Robert D. Atkinson and Adams Nager:

“The conventional view of the U.S. economy, and of state economies, is as static entities which change principally in size (growing in normal times and contracting during recessions). But in fact, state economies are constantly evolving complex ecosystems. Indeed, U.S. state economies of 2014 are not just larger but different than the state economies of 2013. On any given day this year each state will on average be home to businesses that receive 12 patents, release nine new products and introduce nine new production processes, while about 32 firms will go out of business and another 32 will be launched. Firms in some industries will get bigger (the average number of workers in non-store retailers—e.g., the Amazon.coms of the world—grew 0.03 percent every day in 2013) while some will get smaller (the average size of data processing, hosting, and related services shrank 0.07 percent every day in 2013, despite the emergence of cloud computing). Understanding that we are dealing with evolving rather than static state economies has significant implications for state economic policy. The challenge for state economic development is to encourage evolution. This means helping the states’ traded sector companies to both win in advanced technology sectors and to slow the loss of more mature industries to lower cost locations. But evolution also means that government should not only not erect barriers to natural evolutionary loss (e.g., the loss of output of some firms and industries coming from disruptive technological change), it should actively remove barriers to such disruption. This means reducing the regulation and other protections that incumbents (big or small) face vis-à-vis more entrepreneurial (big or small) innovators. And it means both encouraging innovation through smart state technology-based economic development strategies and programs while also ensuring a tax and regulatory environment that supports state competitive advantage. In short, to be well positioned to drive economic evolution, state economies need to be firmly grounded in what can be called “New Economy” success factors, which assess states’ fundamental capacities to successfully navigate the shoals of economic evolution. The 2014 State New Economy Index – Benchmarking Economic Transformation in the States – builds on six prior State New Economy Indexes published in 1999, 2002, 2007, 2008, 2010 and 2012. Overall, the report uses 25 indicators broken up into five key areas that best capture what is new about the New Economy:

1. Knowledge Jobs
2. Globalization
3. Economic Dynamism
4. The Digital Economy
5. Innovation Capacity”