Reinventing Ohio; Rising number of patents brings state innovation, higher incomes
BYLINE: Alison Grant, Plain Dealer Reporter
If necessity is the mother of invention, a recent trend in patents could bode well for Ohio's struggling economy.
After starring as an incubator of inventions early in the 20th century, the number of patents awarded to Ohioans fell year after year. The state that created the arc light and the fluorescent tube was fading in ingenuity.
But in the 1990s, economists noted a change. Patent awards were on the rise. Ohioans received 2,889 patents for inventions in 2004, up 10 percent over a decade earlier.
"Industrial innovation is one of our strongest advantages," said Mark Schweitzer, who is responsible for the Federal Reserve Bank of Cleveland's regional economic research.
Why should people care how many ideas are flowing out of businesses, laboratories and universities? It turns out that patent levels are a state's single biggest indicator of personal income growth.
Schweitzer and two colleagues zeroed in on the power of patents during an investigation into why residents of some states have sharply higher average incomes than residents of other states.
It didn't fit with a popular economic theory that said the mobility of people and businesses, and the leveling effect of low-cost communication, transportation and technology, would in time erase state-to-state differences.
But that wasn't happening. In fact, the expected "convergence" among states stalled out some 30 years ago.
Ohio was left slightly below the national average in personal income. Its per capita income last year was $32,478, versus a national average of $34,586. Connecticut was the highest at $47,819, Louisiana the lowest at $24,820.
The Federal Reserve economists eliminated tax burdens as an explanation for state differences.
They found that while taxes may lower the capital available for private investment, tax revenue spent on projects such as better roads and water systems can boost state productivity. The two combined have an offsetting impact - "essentially zero" - on personal income, Schweitzer said.
Climate had some impact on where state incomes ranked, with warmer and drier states posting better income growth. But the effect was erratic and not as big as education.
The share of a state's population with high school or college degrees proved a good indicator of personal income.
Massachusetts has the highest proportion of college-educated adults at 36.7 percent and one of the highest per capita incomes in the country.
Ohio is somewhat below the national median in how many people have bachelor's degrees, at 24.6 percent - just below the national median.
But when the Federal Reserve looked at states with the highest rates of patents per person, the connection to income lit up like a light bulb.
"It is evident over a span of 75 years that the most reliable indicators of relative income levels and growth are knowledge variables," Schweitzer said during a presentation of the findings this week at Kent State University.
The researchers decided the patent-pocketbook link arose because income flows to places that are relatively innovative - and are producing more patented inventions than other places.
Patents might be a measure of success in commercializing technology, they concluded. (See full report at www.clevelandfed.org).
Ned Hill, vice president for economic development at Cleveland State University, said patents are on the rise because the quality of research at Case Western Reserve University and Ohio State University "has just gotten a lot better in the last decade, and they're paying more attention to patents."
Since most patent activity stems from the private sector, it's also clear that businesses are producing more viable ideas, he said. Hill cautioned that a patent tally doesn't capture some of the best breakthroughs for companies, such as "lean manufacturing" management practices that can't be patented.
The leading patent generator in a four-state region that includes Ohio was Procter & Gamble, with 1,463 patents on household products between 2000 and 2004. General Electric Co. was next, with 1,245 patents, and SmithKline Beecham Corp. was third, with 604. Patent origin is determined by the residence of the first-named inventor on a patent grant, not a company's headquarters.
Despite the recent uptick, Ohio still lags well behind its heyday as a cradle of invention, when ingenious ideas were coming at an all-time clip in the state.
Back then, in the 1930s, Ohioans churned out patents at the rate of 566 for every million residents, the Federal Reserve economists said. The rate dropped to 299 patents for every million Ohioans in 2004.
Another recent study that looked at the biggest drivers of Northeast Ohio's economy reached a conclusion similar to the Federal Reserve's. It showed that a skilled work force (which includes patents per employee, as well as college degrees and a few other measures) had the most impact on Greater Cleveland's economic health.
The level of non-manufacturing business activity, racial inclusion and income equality were other important factors, so-called "Dashboard Indicators for the Northeast Ohio Economy."
(See report at www.futurefundneo.org).
To reach this Plain Dealer reporter: agrant@plaind.com, 216-999-4758