The pressure on the 50 states to attract jobs, money and a talented workforce has been building for decades. It’s now singularly intense. Huge new overseas competitors like China and India are competing for the same pools of cash and people as California, Indiana and the rest. Moreover, some international players like Singapore, Finland and Ireland are demonstrating remarkable prowess at strategically planning for economic growth. Meanwhile, the speed with which innovation spreads makes no competitive lead secure.
As a result, today states must accelerate their efforts or risk becoming economic backwaters. Specifically, they must become places where new ideas are discovered, invented or given their first big break.
The good news is that new ideas are virtually limitless. Ideas don’t need to be attracted from other places; each state can discover its own. For a growing number of states, this quest has taken the form of investing state dollars in research and development (R&D). R&D is the key to an innovation treasure chest that contains new ideas, new products, new technologies and new ways of doing business. In advanced economies, it is the tried and true route to prosperity.
When it comes to funding R&D, states are the newest players in the game, and the smallest. But while the actual money available from states is dwarfed by that offered by industry and the federal government, states have the capacity to influence the future in a dramatic fashion. Industry tends to fund narrowly, and federal investments have plummeted as a share of total R&D. Of particular significance to governors, their staffs and other stakeholders: states’ direct involvement in R&D can spur innovations that serve specific economic and social needs within their own borders.
The biggest lesson learned is straightforward: How much a state spends on R&D is secondary. How it is spent is absolutely critical. Key to this truth is the notion that R&D efforts must be considered investments, not expenditures. Just like any investors, states must begin by carving out areas where returns are tangible and commensurate with risks taken. Not only do the benefits include building talent and high-paying jobs in the state, but they also can be seen in solutions to pressing social problems, improved business efficiency and productivity, and success in global markets.
Successful states get to these results with steps that are uniquely in the hands of governors, legislators and other policy makers. These include:
• Develop a statewide research and innovation strategy that not only puts in place all the components for innovation, but aligns them in ways that provide advantages to in-state companies;
• Make investments to gain talent, build topnotch research enterprises and compete for federal dollars in those focused areas where the state can be world-class;
• Encourage, even mandate, collaboration among universities, the private sector and other institutions;
• Put world-class professionals, not political pals, in key positions;
• Create an organization and consistent funding source that facilitates a continuity in R&D partnering and spending; and
• Hold the recipients of public investments accountable for delivering on promised benefits.
In practical terms, this means that there are no magical shortcuts when it comes to investing in innovation. But the six guidelines and accompanying case studies in the following pages will help governors and a range of stakeholders (CEOs, legislators, advisors, fund managers) put the right structures, processes and people in place.