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2010 Ranking of ‘New Economy States’ Highlights Leaders and Laggers in Innovation

November 18, 2010 No Comments

SOURCE: Ewing Marion KAUFFMAN Foundation

United States must address fundamental economic competitiveness challenges to thrive in the new economy

(WASHINGTON) Nov. 18, 2010 – Massachusetts, Washington, Maryland, New Jersey and Connecticut are the top five states at the forefront of the nation’s movement toward a global, innovation-based new economy, according to The 2010 State New Economy Index, released today by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation (ITIF).

The bottom five states were unchanged from 2008. Mississippi and West Virginia have lagged most in making the transition to the New Economy. The other lowest-scoring states include, in reverse order, Arkansas, Alabama and Wyoming.

The report was released to coincide with Global Entrepreneurship Week, a worldwide initiative being held Nov. 15-21, 2010, to inspire young people to embrace imagination, innovation and creativity. The report makes clear that the nation – and, by extension, the states – cannot thrive without addressing fundamental economic competitiveness challenges.

Overall, the 2010 State New Economy Index uses 26 indicators, divided into five categories that best capture what is new about the New Economy:
1) Knowledge jobs
2) Globalization
3) Economic dynamism
4) Transformation to a digital economy
5) Technological innovation capacity

“In this century, the global economy has shifted,” said Robert Litan, vice president of Research & Policy at the Kauffman Foundation. “A mix of highly productive and innovative New Economy firms is necessary for an economy to prosper. The United States is lagging, and that lack of innovation-based vitality has contributed to our continuing recession. States need to concentrate on achieving New Economy success factors and providing the entrepreneurial resources and access that are critical to boosting competitiveness within the global marketplace.”

The State New Economy Index uses 26 indicators to assess states’ fundamental capacity to successfully navigate the shoals of economic change. It measures the extent to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based – in other words, to what degree state economies’ structures and operations match the ideal structure of the New Economy. The 2010 Index builds on four earlier Indexes, published in 1999, 2002, 2007 and 2008.

Regionally, the New Economy has taken the strongest hold in the Northeast, mid-Atlantic, Mountain West and Pacific regions; 13 of the top 20 states are in these four regions. In contrast, 18 of the 20 lowest-ranking states are in the Midwest, Great Plains and the South.

States at the top of the ranking not only have an abundance of high-tech firms, but also have a high concentration of managers, professionals and college-educated residents working in “knowledge jobs” – those that require at least a two-year degree. And, even if their employment is not growing rapidly, all of the top-ranked states show above-average levels of entrepreneurship.

A large share of the leading states’ institutions and residents have embraced the digital economy. Most of these states also have a solid innovation infrastructure that fosters and supports technological innovation, and many have a good quality of life coupled with high levels of domestic and foreign immigration of highly skilled knowledge workers.

The lowest-ranking states tend to rely on natural resources or on mass-production manufacturing, and to depend on low costs rather than innovative capacity to gain advantage. But innovative capacity, derived through universities, R&D investments, scientists and engineers, and entrepreneurial drive, increasingly impels competitive success, the report said.

Lower-ranking states are not without opportunity, however. The IT revolution makes it easier for businesses to relocate, or start up and grow in less densely populated states farther away from existing agglomerations of industry and commerce. Because metropolitan areas in many of the top states suffer from high costs and near-gridlock on their roads, locating in less-congested metros, many in lower-ranking states, may be more attractive to entrepreneurial companies.

“In today’s highly competitive environment, states must work together and with the federal government to overhaul their economic development policies,” said Dr. Robert D. Atkinson, president of the Information Technology and Innovation Foundation and co-author of the Index. “Too often, states still view their economic competitors as next door, rather than halfway around the world. If, instead, they used incentives to expand broadband, support entrepreneurial assistance programs, or invest in research and technology transfer, they – and the nation as a whole – would be far more globally competitive.”

The report recommends that, to pursue this new approach to economic development, states should 1) establish policies that reduce within-state zero-sum competition; 2) implement state policies to spur “win-win” economic results; and 3) pursue new state-federal innovation-based economic development partnerships.

In addition to 2010, Massachusetts topped the four previous State Index lists. Washington, which ranked fourth in 2007 and in 2002, moves to second-place in 2010.  Maryland, with its high concentration of knowledge workers, maintains the third-place rank it held in 2007 and 2008. New Jersey’s strong pharmaceutical industry, coupled with a high-tech agglomeration around Princeton, an advanced services sector in Northern New Jersey, and high levels of inward foreign direct investment help drive it to fourth place (up from sixth in 2002 and fifth in 2008). Connecticut also moved up in the rankings, from sixth in 2008 to fifth in 2010.

Between 2007 and 2008, most states and the United States as a whole made sustained progress toward the New Economy. Of the 23 indicators that were comparable between 2008 and 2010, overall the United States increased on 14 and decreased on three, for a net increase of 11 indicators.

Download the 2010 State New Economy Index (PDF)


About ITIF
The Information Technology and Innovation Foundation is a non-profit, nonpartisan public policy think tank committed to articulating and advancing a pro-productivity and pro-innovation public policy agenda internationally, in Washington and the states. Recognizing the vital role of technology in ensuring American prosperity, ITIF focuses on innovation, productivity and digital economy issues.


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