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Ross C. DeVol
Chief Research Officer
Bioscience and Business and California and Energy and Global Economy and Health and Human Capital and Innovation and Labor and Medical Research and Regional Economics and Technology and U.S. Economy
Ross DeVol is the Chief Research Officer at the Milken Institute. He oversees research on international, national and comparative regional growth performance; access to capital and its role in economic growth and job creation; and health-related topics.
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California isn't Greece. Why? We still innovate
By: Ross C. DeVol
January 27, 2011
   
   

The national media has decided that the sheen is off the Golden State. Of course, California does give them plenty of ammunition (including a dysfunctional legislature, underfunded public pensions, a swelling prison population and state budget gaps measured in the billions). We deserve a lot of the criticism, but still, it's startling when a prominent CEO like JPMorgan Chase's Jamie Dimon compares California to Greece.

As the Milken Institute's State Technology and Science Index (STSI) demonstrates, that comparison doesn't hold water. For one thing, California still knows how to innovate. The state held onto its previous 4th-place-in-the-nation STSI ranking (though its score has dropped significantly since the first index was published back in 2002, when California ranked 3rd).

The STSI ranks each state's science and technology capabilities -- and more important, its ability to convert those capabilities into real companies and high-paying jobs. Seventy-nine indicators form five major composite indexes: research and development inputs, risk capital and entrepreneurial infrastructure, human capital capacity, technology and science workforce, and technology concentration and dynamism.

This year California performed well in risk capital and entrepreneurial infrastructure (ranking 2nd in the nation), R&D inputs (4th), and technology concentration and dynamism (5th). But in human capital capacity, it ranked far below the top three states, coming in at 13th. For all its high-tech prowess, California even fell in the technology and science workforce measure (slipping from 6th in 2008 to 7th this year), due largely to the continued outsourcing of computer, semiconductor and communications equipment manufacturing abroad and to other states. Most troubling for California is the falloff in recent graduates in the sciences, engineering and biomedical fields.

Despite these foreboding trends, there's no doubt that California remains a national leader in technology-derived economic development. Based on our research, California has 5 of the top 10 technology clusters in the nation, and Silicon Valley still reigns supreme as the pre-eminent high-tech cluster in the world.

It's important to understand that the STSI adjusts its indicators relative to the size of a state's economy. We'd be fooling ourselves to think that size doesn't matter when examining a state's innovation capacity. In fact, for a state of California's size to score as highly as it does is remarkable (consider that if you transposed California onto the East Coast, it would stretch from New Jersey all the way into Georgia).

California has considerable strength in the newly emerging fields of nanotechnology, clean tech and green tech, and leads the way in public policy to support these areas. Former Gov. Schwarzenegger signed legislation in March 2010 that provides a sales tax exemption for equipment used by manufacturers in the clean-tech sector. California has been without a formal state economic development office since 2003, when it was a casualty of the last budget crisis, but Schwarzenegger corrected this by signing an executive order in April 2010 authorizing the Governor's Office of Economic Development. Gov. Brown seems committed to supporting California's leadership in these newly emerging sectors.

California has the critical mass to stay at the vanguard of technology entrepreneurship. But we've got to recognize that spending on K-12 and higher education is an investment, not a cost. We've also got to streamline regulatory red tape so that the next Google or Facebook will keep more of its employment base in California.

Despite all these caveats and challenges, the media accounts of California's demise are greatly exaggerated. We've still got the golden touch when it comes to creating the next dominant tech firm. At least for now, nobody does it better.