By Tom Still

MADISON – It shouldn’t come as a surprise that Wisconsin’s high-tech sector suffered through a bad year in 2002. The same was true across the United States as the shock waves of the “” crash, investor retrenchment and the terrorist attacks of Sept. 11, 2001, battered the economy. The tech indicators for 2003 cannot help but improve.

At the same time, the latest economic tracking report by Competitive Wisconsin Inc. drives home a message that cannot be repeated often enough: For Wisconsin to compete in a global economy, it must have more highly educated workers, more capital investment and a better entrepreneurial climate.

“Measuring Success: Benchmarks for a Competitive Wisconsin” was prepared for Competitive Wisconsin Inc. by the Wisconsin Taxpayers Alliance, an independent, non-profit group that has followed the state’s economy for decades. The report rates 32 competitiveness measures in six categories: economic health, quality of life, workforce excellence, public sector, business climate and environmental quality. Each indicator compares Wisconsin to its past as well as to surrounding states and the nation.

Overall, the state more or less held its own, thanks to quality of life indicators, modest growth in personal income and a decline in the state and local tax burden as a percentage of personal income. The tech sector indicators were down, however, with one noteworthy exception.

Venture capital investments per Wisconsin worker were $18.53 in 2002, down nearly 75 percent from the 2000 peak. To be honest, precise figures are elusive. Few observers believe all private equity investments are charted. However, the trend versus surrounding states and the nation appeared to be down in what was a miserable investment year for everyone.

Employment in high-tech industries declined to 3.4 percent of total private employment, more than 2 percentage points below the national norm (5.5 percent). Research and development spending in 2000 (the latest year for which figures were available) also trailed the regional and U.S. averages.

Unfortunately, none of that is new. Even during the prosperous 1990s, Wisconsin failed to attract the kind of private equity capital that was needed and its core industries weren’t spending much on R&D. It simply wasn’t a priority.

What is relatively new, however, is the decline in the production of people with doctorate degrees in the sciences. In 1997, Wisconsin churned out 88 Ph.Ds in science, engineering, computer science and math per 1 million residents. By 2002, the number had fallen to 60.5 million, according to the National Science Foundation. While Wisconsin is still ahead of the U.S. average, it has slipped slightly behind Michigan, Illinois and Iowa in the production of Ph.Ds per million of population.

“Compared to the size of the labor force, the number of Ph.D scientists produced here or anywhere is small,” said Todd Berry, whose staff authored the report. “But if we are ‘selling’ our science and research capacity to the nation and the world, these figures should give pause.”

A related indicator may be the number of patents awarded to Wisconsin residents. That figure slipped slightly in 2002 from 417 per 1 million people to 390 per million. While that’s still ahead of the U.S. average (337), it trails Minnesota (592) and Michigan (422). If there are fewer Ph.Ds in the sciences, there may be less innovation worthy of patents.

The report’s bright spot came in an area where Wisconsin has historically lagged – the creation of new companies. The state outperformed the nation and all of its neighbors in the formation of small businesses (10 or fewer employees) with a 2.8 percent increase from 2001. That national increase was 1.5 percent.

While discouraging, the latest figures reinforce the sense of urgency being portrayed by business leaders, Gov. Jim Doyle, few legislators and organizations such as the Wisconsin Technology Council, which rang the alarm bell in late 2002 with its report on the tech sector, “Vision 2020: A Model Wisconsin Economy.”

Many seeds have been planted since then. Private equity investors have begun to show signs of life. Entrepreneurs have been given new opportunities to advance their ideas. Networks for technologists and innovators have been created. Policymakers have realized the importance of holding down taxes, removing regulatory barriers and creating incentives for investors. Clusters of related tech industries are being formed.

Wisconsin has a long way to go before its tech economy is humming along. By focusing now on the elements of success, however, the state can build a competitive future. In fact, it has no choice but to do so.

Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.