When the Stars Are Aligned

In 1998 the sociologist Lynne G. Zucker and the economist Michael Darby came up with a surprising theory. In a fascinating and now classic article and in a series of subsequent studies, they argued that what really explains the location and success of private biotech companies is the presence of academic stars—researchers who have published the most articles reporting specific gene-sequencing discoveries. Among top universities, some institutions happened to have on their faculty stars in the particular subfield of biology that matters for biotech; others had comparable research standing but did not have stars in that specific subfield. The former group created a local cluster of private biotech firms while the latter did not. The data suggest that the magnetic effect of academic stars is impressive. Zucker and Darby estimate that stars are more important than proximity to venture capital firms or the effect of government funding. It is not just that stars explain where and when biotech startups appear on the map; they also affect which startups survive and thrive and which ones stuggle and disappear.

As Zucker and Darby point out, success in high technology, especially in its formative years, comes down to a small number of extraordinary scientists with vision and a mastery of breakthrough technology. Indeed, we can’t overestimate the impact that these unusual individuals have on the economic development of cities and regions. With $350 billion in total investment worldwide to date, almost four hundred biotech medicines, and one thousand experimental compounds currently in clinical trials, the biotech industry can bring thousands of good jobs and considerable prosperity to a community.

There are two reasons for the power of stars. First, scientists and researchers in private-sector startups need to be physically close to frontier academic research in order to remain on the cutting edge. Attending regular academic seminars, engaging in informal discussions, and hearing what others are working on and what progress they are making are critical to forming and developing new ideas. Employees of private-sector research firms can reap the benefits of these knowledge spillovers only when their labs are physically close to those of top academic researchers. A second reason is that stars are often personally involved in the creation of leading private-sector startups. Zucker and Darby find that the typical pattern is for an academic entrepreneur to help establish a firm in the gene-sequencing area that he has pioneered while he is still on the faculty at a university.

The moral of the story is that Cambridge, San Diego, and the Bay Area were lucky. Where the stars lived when biotech emerged in the mid-1970s was to some extent random: it could have been any of the 187 American cities with a university, or at least one of the 20 cities with a top biology department. But what happened later was not random: the self-reinforcing nature of clusters means that once a cluster has started, it keeps attracting companies and workers. First movers benefit from this lock-in effect, and early advantages become magnified over time. The attractive nature of economic development ensures that even today the industry keeps agglomerating in Cambridge, San Diego, and the Bay Area. Although the impact of stars on the creation of startups is fading over time as the industry matures, their effect on the local economy is long-lasting.