What States Need to Do to Grow Their Advanced Industries

Bruce Katz and
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University
Mark Muro

December 12, 2014

Voters said unequivocally in this year’s midterm elections that economic growth and quality jobs are their top concerns. The divided federal government that resulted from those elections seems likely to take incremental but not transformative steps on critical economic issues. In other words, less gridlock but little impact.

So responsibility for action on those issues that most concern voters now shifts to the states (where 36 governors were just elected or re-elected) and to the cities and metro areas within them that drive the nation’s economy. Our prediction: Expect governors and local leaders to design and deliver a new kind of economic development that aims to grow advanced industries through investments in platforms, people and places.

What are advanced industries and why should states be so committed to them?

Advanced industries are manufacturers, energy providers and service firms that are fueled by research and driven by science, technology, engineering and mathematics (STEM). They punch way above their economic weight, making up only 9 percent of our country’s workforce but generating nearly 18 percent of our GDP, 58 percent of our exports, 81 percent of our patents and 90 percent of our private research and development. What’s more, according to Moody’s data, advanced-industry workers earn an average of $90,000 per year compared to $47,000 for our economy as a whole.

Advanced industries produce technology that improves our quality of life, boosts productivity in other industries, supports long supply chains and stimulates local economies. They are, in short, exactly what our country needs in a time of wage stagnation, declining social mobility and intense global competition.

To spur advanced-industry growth, states must first create the platform. With federal research dollars scaling back, states need to invest in basic science, applied research and technology commercialization. And they must do this with an eye toward building on their distinctive strengths. Several states have done this well: California’s $3 billion investment in its Stem Cell and Cures Initiative, Ohio’s $2 billion investment in its Third Frontier Fund and New York State’s creation of a School of Nanoscale Science and Engineering in Albany and an Advanced Manufacturing Institute in Buffalo are all good examples. In each of these cases, through ballot measures or legislation, states have provided platform funding for industries in which they are competitive and then reaped the rewards of private and civic-sector investment.

Colorado also has made a number of wise platform-creating moves under Gov. John Hickenlooper. Following a six-month strategic assessment of the state’s advanced-industry assets, Colorado lawmakers passed the Advanced Industries Accelerator Act, a 10-year, $15 million-a-year matching-grant program that incentivizes research collaborations, promotes technology commercialization and provides support for advanced-industry startups. To date, the program has provided early-stage capital to 40 firms developing high-tech products such as lightweight metals, regenerative braking systems for hybrid vehicles and “smart” skylights that increase natural light in large spaces. To guarantee ample support for fledgling technologies, Hickenlooper appointed a statewide chief innovation officer and an aerospace and defense champion for that crucial industry. In addition, the Hickenlooper administration established an Advanced Industries Export Grant that provides financial assistance to companies marketing their goods around the world.

Second, the people: States need to double down on equipping people with the STEM skills they need for advanced-industry jobs. Many employers report difficulty filling even the lowest-level advanced-skill jobs. States can fix this by creating apprenticeship and workforce-development programs. Since its founding in 2007, for example, South Carolina’s Apprenticeship Carolina program has helped establish on-the-job training at more than 670 companies and has served nearly 11,000 apprentices. The state provides a tax credit to companies of $1,000 per year per apprentice, and apprentices are paid while they learn on the job. Paired with another state-run program, readySC, the state has created a robust system of recruitment and training that has helped thousands of workers find advanced industry employment.

Recently, Tennessee Gov. Bill Haslam took this common-sense approach to skills training one step further. His Tennessee Promise program allows high school graduates to attend community colleges or technical colleges free of charge. This year, 53,000 high-school seniors (out of 71,000 statewide) signed up-double the number projected. The recently created Tennessee Labor Education Alignment Program helps coordinate skills training with available employment, and the state has devoted $10 million to a Skills Gap Grant that will award funding to regions that develop plans for addressing shortcomings in local skills.

Finally, the places: States should help cities and metro areas develop the types of urban spaces, known as innovation districts, that enrich advanced industries. The geography of innovation has shifted from remote suburban locations to city downtowns and midtowns, where companies can operate in close proximity to entrepreneurs and researchers. Magical things happen in these concentrated places — “collisions” between smart inventors and investors multiply, networked innovation accelerates, and, most importantly, businesses grow and jobs are created. And these districts are also reflect lifestyle preferences: Workers and students increasingly want “live, work and play” urban communities.

One way states can spark new innovation districts or strengthen existing ones is by moving the research arms and graduate schools of major universities to the cores of cities. This is underway in several states. Examples include the University of Washington’s medical school campus in Seattle’s South Lake Union neighborhood; the Cornell-Technion new-technology campus on New York City’s Roosevelt Island; the University of Texas’ medical school in Austin; and the University of Buffalo’s medical college at the Buffalo-Niagara Medical Campus in downtown Buffalo.

The innovative state policymaking and local implementation around advanced industries is a sign of things to come. In the next two years, our states, cities and metro areas — not Washington, D.C. — will be the places where the nation’s economic agenda is set.

This commentary was originally published by Governing.