The Innovation Economy

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The Innovation Economy

• Presented at
• Innovation Matters! Building Competitive
  Advantage in States,
• 2004 / 2005 National Governors Association
  Workforce Development Policy Forum, Miami,
  January 2005

Graham S. Toft Economic Competitiveness
Group Thomas P. Miller and Associates and
GrowthEconomics gtoft_at_tpma-inc.com
graham_at_growtheconomics.com 317 894 5508 941 383
0316
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Outline

1. What Every American Wants to Know - - What is
   Happening to Us?
2. High Stakes for States - - Who is Getting a piece
   of the PIE?
3. PIE Jobs
4. Major Implications of PIE for States
5. Wrap UP Keep Your Eye on the PIE - - Try ILPO
   Magic!

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1. What Every American Wants to Know
What is happening to us and what to call it?
Digital Economy
High Tech Economy
Global Economy
Innovation Economy
Knowledge Economy
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PIE Pan-National Innovation Economy
1. What Every American Wants to Know (cont.)

• Knowledge is the ingredient that underlies the
  competitiveness of regions, nations, sectors or
  firms. It refers to the cumulative stock of
  information and skills concerned with connecting
  new ideas with commercial value, developing new
  products and, therefore, doing business in a new
  way. At its most fundamental level, the
  knowledge-base of an economy can be defined as
• The capacity and capability to create and
  innovate new ideas, thoughts, processes and
  products, and to translate these into economic
• value and wealth.
• Source World Competitiveness Index

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1. What Every American Wants to Know (cont.)

• Some attributes of PIE
• High productivity / low inflation (even danger of
  deflation)
• Rapid technological change
• High capital / labor ratios (capital deepening)
• Deregulation and market liberalization
• Global marketplace
• Sub-national regionalism
• Mobility of
• Capital
• Innovations / Ideas
• Business
• People

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1. What Every American Wants to Know (cont.)

• Some Attributes of PIE (cont.)

• Churning
• Business locate, then relocate (some off shore)
• Small Businesses start many fail.
• Businesses grow Businesses decline( even big
  businesses).
• Jobs increase jobs decrease (often at the same
  time).
• People come people go.
• Theoretical Underpinnings
• Joseph Schumpeter Gales of creative
  destruction. or, is it wails or sails
• Many state and local economic policies and
  fiscal strategies have not adapted to PIE

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1. What Every American Wants to Know (cont.)

• When did it start? When will it end?

Start During the last business cycle (1991
2001) but many of the discoveries leading to the
.com boom began a decade before. Discernable
improvement in U.S. productivity began in 1995,
next is global productivity improvement in the
BRICs (Brazil, Russia, India, China). End
Barring major geopolitical disruptions, global
health epidemics or natural disasters, this is a
long-lasting industrial revolution - - with
major consequences for organization of work, type
of work, location of work, global
interdependencies and shifting competitive
advantage of nations, states, localities.
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1. What Every American Wants to Know (cont.)

• Why is it different this time?

1. Knowledge explosion (doubling every 10 years)
2. Accelerated exchange of knowledge / ideas due to
   advanced telecommunications and transportation.
3. Transforming nature of many new discoveries - -
   transforming health / longevity, lifestyles /
   work-styles, urban form, value chains, global
   relationships . .
4. Speed Reduced cycle time from discovery to
   development to deployment.

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1. What Every American Wants to Know (cont.)

• Why is it different this time?

1. Rapid growth in global brain-power - - global
   talent-force!
2. Global consumerism that offers market niches at
   scale economies
3. Without high-level innovation/productivity, the
   U.S. would be crushed by its twin deficits and
   global recession could follow.

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1. What Every American Wants to Know (cont.)

• Note There are several economies running in
  parallel and overlapping with the Innovation
  Economy.

Entrepreneurial Economy Market (free trade) Economy Global Economy Asset Economy (wealth created through assets as contrasted with income) Geiser Economy (dramatically changing global demographics) Aspirations Economy (accelerated by democratization)
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1. What Every American Wants to Know (cont.)

• In summary, great uncertainties today call for
  discerning the engines of growth for the future
• This is the century of
• Asia (high savings, emerging middle class, high
  motivation)
• Transforming technologies - - Biotech
  Nanotechnology Advanced Materials, Energy and
  Food IT is now a given - - next jump is Internet
  2
• An Aging Workforce, even in the less developed
  world (the 50 60 year olds are your future!)
• The emerging Creative Sector

Agriculture / Mining / Construction
Manufacturing
The Creative Sector
Services
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1. What Every American Wants to Know (cont.)

• This is the century of (cont.)
• Trade / Global Markets
• The Entrepreneur
• States and localities without an appropriate
  response to each of these will hurt many are not
  well prepared.

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2. Big Stakes for States - - Who is Getting a
Piece of the PIE?

• Top 10 most competitive states 2004 - - The
  Economic Competitiveness Groups State
  Competitiveness index (2004). (Measured by five
  drivers, 88 metrics)
• WA CA
• UT AK
• DE IA
• MA CO
• VA WY
• Whats common strong technology / innovation
  base or resource base most have above average
  human capital base.

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2. Big Stakes for States - - Who is Getting a
Piece of the PIE? (cont.)

