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EDWARD L. GLAESER

Embracing biotechnology

The innovative field is widely hailed as the next boom industry. How can Massachusetts make the most of it?

THE REAL Massachusetts miracle is that we have thrived for nearly four centuries in a place that lacks almost every natural advantage except cranberries. We have achieved this by reinventing ourselves.

Thirty years ago, Boston transformed itself from a declining industrial town into a hub of innovation in technology and financial services. Today, our region seems poised to experience another reinvention into a biotechnology hub. Between 2002 and 2006, the amount of biotechnology venture capital invested in Massachusetts rose 50 percent, to $755 million. But over the same period, California's biotechnology venture capital increased by almost the same rate and is now $1.83 billion. Will the Golden State eclipse us in biotechnology as it did in computing?

Because of our hospitals and universities, we enter the battle for biotechnology with a far greater advantage than we ever enjoyed in computing. William Hewlett and David Packard started off in Packard's garage in Palo Alto, Calif., with 538 bucks. In genomics, garages are not a viable substitute for labs. We've got labs and brilliant people to work in them. Still, labs can be built anywhere, and scientists can be lured away. We need a strong biotechnology policy so that Massachusetts remains a center for life-saving biomedical innovations.

Good economic development policy does not mean subsidies, and it does not require government-sponsored investment funds. Unpredictability is a defining characteristic of any innovative industry. Expert venture capitalists routinely lose millions on bad bets. Governments will do worse. Our money is better spent on schools than subsidies.

Instead, we should focus on attracting smart people and freeing them to innovate. Education is the best tool, because good schools both attract and produce well-educated parents who want well-educated kids. We need an education policy that gives more state aid for science, strong incentives for teachers, and more discretion for principals. We also need more housing that is affordable and attractive to skilled biomedical researchers.

Unsurprisingly, the Massachusetts Biotechnology Council puts "a streamlined framework for innovation and regulation" at the top of its wish list. We must make it easier for smart people to implement good ideas. For that reason, one-stop permitting is important because it spares companies the need for approvals from multiple state and local bureaucracies, any one of which can be filled with negativist nabobs eager to shut down even vital projects. A single permitting office could be held responsible if it rejects good projects or approves bad ones. Meanwhile, guaranteed response times eliminate the unnecessary risk that entrepreneurs might have to wait years just to find out that they were rejected. The former Fort Devens has become a magnet to new businesses by offering one-stop permitting with a guaranteed 90-day response.

High commercial property taxes, like Boston's 2.687 percent rate, are another barrier to biotechnology, because biotech firms need big, expensive buildings. Home rule advocates have argued recently that cities should be able to use meal taxes, instead of residential property taxes, to raise local revenue. Why not give localities the choice to have a meal tax in exchange for reducing commercial property taxes? The advantage of having 351 cities and towns is that they can compete and innovate. A little more discretion would make their competition more intense.

The state might also consider other innovative policies. Like California, Massachusetts could refuse to recognize most contract clauses forbidding employees to sign on with competing firms. Lee Fleming of Harvard Business School has recently suggested these clauses make Massachusetts less entrepreneurial, by ensuring that spinoff companies go elsewhere. Spinoffs have been the lifeblood of Silicon Valley, where smart workers like Bob Noyce and Gordon Moore left stagnating firms like

Fairchild Semiconductor to form more innovative operations like Intel. Noyce and Moore wouldn't have been able to form Intel here, since we would have allowed Fairchild to enforce non-compete clauses against them.

In theory, these clauses can serve a positive function by protecting firms from employees who steal ideas as they leave. But this won't work if Massachusetts respects non-compete clauses and California doesn't. Workers can take ideas and move elsewhere, but those same workers can't start their own companies here.

Refusing to recognize non-compete clauses ultimately may not turn out to be the right policy, but it is the kind of innovative thinking that is as important in government biotechnology policy as it is in biotechnology itself.

Edward L. Glaeser, a professor of economics at Harvard, is director of the Rappaport Institute for Greater Boston. He is a guest columnist.

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