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2008 State New Economy Index Released by ITIF and the Kauffman Foundation

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 this week by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation (ITIF).

Robert Litan, vice president of Research & Policy at the Kauffman Foundation, noted in releasing the report that, “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.

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 Index builds on the 1999, 2002 and 2007 reports, using 29 indicators to rank each state on the extent to which its economy is structured and operates to effectively compete nationally and globally. It divides the indicators into five categories that best capture what is new about the New Economy: knowledge jobs, globalization, economic dynamism, transformation to a digital economy and technological innovation capacity.

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.

“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.”

The report foudn that 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.

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