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Universities and the Economic Future of Massachusetts, Remarks at Associated Industries of Massachusetts

The Colonnade Hotel, Boston

It’s really good to be here and it’s good to be talking about Harvard and the Massachusetts economy. And what I really want to do here is three things. First, I want to just talk a little bit about why it seems to me this is such an important issue for Harvard. Second, drawing on a report done not so long ago by the Rappaport Institute at Harvard, I want to reflect a little bit on what we know about the economic growth history of this region and other regions and some of the lessons from that history. And third, I want to talk about the five main areas where I believe we at Harvard have a crucial role to play in this region’s economic strategy in the years ahead.

When we were in the federal government, President Clinton always used to say that when you thought about national economic development strategy, what was crucial was to recognize that in the national context, the way he put it was that capital moves from place to place; ideas move from place to place; companies move from place to place. And so what you want to invest in is the things that are inherently American. And he therefore emphasized the importance of investing in our natural resources and in investing in our people and in their education. And that was really the basis of the “putting the people first” strategy. And it was exactly right in the national context.

It’s interesting to think about the same issue in the local context. What is it that is here that we can be certain will be here and an important part of what happens here in 2050, or in 2100? The honest answer, if you compare 1900 and 2000, or you compare 1950 and 2004, is that the rate of change is so great that there is not very much that we can be confident will still be here. But I think it is this region’s universities that we can be as sure as anything will be an important part of this region’s economy.

And we are in a real sense intertwined – it is as if we were married without the possibility of divorce. Harvard is not going anywhere. Cambridge, Boston, and Massachusetts are not going anywhere. And so on the one hand this relationship is profoundly important for both of us and on the other, precisely because neither of us is going anywhere, there is the danger that we take it for granted and don’t work to build and to strengthen it.

I believe that Harvard’s prospects for success in the next century are fundamentally determined by the success of this region because it is the success of this region that will determine how attractive Harvard is as a place for people to raise their families, for the most able scholars from all over the world to come and live and work. It is the success of this region more than the success of any other region that will drive the economic prospects for the University and the University’s ability to mobilize resources and make the investments that are essential if we are to remain competitive.

One looks at the fortunes over the last 35 years of two other great universities, Stanford and Yale. They have both had distinguished records over the past 35 years, but the remarkable economic vitality of the Silicon Valley area and the economic difficulties and struggles of New Haven have had something very important to say about how those two universities have fared. At the same time that the success of this region is crucial for us, I would suggest that our success as a university is crucially important for the economics of this region.

In the short run, the considerations are those that are laid out in today’s Globe, responsibility for 48,000 jobs and $3.4 billion of economic activity, $162 million in tax revenue, more than $500 million – not taking into account our teaching hospitals – in research money, 22,000 highly skilled alumni with a growing number working in this region. So our success is important to this region as well.

But I think that to fully understand the importance of what we and the other great universities do, one needs to think a little bit about the economic history of this region and it is something that is interesting to study, because if you take the long view, it is not by any means a steady path of progress. Rather, like, I suppose, much of history, it has a cyclical character. A boom based on the provision of services to Puritans and other migrants coming in from England in the middle of the 17th century – people stopped coming and that stopped, and there were difficult years, actually difficult decades – and then the rise of Boston as a hub of all kinds of agricultural trade with the Caribbean and around the world.

The colonists moved inland. Philadelphia and New York emerged as viable and strong cities. Boston ran into serious trouble, a difficult period, and then a renaissance, this time as the center of nautical industry, particularly around fishing at the beginning of the 19th century. With the rise of the steamship, for a variety of reasons, that leadership running into serious trouble, a difficult period. Boston’s re-emergence as a center of manufacturing. Boston’s substantial growth as a major manufacturing center culminating in the 1920s and the period from 1920 to sometime in the late 1970s when it would not have been implausible to suppose that Boston would pursue an economic path and that its economic history would look very much like that of Syracuse, New York. And then another renaissance around information technology, around higher education, and around financial services.

What is the lesson of that history? And what is the lesson of that history in contrast to other histories that are less happy ones? In many ways you can make a case that upstate New York was the most innovative, prosperous, and successful part of the United States economy in pre-Civil War America. And look where it is today. What are the lessons of that experience?

