Must Read: Chapter 3 of the 2007 State New Economy Index

A short five years in the waiting, but a whole global economic upheaval later, the 2007 edition of the seminal State New Economy Index shows the extent to which each state is adapting to the maturation of the knowledge-based economy. Digest readers will have seen some of the many articles from around the country covering the report’s recent release. Few of those press accounts explored the recommendations embodied in the third chapter, focusing instead on the rankings of their individual states. The report’s importance, however, lies in its call for structural change in most of the institutions we take for granted today.

 

As the 2007 Index concludes, “Success in the new economy requires that a whole array of institutions – universities, school boards, firms, local governments, and economic development agencies – work in new and often uncomfortable ways.”

 

While the earlier editions of the State New Economy Index (1999 and 2002) originated in the Progressive Policy Institute, the latest addition was financed by the Ewing Marion Kauffman Foundation and prepared by the Information Technology and Innovation Foundation (ITIF). The common factor remains the index’s primary author and creator, Robert Atkinson. Atkinson has served in many roles with several different perspectives of the national innovation system, including running a state’s TBED effort and working for the federal government’s key technology agency. His present project is the founding of ITIF, a nonprofit, non-partisan public policy think tank committed to articulating and advancing a pro-productivity, pro-innovation and pro-technology public policy agenda internationally, in Washington and the states.

 

Most TBED efforts should applaud the directives contained in the third chapter of the index. Cautious humility is advised, however – particularly in those states that have invested hundreds of millions during the past five years into R&D, entrepreneurship, or capital access programs while their rankings for the dozens of indicators in the Index continue to slide downward. In those states, the index may help provide a much needed change of course for more effective TBED strategies. Recommendations include:

 

Align Incentives behind Innovation Economy Fundamentals

• Make incentives contingent on higher wages
• Use incentives to support the state’s economic strategy
• Stress innovation incentives instead of job creation incentives
• Use targeted investments in knowledge infrastructure as an incentive

Co-Invest in an Infrastructure for Innovation

• Enhance the role of colleges and universities in regional innovation and growth
  • Target state higher education investments to priority industry clusters
  • Develop a “star” scientists and engineers program
  • Focus on commercialization of research
  • Tie a portion of state funding of higher education to their economic development performance
• Facilitate broadband deployment
  • Enact statewide video franchise laws
  • Facilitate broadband demand aggregation
  • Partner with communities to develop “killer applications”
• Help companies to be more innovative
  • Boost R&D tax credits or create them if they don’t exist
  • Create or increase tax credits for research investments at universities or federal labs
  • Create a statewide commercialization and entrepreneurship organization
  • Support an innovation-focused manufacturing extension program

Co-invest in the Skills of the Workforce

• Improve the quality of teaching in colleges and universities
• Increase the supply and quality of scientists and engineers
  • Encourage universities to institute professional masters of science and engineering programs
  • Tie state higher education funding to increases in degrees awarded in STEM fields
  • Create and expand specialty math and science magnet high schools
• Increase the Skills of Incumbent Workers
  • Co-invest in industry-led regional skills alliances
  • Create incumbent worker training programs funded through a supplemental unemployment insurance tax
  • Establish tax credits for company investments in workforce development

Cultivate Entrepreneurship

• Provide digital tools that make it easy to start a business
• Link together the array of information resources for entrepreneurs
• Expand entrepreneurship training
• Help entrepreneurs gain access to capital, particularly equity capital
• Support angel capital networks
• Focus special attention on “gazelles”

Support Industry Clusters

• Catalyze and empower industry clusters
• Reorganize state programs around clusters

Reduce Business Costs without Reducing the Standard of Living

• Reduce traffic congestion to improve productivity, reduce fuel consumption, and facilitate smart growth
• Reduce regulatory barriers to expanding the supply and affordability of housing

Help Boost Productivity

• Dismantle regulations protecting middlemen from competition
• Limit premature and unneeded regulation of promising information technology applications
• Create next-generation e-government

Reorganize Economic Development Efforts

• Link workforce and economic development
• Proactively use the Internet to provide business assistance
• Empower the private sector and nonprofit organizations as economic development service-delivery agents

Enlist Federal Help

• Increase funding to $250 million for the State Industry/University Cooperative Research Center program within the National Science Foundation
• Create a federal-state economic data partnership

Atkinson’s rationale is provided for each recommendation, many of which include examples of state or local efforts to address the issues raised. And, while not exhaustive of the fundamental changes needed, the 2007 State New Economy Index provides a good list of some of the most important challenges ahead.

 

The report is available at http://www.itif.org/index.php?id=30.



Links to the index and more than 4,500 additional TBED-related research reports, strategic plans and other papers also can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.