By Marshall J. Vest
Director Economic and Business Research Center
In its latest update of a bi-annual report focused on state-by-state technology and science, the Milken Institute provides a “benchmark for states to assess their science and technology capabilities as well as the broader ecosystem that contributes to job and wealth creation 1.”
Western states ranked very well with four in the top 10: California (3rd), Colorado (4th), Washington (5th), and Utah (7th). Second tier states include Arizona (16th) and Texas (19th), with Oregon (20th) and New Mexico (22nd) closely following. Idaho (34th) and Nevada (47th) round out the states that Arizona traditionally competes with for business. See Exhibit 1.
The overall rankings for individual Western states have been mostly stable over the past decade, with the exception of New Mexico, which has lost ground each update, falling from 14th to 22nd in the latest report. Idaho and Nevada have slipped four spots as well. Texas registered the largest improvement, rising by four.
Relative scores for all states are shown in Exhibit 2. The overall index is constructed from five component indexes, which in turn are comprised of dozens of measures. This constitutes a rich detailed data set for benchmarking state-by state performance. Arizona ranks very well nationally in four of the five components. Just as with the overall index, several of Arizona’s competitors in the West score better.
Technology Concentration and Dynamism is designed to assess how effectively policymakers and other stakeholders have been at parlaying regional assets into regional prosperity. Measures include concentration and growth in high-tech industries. Arizona ranks 11th, behind five of its competitors (Utah, Washington, Colorado, California, and Texas). While Washington, California, Colorado and Texas have moved higher, Arizona, along with New Mexico, Idaho and Nevada, have dropped in the rankings. In 2008, Arizona had concentrations in seven high-tech sectors but only four in 2012. 6.6% of Arizona’s employment is in high-tech sectors, ranking it 13th.
The Technology and Science Work Force index measures the sufficiency and depth of high-end technical talent as measured by the share of aggregate employment in 18 occupation categories covering computer and information sciences, life and physical sciences, and engineering. Arizona ranks 11th, trailing four Western states (Washington, California, Texas, and Colorado). Arizona moved up from 22nd in 2008. The upward move is due to jumps in biomedical engineers, going from 32nd in 2010 to 6th two years later, computer systems analysts (up 10 spots to 15th), database and network administrators (up 13 spots to 11th), and medical scientists (up 9 spots to 25th). Arizona also ranks very highly at 6th for computer hardware engineers, 5th for electrical engineers, 4th for electronics engineers, and 7th for software engineers and systems software.
Arizona also ranks highly at 12th nationwide, in the Risk Capital and Entrepreneurial Infrastructure component, which measures the success rate of commercializing research. Several measures are used covering venture capital activity as well as entrepreneurial pursuits, including patenting activity, business formations, and initial public offerings. Four states (California, Colorado, Washington, and Utah) rank higher. Western states were badly hurt by the Great Recession and plummeted in the ranking from top tier to bottom tier for number of business starts per capita. In 2008, eight of the states were among the top 10; in 2012, five were in the bottom quintile. Only Washington and Texas remain in the top 10. Arizona ranks 14th on venture capital investment as a percent of GSP.
The Research and Development Inputs component measures funding for industrial, academic, and federal R&D, and awards for small business research and technology transfer programs. Arizona ranks 14th nationwide, behind Colorado, California, Washington, and New Mexico. Among the measures, Arizona saw its ranking jump to 16th from 28th over the past four years for industry R&D dollars per capita.
Arizona’s Achilles heel is the Human Capital Investment component, where it ranks 30th. This index measures the skill levels of the current and future workforce, as measured by the number of bachelor’s, master’s and doctorate degrees relative to a state’s population, and measures specific to science, engineering and technology degrees. Colorado, Utah, California, Washington, New Mexico, and Oregon are ranked higher. All Western states except for one have dropped in the rankings since 2004. Arizona dropped 5 places. Colorado dropped 4 places. California lost 3, Washington (down 13), New Mexico (down 12), and Oregon dropped 9 spots. Utah was the only state to improve, moving up 3 spots to an 8th ranking nationally. Arizona’s high school students are average based on SAT scores, where they currently rank 28th on math and 30th on verbal. That is a pretty good result given Arizona’s poor showing for state spending on student aid per capita (49th). Also ranking poorly is state appropriations for higher education per capita (47th and falling).
One might ask why Arizona ranks in the bottom half for human capital investment while it ranks highly at 11th on the technology and science work force index. The most plausible explanation is that Arizona has traditionally been able to attract talent from other states, which reduces the need to “educate our own.” It’s also possible that Arizona does a good job producing students with job-related tech skills even though funding is below average.
The Technology and Science index clearly shows that Arizona is indeed a player. It also shows that competition is stiff from other Western states with whom Arizona competes. From a policy standpoint, Arizona could improve its rankings the most by investing in education and thereby developing an even better workforce.
1“State Technology and Science Index 2012; Enduring Lessons for the Intangible Economy,” Milken Institute, April 10, 2013. Reports were issued covering 2012, 2010, 2008, and 2004.