Lee Joe
Joe Lee
Research Analyst, Regional Economics Research
Joe Lee is a research analyst with the Milken Institute on the regional economics team.  He specializes in labor economics with a focus in human capital and economic development. 
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Science and Technology: Who Has What It Takes?

By: Joe Lee
October 24, 2016

In the U.S., the creation of a vibrant high-tech sector is often touted as a recipe for growing employment and high wages. The states that lead the nation in tech are well known — California, Massachusetts and Colorado — and they are likely to remain in front. But as the sector grows, new clusters are emerging. The real question is, who is at risk of being left behind, relegated to irrelevance, and who is becoming a leader? 

To understand this, we benchmarked the State Technology and Science Index (STSI) (link to 2016 STSI) with a cluster analysis comparing the 2014 and 2016 data. The results highlight which states have made significant changes in their position. Of particular interest is the divergence of the states representing the developing science and technology hubs, where we see a schism in 2016. It is important to note that significant changes are defined as movements between clusters and are not associated solely with ranks or changes in rank in the STSI. This is clearly demonstrated by New York (-9), Wyoming (+10) Vermont (-8) and Oregon (+4). While these states have experienced large changes in rank, they remain in the same cluster while Minnesota (+5), Texas (+1), Georgia (-1) and Arizona (-4), all moved to a new cluster in 2016, we see that movement between clusters is determined by the underlying indicators rather than the ranks of the STSI. 

Minnesota moves into the same group as California and Massachusetts. This cluster represents the strongest and most vibrant environment for the high-tech sector. Texas, Arizona and Georgia move to a new cluster in 2016, joining a set of states that are clearly lagging in the 2016 scores and ranks. In 2014, one cluster grouped all the states that are the rising hubs of the high-tech world, but in 2016 these states are split apart. There is a defined difference between these two clusters of lagging states that can be observed by looking at the composites ranks and scores. Texas and Georgia, which have greater concentrations of the high-tech sector than New York or Oregon, lag the latter two for research and development (R&D) and human capital. Arizona does have a substantive level of research and development activity but lacks a robust way to support human capital development. What clearly divides the clusters is a platform for innovation. With these two clusters both boasting a developed risk capital and entrepreneurial infrastructure, the ability to utilize it is what sets these groups apart. 

For Arizona, Georgia, and Texas to become innovation hubs there needs to be a renewed investment in R&D and education. In the long run, without a platform for creating the next big thing, these states will fail to capitalize on changes and will remain dependent on external innovations. States that have a higher concentration of large businesses willing to take risks can invest in developing cutting-edge technology. For states that do not have this concentration, higher education is an important platform to make up the difference. Funding higher education will lead to a workforce that has a greater capacity to increase innovation. R&D is by definition the creation of the cutting edge. The lack of R&D means that the contribution to innovation is coming from other sources, forcing a reaction to external forces. R&D allows for businesses to lead in their industries and change the way they conduct operations.

These pillars in the high-tech sector can be influenced by public policy. Remaining relevant within the confines of the high-tech sector becomes harder and harder as the stratification of groups grows. The need to foster the creation of ideas and to have avenues for commercialization is essential to grow a high-tech sector. The greatest strength of this sector is the speed at which change occurs. States that do not capitalize on this will always lag others. In order to create a focus, public policy needs to support the development and implementation of new ideas.


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