• Growth States 2004 - - Dynamism Sub-driver from
  the Economic Competitiveness Groups State
  Competitiveness Index (positive change in gross
  state product, business growth, head quartered
  companies, incubators, capital formation,
  exports, income per capita, bank deposits,
  foreign investment)
• HI MO
• NV FL
• AK OK
• NM VA
• WI PA
• Whats common Many mid-size states on the move.
  Some showing multi-year turnaround.

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3. PIE Jobs

• Lots of mid-level jobs - - the new working
  class comprised of mid-level technicians,
  professionals, paraprofessionals, managers /
  supervisors.
• Multi-skilled
• Basic skills (literacy , numeracy, basic
  computer)
• Technical skills (specific to the occupation).
• Social skills (communication, team work,
  networking)
• Investigative and problem-solving skills

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3. PIE Jobs (cont.)

• Life Skills (time and financial management,
  self-mastery)
• Strategic skills (optimism leadership,
  inquisitive about the future self-directed, self
  initiating agility / flexibility)
• Entrepreneurial skills
• Multicultural skills.
• More part-college, industry-credentialed jobs
• More self-employment
• More contingent, contract employment

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4. Major Implications of PIE for States

• The Innovation Economy is very fluid,
  unpredictable (Schumpeters gales of creative
  destruction). Best suited to localities,
  states, nations that provide solid economic
  foundations for very agile firms and
  talent-acquiring workers. Not suited to
  heavy-handed public sector direction - - operates
  too slowly and lacks market signals. A danger in
  getting it wrong - - a real opportunity to get it
  right!

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4.1 The Really Big Picture
Paradigm Shift Create wealth and good jobs will
happen.

• You and fellow state leaders are in it for the
  long haul. Economic transforms transcend
  political / electoral lead times,
• Even in tough times you will have pockets of
  growth - - monitor and understand where wealth is
  being created.
• Dont walk away from your mainstay industries - -
  they are undergoing innovative transformations
  also.

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• Go with the flow Ride the horse, dont try to
  kill it. You can shepherd but not direct. Avoid
  picking winners.
• Dont tax productivity-enhancing investment (e.g.
  business equipment taxation) dont unduly tax
  human capital (workers comp and unemployment
  insc.)
• Do tax real property (especially land value).
  Growing real estate values are part of the Asset
  Economy.
• Keep the public very well-informed and ahead of
  the game.

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• Innovation development calls for a bunch of
  non-economic conditions as well as economic e.g.
  quality of life for entrepreneurs, schools that
  value math and science highly, career technical
  education that tightly links school and
  workplace. Hot jobs grow in cool places.

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• Organize state government around what matters to
  the innovation economy Adult learning
  (technical and further education)
  entrepreneurial education small business
  development and growth from within business
  and industry liaison (engaged S L government).

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• Remember the state budget is usually more than
  10 of state GDP. How these monies are used,
  influences state economic growth.
• China, get over it!

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4.2 Implications for State Economic Development

• Paradigm Shift Balance inside-out growth with
  outside-in.

• Avoid cluster-mania - - works sometimes, some
  places, some industries and not others. Some
  economic developers and state leaders have never
  seen a cluster they didnt like! Become skilled
  in nurturing industry alliances and see if they
  grow (e.g. OR)

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• Cultivate an entrepreneurial climate (in schools,
  in business organizations, in civic institutions
  social entrepreneurship). Know your angel
  network of potential investors. If not there,
  nurture it. Develop an entrepreneur attraction
  program to your state some are foot loose!
• Have a very flexible pot of money for your
  business assistance / incentives. Traditional
  incentive packages may not work.

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• Capitalize on your knowledge industries, each
  state has them! - - dont write off your
  institutions of higher learning
• Advanced Technology Centers co-located at
  community colleges / technical institutes.
• Business attraction efforts in college towns that
  link graduate student output and research in
  specific university departments with business
  needs.
• University research parks and technology
  incubators.
• Economic research on the states changing economy
  (lots to learn and to track).

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• Find ways by which small / mid-size enterprises
  can obtain strategic intelligence at modest cost.
  (economic gardening approach).
• Find ways to accelerate wide-spread broadband
  deployment.
• Aggressively advance trade and foreign direct
  investment.

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4.3 Implications for State Talent
Development
Pdgm Shift workforce to talent-force

• Experiential learning is back. Dont walk away
  from your career technical education system,
  transform it!
• No child left inflexible. End senior high school
  as we know it.
• Off-shoring, embrace it! Build really creative
  economic adjustment strategies (for individuals
  and firms) in cooperation with economic
  development agencies.

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4.3 Implications for State Talent
Development (cont.)
Paradigm Shift from workforce to
talent-force

• Silos are for losers - - reinvent the human
  capital bureaucracy (state universities /
  colleges, community colleges, WIA, Adult
  education / ABE, Career Technical Education) for
  agility / flexibility.
• Learning is for life, seriously!

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Wrap Up Keep Your Eye on the PIE- - ILPO Magic!
Four ingredients for successful state economic
and workforce development Innovation -
Learning - Place-making - Optimism

• Am I fostering and supporting a creative,
  innovative climate for large and small businesses
  alike, especially for new ventures?
• Am I fostering life-long learning, combining
  classroom instruction with the experiential?
• Am I creating cool places for residents of all
  socioeconomic groups?
• Do I believe optimism can be learned and am I
  attempting to change aspirations and expectations?

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Discussion
Economic Competitiveness Group Thomas P. Miller
and Associates www.tpma-inc.com 317 894 5508