The New Economy, High Tech Industries and the Role/Limits of State Economic Development Policy

The New Economy, High Tech Industries and the Role/Limits of

State Economic Development Policy

The New Economy

• “The Information Economy”• “The Digital Economy”• “The Risk Society”• “The Knowledge Economy”

• “The Network Economy”

What is New about the New Economy?

Trade Is An Increasing Share of The New Economy

The Economy Is Spawning New, Fast-Growing Companies

The New Economy is Constantly Churning

Fierce Business Competition

“Cooperation” In The New Economy

Consumer Choices Are Exploding

The New Economic Order: Speed Is Becoming The Standard

Computing Costs Are Plummeting

E-Commerce Takes Off

KEYS TO THE OLD AND NEW ECONOMIES

OLD ECONOMY

• Stable

• National

• Hierarchical

• Mass Production

• Capital and Labor

• Mechanization

• Lower Costs

• Go-it-alone Business Culture

• A Skill or Degree

• Adversarial Relations

NEW ECONOMY

• Dynamic

• Global

• Networked

• Flexible Production

• Innovation and Knowledge

• Digitization

• Innovation, Quality, Speed

• Alliances and Partnerships

• Lifelong Learning

• Collaboration

Implications of New Economy for ED

• Importance of Technology to all firms• Innovation• Entrepreneurship• Boost Firm and Worker Learning• Agglomeration or clusters of firms matter• “Entrepreneurial” Strategies, aka growth

from within strategies will drive development

--Progressive Policy Institute

Factors that attract and sustain high-tech industries

Traditional measures• Tax structure

• Compensation costs

• Space costs

• Capital costs

• Business climate

Specific to High-tech• Proximity to research

institutions

• Access to venture capital

• Educated workforce

• Network of suppliers

• Technology spillovers

• Quality of life

-- Milken Institute

High Tech Economic Development

• What is “high-tech” industry?

• How important is to regional economic prosperity?

• Is high tech a silver bullet?

What is High-Tech?

• Varying definitions• Workers

• Scientists, engineers, programmers

• Processes • Manufacturing vs. Services?

• Products• Computers vs. Shoes

3 Organizations Measuringthe New Economy

These three, plus others, have either developed measures of local economic performance in the new economy, or include new economy data points in their measures:• Progressive Policy Institute

• Milken Institute

• Corporation for Enterprise Development

Miliken Institute’s Definition

• High Technology Industries• Spend above average amount of revenue on

R&D

• Employ above average # of technology using occupations (scientists, engineers, etc)

HT Manufacturing Industries

• Drugs

• Computer and Office equipment

• Communications equipment

• Electronic components

• Aircraft

• Guided missiles,

• Search equipment

• Medical supplies, lab instruments

HT Service Industries

• Telephone Communications Services

• Computer programming, data processing

• Motion picture production

• Engineering,

• Research, Development and Testing services

High-tech Industries(1987 SICs)

• 283 Drugs

• 357 Computer equipment

• 366 Communications equipment

• 367 Electronic components

• 372 Aircraft & parts

• 376 Guided missiles

• 381 Navigation equip

• 382 Laboratory apparatus

• 384 Medical instruments

• 481 Telephone services

• 737 Computer programming

• 781 Motion pictures

• 871 Engineering services

• 873 R & D services-- Milken Institute

New Economy Index

• More Expansive View• Industrial and Occupational change

• Globalization

• Dynamism and Competition

• Information Technology Revolution

Missing?

• Significant technology users • Finance (banking and securities)• Insurance• Publishing

• Processes are changing • Back offices (Citibank in SD)• E-publishing • Data bases

• Important consumers of high technology

Knowledge Industries

Producers

• Software

• Bio-tech

• Information technology hardware

Source: PPI

Users• Telecommunications• Banking• Insurance• Advertising• Law• Medicine• Government• Education

High-tech Occupations

Producers

• Engineers

• Scientists

• Programmers

• Designers

Users

• Managers

• Lawyers

• Bankers

• Sales reps

• Accountants

• Teachers-- PPI

High-tech Occupations(BLS Major Groups)

Primary

• Computer & Mathematical

• Architecture & Engineering

• Life, Physical, Social Sciences

Secondary

• Management

• Business & Financial Operations

• Legal

• Education, training, library

• Healthcare practitioners & technical

Who Collects This Stuff?

• Bureau of Economic Analysis

• Bureau of Labor Statistics

• Standard Industrial Classification (SIC), now (NAICS)• I.e. Drugs SIC 283

Why States Focus on HT?

• Boosts long term growth of US economy

• Determines relative economic success of regions

• Source of Good Jobs

HT --Source of Growth

New Economy Index

HT Predicts Metro Growth

HT Wages 73% Higher

4 Limits to High Tech Strategies

• Produce small numbers of jobs

• Geographically concentrated

• Not immune to business cycles

• Public policy tangential to growth of industries?

Small # of Jobs 5.3% Avg

% HT employment

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%

Wyo

ming

Alaska

Tennes

see

Main

e

Wisc

onsin

Rhode

Islan

d

Illinois

New Mexic

oUta

h

New Jers

ey

Mas

sach

uset

ts

% HT employment

High Technology Employment

• U.S. Average is 5.3% (Miliken Institute)

• Only 18 states are above average • (Where are the states?)

2nd Quartile

1st Quartile

3rd Quartile

4th Quartile

Overall State New Economy Scores (1999)

High-Tech Jobs are Geographically Concentrated

Not Immune to Business Cycles

Key Factors of Economic Growth

• Science & technology

• World-class education and skills

• Organizational innovation

• Robust competition

• Open global trade

-- Progressive Policy Institute