• Mission & Governance
• Member Services
• How to Get Involved
• Standing Committees
• NCSL Foundation

• Issue Areas: A-Z
• State-Federal Relations
• NCSL Standing Committees
• News from D.C. and the States

• About State Legislatures
• Elections, Campaigns & Redistricting
• NCSL's StateConnect Directory
• Web Sites

• Online Guide to NCSL Services
• Staff Sections and Networks
• Meetings & Professional Development
• Staff Directories

• Meetings Calendar
• Online Registration
• Meetings Home Page
• Legislative Summit

• Bookstore
• State Legislatures Magazine
• NCSL's StateConnect Directory

"Retooling State Economic Development Policy for the New Economy"

Executive Summary

The U.S. economy has experienced tremendous change during the last two decades. Information, ideas and technology are the driving forces in this "new economy." Many state policymakers are concerned that the rise of the new economy has resulted in a mismatch between existing state economic development programs and the needs of today's businesses. This report is designed to help policymakers understand the new economy and the key legislative policy options that affect economic development under these new conditions.

The concept of economic development includes both the idea of economic growth and changes in the quality or nature of the economy. A complete list of state activities that foster economic development would include almost everything states do, but the subject of this report is state efforts to encourage investment, to improve productivity (efficiency), and to increase incomes. New economic development strategies may not necessarily replace existing strategies, but they can help organize them and provide a focus.

In the new economy, a firm's competitive advantage is based on information, ideas and technology. Intellectual assets, such as those embodied in educated workers and intellectual property, are as important as physical assets. New technologies have dramatically lowered the cost of communications and have increased the pace of production and competition, making economies of time more important than economies of scale. Investments in intellectual and physical assets are yielding a sustained higher rate of return than in the past, contributing to higher productivity and profit growth rates.

The real value in information technology is that it enables faster communication and more informed decisionmaking. Improved communication helps leverage knowledge and ideas, which are the basis for competitive advantage in the new economy. Legislative policy options concerning technology in the new economy address the transfer of technology into the marketplace, development of information technology networks, and investment in research and development.

The need for scientists, engineers and other educated and skilled workers is increasing as businesses' intellectual assets become at least as important as their physical assets. High-tech industries are projected to lead employment growth in the coming decade, and virtually any type of well-educated worker is in high demand. Legislative policy options concerning workforce involve helping people prepare for knowledge jobs, creating partnerships among workforce development, economic development and education, and streamlining the state's workforce development system.

In the new economy, businesses have flexibility in deciding where to locate. Information technology allows firms to communicate globally and purchase inputs from or outsource work to anywhere in the world. Transportation systems have advanced in tandem to shuttle people and products ever more efficiently. At the same time, businesses benefit from being in close proximity with collaborators, competitors, suppliers and related institutions, including universities. For information age businesses, quality of life ranks along with workforce and transportation infrastructure.

Legislative policy options concerning the geography of the new economy include identifying and supporting industry clusters, taking a comprehensive view of the business climate, and harnessing the opportunities of globalization.

Information-based firms require a good deal of venture capital, or equity. Venture capital is most important in the early stages of a firm's development, after R&D has been conducted and a new product or process is ready to be commercialized. The venture capital investment is made with the expectation of significant returns as the value of the business grows. Venture capital is high risk, however, because many new firms fail before they earn profits. To offset this inherent risk, investors are interested in not only good business ideas, but in good ideas in high-growth industries managed by experienced and adept entrepreneurs.

Legislative policy options concerning capital in the new economy include building an entrepreneurial culture, and encouraging the growth of venture capital through direct investments or tax incentives.

The new economy's emphasis on ideas, information and technology has many implications for state economic development policy.

To order this publication, please call NCSL's Marketing Department at 303-830-2054 and ask for Item #5359. The cost of this publication is $20. One copy of this publication is provided at no cost to state legislators, their staffs and state legislative libraries.

  Economic and Cultural Development Program

Visitor counts for this page.