Defining the Global, Innovation-Based "New Economy"

Five states — Massachusetts, Washington, Maryland, Delaware and New Jersey — are leading the United States' transformation into a global, entrepreneurial and knowledge- and innovation-based New Economy, according to The 2008 State New Economy Index, released by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation (ITIF).

The State New Economy Index measures states' economic structures. Rather than measuring state economic performance or state economic policies, the Index focuses more narrowly on a single question: To what degree does the structure of state economies match the ideal structure of the New Economy? The principal driver of the New Economy, according to the Index, is the information technology revolution that, since the mid-1990s, has driven increased productivity and transformed virtually all industries. This "IT engine" is unlikely to slow down anytime soon. For the foreseeable future, the most promising New Economy advances will relate to a state’s ability to use information more effectively.

Robert Litan, vice president of Research & Policy at the Kauffman Foundation, said, "The New Economy is creating profound, irreversible changes in the U.S. economic structure at a pace we would not have imagined even a decade ago. Innovators in the United States — and worldwide — are increasingly investing in resources to compete based on this new reality."

Mississippi and West Virginia ranked lowest among the states in making the transition to the New Economy. The other lowest-scoring states include, in reverse order, Arkansas, Alabama and Wyoming. Regionally, the New Economy has taken the strongest hold in the Northeast, Mid-Atlantic, Mountain West and Pacific regions; 14 of the top 20 states are in these four regions. In contrast, 16 of the 20 lowest-ranking states are in the Midwest, Great Plains and Southern regions.

"These and other opportunities and challenges mean that, 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," said Dr. Robert D. Atkinson, president of the Information Technology and Innovation Foundation and primary author of the Index. "If they are going to meet the economic challenges of the future, states will need to overhaul their familiar approaches to economic development." States at the top of the ranking tend to have a high concentration of managers, professionals and college-educated residents working in "knowledge jobs" — those that require at least a two-year degree. With only a few exceptions, manufacturers in these top-ranking states generally are more geared toward global markets, both in terms of export orientation and the amount of foreign direct investments.

All the states at the top of the ranking — even those that are not growing rapidly in employment — also show above-average levels of entrepreneurship. Most are at the forefront of the information technology and Internet revolutions, with a large share of their institutions and residents embracing the digital economy. Most have a solid innovation infrastructure that fosters and supports technological innovation, and many have high levels of domestic and foreign immigration of highly mobile, highly skilled knowledge workers coupled with a good quality of life.

Source: Kauffman Foundation