Urenio Watch Watch: Innovation Measurement

Benchmarking Economic Transformation in USA

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).

According to Kauffman Foundation the term “New Economy’ refers to a set of qualitative and quantitative changes that, in the last two decades, have transformed the structure, functioning, and rules of the U.S. economy. The New Economy is a global, entrepreneurial, and knowledge-based economy in which the keys to success lie in the extent to which knowledge, technology, and innovation are embedded in products and services.

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.


  • The state farthest along the path to the New Economy is Massachusetts. Topping the list in 1999, 2002, and 2007, Massachusetts’ lead over other states in 2008 has increased yet again. Boasting 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 has continued to thrive, enjoying the fourth-highest increase in per-capita income.
  • Washington state ranked fourth in 2007 and second in 2002, and has moved back to second place. Washington scores high due 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 comes in at third (third in 2007 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.
  • Delaware has continued its slow, steady climb in the rankings, from ninth in 2002 to seventh in 2007, to fourth in 2008. One reason for its leading score is its strong lead in high-wage traded services, a reflection in part on its proximity to New York and Philadelphia, and also the consistent and long-standing state policies to build a strong financial services industry. Reflecting in part its location and policies, Delaware also leads the nation on foreign direct investment.
  • New Jersey’ s strong pharmaceutical industry, coupled with its high-tech agglomeration around Princeton and its advanced services sector in Northern New Jersey, coupled with high levels of inward foreign direct investment, help drive it to fifth place (up from sixth in 2002, but down from second in 2007).

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.