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June 21, 2022 | Tom Ballard

ITIF’s just released “Innovation Competitiveness Index” is a mixed bag for Tennessee

By Tom Ballard, Chief Alliance Officer, PYA

A report released yesterday that ranked 92 North American states or provinces on 13 key indicators that assess how prepared they are to compete in today’s increasingly innovation-driven economy was a mixed bag at best for the Volunteer State. There were several reasonably high scores, one fairly low score, and most in the middle third.

Titled “The North American Subnational Innovation Competitiveness Index” (NASICI), the report was issued by the Information Technology & Innovation Foundation (ITIF) in collaboration with the Macdonald-Laurier Institute in Ottawa, Canada; Fundación IDEA in Mexico; and the Bay Area Council Economic Institute in Berkeley, CA. It was unveiled during a virtual event yesterday morning.

Tennessee ranked #43 among the 92 governmental jurisdictions with a composite score of 45.6. That placed the Volunteer State slightly above the average for all jurisdictions (43.4) but below the average of the U.S. states (53.0). How did Tennessee’s ranking compare with neighboring states? North Carolina was the highest ranked neighboring state at #21 followed by Virginia at #22. Other Southern states ranked above Tennessee were Georgia at #28, Florida at #31, South Carolina at #38, Alabama at #39, and Louisiana at #40. Ranked below Tennessee were Kentucky (#48), West Virginia (#57), Arkansas (#58), and Mississippi (#59).

How were the rankings calculated? The NASICI used 13 measures across three categories to quantify the extent to which each state’s economy is knowledge-based, globalized, and innovation ready. A composite score between 0 to 100 identifies each state’s level of performance in the innovation economy.

The specific measures are as follows:

  • Knowledge-based workforce indicators measure: (1) employment in scientific, technical and professional activities; (2) educational attainment of the workforce; (3) immigration of knowledge workers; and (4) manufacturing sector productivity.
  • Globalization indicators measure inward foreign direct investment (FDI) and high-tech goods and services exports.
  • Innovation capacity includes: (1) a state’s share of households subscribing to broadband internet; (2) venture capital investment; (3) number of R&D personnel; (4) expenditures on R&D; (5) number of patents; (6) extent of movement toward decarbonization; and (7) creation of new businesses.

How did Tennessee perform? One might call it a mixed bag. On the high side, the Volunteer State ranked #18 in employment in scientific, technical and professional activities, #21 on inward FDI, #23 on high tech exports, and #25 on labor productivity in manufacturing. Conversely, Tennessee was in the middle third in most categories – venture capital (#34), business creation (#37), R&D intensity (#42), immigration of knowledge workers (#43), workforce education (#46), patents (#47), broadband subscribership rate (#53), and decarbonization (#57). The Volunteer State’s lowest ranking was #76 among 92 jurisdictions on R&D personnel.

So, you are no doubt wondering the top performing states or provinces, and many will not be surprising. Four of the top five were U.S. states. Massachusetts placed first followed by California (#2), Maryland (#4), and Washington (#5). Three Canadian provinces made the top 10 – Ontario (#3), British Columbia (#6), and Quebec (#9).

“The report is a useful framework for policymakers,” said Stephen Ezell, ITIF’s Vice President of Global Innovation Policy and Director of the Center for Life Sciences Innovation. “We have three nations with a high-wage (U.S. and Canada)/low-wage (Mexico) partnership that can support a highly competitive regional production system in the global economy.”

Key takeaways, as defined by the authors, were:

  • A state’s competitiveness in the innovation economy stems from the extent of its involvement in the global economy, its capacity for innovation, and its cultivation of a knowledge-based workforce.
  • Canadian provinces overrepresent among North America’s most competitive states in the innovation economy.
  • Mexico’s industrially intensive states are among its most innovative: Nuevo Leon, Baja California, Chihuahua, and Tamaulipas are some of the highest-ranking Mexican states.
  • Cross-border innovation clusters are taking shape in the Pacific Northwest’s life sciences industry and in the next-generation automobile and semiconductor industries near the U.S.-Mexico border.
  • Canadian, U.S., and Mexican states should leverage each other’s comparative advantages in different phases of innovation in order to build North American global value chains that are cost-competitive with Asia.

The key policy recommendations included:

  • Expanding the R&D tax credit for the U.S. to be competitive with Canada.
  • Build globally-competitive North American supply chains (a restatement of a key takeaway).
  • Promote industry-university partnerships.
  • Expand collaborative research between U.S. and Canadian leaders.
  • Embrace fully the United States-Mexico-Canada Agreement to create a free-flowing North American digital economy.
  • Expand national place-based development projects.
  • Improve economic indicator data availability among North American states.

Both the report in PDF form and the measures for each state and province can be downloaded here.

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