January 21, 2011

The Knowledge Economy Does Not Offset a Bad Economy

Justin Katz

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.

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now who is being dishonest? You answer the question you want to hear, not the one Russ asks.

Posted by: Patrick Crowley at January 21, 2011 7:36 AM

Huh? You're reaching deep into the realm of non sequiturs, lately, Crowley. Russ raises this sort of statistic over and over again, and it is only tangentially relevant to the points to which he places it in opposition. Moreover, to the extent that it's relevant, it illustrates the problem that I'm decrying.

Even in those few spots of positive news, for Rhode Island, the state isn't doing as well as it ought to be given other advantages.

Posted by: Justin Katz at January 21, 2011 7:44 AM

You continue to make assertions based on your own preconceived notions. Specifically, that:

...anybody who reads Anchor Rising knows that I've been referring to the "productive class" (upwardly mobile working and middle class families) as those leaving the state...

But it's nonsense as evidenced by enviable ranking for the influx of knowledge workers, year after year. A single counter-example is enough to cast doubt on your specious claims.

Guess where RI ranks in the State Technology and Science Index (www.milkeninstitute.org/tech/)? 10th!

The State Technology and Science Index looks at 77 unique indicators that are categorized into five major components:

* Human Capital Investment
* Research and Development Inputs
* Risk Capital and Entrepreneurial Infrastructure
* Technology and Science Work Force
* Technology Concentration and Dynamism

Yes, defense related spending is a big part of R&D (the same could be said of many, many other states). But you also neglect one of the key emerging sectors, biotech...

Rhode Island has been named one of six “Biotech Hubs” in North America in the 2009 BioWorld Relocation and Expansion Guide. The Guide is a showcase of leading Bioscience-friendly locations for business relocation and expansion. Locations are ranked on criteria including site selection, tax credits, location and incubator, funding and research opportunities.

From the report itself... "Location, education opportunities and bioscience diversity form an advantageous confluence of dynamics that render the state formidable beyond its borders, making it an ideal place for the industry to thrive."

Posted by: Russ at January 21, 2011 11:33 AM

Let's take a look at some more of the "analysis"...

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."

RI has ranked as high as 3rd in that category (2007), suggesting that the Bush recession may be more to blame than any type of structural problem. I know that doesn't fit well with the RI right's meme about immigrants.

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."

But what about 2008? RI was 3rd in "industry investment in R&D". So what about fastest-growing firms? RI was highlighted as a top-5 mover in the category in 2008, although admittedly the volatility of the number year over year is a bit curious.

Moreover, no state ranks well in all categories, nor would you expect them to. I'm not sure the point of continually pointing out the negatives when there are so many positive aspects of the report (especially because most folks will never read it). the point I continue to make is that RI has many enviable strengths, strengths we should build on.

* 2nd in Digital Economy
* 2nd in Health IT
* 2nd in Online Agriculture
* 3rd in Broadband Telecommunications
* 5th in Non-industry Investment in R&D
* 8th in Migration of U.S. Knowledge Workers
* 9th in Foreign Direct Investment
* 11th in Managerial, Professional, Technical Jobs (we were as high as 6th in this category before the Bush recession)
* 13th in IPOs

Posted by: Russ at January 21, 2011 11:58 AM

There is no such thing as a "new economy" or a "knowledge worker." These are arbitrary and meaningless categorizations. It is, however, possible to speak intelligbly about "economies" and "productive workers," and RI is bringing up the rear in both categories.

Russ - use whatever new-speak and footnotes in research papers you want to justify your worldview. Rhode Island has very real chronic economic problems, and these problems have been getting worse over time, not better.

Posted by: Dan at January 21, 2011 4:01 PM

Kiplinger.com says it best; Rhode Island is one of the 10 tax hell holes in the nation for retirees: www.kiplinger.com/tools/retiree_map/

Posted by: Ken at January 21, 2011 5:01 PM


This is why arguing with you is like arguing with a teenager: You fail to grasp the accurate weighting of disagreements. Nothing is "my interpretation appears more likely, given fact X"; everything is: "it's nonsense as evidenced by...". I've no expectation that you'll allow me sufficient credence to offer a suggestion, but for others reading, I'd propose that self-doubt is in order on matters dealing with broad social trends spanning highly diverse individuals.

And indeed, it is erroneous of you to begin with objections that I "assert" this or that. I've been very clear that the conclusions that I've presented are interpretations of data that resists undeniable proof. Thereby, I'm not trying to prove that no desirable residents would ever consider moving to RI for any reason, but rather, I'm assessing that whatever positives the state procures through its statist approach to the economy cause more damage than benefit, as evidenced by the high unemployment rate, the perennial loss of taxpayers, and the long-standing loss of taxable incomes, on a net basis. (Sgouros is spinning considerably, on this count, in light of the chronology of the relevant data.)

However well Rhode Island ranks for particular markets (no matter how trendy) the question of concern for most of its residents is whether those rankings translate into a healthy economy for all. My point, with this post, is that RI buys its rankings by twisting economic statistics to favor government-originated economic activity. That's not a healthy long-term strategy.

Posted by: Justin Katz at January 21, 2011 8:12 PM

To RI progressives advocating for government investment in "green" firms as a way out of this mess...

Behold! The folly of central planning:


Oh, but when you're in charge you'll be enlightened enough to pick out the winners, right? That's what you progressives said up in MA. How is that working out?

Posted by: Dan at January 21, 2011 8:49 PM

"This is why arguing with you is like arguing with a teenager..."

Sticks and stones, Justin. Very adult of you. For what it's worth, I think I've been fairly measured in my conclusions, for instance interpretation of stats like industry investment in R&D.

And you've missed the point, I'm commenting on how your preconceived notions cloud the data not that one might make assertions. For example, you single out one stat about defense spending and dismiss the entire knowledge economy as "government-originated economic activity" (newsflash, we progressives aren't so thrilled with defense contractors either). More importantly, you ignore industries like biotech, digital media, and health IT that actually hold promise for economic growth in the state and leverage the strengths of our neighbors "in a nation-leading area."

I realize this is out of your own area of expertise, but dismissing it as trendy doesn't change the fact that it's a good career for many including me, who apparently has been "trendy" for a couple decades!

Posted by: Russ at January 22, 2011 9:30 AM

You continue to avoid my point. It's simply incorrect to state that I "single out one stat about defense spending." As a matter of fact, I didn't cite any such statistic. I pointed out that the state ranks poorly when it comes to "industry investment" but well when it comes to investments from "federal, state, university, and nonprofit" entities. That ties with observations made regularly 'round here, from the structure of windmill arrangements to the equation of healthcare and education with a "knowledge industry," suggesting that RI emphasizes, as I said, government-originated investments.

It doesn't ignore any particular industry or dismiss that which is "trendy" to observe that the state's bright spots have not been sufficient to keep its economy lit and to suggest that some methods of achieving those bright spots can, in fact, broader shackle economic activity.

Posted by: Justin Katz at January 22, 2011 9:54 AM

By the by, Russ, to correct one other misconception of yours (from which I'd infer snobbery if suggesting so wouldn't wound your sense of interlocutory propriety): I did spend the better part of a decade editing high-tech market research.

Posted by: Justin Katz at January 22, 2011 10:08 AM

And I do a fair amount of carpentry. I've even worked as a carpenter, but I wouldn't presume to know your business any better than you.

Correct me if I'm wrong, but I've never seen you so much as attend a Geeks meeting or any of the numerous technical conferences, which leads me to think that it's not exactly your thing. No offense, but it's hard enough for professionals to keep up with what's going on.

Posted by: Russ at January 24, 2011 11:41 AM
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