Rob Atkinson, Executive Director of the
Information Technology and Innovation Foundation, Washington, D.C.
Structure business incentives to yield broader benefit, lasting value A Civic CaucusFocus on CompetitivenessInterview October
Davies, Paul Gilje (coordinator), Dan Lortiz (chair), Paul Ostrow,
Dana Schroeder. By phone: Rob Atkinson, Audrey Clay, Janis Clay.
economy has two big core strengths, says Rob Atkinson: lots of
knowledge workers, managerial and technical jobs, and scientists and
engineers; and lots of research and development (R&D). But, he says,
Minnesota needs to work on two big areas:making its linkages to
foreign markets stronger and providing an environment that fosters
entrepreneurship and new firm formation.
believes strongly that economic incentives for businesses to grow or
expand in a state should not involve just handing out cash to a
company that it would put onto the bottom line. He's especially
skeptical of giving money to retail. He discusses the incentives Texas
offered when Texas Instruments was planning to build a new fabrication
facility. The state said it would supply necessary highway
infrastructure and invested in improving the electrical engineering
department at the University of Texas-Austin. He calls this Texas
model a creative way to give an incentive that helps the company, but
also creates a tangible asset that other companies can use.
comments on the failure of inner-city schools and says Minnesota could
be a leader on education reform by moving inner-city schools much more
to project-based learning. And, he says, the U.S. doesn't do a good
job of aligning technical education with the needs of employers. He
also believes we need to hold colleges more accountable for results.
Atkinson says the U.S.
has no real strategy to compete in global markets and advocates
competition among states to create better incentives for foreign
companies to come here.
2012 State New Economy Index, a survey looking at how states
are measuring up to the new economy, the Information Technology and
Innovation Foundation (ITIF) ranked Minnesota 13th overall
among the 50 states. The
ITIF does this survey every two years, looking at the economic
structure of the states, specifically, knowledge jobs, globalization,
economic dynamism, the digital economy and innovation capacity.
According to ITIF Executive Director Rob Atkinson,
Minnesota's overall rank has been fairly constant since 1999.
2011, ITIF did a report called
The Atlantic Century II, benchmarking the
European Union and the U.S. on innovation and competitiveness. The
report also compared states to countries. In that comparison, Atkinson
said, Minnesota would have ranked as the second most innovation-based
country in the world, behind Finland.
ITIF's 2012 new economy index showed both strengths and weaknesses for
Minnesota in its rankings on individual measures:
health information technology;
4th: high-wage traded services (i.e.,
service industries that tend to be traded across borders, such as
insurance, consulting and engineering);
6th: industry investment in research and
development (R&D); the digital economy; knowledge jobs;
8th: information technology;
10th: managerial, professional and
technical jobs; workforce education;
17th: migration of U.S. knowledge workers;
manufacturing value added;
18th: fast-growing firms;
23rd: broadband telecommunications;
24th: movement toward a new economy;
immigration of knowledge workers; job churning;
26th: initial public offerings (IPOs);
28th: export focus of manufacturing;
29th: foreign direct investment; economic
38th: non-industry investment in R&D;
44th: entrepreneurial activity.
has two big core strengths:
Lots of knowledge workers,
managerial and technical jobs, and scientists and engineers; and,
Lots of R&D.
"It's got the core capabilities for doing well," Atkinson said.
"That's more and more important. It's hard to compete on
commodity-based production, whether in software or in manufacturing.
More knowledge-based jobs, more skill-based jobs are very important
for the future."
needs to work on two big areas:
Linkages to foreign markets;
Entrepreneurship and new
Atkinson pointed out that
ranks 28th on the export focus of manufacturing and 29th on foreign
direct investment (FDI). It is the farthest away of any state from any
country, except Canada. He said there are FDI opportunities for
companies wanting to get into the U.S. innovation economy, whether via
R&D facilities or corporate regional facilities or other means.
said generally the
lags behind in entrepreneurial activity. "The
is more of a corporate economy," he said, "as opposed to
California, where there's a lot of movement, a lot of shifting, people
taking big risks." Minnesota ranks 26th in IPOs, 18th in fast-growing
firms and 44th in entrepreneurial activity.
Also, he said,
ranks 38th in nonindustrial investment in R&D, while New Mexico ranks
first, because of the big presence there of federal government R&D.
Two things for
to think about are how to make its entrepreneurial ecosystem more
dynamic and how to make its foreign linkages stronger.
Atkinson said he likes
Harvard Professor Michael Porter's work on the importance of
foundational factors, investment awareness and clusters of companies
in similar industries to the success of regional and state economies.
