The state of Washington came in at number three among all states in the latest “State New Economy Index”, published by the Information Technology and Innovation Foundation, www.itif.org.

Only Massachusetts and Delaware came in above Washington in ITIF’s report that measures a state’s economic structure.  There are 26 “indicators” across five categories that are used to devise the index.  The five categories used are: knowledge jobs, globalization, economic dynamism, digital economy and innovation capacity.  You can find the details of the indicators in the report itself:

http://www2.itif.org/2012-state-new-economy-index.pdf.

Essentially the report is saying that Washington is the third best-placed state in the “new economy” that depends more on innovation to grow than anything else.  What the index is not is a measure of the effectiveness of state government, or a ranking on how well a state is run or anything else that is done by government.  Yet you will see policymakers  crowing about their rankings when their governments have nothing to do with it.

In fact, state government is often the biggest obstacle to improving a state’s rankings.  For Washington, our innovation capacity is hampered by a mediocre K-12 system that does not prepare enough students for college or for pursuit of STEM degrees.  Washington also sets itself back by underfunding higher education and by devoting almost nothing to tech-based economic development.  Actions by our state do little to affect Washington’s place in the new economy; it is determined almost entirely by what happens in the private sector.

Washington continues to benefit from a growing tech ecosystem anchored by Microsoft and Amazon, along with other major companies like Boeing and AT&T.  While most don’t think of the latter two as “tech” companies, the reality is that aerospace and telecommunications are huge users of IT and software and are very innovative.  Washington’s life sciences/biotech industry is not enormous but holds it own.  Washington’s agriculture sector is enjoying high commodity prices and has adopted technology in a major way–more than any other ag sector in the U.S.

An important lesson found in the report is that competitiveness is not based just on cost of doing business.  Many states, particularly in the South, have relied on a low cost strategy to attract business and economic development.  This works to a point.  States like Washington, which are high cost states, have to use different strategies.  Value added manufacturing (think Boeing among others) and software/IT require high skilled workers who command higher wages and have choices in their vocation.  “Place making” is an important aspect of economic development for states like Washington.  Robust broadband networks, good roads and public transportation and good schools are critical keys to economic success.

Washington also has a unique but punitive tax system, espcially for small but growing companies and manufacturers.  It makes sense to provide tax incentives that can help reduce the cost of R&D or manufacturing.  The state’s tech industries need to see leadership from Olympia so that the state’s technology industries can have some certainty in taxes.  Unfortunately, what we hear most often from Olympia is “we need more money”.  While there is certainly a case to be made to spend more on K-12 and higher education, state lawmakers still have a spending problem more than they have a revenue problem.

Under any circumstance, Washington is well placed to succeed now and in the future.  The “State New Economy Index” tells us where we are doing well.  It is the areas where we are not doing so well that our policymakers need to pay attention to.  The report is worth reading.  The Executive Summary can be found here:

http://www2.itif.org/2012-state-new-economy-index-exec-sum.pdf