Southern Region Progressing in TBED, But Lags in Private Investment

Southern states may have a justifiable reason to be proud of their progress in technology and innovation, but their leaders should be concerned with the lack of investment in venture capital and industrial research and development (R&D), suggests a report released last month by Southern Growth Policies Board and the Southern Technology Council (STC).

Measuring the progress of innovation, entrepreneurship and technology-based economic progress in the South, Not Invested Here: The 2004 Southern Innovation Index provides data on 50 benchmarks and offers 10-year targets for each of the Southern Growth member states. As the fourth in a series of reports on innovation in the South and an update to the previous index released in 2002, the report includes updated indicators and analysis of the differences between the updated indicators and their 2002 report counterparts.

Southern Growth members - Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Virginia and West Virginia - have made significant and sustained progress in the core technology indicators measured, according to the report. In fact, the South showed an average 16 percent improvement in this category while the U.S. as a whole showed only a 9 percent increase. The core technology indicators measured include: students per internet-connected computer, percent of zip codes with broadband access, patents per 10,000 businesses, and percent of Bachelor’s degrees in science and technology, among others.

Another positive indicator for the southern states, the region has attained about 70 percent of its target goals and about 80 percent of its critical technology indicators since the states set their targets two years prior, according to the report. The categories of investment measured were federal R&D, university R&D, industrial R&D, and venture capital (VC). Federally performed R&D increased by about 6 percent and university performed R&D decreased only slightly from 19 percent to 18.8 percent of the U.S. total. However, the report indicates that the South lags the nation as a whole in investment from nearly every major source, both public and private.

The most distressing indicator, according to the report, is the decrease in industrial R&D and lack of VC. Industrial R&D, which delivers a more immediate economic boost, decreased by almost 5 percent more than the U.S. as a whole, the report indicates, representing a $1 billion loss in R&D activity for the region.

Over the last 20 years, the region’s share of the nation’s VC increased by only about 4.5 percentage points, far less than the region’s growth in population and economic activity. The VC indicator is crucial, according to the report, because new companies and industries must be financed to bolster the South’s traditional industries such agriculture, textiles, furniture and apparel. The South needs to grow its VC at a faster rate than the rest of the country because it historically has had a disproportionately small share of the nation’s VC and needs the capital infusions to help reduce declining industries.

In response to the report findings, STC will release results of a national R&D survey later this fall to determine the location factors for R&D investment. STC also has announced it will establish a task force on southern venture capital in order to improve the amount and quality of VC in the region. Not Invested Here: The 2004 Southern Innovation Index is available at http://www.southern.org/.