Everyone seems to know there's a "new economy" developing in this country driven by technology and globalization, but policymakers are slow to come to grips with its implications. To help push them along, the Progressive Policy Institute's (PPI's) Technology and New Economy Project published The New Economy Index earlier this year: a compilation of data on 37 indicators of fundamental economic change. The most important conclusion reached in The New Economy Index was that the New Economy is not a phenomenon limited to the growth of high-tech industries. Indeed, the real transformation under way is occurring as technology begins to boost productivity across the economy as a whole, even in industries like agribusiness and heavy manufacturing that are usually thought of as relics of the "old economy."

The implications of this insight for economic policy are enormous. Many politicians in both parties talk about the dislocations and income disparities associated with the New Economy as though they are immutable features of rapid economic change, which should be "slowed down" so that ill-prepared workers and communities can "catch-up." The New Economy Index suggests this approach is dead wrong: increasing the pace of change toward the New Economy is the key to spreading the blessings of higher productivity, and higher incomes, throughout the economy and the population.

Now PPI has a new ground-breaking publication aimed at the policymakers most intimately involved with economic development--those in state governments. The State New Economy Index, released this week, ranks the 50 states on 17 statistical benchmarks of progress toward the New Economy, in five major areas: Knowledge Jobs, Globalization, Economic Dynamism, the Digital Economy, and Innovation Capacity. But The State New Economy Index does not simply supply a statistical snapshot of where states stand as the race begins toward the New Economy. It also challenges state officials to rethink their economic development strategies to reflect the very different needs of a very different economy.

To put it bluntly, governors and state legislators need to get rid of the old economic development playbook that chases individual business investors with tax subsidies and abatements, assurances of low labor costs, and rock bottom tax rates.

In the New Economy, states' economic success will be increasingly determined by how effectively a state fosters technological innovation, entrepreneurship, education, specialized skills, and the transformation of all organizations, public and private, from bureaucratic hierarchies to cooperative networks.

This demands an economic development strategy based on:

• boosting the quality of K-12 education and co-investing with firms in the skills of the adult work force;



• creating an infrastructure for innovation by linking universities, industry, and government, and by promoting research and development (There's an area where a tax credit could come in handy!);



• encouraging the transformation to a digital economy by establishing a uniform legal framework for e-commerce;



• "de-bureaucratizing" government and providing services online;



• fostering civic collaboration through economic policy councils that bring together key leaders in business, government, labor, civic groups, and higher education.

This agenda illustrates how much more active state governments will need to become to promote economic development, and also how important state governments as a whole will become in the transition to a New Economy. To cite one obvious example, no one has a greater impact on the quality of K-12 and higher education than the states.

Furthermore, the emergence of the New Economy produces a whole new ballgame in the relative economic position of states and regions. Because geography and physical infrastructure play a much less important role in the New Economy, the traditional strengths and weaknesses of particular places become much less important as well.

The State New Economy Index shows, not surprisingly, that states in the Pacific West, New England, and Mid-Atlantic regions tend to score well in progress toward the New Economy. But the report makes it equally clear that today's "losers" can rapidly become tomorrow's "winners" through strategies tailored to the needs of the New Economy. Every state has an educational system. Making it radically better will produce a big economic payoff anywhere.

The need for a New Economy development strategy should be a hot political topic in every state--and potentially, a defining difference between New Democrats and conservative Republicans. For all their opportunistic efforts to pander to high-tech executives, most Republicans still don't "get it." Government does have a critical role in the emergence of the New Economy.

As The New York Times' Thomas Friedman says in his recent book, The Lexus and the Olive Tree, the New Economy is like a hundred-yard dash held every day. You have to be not only fast, but smart, to keep winning.