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Study reveals major impact of companies started by MIT alums

Economic power equal to 24th-largest world economy

In the first national study of the economic impact of a research university, BankBoston reported today that graduates of MIT have founded 4,000 firms which, in 1994 alone, employed 1.1 million people and generated $232 billion of world sales.

"If the companies founded by MIT graduates and faculty formed an independent nation, the revenues produced by the companies would make that nation the 24th-largest economy in the world," said the report, entitled MIT: The Impact of Innovation.

Within the United States, the companies employed a total of 733,000 people in 1994 at more than 8,500 plants and offices in the 50 states--equal to one out of every 170 jobs in America. Eighty percent of the jobs in the MIT-related firms are in manufacturing (compared to 16 percent nationally), and a high percentage of products are exported.

The 36-page BankBoston report, which is the result of an MIT survey of 1,300 CEOs and two years of fact-gathering and checking by MIT and the bank, "represents a case study of the significant effect that research universities have on the economies of the nation and its 50 states." The study notes that many of the MIT-related founders also have degrees from other universities, and that these entrepreneurs maintain close ties with MIT or other research universities and colleges.

"In a national economy that is increasingly emphasizing innovation, these findings extend our understanding of how MIT has been instrumental in generating new businesses nationwide," said Wayne M. Ayers, chief economist of BankBoston. "MIT is not the only university that has had a national impact of this kind, but because of its historical and continuing importance, it illustrates the contribution of research universities to the evolving national economy."

MIT President Charles M. Vest, commenting on the report, said, "About 90 percent of these companies have been founded in the past 50 years, in the period of the great research partnership between the federal government and research universities. The development of these business enterprises is one of the many beneficial spinoffs of federally funded research, which has brought great advances in such fields as health care, computing and communications."

The five states benefiting most from MIT-related jobs are California (162,000), Massachusetts (125,000), Texas (84,000), New Jersey (34,000) and Pennsylvania (21,000). Thirteen other states have more than 10,000 MIT-related jobs--from west to east, Washington, 10,000; Oregon, 10,000; Colorado, 15,000; Kansas, 13,000; Iowa, 13,000; Wisconsin, 12,000; Illinois, 12,000; Ohio, 18,000; Virginia, 15,000; Georgia, 14,000; Florida, 15,000; New York, 15,000; and Connecticut, 10,000.

Another 25 states have 1,000 to 9,000 jobs from MIT-related companies--Alabama, South Carolina, Missouri, and New Hampshire, 9,000; North Carolina, 8,000; Arizona and Michigan, 7,000; Maryland and Tennessee, 6,000; Kentucky, Minnesota, New Mexico, and Idaho, 5,000; Oklahoma, Indiana, Utah, Rhode Island and Arkansas, 2,500 to 5,000; Delaware, Louisiana, Maine, Nebraska, Nevada, West Virginia and Mississippi, 1,000 to 2,500 jobs. Only seven low-population states and the District of Columbia had less than 1,000 jobs from MIT-related companies.

More than 2,400 companies have headquarters outside the Northeast. The report noted, "MIT-related companies have a major presence in the San Francisco Bay area (Silicon Valley), southern California, the Washington-Baltimore-Philadelphia belt, the Pacific Northwest, the Chicago area, southern Florida, Dallas and Houston, and the industrial cities of Ohio, Michigan and Pennsylvania."

The report said the MIT-related companies "are not typical of the economy as a whole; they tend to be knowledge-based companies in software, manufacturing (electronics, biotech, instruments, machinery) or consulting (architects, business consultants, engineers). These companies have a disproportionate importance to their local economies because they usually sell to out-of-state and world markets, and because they so often represent advanced technologies." Other industries represented include manufacturing firms in chemicals, drugs, materials and aerospace, as well as energy, publishing and finance companies.

"Firms in software, electronics (including instruments, semiconductors and computers) and biotech form a special subset of MIT-related companies. They are at the cutting edge of what we think of as high technology. They are more likely to be planning expansion than companies in other industries. They tend to export a higher percentage of their products, hold one or more patents, and spend more of their revenues on research and development," the report said.

In interviews, MIT graduates cited several factors at MIT which spurred them on to take the risk of starting their own companies: faculty mentors, cutting-edge technologies, entrepreneurial spirit and ideas. The study profiled seven MIT founders who started companies in Maryland, Massachusetts, California, Washington state, Illinois and Florida. Nearly half of all company founders who responded to the MIT survey maintain significant ties to MIT and other research universities in their area.

The findings of the study also reveal:

��������������������������� MIT graduates and faculty have been forming an average of 150 new firms a year since 1990.
��������������������������� In Massachusetts, the 1,065 MIT-related companies represent 5 percent of total state employment and 10 percent of the state's economic base (sales in other states and the world). MIT-related firms account for about 25 percent of sales of all manufacturing firms and 33 percent of all software sales in the state.
��������������������������� The study also looked at employment around the nation and the world from MIT-related companies. Massachusetts firms related to MIT had world employment of 353,000; California firms had 348,000 world jobs. Other major world employers included firms in Texas, 70,000; Missouri, 63,000; New Jersey, 48,000; Pennsylvania, 41,000, and New Hampshire, 35,000.
��������������������������� In determining the location of a new business, the 1,300 entrepreneurs surveyed said the quality of life in their community, proximity to key markets and access to skilled professionals were the most important factors, followed by access to skilled labor, low business cost, and access to MIT and other universities.
��������������������������� The companies include 220 companies based outside the United States, employing 28,000 people worldwide.
��������������������������� Some of the earliest known MIT-related companies still active are Arthur D. Little, Inc. (1886), Stone and Webster (1889), Campbell Soup (1900) and Gillette (1901).

The report said the MIT-related companies would rank as the 24th-largest world economy because the $232 billion in world sales "is roughly equal to a gross domestic product of $116 billion, which is a little less than the GDP of South Africa and more than the GDP of Thailand."

A version of this article appeared in MIT Tech Talk on March 5, 1997.

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