By Tom Still
MADISON – An often-cited but misleading statistic about Wisconsin’s economy is that it ranks 47th among the 50 states in “new company formation.” It’s a dismal number that pops up in conversation whenever someone wishes to make a point, pro or con, about the need for more home-grown entrepreneurs.
While that statistic is correct, it’s not entirely accurate. Wisconsin fares better in “net company formation,” which measures how many new companies are created versus how many old ones are fading away. Wisconsin ranks closer to the middle of the national pack by that definition. Compared to its neighbors, Wisconsin is ahead of Michigan, Indiana and Iowa, but behind Illinois and Minnesota.
In short, Wisconsin is producing more new companies than it is losing, but its performance is still far from ideal. Still, that’s only one snapshot of a much bigger picture.
A far better way to judge a state’s entrepreneurial economy is to examine a mix of indicators – which is precisely what the Information Technology & Innovation Foundation did in its latest report, “The 2007 New Economy Index: Benchmarking Economic Transformation in the States.”
The report, funded by the Ewing Marion Kauffman Foundation, showed Wisconsin leaping seven places up the 50-state rankings between 2002 and 2007, a feat exceeded by only four other states – Alaska, Nebraska, Rhode Island and North Dakota.
Wisconsin ranked 30th among the 50 states in 2007, compared to 37th in 2002. Top half performances for Wisconsin among the foundation’s 26 categories were:
Manufacturing value-added (Wisconsin ranked 12th): This measures the percentage of a state’s manufacturing workforce employed in sectors in which the “value-added” per production hour worked is above the sector’s national average. This reflects companies that invest in technology, new machines and worker training. “These firms, all else being equal, are better equipped to meet competitive challenges, both at home and abroad,” the report said.
High-wage traded services (22nd): This gauges the share of employment in “traded service sectors” in which the average wage is above the national median. Traded services are companies that produce goods and services that are not primarily consumed locally – insurance, financial services, publishing and transportation. These rank among the better-paying service sector jobs.
Package exports (12th): Quite simply, this is the number of UPS packages exported per worker. Why is this important? “(It is) one indicator that measures the extent to which a state’s firms have expanded global linkages,” the report said.
“Gazelle jobs” (23rd): This measures jobs in fast-growing companies, or “gazelles,” as a share of total employment. The prevalence of “gazelles” – companies with annual sales that have grown 20 percent or more for four straight years – is a sign of a dynamic and adaptive state economy.
Entrepreneurial activity (18th): This is the adjusted number of entrepreneurs starting new businesses. “Although only one in 20 entrepreneurial firms is high-growth in terms of adding jobs, firms that survive the first few years create jobs and also often innovative goods, services and processes,” the report said. Researchers Robert Atkinson and Daniel Correa cited the Wisconsin Angel Network among examples of cultivating entrepreneurship.
Inventor patents (23rd): This measures the number of independent inventor patents per 1,000 people. Scores in this indicator were correlated with the number of scientists and engineers in each state’s workforce.
Online population (15th): This is Internet users as a share of the population. “The number of people online is probably the most basic indicator of a state’s progress toward a digital economy,” the report said. Wisconsin stood at 64.1 percent – 5 points ahead of the U.S. average.
Technology in schools (15th): This is a weighted measure of three factors measuring computer and Internet use in schools. “There is increasing evidence that when employed correctly, computers and the Internet boost educational outcomes,” the report said. Wisconsin scored 5.54 – well ahead of the 5.00 U.S. average.
Online agriculture (20th): This measures the percentage of farmers with Internet access and using computers for business. “The degree to which farmers take advantage of the New Economy will increasingly determine their success,” researchers noted.
Industry investment in R&D (20th): This reflects industry-performed research and development as a percentage of total worker earnings. Wisconsin industry invested 2.58 percent of worker earnings in R&D, which was less than the U.S. average. But Wisconsin has rebounded in that category after relatively flat periods of investment.
Let’s face it: 30th out of 50 is not a stellar performance. But jumping up seven places is a sign that Wisconsin is making progress toward becoming a “New Economy” state. A foundation is being laid – let’s build on it.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.