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Which States Lead in the “New Economy”?

It’s been more than three years since the Great Recession ended, and only six states have regained employment levels enjoyed prior to the recession, while 17 states are still more than 5 percent below their pre-recession employment levels. This is according to The 2012 State New Economy Index from the Information Technology and Innovation Foundation (ITIF).

December 2012
Many blame this economic malaise on a lack of consumer demand and say that more federal government stimulus spending is needed; others say uncertainty over the massive national debt is to blame and that fiscal austerity is the answer. However, the ITIF study points to the decline in the competitiveness of the U.S. economy in the global marketplace. The failure of the United States to adapt to a global economy that is increasingly dependent on knowledge and innovation for growth — i.e., “New Economy” — is causing traded sector firms, and manufacturers in particular, to look to other, more competitive countries when it comes to choosing locations, say the study authors. This loss of traded sector activity, including jobs and investment, holds back the entire U.S. economy and its component state economies as well.

For the United States to be competitive, the nation needs to compete more on the basis of innovation and entrepreneurship, and less on cost, say the study authors. Competitive advantage will continue to be found in making products and providing traded services that other nations are unable to make or provide as easily or as efficiently. Success will mean having a work force and jobs based on higher skills; strong global connections; dynamic firms, including strong, high-growth startups; industries and individuals embracing digital technologies; and strong capabilities in technological innovation.

With that in mind, the ITIF State New Economy Index ranks the states based on five factors:

  • 1. Knowledge jobs

  • 2. Globalization

  • 3.Economic dynamism

  • 4.The digital economy

  • 5.Innovation capacity

ITIF’s Top-10 States
Boasting a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard, Massachusetts is the state that is farthest along on the path to the New Economy. Second-place Delaware is perhaps the most globalized state, with business-friendly corporation law that attracts both domestic and foreign companies. Washington State, in third place, scores high due not only to its strength in software aviation, but also because of the entrepreneurial hotbed of activity that has developed in the Puget Sound region, and heavy use of digital technologies in all its sectors. Fourth-ranked California thrives on innovation capacity, due in no small part to Silicon Valley and high-tech clusters in Southern California. In fifth and sixth place, respectively, are Maryland and Virginia. Their high rankings are primarily due to high concentrations of knowledge workers, many employed with the federal government or related contractors in the suburbs of Washington, D.C. Colorado, which has a “dynamic” economy and educated work force, is in seventh place; Utah — another “economic dynamo” according to the study, is in eighth. Connecticut’s educated work force and strong defense and financial industries put the state in ninth place; and New Jersey’s pharmaceutical and high-tech industries, as well as high levels of inward FDI, propel it into the tenth place spot.

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