Wisconsin slips in 2008 New Economy ranking; Kanavas talks capital formation

Wisconsin slips in 2008 New Economy ranking; Kanavas talks capital formation

Madison, Wis. – Wisconsin slipped three spots to 33rd among the 50 states in building the new, knowledge-based economy, according to the 2008 State New Economy Index released by the Ewing Marion Kauffman Foundation and the Information Technology & Innovation Foundation.
While the state ranked in the lower half of states overall and low in several information technology and entrepreneurial measures, it ranked in the top 15 in three technology categories: e-government, the new category of health information technology, and industry investment in research and development.
The report, which indicated that Wisconsin ranked only 31st in venture capital and 32nd in high-tech jobs, prompted State Senator Ted Kanavas, R-Brookfield, to say it’s no time for Wisconsin to cut initiatives that promote entrepreneurship – budget shortfall or no budget shortfall. Kanavas and legislative allies plan to introduce funing increases for the Act 255 tax investor credit program, as Gov. Jim Doyle did earlier this year, but he’s not prepared to talk about the scale.
In addition, Kanavas said he is starting a dialogue with policy makers in four other Midwestern states to establish a $1 billion regional capital fund, with each state’s investment fund contributing $200 million. The money would be set aside for investments in early-stage Midwestern companies, and perhaps serve to overcome a limitation felt by the State of Wisconsin Investment Board.
“One of the limitations that SWIB describes to me in terms of what they can and can’t do in Wisconsin is about cronyism if they invest too heavily in Wisconsin,” he said. “If you regionalize it, you free up resources in a pool where Wisconsin can invest in other states and other states can invest in Wisconsin.”
New Economy
The New Economy index, released during Global Entrepreneurship Week, is a mix of 29 indicators that ranks states on their economic structure and ability to compete nationally and internationally. The 29 indicators fall under five broad categories: knowledge jobs, globalization, economic dynamism and entrepreneurship, the digital economy, and technological innovation.
The principal driver of the New Economy is the information technology revolution, according to Dr. Robert D. Atkinson, president of the Information Technology and Innovation Foundation. He said the most promising New Economy advances will be connected to a state’s ability to use information more effectively.
To succeed in the New Economy, “states face a new imperative to boost the competitiveness of their economies – not just relative to each other, but to other nations,” Atkinson said. “If they are going to meet the economic challenges of the future, states will need to overhaul their familiar approaches to economic development.”
Wisconsin structure
The index is designed to answer one question: To what degree does the structure of state economies match the ideal structure of the New Economy? The 2008 report, which measures structure (not economic performance), showed that Wisconsin dropped three spots from the previous year, when it ranked 30th.
Despite moving down overall, Wisconsin ranks in the top half in several categories, including:

  • E-government, 10th.
  • Health information technology, 12th.
  • Industry investment in R&D, 15th.
  • Value-added manufacturing, 21st.
  • Technology in schools, 19th.
  • Broadband/telecommunications, 24th.
  • Scientists and engineers, 24th.
  • Non-industry investment in R&D, 24th.
  • Workforce education, 25th.

Perhaps the most disappointing metrics were Wisconsin’s decline in gazelle jobs, where it ranked 27th in 2008 after placing 23rd the year before, and entrepreneurial activity, where it ranked 43rd after placing 18th in 2007. It also fell considerably in terms of online population, where it dropped from 15th to 34th.
Gazelle jobs measures jobs in fast-growing companies, or “gazelles,” as a share of total employment. These jobs are considered a sign of a dynamic economy and an adaptive state economy because they are created in companies with annual revenue that has grown 20 percent or more for four straight years. According to the Kauffman report, gazelles are responsible for as much as 80 percent of the jobs created by entrepreneurs.
Entrepreneurial activity pertains to the number of entrepreneurs starting new businesses.
As a measure of the so-called “brain drain,” the state ranked 22nd in terms of the migration of U.S. knowledge workers, but only 39th in terms of the immigration of knowledge workers.
In addition, the state ranks among the lower half of states in most categories, such as:

  • High-wage traded services, 26th.
  • Fastest-growing firms, 27th.
  • IT professionals, 28th.
  • Foreign direct investments, 28th.
  • Internet domain names, 29th.
  • Inventor patents, 30th.
  • Alternative energy use, 31st.
  • Managerial, professional, and technical jobs, 33rd.
  • Initial public offerings, 39th.
  • Online agriculture, 40th.
  • Export focus of manufacturing and services, 42nd.
  • Job churn (a product of new business start-ups and existing business failures), 44th.

In relation to its Midwestern counterparts, Wisconsin (33rd) ranked below Minnesota (14th), Illinois (16th), Michigan (17th), and Ohio (30th). Wisconsin was rated ahead of Indiana (36th) and Iowa (42nd).
A state technology official viewed some of the results with skepticism. Tom Still, president of the Wisconsin Technology Council, said in an e-mail that these rankings tend to be lumpy. For example, he wondered why would anyone believes Wisconsin actually fell from 18th to 43rd in entrepreneurial activity inside of one year, noting that incomplete reporting of data can make a difference.
Still cited other, more optimistic reports, including the American Electronics Association’s Cyberstates 2008, which counted 81,444 technology jobs by measuring jobs in high-tech industries only, ranking Wisconsin 21st among the 50 states. It said Wisconsin technology workers earn an average of $61,100, well above the $36,500 average private sector wage nationally and statewide, but below the average high-tech wage nationally ($79,484). Wisconsin has experienced four straight years of technology employment growth, according to the AeA.
Top and bottom 2008 states
In 2008, the top five states in making the transition to the New Economy were Massachusetts, Washington, Maryland, Delaware, and New Jersey.
Mississippi, West Virginia, Arkansas, Alabama, and Wyoming were the lowest-ranked states.
Several low-ranking states are beginning to revise economic-development strategies that were based on trying to compete on costs, Atkinson said. That cost-based strategy began to fall apart earlier this decade as economically poor foreign countries began to adopt it and most plant relocations began to occur offshore.
In a conference call with reporters, Atkinson reiterated that the index does not measure performance, but structure. He noted that Nevada, which is one of the best performing states in terms of overall job creation, ranks 25th in the New Economy index.
He said principles that should guide state policy makers include a focus on higher-wage jobs and per capita income growth, which requires a much different strategy than approaches based on cost and relocation incentives.
“I think they [states] have to move the pendulum back to growth from within, in particular entrepreneurial growth,” Atkinson said.
In Wisconsin, the Doyle Administration recently said the state faces a $5 billion budget shortfall due in part to lower tax receipts from a slowing economy. Atkinson offered some advice to state governments that are tempted to cut spending on New Economy initiatives, saying they should have established robust “rainy day” funds six years ago. He also offered a lesson from the private sector.
“If you look at the companies that do well in an economic downturn, they tend to be companies that have not cut as much, or anything, in core areas for their success,” he said.
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