The Economic Engine That Could

Every workday, Yvette Johnson logs 301 miles round-trip commuting to and from her job. Pfizer Inc. last year sold $1.3 billion worth of Viagra worldwide. The leading art and architecture bookstore in Los Angeles, Hennessey & Ingalls, is considering moving from its location on Santa Monica’s Third Street Promenade to new digs farther east.

These three seemingly disparate facts all have important commonalities: each generates a significant economic impact, and each has a connection to UCLA.

Take Yvette Johnson, for example. When she goes shopping at Vons in Yucca Valley, the closest supermarket to her home in the high desert near Joshua Tree National Park, she spends money from the paycheck she earns as an administrative analyst at UCLA’s Southern Regional Library Facility. The people working at Vons are paid with some of that money and they, in turn, spend it in local restaurants, markets, gas stations and other businesses.

Johnson is just one person, but her spending adds up. Since 1993, when she moved to her current home, she has commuted roughly the equivalent of one-and-a-half round-trips to the moon. A portion of that mileage — 305,000 miles’ worth — she’s driven herself, with the rest by UCLA vanpool. If Johnson averages 20 miles per gallon of gas, and over the years gas has cost an average of $1.20 per gallon, she has spent $18,300 UCLA dollars at the gas station, dollars that then go to workers, taxes and oil-company shareholders.

Now look at Viagra. The huge profits generated by this drug helped to pay the salaries of Pfizer employees and boosted the bank accounts of company stockholders, who then went on to spend their money in ways that generated even more jobs and investment. Some of the work that led to the development of Viagra was done at UCLA, by Nobel Laureate Louis Ignarro (though creating a drug that enhanced men’s sexual function was not the primary focus of his groundbreaking research).

How about Hennessey & Ingalls? “At the beginning of every school year,” says bookstore manager Robert Barrett, “we do enormous business with [UCLA] students and faculty who need books and textbooks.” The campus arts library is among the store’s five-best customers. The store is considering moving to Westwood in part because of the Village’s proximity to the enormous market that exists at the university.

Large universities, every bit as much as large companies, are engines of the economy. According to a recently released study by the Los Angeles County Economic Development Corporation (LAEDC), UCLA in 1999–2000 contributed a whopping $5 billion to $6.19 billion to the local, regional and state economies. In the greater Los Angeles area, that would place UCLA about eighth, just above the oil and gas company Unocal, among economic entities.

With 26,617 employees, UCLA is the 10th-largest employer in the five-county greater Los Angeles region, which encompasses Los Angeles, Orange, Ventura, Riverside and San Bernardino counties. That might not sound all that impressive until you realize that if greater Los Angeles were a separate country, it would have the 10th-largest economy in the world — bigger than Spain’s, or even India’s with its population of a billion people.

“Major universities are as complex as major corporations,” says Jack Kyser, chief economist for the LAEDC. “They have the economic impact of a huge, publicly held firm.”

“If you look at how big their budget is, they are a huge export center,” says Perry Wong, research economist with the Milken Institute, an economics think tank based in Santa Monica. “They are also somewhat recession-proof. If, for example, you look at the state of Michigan in the late 1980s and early ’90s, you can find hardly any growth, or even any place without substantial decline. Ann Arbor [home of the University of Michigan] was an exception. It continued to grow throughout that period. Lansing [home of Michigan State] was the same. Colleges and universities have proven to be stabilizing forces in any regional economy.”

Kyser says that universities are “counter-cyclical.”

“Instead of going out and looking for jobs in a bad economy, students often stick around to get higher degrees. There is also a lot of retraining [in a bad economy]. For example, a lot of dot-commers are now going back to school to get M.B.A.s and other degrees after their companies failed.”

Figuring out the economic impact of a university is an exacting, if not exact, science. Direct spending is simple to work out; it’s a matter of public record and subject to audits. Determining the “ripple effect,” however, is the real art of this sort of economic study. For example, according to the LAEDC study, UCLA students spent an estimated $16.9 million on transportation in fiscal 1999–2000. Previous research has determined that, on average, every million dollars spent on transportation in L.A. County creates 17.7 jobs, from the oil wellhead to the gas pump, from the assembly line to the parking lot. In turn, those gas-station attendants and oil-rig workers need transportation of their own. They buy clothes and food, pay rent and go to the doctor, all of which also creates jobs. So, according to the LAEDC, spending by UCLA students on transportation created 299 jobs. The people who held those jobs, along with the students buying gas, coughed up millions in taxes. All that tax money helped to employ bureaucrats, lawyers, road workers and highway patrol officers, among others.

This ripple effect multiplies the impact of every dollar spent by UCLA’s administrators, faculty, students, staff and visitors — upwards of 60,000 people each and every day, a population roughly equivalent to Galveston, Texas, or Schenectady, N.Y., and greater than that of Palo Alto, Calif.

The most obvious area of UCLA’s economic impact is the university’s direct spending. Its operating budget for fiscal 1999–2000 was greater than $2.6 billion. UCLA spent that money on everything from stationery and books to waste disposal and construction projects.

