The world is changing and Massachusetts is ready, at least more so than all other states, according to a new report.
For more than a decade, the nonpartisan, nonprofit Information Technology and Innovation Foundation has published its State New Economy Index, in an effort to highlight, understand and deconstruct how states are coping with the shifting winds of the 21st century economy. Its latest report, out this month, credits the Bay State with being furthest along. (Which is nothing new, actually. The state has led each of the six previous ITIF rankings since and including the first in 1999.)
Some approach the debate over state economic development as a government vs. market issue, but the report’s authors argue the focus should instead be on how states can support market adaptability. In some cases, that means fewer barriers and less government involvement, and in others it means more.
“Decisions about where to draw the line between what should be public, what should be private, and what should be public and private should be guided by actual experience, data, research, and logic,” the authors write. “If there is any ideology governing this, it should be that smart public-private partnerships can play a key role in helping non-governmental organizations become more innovative and productive where there are significant market failures limiting their action.”
The states that are smartest about fostering such partnerships behind Massachusetts are, in order, Delaware, California, Washington, Maryland, Colorado, Virginia, Connecticut, Utah and New Jersey. Mississippi and West Virginia lag furthest behind, according to the report’s rankings. States looking to improve should look abroad, the authors argue. Foreign economies that have evolved well have excelled in four areas: economic development, analysis and strategy; financial incentives for innovation; education reform; and start-up support.
The report’s assessment is based on 25 different factors, split into five broad categories: the availability of so-called “knowledge jobs,” how globalized they are, their economic dynamism, their embrace of the digital economy and their capacity for innovation. Here’s a look at each and how the states fared.
1. Knowledge jobs
“In today’s New Economy, knowledge-based jobs are driving prosperity,” the authors write. “These jobs tend to be managerial, professional and technical positions held by individuals with at least two years of college education.”
The first set of indicators—seven of them—relate to the so-called knowledge-based jobs. The measure the education of the workforce, information technology employment and the share of the workforce in managerial, professional or technical jobs, among other things.
Massachuseetts and Virginia were tied for first, followed by Maryland, Connecticut and Delaware. Those five also led ITIF’s 2010 knowledge job ranking, though in a shuffled order.
Two measures sought to quantify each state’s embrace of globalization: how much of the goods and services being produced by the manufacturing and service sectors were intended for export and the share of workers employed by foreign-owned businesses.
The five states with the strongest embrace of globalization were largely unchanged from ITIF’s 2010 ranking, with the exception of Nevada, which jumped from the 19th slot to the second, pushing Texas, South Carolina and New Jersey each down one spot. Delaware led the list as it did four years ago.
3. Economic dynamism
The authors looked at five indicators to measure a state’s economic dynamism—how easy it is for a new business to flourish and businesses to change.
Those measures were: job churn, the number of fast-growing businesses, the number and value of initial public offerings, new business formation and the number of inventor patents granted.
On this measure, Utah led the list, followed by Colorado, California, Massachusetts and Arizona.
4. The digital economy
One factor that facilitates adaptability is an economy less tethered to the physical world.
“In the digital economy, a significant share of both business and government transactions are conducted through digital means,” the authors write.”
They measured that digital embrace using four indicators: the degree to which government services are delivered using technology, the share of farmers online and using computers for business, the adoption and speed of broadband, and the use of health IT.
Here, Massachusetts, Minnesota, New Hampshire, Rhode Island and Michigan lead the pack.
5. Innovation capacity
The final measure of an economy fit for the 21st century is how well it fosters innovation, they argue. To measure that, the authors looked at the share of high-tech jobs, share of workers who are scientists or engineers, the number of patents, industry research and development as a share of worker earnings, non-industrial R&D as a share of state economic output, clean energy consumption and venture capital investment as a share of worker earnings.
Washington and Massachusetts tied for first, followed by California, Delaware and Maryland, the report found.