I would suggest that there are four. The first is that it is centrally important to always be a place that is open to entrepreneurial re-invention, a place where people can come and can do new things. The truth is that the thing that is always in shortest supply, if you look at economic growth in cities or in countries, is not the number of people who are skilled who can work. It is the number of people who are entrepreneurs and who will successfully put hundreds, if not thousands, of other people to work.

In being a place that is open to that, where there is enormous potential for that, where the people who are able to do that are living and locating and trying to set their dreams and move ahead, is profoundly important. And that of course is why first-rate universities, with all that they spin off, make such an important contribution, and that is why – more on this later – it is so important that those universities not just be ivory towers, but universities that are engaged with the practical and economic challenges of their times.

The second lesson, and this comes out in this report, which describes it in considerable detail. What comes out of the study of successes and failures is that it is important to be diverse and varied in what you do. Important to be diverse and varied in several senses. In many ways, economies are like ecosystems, and what ecologists teach us is that if you have a forest that’s made up of one kind of tree and the wrong kind of bacteria comes, you don’t have a forest anymore. But if you have a diverse and varied ecosystem, it endures and remains healthy that much longer.

Something like that is true in economics as well. In retrospect, it’s clear that we were much less diversified with respect to the microcomputer and information technology than we would wish we had been in the late 1970s. And that’s why as we pursue a strategy, it is important that it not be a strategy based on any single or central plan that anybody sets, but that it be a permissive strategy based on trying to move forward in many different spheres.

Many different spheres, whether they be things as disparate as material science, biotech, and financial services, and many different spheres within each of those sectors. We don’t know what the relative importance of mutual funds and investment banks is going to be 25 years from now. Anyone who says they know for sure what the canonical form of activity is in financial services or the canonical activity in biotech, the one thing you know is that anyone who thinks they know for sure doesn’t know anything at all. And that’s why it is so important that we support a varied structure.

The third lessons is I think a more subtle lesson, and it’s one that I hadn’t really appreciated and thought through until I read this report, is that it’s profoundly important to be a great place to live. Loosely speaking, one can distinguish producer cities and consumer cities. Producer cities are cities that have low wages, that people come to because they have low wages, that they’re a great place for a company to locate. And because there are jobs there and people are there, people are there and so they work, and that’s a kind of city.

Another kind of city is a consumer city. It is a city that is a great place to live. It is a place where people want to be, where it is very attractive for them to work, where talented people come and once they’re there, they start things, and where people want to be in order to market to the people who are in that city.

What’s quite interesting is that in the same way the United States’ consumer economy seems to have outlasted, at least over the last few decades, the much more production-oriented economies of Russia and Japan, in the same way the data suggests that cities that are great places to live and the cities that are oriented to the consumer have more staying power than cities that focus themselves in a narrow way on producers. And that, too, is central to thinking about our strategy here. And there can be no question if you look at who comes here, if you look at what is – and I’ll say something about this a little later – what is both our largest problem and the best indicator of our success, the spectacular increase in real estate prices over the last 25 years. That is a reflection of the fact that we almost uniquely are a place where more and more people want to come and live.

The figures are sort of remarkable. Cambridge is, of 542 U.S. cities, the single one that has the highest rate of house prices since 1980. Boston ranks sixth out of that 542, and two of the other areas here are within the top 10. That is a tribute to how attractive we are as a place to live and I would modestly suggest that cultural and intellectual amenities and all that come from our universities are an important part of that.

The fourth and final requisite that seems to go with successful cities is that they are places that abound in human and social capital. If you simply do a very simple statistical comparison, what fraction of the adults in a city are college graduates? And you correlate that with how fast the city grew over 30 years. The correlation is very high. And that too speaks to the importance of higher education and that is one of our great strengths. Frankly, our climate is not one of our great strengths, but our people and that education is.

Human and social capital, a focus on being a great place to live, a varied and a diverse infrastructure, and a commitment to entrepreneurial innovation. These are the requisites of successful cities.

What’s Harvard’s strategy? Let me emphasize five points.

First, stay terrific. One of the things that really struck me not long at all after I became president of Harvard was the search committee talked to me about what they had learned during the search process. They didn’t tell me what different people said about the different candidates, but they did tell me what different people said about Harvard, and of all the things I learned in the course of that process, in many ways the one that struck me most was their report on their conversation with my good friend Mayor Menino.

