92 Pages Posted: 7 Mar 2007
Date Written: February 27, 2007
The 2007 State New Economy Index, released by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation (ITIF), is a state-by-state analysis of how state economies are transforming from an old industrial economic model based on smokestack chasing in which economic development success is measured by the number of big company relocations rather than in the creation and retention of high value-added, high-wage jobs.
The Index, which expands on two earlier reports issued in 1999 and 2002, uses 26 indicators from a variety of sources to rank each state on the extent to which their economies are structured and operate to effectively compete regionally as well as globally. It examines the degree to which state economies are knowledge-based, globalized, entrepreneurial, information technology-driven and innovation-based.
Perhaps the most important driver of the new economy, according to the Index, is the information technology revolution that is transforming virtually all industries and driving increased productivity. The good news is that various industrial sectors such as health care, education, transportation, government, real estate and others are at the early stages of digital transformation, and as they transform, productivity promises to continue to grow.
On the other hand, technology has ushered in a new global competitive challenge to state economies. It has made it possible for more work to be done at a distance prompting many developing nations to establish the infrastructure, skilled workforce and business climate to be attractive locations for this work, and at a much lower cost. For example, in the past two decades, the number of industrial manufacturing relocations and significant expansions in the United States has fallen from an average of 5,139 per year for 1995-2000, to 3,162 in 2005.
According to the Index, states at the top of the ranking tend to have a high concentration of managers, professionals and college-educated residents working in knowledge jobs. Their companies tend to be more geared toward global markets, both in terms of export orientation and the amount of foreign direct investments.
All the states at the top of the ranking also show above-average levels of entrepreneurship, even those that are not growing rapidly in employment. Most are at the forefront of the information technology and Internet revolutions, with a large share of their institutions and residents embracing the digital economy. Most have a solid infrastructure that fosters and supports technological innovation and many have high levels of domestic and foreign immigration of highly mobile, highly skilled knowledge workers seeking good employment opportunities coupled with a good quality of life.
Conversely, states ranking at the bottom of the Index tend to depend on natural resources or on mass production manufacturing and rely on low costs rather than innovative capacity to gain advantage.
Massachusetts has held the top spot on the State Index issued in 1999, 2002 and 2007, while New Jersey and Maryland have each made a steady climbs with each Index to close the gap and take the second and third place rankings this year. Wisconsin, Vermont, North Dakota and Rhode Island made the greatest strides on the Index from 2002 to 2007, while Missouri, Maine, Oregon, Arizona, New Mexico, Oklahoma, and Hawaii recording the biggest decline in the rankings over the last five years.
Given some states' reputations as technology-based, New Economy states, their scores seem surprising at first. For example, North Carolina and New Mexico rank 26th and 33rd, respectively, in spite of the fact that the region around Research Triangle Park (in the Raleigh-Durham metro area) boasts top universities, a highly educated workforce, cutting-edge technology companies, and global connections, while Albuquerque is home to leading national laboratories and an appealing quality of life. In both cases, however, many parts of the state outside these metropolitan regions are more rooted in the old economy.
With the economic indicators as a reference, the Index also outlines an eight-point public policy framework of best practices that state officials can use as a guide to transform their economies and ensure raising standards of living for their residents.
Keywords: economic development, economic growth, competetiveness, innovation, digital economy, economic dynamism, globalization, knowledge jobs
JEL Classification: O01, O14, 018, M13, R00, R58
Suggested Citation: Suggested Citation