But, Atkinson said, Porter tends to give short shrift to other kinds
of things you need to do to be successful as a state economy.
country or state must get all the layers of a "growth pyramid" right
to be successful. The
ITIF issued a new report in September,
Localization Barriers to Trade, that lays out an
alternative to protectionism as the way to grow a national or state
economy. Atkinson called it a "growth pyramid," which has several
said Porter's concepts only go up to the bottom level of the pyramid,
which includes things like rule of law, competitive markets, effective
government, protecting intellectual property. "Most states get this
level right automatically," Atkinson said.
said the next level up in the pyramid includes effective trade or
regulatory policies and a competitive tax policy. He believes states
should raise taxes on non-mobile activities to pay for public goods.
People tend to move less than companies, so sales taxes are better
than corporate taxes, in general.
next level up includes key factor inputs: a robust physical and
digital infrastructure, good universities, a skilled workforce, and
good health care. "Everybody knows they have to do that stuff right,"
Atkinson said. "Those things are kind of entry level to the game.
States must go up another level to win."
top level includes innovation and competition policies. He gave the
example of Iowa's
innovation voucher program, which provides small vouchers, ranging
from $10,000 to $25,000, to small, technology-based innovative
companies. They can use the vouchers at any Iowa
university or college to get technical assistance and applied R&D that
their small companies might need. "It forces colleges and universities
to compete, to be more open to business, to be more flexible, to be
more responsive, and to explain and market what they can do for these
companies," Atkinson said. "Big companies don't need that type of
and other states should appeal to the fastest-growing companies in the
He said the Minnesota Department of Labor has data every quarter that
can identify the fastest growing companies in the state. He said the
department could send out a message like the following to the five
percent of Minnesota companies that are the fastest growing:
notice that you're growing fast.
values fast-growing companies. The state has a suite of services and
help we can give you. If you're interested in finding out more about
that, whether it's accessing foreign markets or financing programs or
getting workers to fit your needs, here's a website or a number to
Atkinson also said the state could work with individual firms in
particular areas, such as biotech. It could provide a forum for
companies to learn from each other and to get in front of venture
capitalists, lawyers, patent people and accountants and to offer joint
support services. "Those are things that require everybody to work
together," he said.
Economic incentives should not involve just handing out cash to a
company that it would put onto the bottom line.
An interviewer commented that the 2013 Legislature, in a specific,
targeted effort, gave large amounts of money to the Mayo Clinic, the
Mall of America, 3M, Baxter International and Emerson Process
Management. He asked when and how the state should give subsidies and
did this year makes sense for the new economy.
immediately skeptical of anybody giving money to retail," Atkinson
did when Texas Instruments, headquartered in Dallas, was planning to
build a new fabrication facility. The company got lots of offers from
other states and countries.
said it would supply necessary highway infrastructure and invested
$200 million at the University of Texas-Austin to ramp up and improve
the electrical engineering department, particularly around
semiconductor engineering research. Texas Instruments needed a steady
flow of semiconductor engineers, as well as semiconductor research, so
the company built in
"That was a creative way to give an incentive, which was not just
handing out cash to the company that they would put onto the bottom
line," Atkinson said. "It was a way to build up more of a shared
resource that helped everybody, but also helped the company. I tend to
be dubious in general of giving cash grants to companies. It's better
to support these shared knowledge infrastructure efforts. If the
company ever leaves, you have a tangible asset that other companies
Strong growth in innovation-based, high-wage jobs leads to higher
wages in service jobs.
Atkinson noted that a recent study found that the stronger your
innovation and technology engine is, the better you do at pulling up
people who are not directly related to that.
The U.S. doesn't do a very good job of aligning technical education
with the needs of employers.
Atkinson mentioned a chartered high school on the west side of
Chicago, Austin Polytechnic, whose students, nearly all low-income
students of color, work as interns or apprentices at small and midsize
local manufacturers. They learn machinist skills, as well as skills
they can use to go to college. "It's a very useful, interesting
program," he said.
Minnesota could be a
leader on education reform by moving inner-city schools much more to
"This problem is a national one," Atkinson said. "What we're doing for
inner-city schools is pretty much an abysmal failure. We're not going
to get there by ramping up standards. I'm more on the side of letting
kids follow their interests." He suggested picking five inner-city
schools and trying project-based learning in those schools for five
The United States lost one-third of its manufacturing jobs in the last
decade, the second worst rate of loss of any country in history.