The search committee went and they talked to him and they asked him what is it you think is important in choosing the next president of Harvard. And he said look – this is what they told me he said – he said look, you probably expect me to say somebody who’s got a real commitment to low-income housing and to working cooperatively on public projects with Boston and the other communities, and I damn well do expect that who’s ever president will have a vice president for government and community affairs who will do a terrific job at doing that. The truth is that what’s most important for us is that Harvard stay great and get even greater and remain the best university in the world and a major magnet of attraction. And if Harvard succeeds in doing that, we will be fine, and if Harvard doesn’t succeed in doing that, it won’t matter how much they’re willing to invest in housing partnerships.

It was a very wise thing to say. It was a very profound truth because if you think about the research money that comes in, if you think about the students that come and stay, if you think about the attraction – I’m reminded of it every day as I walk into my office, there’s a tour group from some other country and my office is one of the attractions on the tour – that there’s really a very special asset here. And so the first thing Harvard’s going to do, and I make no apology for it, to contribute to the economic health of this region, is we’re going to do everything we can every day to be an even better university, attracting even better students, bringing even more distinguished scholars to this area, and taking on vital new intellectual problems in the best way that we can.

Second, and in part this is a means towards the end I just referred to, we are making a major commitment to academic and economic development in Allston. It was a wonderful and far-sighted act of my predecessors to assemble more than 200 acres of land in Allston and since I have been resident, we have been able to acquire more than another 100 acres of land in Allston. To put that in some kind of perspective, depending on how you measure, it’s somewhere between five and 12 Harvard Yards. That is going to involve some of the academic decisions in science with respect to the schools that serve society like Public Health and Education, in terms of facilities to bring our students together, in terms of our capacity to redefine our campus in many ways so that the Charles River isn’t a boundary but a center.

It’s profoundly important in an academic sense, but we are very much aware, and this is one of the things that I have learned as I’ve talked to many, many people about this project, that it’s not the project of a year or a decade, it’s the project of the next half century, that looking across not Boston, not New England, but all of America, this is one of the largest-scale urban development projects that will take place. And it will only succeed if it is more than an academic development. It will succeed for our students if at some point there is the kind of vital commercial activity that we enjoy in Harvard Square in Allston.

It will succeed for our faculty and for our community if it is a place where a large number of people can and want to live. It’s actually relatively easy to achieve one of those two objectives. You can make it be a place where lots of people can live. You can figure out how to make it be so that everything is very cheap and then everybody can live there, they just don’t want to. It’s actually not that – you can also figure it out, how to make it a place where people want to live but they can’t afford to live, and our challenge is going to be to make it a place where we do both.

I believe if we succeed in this project we will link Cambridge and Boston, we will link the Allston area ultimately with the powerhouses of the Longwood Medical Area. We will provide areas that should be a magnet for very high value-added intellectual work from around the world to come and locate here. And we will make a great contribution, not just to the future of our University, but also to the economic vitality of this region.

The third element in our strategy is to work to do everything we can to promote Boston as a center for life sciences and biomedical research and treatment. We are very fortunate at Harvard to be associated – and it’s all within about a four-mile radius of where we’re sitting right here – with the five hospitals in the United States that rank one, two, three, four, and five in the ability to attract peer-reviewed research from the federal government. Five – the top five – they are all within four miles of this point.

If you think about it, there is a real prospect that progress in biomedical research and the understanding of disease and human nature is going to be to our time what the remarkable accomplishments in the arts were to Italy some centuries ago, and we here are the epicenter of that. There is no circle with a four-mile radius anywhere in the world that has half as much biomedical talent as the circle that is centered right where we are sitting today.

That’s why we are committed and committed heavily in Allston, to investing in a new stem cell institute, to working to catalyze a partnership of M.I.T. and the teaching hospitals around genomics, to first figuring out what exactly systems biology means and then investing heavily in it. That’s actually slightly unfair, although I did get a little bit of education in this area when I said to somebody, “Could you explain to me what the difference between genetics and genomics is?” And they looked a little embarrassed and then they said, “Well, genomics is genetics, but if you want to sound modern and with it in your grant proposal, you call it genomics.” I said, “Oh, OK, I get it.”

