The 2010 State New Economy Index
Benchmarking Economic Transformation in the States

Introduction
While every state continues to experience the impacts of the economic downturn and resulting recession, it will be many years before we understand the full nature and causes of the financial crisis. But it appears that one of the contributing factors to both the crisis and the anemic nature of the recovery has been the weakened position of the U.S. economy in global markets.

This relatively untold story of the recession and recovery is, in fact, perhaps one of the major developments in the U.S. economy, one that will have significant impacts on state economies for decades into the future—particularly if the nation continues to ignore the issue.

The evidence is clear that, over the last decade, the U.S. economy has declined relative to that of many other nations. The Boston Consulting Group recently ranked the United States as just eighth in global innovation-based competitiveness (e.g., factors such as corporate and government Research and Development investments, venture capital, scientists and engineers, etc.).

Of forty nations considered, the Information Technology and Innovation Foundation ranked the United States sixth for innovation-based competitiveness. The World Economic Forum’s Global Competitiveness ranking puts the United States in fourth place.

Apologists for the status quo might point out that the United States is still in the top ten in all three studies. But it’s not just that we are no longer number one, as we were as recently as the late 1990s; our relative competitive position is slipping rapidly. ITIF found that, while the United States ranked first in innovationbased competitiveness in the late 1990s, in the course of the last decade, we ranked fortieth of forty nations in progress on these factors.

Manufacturing has been particularly hard hit. U.S. manufacturing employment has fallen from just under 17 million in 1993 to less than 12 million in 2009, a 30 percent decline. The United States has seen its global share of manufacturing eviscerated in industry after industry. For example, whereas the United States claimed 29 percent of the printed circuit board (PCB) production in 1998, by 2009 that share had plummeted to 8 percent.

Likewise, the U.S. share of the photovoltaics market (solar panels) cratered from 30 percent in 1999 to 5.6 percent in 2008. Meanwhile, China’s position in these industries has been the direct inverse of America’s. Its share of PCB manufacturing grew from 7 percent in 1999 to more than 31 percent in 2008, and its share of the solar panels market grew from 5.6 percent to 32 percent. The song remains the same across the manufacturing landscape.

The U.S. share of global passenger vehicle production fell by almost half from 1999 to 2008 (14.5 to 7.5 percent), as the Chinese share rocketed from 1.5 percent to 12.7 percent, making China now the world’s largest manufacturer of passenger vehicles. The United States’ longtime strength in machine tools has evaporated, with U.S. production of machine tools falling to 5.1 percent and China’s rising to 35 percent.

But, while manufacturing is hard hit, aren’t high tech and Silicon Valley doing well? Not really. After running a trade surplus for decades in high-tech products, the U.S. began to run a trade deficit in this sector in the 2000s. “I’m not telling you the sky is falling, but I have a duty to report that some of the indicators are not good,” stated Russell Hancock, chief executive of Joint Venture Silicon Valley Network, which has indexed the region’s business climate each year since 1995.

This is not to say that the U.S. economy will not rebound in the regular course of the business cycle and that unemployment rates will not fall in virtually all states. But it is to say that something is now fundamentally different than it was in the last century. In this century, the U.S. economy is under challenge like never before. As a result, unless the United States addresses its fundamental economic competitiveness challenges, it will be difficult for the U.S. economy and, by extension, individual state economies to thrive.

Read Full Report: The 2010 State New Economy Index

PDF format, 4.68MB, 68Pages.

Robert D. Atkinson and Scott Andes
The Information Technology and Innovation Foundation

SUMMARY OF RESULTS
The state that continues to be farthest along the path to the New Economy is Massachusetts. Topping the list in 1999, 2002, 2007, and 2008, Massachusetts’ lead over other states in 2010 has increased yet again. B

oasting a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard in the Route 128 region around Boston, Massachusetts survived the early 2000s downturn and was less hard hit than the nation as a whole in the last recession. And it has continued to thrive, enjoying the fourth-highest increase in per-capita income.

Washington state ranked fourth in 2007 and second in 2008, and has maintained its second-place standing. Washington scores high due not only to its strength in software (in no small part due to Microsoft) and aviation (Boeing), but also because of the entrepreneurial hotbed of activity that has developed in the Puget Sound region, and very strong use of digital technologies by all sectors.

Maryland remains third (as it was in 2007 and 2008, as well), in part because of the high concentration of knowledge workers, many employed in the District of Columbia suburbs and many in federal laboratory facilities or companies related to them. ...

About The Information Technology and Innovation Foundation
The Information Technology and Innovation Foundation (ITIF) is a Washington, D.C.-based think tank at the cutting edge of designing innovation policies and exploring how advances in information technology will create new economic opportunities to improve the quality of life.

Non-profit, and nonpartisan, we offer pragmatic ideas that break free of economic philosophies born in eras long before the first punch card computer and well before the rise of modern China. ITIF, founded in 2006, is dedicated to conceiving and promoting the new ways of thinking about technology-driven productivity, competitiveness, and globalization that the 21st century demands.

ITIF publishes policy reports, holds forums and policy debates, advises elected officials and their staff, and is an active resource for the media. It develops new and creative policy proposals, analyzes existing policy issues through the lens of bolstering innovation and productivity, and opposes policies that hinder digital transformation and innovation.

About the Kauffman Foundation
The Ewing Marion Kauffman Foundation of Kansas City is a private, nonpartisan foundation that works with partners to advance entrepreneurship in America and improve the education of children and youth. The Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman.

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