The Knowledge Economy Does Not Offset a Bad Economy
It seems as if, whenever I cite economic trends in Rhode Island, as I’ve been doing all this week, commenter Russ chimes in regarding studies of the “new economy” or “knowledge economy” by the Kauffman Foundation, as he did here:
According to the 2010 Kauffman State New Economy Index Rhode Island ranked 8th nationally in the “Migration of U.S. Knowledge Workers.” RI ranks well in that category year after year, despite how much some here seem to wish it were not so.
First of all, importing “knowledge workers” is hardly a trump card if the overall migration trends are still outward (which they are) and the folks leaving still have higher incomes than the folks coming (which they do). Second of all, as I’ve pointed out before “knowledge economy,” in this context is in some regards a stand-in for “taxpayer subsidized,” with revenue coming from the government and tax-exempt organizations and going to government and tax-exempt organizations.
Look to the Kauffman study that Russ mentions (PDF. Rhode Island may rank well in “migration of U.S. knowledge workers,” but it’s #31 in “immigration of knowledge workers.” It’s 47 in “manufacturing value-added,” 30 in “high-wage trade services,” 48 in “export focus of manufacturing and services,” 48 in “fastest-growing firms.” We rank 16th overall.
That “fastest-growing firms” number is important. Rhode Island ranks 33rd in “industry investment in R&D,” but it ranks 5th in “non-industry investment in R&D.” That is, investment in Rhode Island means “federal, state, university, and nonprofit investments in R&D.” We’re not, in other words, living in a hub of economic activity in the “new economy;” we’re a small state with data skewed by a military base, a bunch of colleges, and a burdensome government structure. Governments must draw the revenue that they invest from somewhere else (the private economy), and they spend it less efficiently.
Looking at overall “new economy” ranks, Rhode Island’s 16th place is above the midpoint, to be sure, but Massachusetts is #1 and Connecticut is #5. In other words, Rhode Island represents a relatively dark spot in a nation-leading area, and we rank as highly as we do mainly on the strength of government taxing and spending. As the report states, “non-industry investment in R&D” represents only a third of “industry investment in R&D.” The better strategy, therefore, would be to shift the local emphasis from an economy that takes money from some, under threat of imprisonment, to an economy in which people exchange dollars because they see opportunity in doing so.