Among US states, Massachusetts and Delaware stand out as the top performers in the ‘New Economy’. They, and the other leading Knowledge Economy states, boast several major universities and business-friendly corporation law, and invest heavily in R&D and innovation.

Knowledge Economy: Massachusetts and Delaware in the Lead among US States

A number of US states are showing strong growth and are representative of what the ITIF* calls the ‘New Economy’ – i.e. the knowledge and innovation economy – with Massachusetts,  Delaware, Washington, California and Maryland topping the list. For its 2012 State New Economy Index, the ITIF subjected the individual states to a thorough scrutiny based on 26 indicators in 5 categories – knowledge jobs, globalisation, economic dynamism, the digital economy, and innovation capacity – and used this data to analyse the ability of the various states to innovate and transform their economies. The report shows that the top five states have essentially based their growth strategy on innovation. They play host to a large number of universities, make considerable investment in R&D and scientific infrastructure, enjoy high levels of entrepreneurship, and are home to competitive clusters- all of which help to boost their competitive advantage in the traded sectors.  

R&D and entrepreneurship

The report explains that Massachusetts, the top-ranked state, “boasts a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard.” Second-place Delaware is perhaps the “most globalised of states,” with business-friendly corporation law that attracts both domestic and foreign companies. The state has moved up four places in the rankings since 2010, “driven by big improvements in R&D investment, and movement toward a green economy,” says the ITIF. Washington state, in third place, “scores high due not only to its strength in software aviation, but also because of its entrepreneurial hotbed of activity and heavy use of digital technologies in all its sectors.” Fourth-ranked California “thrives on innovation capacity, due in no small part to Silicon Valley and high-tech clusters in Southern California (…) still receives 50% of all US venture investments, and also scores extremely well across the board on R&D, patent registrations, and skilled workforce indicators.”  Maryland occupies fifth place and Virginia sixth, their high rankings being “primarily due to high concentrations of knowledge workers,” explains the ITIF.

The laggards

Some way off, in tenth place, we find New Jersey, which has for many years been host to a strong pharmaceuticals industry, and today also boasts a high-tech agglomeration around Princeton, home to another prestigious university. However, notes the ITIF, “the state has declined relative to its peers in a many categories,” most notably in entrepreneurial activity and the number of companies making a stock market debut, which explains its fall from fourth spot in the previous Index rankings. However, the states that are really lagging behind in the Knowledge Economy are typified by Mississippi, Louisiana and West Virginia – mostly either Southern or Plains states, which proved to be“too dependent on natural resources or on mass-production manufacturing” when the crisis hit,“relying on low costs rather than innovative capacity to gain competitive advantage,” points out the ITIF report. 


*Information Technology and Innovation Foundation