The construction of new academic-health-center facilities on campus and in Santa Monica, for example, is currently the fourth-largest capital-investment project in Southern California. (Only the MetroRail Red Line subway project, $4.5 billion, the Alameda rail corridor, $2.4 billion, and Disney California Adventure, $1.4 billion, are bigger.) At an estimated $1.3 billion, it will, over the life of the project, create nearly 23,000 jobs through construction spending and purchase of project-related equipment. Those jobholders will have combined pretax earnings of more than $825 million. There is other construction spending as well. In fiscal 1999–2000, UCLA spent $162 million on general construction and renovation other than the medical-center project.

Then there are goods and services, on which the university last year spent about $884 million, buying from hundreds of different vendors.

Sunglo Telecom Inc. of Upland, Calif., is one such vendor. The company installs and maintains voice and data systems throughout the campus, and will be bidding on the contracts for the new medical-center construction as well. “UCLA is probably one of our top-five customers,” says Louis Johnson, chief operating officer. “Three years ago, we opened our office in West L.A., near LAX, specifically to handle the needs of UCLA.” Last year, UCLA spent approximately $2 million with Sunglo, about 15 percent of the company’s business overall.

Sysco Food Services, which stocks campus food outlets, does about $1 million worth of business a year with the university. “Students are always there and they’re always going to eat,” says Vaughn Jackson, a marketing associate with Sysco. “It’s not like outside restaurants that have unpredictable ups and downs. The only time business is down with an account like UCLA is when they go on break, and you know when that’s going to happen.”

For some, UCLA is the reason they’re in business.

“If UCLA hadn’t been here, there is no way I would have opened this business,” says Philip Gabriel, owner of Scrubs Unlimited in Westwood Village, which supplies such items as lab coats, masks and other laboratory and medical apparel. “Sixty to 65 percent of our business is UCLA-related. We are a niche retailer.”

Westwood Village itself was born because of UCLA. In 1925, the Janss Corporation sold 375 acres of land to the cities of Beverly Hills, Los Angeles, Santa Monica and Venice, land which those cities then deeded to the University of California to build what would become UCLA. The company then went on to develop and promote Westwood Village as “The Town for the Gown” next door.

“UCLA has, from the outset, been the impetus behind Westwood,” says Jeff Abell ’69, the chief financial officer of Sarah Leonard Fine Jewelers, the oldest business in the Village.

In constructing the LAEDC’s economic-impact study, Ken Ackbarali, vice president and managing director of economic consulting, says the assumption was made that within a 1-mile radius of campus there is such a concentration of population associated with the university that the lion’s share of the economic activity in the area is attributable to UCLA.

Bob Prasad, general manager of Tanino Ristorante Bar, arguably one of the most upscale restaurants in the Village, is one local businessman who would have to agree. He estimates that nearly 50 percent of his business is directly related to the university. Commencement week and weekend are by far the busiest times of the year for the restaurant, which begins to book up as much as three months in advance with graduating students and their families. When the UCLA-run Geffen Playhouse is in season, it also brings a lot of customers into Tanino.

Retailers, too, benefit. Muriel Chastanet has made custom jewelry in the Village since 1963, and the shop estimates that upwards of a third of its business derives directly from UCLA and from people who come for treatment at the medical center.

In addition to all the students, faculty and staff, the campus and Westwood attract more than 2 million visitors a year. They come for cultural, sports and other events; continuing education; the medical center; and visits by prospective students and their families. UCLA LIVE each year presents an average of 200 performances to an audience of more than 200,000. Other campus attractions, such as the annual Los Angeles Times Festival of Books, draw many more tens of thousands of people to the area. All those visitors spent more than $30 million last year, and that spending created more than a thousand jobs. The tax revenue that accrued to state, county and local governments from all of that economic activity amounted to nearly $6 million.

It is that intersection of culture and commerce that creates such a vital mix — cultural events draw people to the area; the retail shops and restaurants keep them there.

But the benefits reach far beyond the boundaries of Westwood. Ever since UCLA moved its home football games to Pasadena’s Rose Bowl, for example, that city has reaped benefits from fees paid for use of the stadium and from the crowds attracted to the area on game days.

The size and range of UCLA’s economic impact may be surprising, but any institution or entity influences the economy from the spending of people associated with it. Not so obvious, however, are the university’s direct and profitable connections to the private sector.

The Anderson School, UCLA’s management school, offers a certificate program called Management Development for Entrepreneurs (MDE), which is targeted at owners and managers of small, growing businesses and, in some cases, nonprofit agencies and start-ups.

Victoria Lowe completed the program in 1999. She started Alert Staffing in her living room in 1994 and seven years later, the firm is a $204-million operation with 125 paid employees. It was ranked the No. 1 woman-owned business in Los Angeles by the Los Angeles Business Journal and is the largest minority-staffing firm in the United States.

She says the course — which has graduated about 400 people and now is offered in both Southern and Northern California — and its associated business-improvement project “assisted me in driving the business and taking it to the next level.”

R. Vijayaraghavan, CEO of Comit Systems, a Silicon Valley-based contract engineering company, is a 1996 graduate, and his company has made the list of the 100 fastest-growing private companies in the Silicon Valley every year since then.