That also is a bit unfair, but we do have this remarkable opportunity, and it’s an opportunity that, in this phase of the science – unlike the phase we were perhaps in 20 or 25 years ago – it’s an opportunity when the trip from the bench to the bedside is going to be far, far faster. We had a new discovery that came out of the Broad Institute and some of the teaching hospitals a few months ago with respect to a new drug for lung cancer, or a new use of an existing drug in a new way for lung cancer. The paper was published in the New England Journal of Medicine on a Thursday. We were talking to some of our alumni about this research on that Saturday and someone stood up and said that their wife was going to begin treatment with that drug on the next Monday.

That says something about the potential of this research, but it also says something very different. We in universities invent compounds. We have ideas. We do experiments. We don’t actually produce products. We don’t for the most part do large-scale clinical tests. We certainly don’t distribute things all over the world. The idea of our economy, to oversimplify, is that there’s a type of institution in our economy that does that. It’s called the company and that institution is profoundly important to our success in contributing and disseminating knowledge. And so in addition to making major investments in the years ahead in basic research, we intend to work much more collaboratively than we have in the past with industry to assure that this is an attractive place for industry to locate and also to assure that our intellectual property is put to maximum use in service of humanity at a time when what’s coming out of all these laboratories increasingly has the potential to be a difference between life and death. That is something that is very, very important.

Fourth, housing. Everybody here knows it. Basically, between the problem of house prices soaring because everybody wants to live here and there’s only so much housing and the problem with house prices plummeting because nobody wants to live here, we would far prefer the problem that we have, but that is not to say that it is not a problem. There is a difference between economic success here and economic success in Texas. Economic success in Texas takes the forms of it’s really attractive to be in the place and so lots of people want to come and lots of new housing is built. House prices don’t go up that fast because supply goes up rapidly and there’s rapid growth.

Economic success here takes a somewhat different form. Lots of people want to come. Demand goes up. It’s like what I used to teach in introductory economics. A demand goes up, supply doesn’t, and so you know what happens to price. And that’s what’s happened here over the last 20 to 25 years. Some of that is inherent in the density with which we operate, the ways in which we are set relative to the water. Some of that reflects political constraints in a variety of ways that serve very local interests but probably don’t serve the regional interest by not allowing the creation of substantial new housing capacity. Some of that may just reflect a failure to fill gaps that are there.

What I can tell you is that going back to the period of Paul Grogan’s great leadership of these efforts, we are partnered with both Boston and Cambridge to provide low-income housing and have created and provided capital for more than 1,700 units. And I can tell you that what Allston will make possible is something that is right for us to do for the region and right for us to do for purely academic reasons, and that is that we are going to substantially increase the share of our graduate students who are housed in University-owned housing. That will help them have better educational experiences. More importantly, it will take pressure off local housing markets, and that will mean lower rents for our students who aren’t in the new housing, and it’ll also mean lower rents for everyone else, and we’ve got an opportunity to assure with all that we have in Allston that we do at least some things to take that pressure off.

The final thing that we all know is very important is the basic education for our kids, quality of public schools. The difference between if you – believe me, I know this – if you’ve got three kids, the difference between deciding that you can send your three kids to the local public schools and deciding that you need to send your three kids to private schools, that can be, once you take account of taxes for many of the most successful people we’re trying to recruit, that can easily be $100,000 a year. And so it is profoundly important that we do everything we can to strengthen the public schools. That’s why Harvard has worked in partnership with Mayor Menino on afterschool programs. That’s why we work closely with Mayor Sullivan and his colleagues in Cambridge on providing the summer school program at Cambridge Rindge and Latin School.

That’s why I had a chance about a year ago now, as part of the Principal for a Day program, to be principal for a day at an elementary school in Allston. The most memorable moment was when we were having reading group for a group of first-graders, and we’re all kind of sitting there and the kids are having a little easier time sitting on the floor than I am, but I’m sitting there doing my best, and one of the kids is squirming around, I guess. And I had never quite had this happen to me before, but I hear the teacher say, “Sit still on your tushie, Larry.” Fortunately it was another Larry that the teacher had in mind.

But we’re looking and we’re really redefining with Dean Ellen Lagemann’s help the role of our Education School to be much more focused on the problem of K through 12 public education. And that’s something that starts here at home in this area.

Education, housing, science and partnership with industry, not just in the life sciences, but in engineering as well. The Allston development, and staying strong and a great contributor to this community. That’s our strategy. I think we’re having a positive impact. I think we can have a much greater positive impact in the future and that will certainly be our goal because let me finish where I started. Harvard and this region will succeed or fail together and I am very confident that we will succeed. Thank you very much.