17 Nov An In-Depth Look at Wisconsin's Mediocre Economic Report Card
A “report card” released Thursday gave Wisconsin’s economy a B average, ranking the Badger State high in areas like equity and quality of life, but giving the state gentleman’s C’s for business vitality and development capacity.
Numerous factors — including layoffs resulting from the withering manufacturing economy – contributed to the less-than-stellar report card. But glitches in the system that turns university research into jobs have also kept the state off the dean’s list, according to economic development experts. One state official also pointed to a statistical anomaly that resulted in a lower score for Wisconsin in the area of development potential.
The Development Report Card, which is issued annually by Washington DC-based Corporation for Enterprise Development, is a broad-based state-by-state comparison of the 50 states’economies, judging them on 68 measures.
According to the report card, Wisconsin “suffers from mass layoffs and few new companies, poor highways, education shortcomings, and—like the rest of the nation—faltering employment. On a positive note, few of the state’s citizens are forced to accept part-time employment for economic reasons, many have employer-sponsored health insurance, and loans to small businesses have increased.”
University/private sector disconnect a factor
According to Tom Hefty – co-chair of Gov. Jim Doyle’s Economic Growth Council – some of the disparity between Wisconsin and neighboring Minnesota – which received straights A’s on its report card – can be attributed to the history of the two states.
Hefty cites the account found in “The History of Wisconsin,” published by University of Wisconsin Press, of how Wisconsin and Minnesota went about reverting to civilian economies after World War II.
“Minnesota came out of the war looking to adapt its industries, and went from grain milling to computers and industrial technology – all connected to the university,” Hefty said. “Wisconsin came out of WWII and Milwaukee went back to its old manufacturing base and Madison went back to being an academic capital. And then you throw in the political trends in both cities – Milwaukee with a socialist mayor, and you have the seeds of what turned up in the economic report card today.”
The path Wisconsin took after the war has real, measurable costs, according to Hefty.
“In terms of research and technology jobs, the 40th ranking reflects no improvement over five years. To put that in perspective, that equates to a deficit in comparison with Minnesota of $400 million per year. If you convert that to jobs at $80,000 per job, you are talking about 5,000 jobs. That shortfall is just in the federal research — not counting the spinouts that would come.”
Hefty points to correlations between some of the rankings contained in the report card to bolster his argument that connections between academics and industry are the key to a stronger economy.
“If you look at the university – particularly UW Madison – we do an excellent job of winning research grants. And they are actually effective at winning patent grants,” Hefty said. “We are 13th in university research and 13th in patents. Those two are directly correlated. But does that translate to private new companies? We are 30th in university spinoffs and 30th in initial public offerings. There is a correlation there, as well.”
This connection was not lost on Lane Brostrom, managing partner with TS Early Ventures and TechStar, an initiative designed to stimulate private sector spinoffs from university research in southeast Wisconsin.
“I think one of the most dramatic metrics in this report is the disconnect we have between university-based R&D and university spinouts,” Brostrom said. “With research and development, Wisconsin is 13th, with the lowest score being 50. With university spinouts we are 30th, with the lowest score at 40. Since university spinouts play in important role in attracting venture capital, job creation and economic development, this is an obvious thing for us to fix.”
According to Brostrom, the good news is that initiatives are underway that might move the needle into more positive territory on the state’s next report card.
“The Medical College of Wisconsin is just gearing up its tech-transfer capabilities in southeast Wisconsin (MCW),” Brostrom said. TechStar helped launch four venture-backed spinouts out of MCW, but there is a lot more opportunity at MCW and at the other southeast Wisconsin research organizations.”
Reading score, Doyle plan factors
According to a Department of Commerce (DOC) spokesperson, the state’s overall score was also dragged down by a statistical anomaly. Reading scores in the state plummeted on this year’s report card versus the previous year, Tony Hozeny said.
“Something that caught my eye was that our development capacity score dropped precipitously,” Hozeny said. “There was a large decrease in reading achievement – now we are 44th and used to be 8th. I went to the measure section of the Web site and looked up Wisconsin. There were seven states that didn’t participate in providing enough data. We were one of them and we got a zero. So it is really not an accurate measure of what is going on here.”