Add into this mix UCLA Extension, which is an economic powerhouse in its own right, offering some 4,500 courses that reach more than 65,000 adults, many of whom set off with their newly acquired skills to establish businesses of their own.

Not only do companies come to UCLA for continuing education, they also come for access to research and to license patents. Last year, the university was awarded $655 million in research grants, the third-highest amount in the country, behind only Johns Hopkins and MIT, respectively.

Andrew Neighbour is director of UCLA’s Office of Research Administration, which manages the university’s portfolio of patents. “A good portion of licensing is done by companies that read about ongoing research and approach the university asking to license the technology,” he says. “Our researchers create things, and then they need to protect and commercialize their inventions. To do that, they need to partner with private industry.”

The nicotine patch is one of UCLA’s patent-licensing success stories and of tremendous economic benefit to the companies that sell it. In the pipeline, and likely to be important to both the university and to the licensees, are a large number of inventions, including an intracranial aneurysm stent that will save many stroke victims in the future, and a new vaccine for tuberculosis.

While some companies come to UCLA seeking to capitalize on the university’s intellectual property, the university itself has also been responsible for the creation of companies. “When you license technology to a new company, you are in effect creating that company to address a new market,” says Neighbour.

According to Neighbour, universities nationwide last year generated about 350 new companies, with a total estimated economic activity from technology transfer of about $40 billion. There were a total of about 12,000 new inventions from universities last year, and about 400 products were developed.

In late 1996, a group of physicians, oncologists and scientists at UCLA formed what is now Agensys Inc., a company that is working to discover new therapies for cancer. The new company licensed five patents from the university and used those licenses to raise $8 million in its first round of financing. Says Donald Rice, president and CEO of Agensys: “You’ve got to have something in hand that people can invest in, besides just an idea.” The company today has about 40 employees and could go public within two to three years.

Breast-cancer specialist Susan Love M.B.A. ’98 founded ProDuct Health Inc. in 1997 in partnership with an engineer. While a faculty member at UCLA, Love invented a catheter and technique for its use that has led to a greatly improved diagnostic procedure for breast cancer. Her company licensed the patents from UCLA and developed them commercially; they are now being used clinically around the country.

The company was sold to Nasdaq-listed Cytyc Corp. in October 2001 for a combination of cash and stock that valued the deal at $167.5 million. At the time of the acquisition, ProDuct Health had 40 employees.

Sometimes diverse strands of university research can come together in ways that lead to new products and business opportunities. The California NanoSystems Institute, a joint venture between UCLA and UC Santa Barbara, has been created to facilitate cross-disciplinary research and commercialization of the resulting inventions. A good example of how this can work comes from a recent collaboration between research at UC Santa Barbara in marine biology and at UCLA in microbiology and computer science.

At UC Santa Barbara, research was conducted into an environmental problem that was weakening the shells of abalone along the California coast. That investigation led to an understanding of how abalone shells develop their strength. A graduate student at UCLA isolated the protein that takes what is essentially chalk from the sea and at low sea temperatures transforms it into the very hard, strong and thin layers that make up a healthy abalone shell. By contrast, most high-strength material in commercial use is produced at extremely high temperatures, with tremendous pressure, using a lot of energy and often creating environmentally unfriendly waste in the process. A computer-science researcher wondered if the same protein could be used to manufacture strong, thin film layers for making semiconductors through a more energy-efficient and less wasteful process than is currently used. Out of the collaborative research, a new company, Semzyme, was formed. If all goes according to plan, the economic potential of the discovery is enormous.

“That is the sort of work we hope to be doing,” says Martha Krebs, director of the California NanoSystems Institute and associate vice chancellor for research at UCLA. “The hope is that the facilities we [are constructing] at both UCLA and UCSB will enable scientists to work together and will attract new people who will work across disciplinary lines on collaborative projects.”

The Institute is also developing “incubator labs,” where researchers from the private sector can come to work with university researchers at an early “pre-competitive” stage. “That will help companies to better assess the commercial potential of university research,” says Krebs.

Two UCLA graduates, Henry Samueli and Henry Nicholas, who both got their B.S., M.S. and Ph.D. degrees in electrical engineering at the university, founded Broadcom Corporation in 1991. The company is a leader in the manufacture of semiconductors for high-speed communications products. It employs more than a thousand people, had net revenue in 2000 of nearly $1.1 billion and a market capitalization as of late October 2001 of about $7.65 billion. While UCLA didn’t have a direct hand in the creation of Broadcom, Henry Samueli apparently gives the school some credit for his success. He and his wife, Susan, donated $30 million to what is now called the Henry Samueli School of Engineering and Applied Science.

In the end, as impressive as they are, the numbers that form the picture of UCLA’s economic impact as laid out in the LAEDC study are just a part of the whole.

“UCLA adds another, almost undefinable dimension to the economy and resources of Southern California,” says LAEDC’s Ackbarali. “It helps to grow and stabilize the economy, maintain it and make it more attractive to companies and people.”