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SSTI Analysis: 2008 State New Economy Index Paints New Path for TBED Policies
While which states top the list in the 2008 edition of the State New Economy Index will capture the attention of the media and therefore the majority of decision makers, the most important contribution of the 2008 Index in the current fiscal environment is its overview and final chapter. The Index, released Nov. 18 by the Information Technology and Innovation Foundation and the Kauffman Foundation, goes beneath and well beyond the results of the 29 indicators to explain the need for fundamental change to how states and regions approach economic development. The final chapter goes a step farther and identifies key strategic shifts required to address the challenges of the New Economy.
As state budgets reel from the fallout of the financial crisis, the authors warn: "If states are going to meet the economic challenges of the future, they will need to make the promotion of innovation a larger part of their economic development policy framework."
Based on the report, state legislators would seem well advised to avoid deep budgets cuts affecting those areas required to support and encourage innovation - the fundamental elements of tech-based economic development.
The Index does not mean, however, that the status quo should be maintained for most state economic development strategies - particularly given the current fiscal malaise. That applies as well to current TBED approaches before we get too smug. Innovation within state ED portfolios - in many cases seismic shifts and unconventional thinking - are also necessary, the authors point out.
"All states and most regions no longer can rely solely on old economic strategies of relentlessly driving down costs and providing large incentives to attract locationally mobile plants or branch offices.Rather regions must look for competitive advantage in earlier-stage product and service cycle activities."
"In short, regions need to be places where existing firms can become more productive and innovative, where new firms can emerge and thrive, and where locationally mobile establishments want to locate because of the innovation environment."
To accomplish this, the final chapter of the Index is dedicated to explaining briefly the four current paradigms for approaching state and regional economic development before outlining more than a dozen specific strategies for states to adopt:
Invest in Innovation
- Use targeted investments in knowledge infrastructure as an incentive
- Support statewide broadband promotion organizations
Help Companies to Be More Innovative
- Create a statewide commercialization and entrepreneurship organization
- Catalyze and empower industry clusters
- Use Web 2.0 tools to support open innovation
Use Tax Policy to Spur Innovation
- Extend sales tax parity for manufacturing purchases of computers and IT equipment
- Align state R&D tax credits with the new federal R&D tax credit
Facilitate Entrepreneurship
- Provide digital tools that make it easy to start a new business
- Benchmark state procedures for starting a business
- Support angel capital networks
- Link together the array of information resources for entrepreneurs
- Expand entrepreneurship training
Cultivate Institutional Innovation
- Create different and better K-12 schools
- Shift the focus of post-secondary education more toward acquiring skills
- Take industry-university partnerships to new levels
"Success in the New Economy requires that a whole array of institutions-universities, school boards, firms, local governments, economic development agencies-work in new and often-uncomfortable ways. At the end of the day, this is a challenge of leadership," the Index concludes.
The 2008 State New Economy Index is available at: http://www.itif.org/index.php?id=200 or http://www.kauffman.org/Details.aspx?id=5812.