Knowledge and innovation
BYLINE: Jonathan B. Cox, Staff Writer
The Triangle has high-tech jobs, big companies and successful entrepreneurs. But it is unusual in the state. Many areas in North Carolina have been defined by manufacturing and are struggling to move forward as traditional industries and employers continue to disappear. A new report, the State New Economy Index, shows that North Carolina is behind in its evolution.
Despite the state's efforts in recent years to build an economy based on technology and innovation, North Carolina's progress still trails half the country's, according to a report released Tuesday.
Of the 50 states, North Carolina ranked 26th for its evolution from a manufacturing economy to one based on knowledge-based jobs and entrepreneurship, according to the 2007 State New Economy Index.
North Carolina fell below its revised 2002 ranking of 24th place. The state was 26th the last time the report was published five years ago; the revised statistic considers differences in methodology to aid comparisons.
The state also continues to lag Southern peers, including Virginia and Georgia. Massachusetts, New Jersey and Maryland were the top performers.
The report was prepared by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation. It calculated rankings based on 26 factors, including the level of entrepreneurship and foreign investment.
It is not intended to crown a winner, said the author, Robert Atkinson. Rather, it can help leaders across the country identify areas where they need to make improvements. It's a "road map or tool kit to better understand their economies," said Atkinson, president of the Information Technology and Innovation Foundation.
North Carolina's performance might surprise some, because it is known for Research Triangle Park and research universities such as Duke University.
But "there's a lot of the rest of the state that's old economy -- textile, apparel, branch manufacturing -- which has been hit very, very hard," Atkinson said. "In part, I think it was the state not realizing as quickly as it should how vulnerable those sectors were.
"Now they realize that and are trying to take steps," he said.
Indeed, the report showed progress in several areas.
- Since 2002, North Carolina has moved from 44th to 34th place in the category that evaluates the use of technology in schools.
- It moved from 24th to 16th place for "gazelle jobs" -- positions at companies with rapid and continued sales growth.
- North Carolina moved from 30th to 27th place for the number of patents linked to the state.
"On the heartening side of this, we've seen a lot of gains on the digital economy," said Dan Gerlach, Gov. Mike Easley's senior adviser for fiscal affairs. But an economic transition takes time -- and some work is beyond the scope of government.
"If you look at it, from the ebb of the recession, the state has come back strong," Gerlach said. "It just took a while for the adjustments, and there's no way to stop that from the state level. ...
"There's no way to overcome the effect of globalization and trade policy that works against you, without significant retraining."
North Carolina's performance in the rankings also reflects its location. States in the Northeast, mid-Atlantic and Pacific regions are farthest along in the transition, the report shows. In contrast, 15 of the 20 lowest-ranked states were in the Midwest, Great Plains and Southern regions.
To speed North Carolina's transition, leaders should do more to help entrepreneurs, Atkinson said. This was the first year that the report, which also was issued in 1999, took into account entrepreneurial activity. North Carolina ranked 36th.
There are indications of more activity in the state. The Council for Entrepreneurial Development, an RTP group that helps fledgling businesses, has logged the highest registration in its startup classes since 2000, said Adam Smith, vice president of programs at CED. And more companies have applied to appear before venture capitalists at the group's upcoming conference.
What's more, the state Commerce Department now awards small grants to match some federal funds that new companies win.
"I would think we hold our own," Smith said.
The attention, though, can't go just to startups.
"In short," the report said, "regions need to be places where existing firms can become more productive and innovative and new firms can emerge and thrive."
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WHERE WE STAND
In this report card, North Carolina received high marks for:
- Venture capital
- Number of information technology professionals
- Foreign direct investment (foreign companies with operations here)
- Number of scientists and engineers
- Industry investment and research and development
There was room for improvement in:
- Online population
- Entrepreneurial activity
- Technology in schools
- Work-force education
(KAUFFMAN FOUNDATION, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION)
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DEMAND MORE FOR INCENTIVES, REPORT URGES
As states transform their economies, they should give more thought to the way that they use tax breaks and other incentives, according to a report with the 2007 State New Economy Index.
Traditionally, leaders have offered enticements just to get companies to create jobs.
In the new era, though, "most states should not focus on job growth alone," the report states. They should focus on ensuring that companies create higher-quality jobs that boost standards of living, it says.
The section on incentives is relevant in North Carolina, where legislators are reviewing the use of enticements. Incentives have come under fire after Google was promised as much as $260 million in state and local tax breaks over 30 years to build a facility in Caldwell County.
Leaders should consider abandoning some special incentives and use tax revenue to build infrastructure that helps companies innovate, the report states.
"Lower costs and capital attraction can no longer be the principal sources of a state's" growth, it says. States must support "technological change, entrepreneurial drive and higher skills."
JONATHAN B. COX
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THE RANKINGS
The New Economy Index used 26 indicators to assess how well states are turning their economies into ones based on knowledge, entrepreneurship and globalism.
- Here are the Top 5:
1. Massachusetts
2. New Jersey
3. Maryland
4. Washington
5. California
- How North Carolina compares with its neighbors:
8. Virginia
18. Georgia
26. North Carolina
36. Tennessee
39. South Carolina