According to sources at Washington, DC-based CFED, the organization sourced their educational data from 2002 statistics kept by the US Department of Education (DOE). According to Deborah Hollinger-Martinez, who monitors state data for the department’s publication Nation’s Report Card, the Wisconsin Department of Public Instruction “chose not to participate” in the 2002 assessment, which was voluntary. DPI officials did not return a phone call regarding the matter prior to the release of this story. Hozeny and others emphasized that the report card should improve next year given efforts of the Doyle administration to foster entrepreneurialism and provide seed capital to technology-related businesses.
Wednesday, the Doyle administration announced changes to an existing tax credit program that could make it easier for tech companies to locate within distressed urban areas. Doyle signed a bill that made changes to the Technology Zone Tax Credit Program. The bill fixed problems that prevented companies without income tax liabilities – including many small businesses and start-ups — from competing equally for over $35 million in tax credits.
“Assembly Bill 520 will make these tax credits more accessible to small companies statewide, and to technology companies in the start-up phase when financial assistance is most critical,” Governor Doyle said. “And it will encourage job creation and capital investment in the technology sector. We need to spend our time working together – as Democrats and Republicans — to get our economy moving again, and this bill is a great example of what happens when we do.”
Even as the tax code change goes into effect, COMMERCE and the legislature are negotiating an economic stimulus package that could include stage funding of seed-state tech start-ups.
“I am enthusiastic about the State’s forthcoming initiatives in tech-transfer and seed funding,” said Brostrom of Techstar. “We will create a lot more pulling of key research technologies into spinouts. Each year, the top states are spinning out over 3.5 new businesses for every $100 million in research. I’d like to see resources dedicated to bettering these metrics in our local tech-transfer organizations.”
“I think we are making progress on a variety of fronts,” said Tom Still, president of the Wisconsin Technology Council. “We are finally getting our arms around the issue of capital formation. A little while ago, many of our business leaders couldn’t describe venture capital as a concept. Now, they are debating what plan is better.”
Hozeny said COMMERCE efforts could also impact the 2004 report card.
“At the DOC, we have launched the Bureau of Entrepreneurship,” Hozeny said. “Part of its mission will be to conduct business outreach to emerging tech companies. These are efforts that show an understanding – along with the Techstar Init – as indicators that we know we need to do a better job encouraging entrepreneurialism.”
Below are the Rankings: (All definitions and meaures can be found at 2003 Development Report Card for the States
The Development Report Card’s three-index framework stems from research about the dynamics of development and economic growth in today’s economy. The framework and measures were reviewed by technical advisors including economic experts and representatives from business, labor, government, and community development organizations. CFED also draws upon its own hands-on experience in technical assistance and strategic policy design.
The DRC weighs all measures equally in the calculation of each individual subindex. Similarly, subindexes are weighted equally in the compilation of each of the three indexes. However, it is important to note that because each subindex is composed of a different number of measures, individual measures do not affect major indexes equally.
How Grades Are Calculated
Raw data are collected for 68 measures.
Each state is individually ranked in every measure based upon the raw data obtained. The best score is “1”; the worst score is “50.”
To calculate subindex scores, the relevant measure rankings for each state are added together. Subindex scores are ranked from “1” to “50”—best to worst.
To calculate index scores, the relevant subindex rankings for each state are added together. Index scores are ranked from “1” to “50”—best to worst.
States that rank from 1-10 earn As. States that rank from 11-20 earn Bs. States that rank from 21-35 earn Cs. States that rank from 36-45 earn Ds. And states that rank from 46-50 earn Fs.
When a tie occurs, each state receives the same rank and the next best performing state is ranked as if the tie had not occurred. For example, if two states have the best score, each receives a “1” ranking and the next state is ranked “3.”
Chuck Rathmann is a freelance writer and contributor to Wisconsin Technology Network. He can be reached at email@example.com.