation's colleges and universities, together, form a collective engine of knowledge growth and innovation. With adequate support, this great engine can propel us into a bright future of economic prosperity. Without adequate support for higher education, we might just stay stuck in the mud. The stakes are high, and the consequences of inaction could be devastating. It's time to get going.

  1. Annalyn Censky, "Economy Still Stuck in the Mud." CNN-Money website (July 28, 2011). (
  2. Published at under live data documents.
  3. Ashley Stevens et al., "The Role of Public-Sector Research in the Discovery of Drugs and Vaccines" in The New England Journal of Medicine (February 10, 2011), p.1 (
  4. Sparking Economic Growth: 100 Success Stories, published by the Science Coalition (April 2010), pp. 6-7. (
  5. Information published at
  6. Science and Engineering Indicators 2010, Chapter 5:. Academic Research and Development. Published by NSF's National Science Board (January 2010), p. 4 (
  7. Q. Todd Dickinson,"Reconciling Research and the Patent System," Issues in Science and Technology, Summer 2000, (
  8. AUTM Press Release, Dec. 17, 2010 (;ontentID=5237)
  9. David Roessner et al., The Economic Impact of Licensed Commercialized Inventions Originating in University Research, 1996-2007 (2009), pp. 8-9 (
  10. Policy Brief #174 published June 2010 (
  11. Science and Engineering Indicators 2010, Chapter 5:. Academic Research and Development. Published by NSF's National Science Board (January 2010), p. 4 (
  12. Michael Leachman, et al. "Governors Are Proposing Further Deep Cuts in Services, Likely Harming Their Economies." (March 21, 2011) (;d=3389)
  13. Alex Friedrich. "10 Consequences of State Cuts to Public Higher Education." MPR News (August 23, 2011). (
  14. Goldie Blumenstyck et al. " Few Finance Chiefs Are Optimistic in Face of Slow Recovery." (July 6, 2011) (
  15. David F. Feldon, et al., "Graduate Students' Teaching Experiences Improve Their Methodological Research Skills." Science 19 August 2011: Vol. 333 no. 6045 pp. 1037-1039. (
  16. The Year After Sputnik: US Response, 1957-58. Published by the Association of American Universities, September 18, 2007. (
  17. NSF Press Release, July 28, 2011 (
  18. Richard Florida, et al. The University and the Creative Economy. 2006.