Atkinson said manufacturing historically has been a source of better,
higher wage jobs for people with lower levels of education. Losing
those manufacturing jobs has greatly reduced that opportunity.
have an opportunity to turn that around," he said. "We could create
more manufacturing jobs in the U.S. There are some good trends in our
Some young people who will be entering the workforce to replace
retiring workers in the coming years are not well trained. An
interviewer commented that
Minnesota is projecting an absolute decline in its working-age
population, the 25-to-64 age group. There will be more people retiring
than coming into the workforce. He asked if that is a common problem
in other states. Atkinson responded that because of immigration, the
U.S. as a whole won't see an absolute decline in its working-age
Another interviewer asked what we should do about the huge cohort of
young people who didn't do well in school already in the pipeline. He
asked if adult basic education is a good strategy.
Atkinson replied that
is not unique in that situation. A thorough study of the adult
education system in Massachusetts a few years ago showed a complete
mismatch of when people could take various courses and when they were
offered. Also, what the schools were offering was not really related
to what businesses wanted. "Those are institutional changes one could
make," he said.
We need to hold colleges more accountable for results.
Atkinson noted that the Educational Testing Service surveyed students
in the last semester of their senior year in college and found that
only 39 percent were fully literate and only 31 percent were fully
numerate. Another study done by professors at New
University showed that 50 percent of an incoming class had learned
nothing by the end of their sophomore year of college; there was no
improvement whatsoever. "We don't hold colleges accountable for these
results," Atkinson said. "A lot of higher education is just going
through the process of going to class and getting a grade."
Using massively open online classes (MOOCs) could save Minnesota
universities money that could be used to improve science R &D at the
University of Minnesota.
"We need world-class research universities," Atkinson said. States
can't just focus on technological innovation, he said, but must also
look at institutional innovation. "Look at how your institutions are
working and adopt new models," he said. "That's what companies and the
best countries in the world are doing."
The U.S. has no real strategy to compete in global markets.
Atkinson said the U.S. Department of Commerce should study three or
four industries a year to see what government is doing that create
barriers for those industries and what it could do to open
opportunities. He said medical devices would be a good place to start,
and the U.S. have real leadership in that industry. "But it's slipping
away from us as a country to the Europeans and to Korea," he said. "We
have no real strategy for that. We should help Congress understand
what government must do."
Economic competition among states is good motivation for improvement.
notion is a good one," Atkinson said. "It keeps you on your toes."
But funneling money to a particular business to keep it in the state
is a zero-sum gamewhen the company would otherwise have opened a new plant in another
state. "I like the
Texas model [described above]," he said. "The result tends to be a
Competition among states to create better incentives for foreign
companies to come here is clearly in our interest.
"We don't do a very good job of that compared to other countries,"
Atkinson said. He proposed using knowledge investment zones. Foreign
companies could come here and get a tax break to locate in these zones
near universities. "But it's very hard for states to coordinate enough
to reduce the bad competition and do more of the good competition," he
said the U.S.
needs better conditions for both domestic and foreign investment. He
pointed to our corporate tax rate, which is the highest in world, and
to the very low ranking of the U.S.,
compared to other countries, in putting money into research at
Tax incentives are an important tool, but should be related to the
company giving something back to the state.
Atkinson said very few companies create jobs if they're getting a
small tax incentive for that purpose. They'll add jobs if they have a
market for their services or goods. But, he said, companies do make
decisions on worker training, R&D and investing in machinery and
equipment on the basis of tax policy and return on investment.
have the best tax incentives for companies to invest in training?"
Atkinson asked. "The best way to train existing workers is through
companies, but they have cut their spending on this in half compared
to a decade ago. That's because workers leave their jobs so quickly
and companies are so short term in their investment strategy. A
training tax incentive could kill two birds with one stone: it could
improve the tax climate for Minnesota, but also get companies to be
investing in the foundational future."
said state R&D tax credits are quite effective at getting companies to
invest more in R&D and as incentives for companies to move R&D to the
Don't rest on your laurels.
Atkinson concluded by saying that the biggest mistake companies make
is to rest on their laurels, thinking if they were good a year ago or
10 years ago, they're going to be good tomorrow. "The dynamism in the
economy now to overturn leaders is so intense, so quick," he said.
"That applies to states, as well.
Minnesota has a long, long legacy of doing well. But don't take
anything for granted anymore. Only the paranoid survive."
The Civic Caucus
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David Broden, Janis Clay, Bill Frenzel, Paul Gilje,
Jan Hively, Dan Loritz (Chair), Marina Lyon, Joe Mansky,
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