Chamber report card finds improvement in Indiana's economic competitiveness

Report Card Authors

GrowthEconomics was founded by Graham S. Toft, Ph.D., a strategic planner specializing in public and private strategies for growing in an open, global economy, in which innovation plays a critical role in wealth creation. The firm spends much of its time on innovation development, growth strategies and economic-competitiveness issues facing localities, regions, states, nations, educational institutions, business civic organizations and industries.

Toft, in collaboration with colleague Nadine Jeserich, Ph.D. (of Copenhagen, Denmark), undertook several international competitiveness projects while a Senior Fellow at the Hudson Institute, including work for the Korean Ministry of Commerce, Industry and Energy and research for Compete America on U.S. challenges in science and technology talent: "Can Foreign Talent Fill Gaps in the U.S. Labor Force?" Toft has guided the compilation of the Report Card for the fifth consecutive year, with Jeserich leading the research effort for the third year.

How to Use the Data

Business leaders understand the importance of benchmarking as a means to improve performance over time. The strength of benchmarking is found in its ability to help improve performance, to identify which factors contribute to future success or weakness. Further, benchmarking in the public arena is particularly useful in alerting leaders and decision-makers to areas of vulnerability that deserve special government attention and public-private collaboration.

This study is a benchmarking report. The design of this methodology is guided by the following principles:

Measure outcomes, not processes or inputs (for example, we measure the service qualities of highways, e.g. bridge condition, not capital investment).

Similar methodology throughout (each driver/sub-driver measured in a similar fashion).

Using the latest available data, available on an annual or biennial basis, and available for all 50 states. Delaying the release of the Report Card (it previously took place in November) until March allowed for more data available through the end of 2005 and 2006 to be included. Data delays are a part of any project of this magnitude. But in this Report Card, calculations include only data from the last three years (2004-2006), an improvement over previous Report Cards. Of the 97 metrics used in the calculations, 75% reflect 2005 and 2006 data.

Comprehensive in the choice of metrics but guided by the strategic framework in Economic Vision 2010.

Congruent with state-of-the-art methodologies in similar studies.

Able to be used as a neutral, independent reference to facilitate informal discussion by leaders on priorities for current and future actions.

The information provided by the Report Card can be used to best advantage when:

The reader focuses on longer-term trends (now over seven years) indicated by the driver and sub-driver scores. One should not get overly concerned with major annual variations here or there in an individual metric. Blips do occur in specific data.

The reader looks for how well Indiana is doing relative to competitors and comparators. (i.e., Indiana might be doing better in aggregate score, but still losing ground relative to other states).

The reader drives the findings of the report to the next step by asking why other states are doing better than Indiana on select drivers/sub-drivers.

Commentary: Key Indicators of Economic Success

Editor's note: The full analysis is contained within the complete Report Card document and available at www.indianachamber.com .

By Graham S. Toft, Ph.D.

In 2000, the Indiana Chamber took bold action in releasing its Economic Vision 2010, reflecting the business community's "best shot" at what needed to be done to move the state's economy forward. In keeping with standard business practice, the Chamber also set in place an annual Report Card procedure to ensure regular measurement of progress a benchmarking process that compares Indiana against all states, particularly its neighbors. This Report Card is the seventh in a series of carefully compiled metrics that provide a solid assessment of how well and in what areas Indiana is doing well and not so well.

There has been some discernable progress for Indiana in three areas between 2000 and 2006:

1. Improvement in Workforce Development, while still grading poorly

2. Improvement in Business Costs, now grading above the U.S. average

3. Improvement in Digital Connectivity, now grading above the U.S. average

However, Indiana is failing to make progress in Productivity, Dynamism, Capital Formation, and Research and Creativity. These are considered to be some of the most important requirements for a healthy innovation economy in today's fast-changing, open marketplace. They are surfacing in research repeatedly as being associated with strong state/regional economic performance.

First, Can a State's Leaders and Decision-Makers Steer its Economy? Haven't Global Forces Taken Control? ...

(I)t is not at all clear which of the "big ideas of economic policy" work best in today's open, competitive global economy classic Keynesian economics, supply side economics, deficit cutting economics or innovation policy.

If this challenge is so real at the national level, what chance do state leaders and decision-makers have? Aren't states even more at the mercy of forces outside their control? Surprisingly the answer is both yes and no. Indeed, such factors as trade policy, interest rates and currency markets must be taken as a given. But, state public policies and partnerships can and do make a difference on key factors now considered crucial entrepreneurship and innovation, lifelong learning opportunities and a pro-investment climate.

Second, the Economic Development Rules of Engagement Are Changing. Will Indiana Leaders and Decision-Makers Adapt?

While state leaders and decision-makers who choose to be proactive have considerable opportunity to affect state competitiveness, many are held back by antiquated paradigms inherited from 20th century practices. To begin with, most sub-national economic development organizations see their primary role as attracting investment from the outside the "outside-in" approach. Many favor use of such conventional tools as tax and financial incentives to lure business. They overlook the long-run benefit of an "inside-out" approach one that seeks to provide the best investment climate for existing businesses, and fosters innovation and creativity leading to higher productivity and output of more advanced goods and services from those firms already doing business in the state.

Business attraction incentives can be used strategically to advantage, but the resources for such public assistance must come from somewhere.

In jobs created and lost due to births and deaths of employers, again the total is usually 100,000 or more up or down each year.

Of particular interest to the Chamber this year is the contribution made by Indiana's mid-market companies. A major research project, Accelerating Growth of Indiana's Mid-Market Companies, is underway in 2007 to better understand contributions made by and growth opportunities for companies currently in the annual revenue range of $5-$100 million per year. If the pattern of the 1990s can be re-established in which Indiana's expansions regularly exceed contractions, and if Indiana's mid-market company growth can exceed the U.S. average, the state will be in much better shape five years from now.

Third, the Economic History of the States Points to Markedly Different Economic Fortunes. Can Indiana Learn From Other States?

As pointed out in last year's commentary, the long-term prosperity of the nation has not been evenly shared across all states. A simple, reliable way to examine the economic health of states is to compare per capita income. Indiana's per capita income as a percent of the U.S. has dropped from a peak of 106% in 1953 to 90% in 2005. Over the same period, Virginia's fortunes were almost the reverse from 83% in 1953 to 109% in 2005. Unique factors have come into play to explain the dramatic improvements in per capita income by such states as Virginia, New Hampshire, North Dakota and Tennessee. But common initiatives in pro-growth/pro-investment policies deserve closer examination.