Today's state leaders face two economic challenges: to maintain national leadership in job and wealth creation and to compete successfully in a global economy. The key to both of these goals is innovative capacity. Why? Because innovation drives productivity growth, which, in turn, drives prosperity and justifies higher wages.

Prospering in the global economy requires new ways of thinking about economic development and new strategies to catalyze growth. To build a foundation to support business innovation, governors focus on four key areas:

• Building on core business cluster strengths;
• Investing in specialized research and research facilities;
• Creating pools of specialized talent; and
• Catalyzing knowledge transfer and technology commercialization.

Universities can play a major role in economic development, and university-industry technology transfer can be a stimulant, precursor, or complement to building a high-skills, high-wage state economy. However, newly trained graduates, licensed technologies, and commercialization opportunities could migrate to states with preexisting assets in research and development-intensive industry. Consequently, states need to focus on the "economic geography" of technology transfer and craft economic development strategies that are technology-focused.

For university-industry technology transfer to thrive, it must rest on a foundation of effective university-industry research partnerships, appropriate staffing, flexible policies, and a supportive culture and mission orientation. For technology transfer to have a positive impact on state and local development, it must be oriented toward fostering state-based, university-industry R&D partnerships and licensing arrangements and toward commercialization through local start-up companies. States can:

• Encourage university-industry partnerships involving state-based companies, particularly through funding programs;
• Invest in entrepreneurial support organizations, such as incubators, that are linked to universities;
• Enable private-sector investment in new technologies and technology-based companies, for example, by changing tax laws and increasing the availability of capital;
• Remove legal barriers to university-industry technology transfer, including ethics and procurement laws that impede commercialization through start-ups;
• Champion the role of universities in economic development by communicating this message in speeches and involving industry leaders in economic development planning;
• Attend to human resource and quality-of-life issues that are important to technology-based companies and workers, such as education, recreation, and the environment; and
• Monitor federal programs and policies affecting technology transfer.