In a new piece in the Harvard Business Review, Knott uses a measure she created — a business’s “research quotient” — and the number of businesses conducting research and development to identify the states that are most “innovation friendly.” California and Minnesota rose to the top—both have the kind of successful industry clusters that states have spent billions trying to recruit.
Knott identified California and Minnesota as the two states friendliest to innovation by evaluating each on two factors: the number of public firms investing in R&D and the median research quotient score, her measure of how well those investments pay off. California tops the list by both counts by being home to the most firms (235) investing in R&D, as well as the highest median research quotient score (103.6). Though far behind California, Minnesota stands out, too, with a relatively high number of firms (38) and a high research quotient score (101.5).
In her piece, Knott argues that each state’s success may be attributable to how it treats non-compete agreements, which typically restrict where an employee can work for a period of time after leaving their employer. But while such agreements are generally unenforceable in California, Minnesota law doesn’t restrict them. (There was a failed effort to change the law last year, though.) Judges there, however, are given leeway to adjust contracts if they view them as overly broad, often striking a fair balance between the interests of employer and employee, local lawyers say.
Knott’s argument, however, isn’t without some merit, says Matt Marx, a professor at the Massachusetts Instittue of Technology Sloan School of Management, who has focused on non-competes.
“[I]f you believe that job mobility leads to information sharing which leads to innovation (as do many scholars), then it is not much of a logical jump as employee non-compete agreements have been shown time and time again to bind employees to their employers,” he wrote in an e-mail. But non-competes are just one element, he says. North Dakota and West Virginia ban non-competes but are not home to thriving industrial clusters in the way California is.
While Knott and others argue that such policies can encourage entrepreneurs, companies argue it hurts business. Non-competes protect them from seeing employees join competitors and taking clients and trade secrets with them. Following California’s model, Massachusetts attempted non-compete reform. Gov. Deval Patrick (D) pushed for it last spring, and a compromise was eventually struck, but the effort died amid pushback from the business community.