University of Hawaii Innovation Initiative

Research As an Industry: The Economic Contribution of HI2

University of Hawaii Economic Research Organization (UHERO)

By UH Team

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The University of Hawai‘i is an excellent university, and its research is an important part of its contribution to Hawai‘i’s economy. The University of Hawai‘i system includes 10 campuses and dozens of educational, training and research centers across the state.

UH Manoa is one of the top research universities in the world. The 2012 Academic Ranking of World Universities places UH Manoa among the top 54 to 67 schools in the United States, a category shared with the University of Virginia and ahead of Oregon State University, the University of Oregon and Notre Dame. UH Manoa has also been very successful at securing lucrative federal research grants. A National Science Foundation report ranked UH Manoa 51st among 689 public and private universities in federal R&D expenditures for fiscal year 2009. By comparison, the University of California Berkeley ranked 40th. This success comes from excellent faculty and staff at UH conducting cutting-edge research, advancing the frontiers of knowledge and being entrepreneurial in their quest for research funding. To not only remain competitive, but also to surpass other top schools, UH will need to continue to expand its research programs, and attract significantly more research funding.

The Hawai‘i Innovation Initiative (HI2) is an effort led by University of Hawai‘i President M.R.C. Greenwood to more than double the UH system’s extramural (outside) research funding from the current level of less than $500 million to an ambitious $1 billion per year by 2022. To meet the HI2 goals, the university will need to identify its strengths in fields of study that are well funded — particularly by federal agencies — and to attract top faculty who are adept at securing extramural resources in these areas. To that end, the university plans to hire or develop 50 top scientists over the next decade.

Hawai‘i should be encouraged by the success that other regions have experienced. In many ways similar to modern-day Hawai‘i, San Diego in the 1960s was viewed as isolated, ill positioned for industry growth, and restricted by a narrow economy, composed primarily of real estate, tourism and the military. Using UC San Diego as a leverage point proved to be a sound strategy; today San Diego boasts a gross regional product of $175 billion and a population of 3 million people. Approximately 14 percent of San Diego’s economy is currently attributed to the research and technology industries, compared to only 3 percent in Hawai‘i. The goal of HI2 is to expand the research and technology portion of Hawai‘i’s economic pie over the next decade by strengthening areas of proven excellence (astronomy and space sciences, ocean and earth sciences, health sciences), enhancing emerging strengths (clean energy, new agriculture, cancer research, pharmacology) and building up new areas (informatics and cyber infrastructure, diabetes and obesity research).

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Building on Proven Areas of Excellence, Targeting Emerging Sectors

The University of Hawai‘i system has already made significant strides nurturing world-class research, especially in the areas of astronomy and space sciences, ocean and earth sciences, and health sciences. To get an idea of what a world-class principal investigator (PI) means, consider the current research-funding situation. Eleven PIs across four fields account for 30 percent of the UH system’s extramural funding. Over the past two years, four fields have generated $248 million in research funding — $65 million (six PIs in energy), $62 million (13 PIs in ocean sciences), $55 million (11 PIs in biomedical sciences), and $66 million (three PIs in cyber infrastructure). Recruiting additional research leaders can therefore have a disproportionately large effect on overall funding levels. If this is true for existing areas of strength, similar potential exists in emerging areas of federal funding.

Technology Transfer

Technology transfer is an important way in which university research spills over into the broader economy. UH has struggled to effect high rates of technology transfer. An important goal of HI2 is to advance the licensing and commercialization of UH research. There are several examples of research initiatives ripe for commercialization. For example, UH plans to be the first university in the world with dedicated rocket launch capability for satellites that are constructed and operated by its students and faculty. The Hawai‘i Institute of Geophysics and Planetology, a research unit within UH Manoa, receives approximately $15 million a year and plans to launch these satellites from the island of Kaua‘i next fall. The Institute already partners with optics labs on instrumentation, data analysis and software development, creating tremendous potential here for related technology transfer. In the School of Engineering, corrosion research for the U.S. Navy and advanced tsunami research have the potential to be commercialized and patented through accelerated technology transfer. Within the highly productive Institute for Astronomy, applied research currently accounts for only 10 percent of its $20-million to $30-million budget, and none of it is currently being commercialized.

Return on Investment: An Economic Analysis of HI2

While it is costly to recruit highly productive research scholars, the premise of HI2 is that this investment will both pay for itself and produce increased economic activity in the form of extramural research expenditures, jobs, technology transfer and harder-to-quantify social benefits. The table on this page displays the net present value (NPV) and internal rate of return (IRR) for HI2 under various assumptions about growth in extramural funds and the success of researchers. The baseline scenario assumes that each new PI costs $233,000/year plus a onetime startup cost of $1.2 million in laboratory equipment, research assistance and similar expenses. The incremental benefit from such hires is calculated as the difference between the total expected grant volume with and without HI2, over and above the benefits accrued in past years. Based on the historical growth of federal R&D funds, we assume that the total existing grant volume will grow at a rate of 4 percent per year, and each new HI2 PI will bring in an additional $1.5 million in annual extramural funds. These assumptions about PI costs and productivity are similar to some of UH Manoa’s recent high-profile recruits.

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In the baseline scenario, the total grant volume grows to $737.6 million by FY2022, the NPV of HI 2 is $250.4 million, more than 13,000 jobs are attributed to the UH system’s total research expenditures and the IRR for HI2 is 96 percent. This is clearly an exceptional return on investment, and will result in more than 5,000 new jobs statewide.

Under our baseline assumptions, UH will not reach the ambitious goal of $1 billion of research funding in the 10-year period we considered. Reaching that goal is largely dependent on how successful PIs are in conducting research and in attracting extramural funds. Over the past five fiscal years, the top five PIs in the UH system have averaged almost $17 million per year in extramural funding. If UH is able to recruit 10 top research faculty that achieve this level of success, while the remaining 40 faculty in the HI2 plan meet our baseline assumptions, then the target of $1 billion in funding can be reached in just over 10 years. Obviously, the success of HI2 PIs and the actual growth of research funds are highly uncertain. The table “Economic Return Scenarios for HI2” displays several more-conservative scenarios. These scenarios result in lower, but still impressive, rates of return on investment.

Beyond the large, positive expected return on investment — as high as 96 percent in the best-case scenario — other benefits include thousands of new jobs created in the state, new discoveries, and the development of new support businesses and opportunities. These additional benefits generate a winwin outcome for both UH and the state. Research activity requires support staff, equipment and materials, which, in turn, boost local businesses. Simultaneously, new businesses are nurtured by the Hawai‘i research economy, and additional growth may result from technology transfer. In this way, the research industry amplifies investment into broader statewide benefits.

UHERO principal investigators:

Inna Cintina (assistant specialist), Kimberly Burnett (associate specialist), and Carl Bonham (UHERO executive director and professor of economics)

Research assistance by:

Christopher Wada (post-doctoral researcher), James Jones (economic research specialist), Atsushi Shibata (graduate research assistant), Ben Trevino (database manager), and Natalie Schack (graphic design support)

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