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Donald C. Fry: Positioned for success is only a start

Converting Maryland’s ‘capacity’ to thrive into actual growth

Any conversation about business climate among Maryland economic development experts and policymakers inevitably gets around to the topic of Virginia, our neighboring state and competitor that ranks higher than Maryland on most published U.S. business climate surveys.

There is one business climate survey, however, where Maryland ranks above Virginia — the overall rankings of the current “New Economy Index.”

Maryland ranks third overall in the U.S. while Virginia ranks eighth in the 2010 rankings that assess the states’ capacity to survive and thrive amid economic change. This is the second consecutive New Economy survey in which Maryland achieved that ranking for its potential.

The highly regarded rankings are compiled by the Washington, D.C.-based Information Technology and Innovation Foundation and published by the Kansas City, Mo.-based Kauffman Foundation, which is devoted to the study of entrepreneurship.

The New Economy Index uses 26 indicators to assess states’ “fundamental capacity to successfully navigate the shoals of economic change,” according to the Kauffman Foundation.

Maryland ranks behind only Massachusetts, with its combination of software, hardware, and biotech firms supported by Harvard and MIT; and Washington state, with its strength in software, aviation and its hotbed of entrepreneurial activity.

Maryland’s strengths are, in part, its high concentration of knowledge workers, many employed in Washington, D.C., and many in federal laboratories or companies related to them, according to the summary that accompanies the rankings.

Sobering news

That’s the good news. More sobering is the message the report delivers to all U.S. states — high-ranking or otherwise.

These rankings only measure the states’ capacities for emerging competitively strong on the other side of the recession. If U.S. states are to realize their economic development potential in the new global economy, they must radically change their economic development policies and build better business climates around the concept of nurturing and rewarding innovation.

In Maryland, for example, the Kauffman report clearly documents that our state is well-positioned for success, ranking in the top five for knowledge jobs, digital economy, and innovation capacity. But Maryland ranks far lower in two key categories directly related to achieving innovation-based competitiveness — economic dynamism, where Maryland ranks 15th, and globalization, where Maryland ranks 21st.

Of seven separate indicators included in these two categories, Maryland ranks in the top five in only one — the number of fast-growing firms on the Deloitte Technology Fast 500 and Inc. 500 firms. The state’s next-highest indicator rankings are 17th for inventor patents, and 19th for foreign direct investment by Maryland firms.

Our state ranks 21st or below for the remaining five categories, including a 33rd ranking for entrepreneurial activity.

In effect, the latest New Economy Index report, though largely positive, also underscores a growing chorus of economists, economic development experts, and business leaders in Maryland who are calling on state policy makers to take a more aggressive approach to revitalizing Maryland’s business competitiveness.

For example, a yearlong series of focus groups with state business leaders and economic development experts conducted in 2010 by the Greater Baltimore Committee produced eight consensus core pillars for job creation and building a competitive business environment.

Well-known economist Anirban Basu, of the Sage Policy Group, has repeatedly lamented Maryland’s disappointing jobs recovery and noted Maryland’s need for measures to improve its business climate.

Economist Daraius Irani, director of Towson University’s Regional Economic Studies Institute, reports that Maryland’s less-than-stellar economic dynamism rankings in the Kauffman report show that our region and state are still lacking in the ability to compete with businesses on a global scale.

Maryland would be wise to consider reviewing and potentially revising policies relating to business climate to better encourage business growth across the state, Dr. Irani notes in an analysis that will be featured in the upcoming GBC State of the Region report to be published this fall.

Political courage

The Kauffman report notes that the untold story of the recession and anemic nationwide recovery “has been the weakened position of the U.S. economy in global markets.” That development “will have significant impacts on state economies for decades into the future.”

The report offers a compelling observation for all state policymakers in the U.S.: the competition for economic growth is no longer primarily between our nation’s states. It’s global, and it’s innovation-driven.

The report concludes with calls for a renewed economic development focus on nurturing innovation and entrepreneurship at both the state and federal levels.

Among other things, it suggests a focus on reducing economic development competition between jurisdictions within a state and a renewed state-level “win-win” focus on boosting infrastructure, business support systems, technology development and transfer systems. It also calls for the development of a “state-federal innovation-based” economic development partnership.

These are all heavy-duty concepts to absorb. But whatever we take away from various expert assessments of our sluggish economy, there is one clear thing that we must all understand — successfully moving beyond the current malaise will require public policy that ventures considerably beyond “business as usual.”

It’s good when experts say that Maryland is well-positioned for economic success in the new post-recession economy. Being positioned for success is an enviable start. Making the difficult decisions needed to take advantage of that position will require political courage and a change in government’s culture.

We clearly have a lot of work to do.

Donald C. Fry, president & CEO of the Greater Baltimore Committee, writes a monthly column for The Daily Record. His email address is donaldf@gbc.org.