In the quest to build a knowledge-based economy, other states are leaving Ohio in the basement, a study by the respected Milken Institute says.
Ohio took a dive in the report - from 24th in the nation in 2004 to 36th - in large part because the Milken Institute decided that auto manufacturing is not high-tech.
The State Technology and Science Index for 2008, released late last week by the California-based think tank, ranked the states in how well they are adapting to high-tech industry - what Milken calls "the intangible economy."
Ohio dropped 12 points - the most of any state.
"The work force is solid, but the big weakness in the moment is that people are not investing in the state," said Kevin Klowden, managing economist at the Milken Institute.
Some of the drop was attributed to a change in the study's methodology from 2004.
"Ohio was clearly affected by the change in the Milken Institute's definition of high-tech industries, which now excludes heavy manufacturing," the report said.
But, Mr. Klowden said, "the fact still remains that in terms of business starts, and in terms of risk capital investment in the state, Ohio has not done very well lately."
The study compiles its overall ratings from five categories - Research and Development Inputs, Risk Capital and Entrepreneurial Infrastructure, Human Capital Investment, Technology and Science Work Force, and Technology Concentration and Dynamism.
In the category of technology concentration and dynamism - the clustering of "vibrant" technology entities in close geographic proximity - Ohio ranked just ahead of Mississippi and Louisiana.
Keith Dailey, a spokesman for Gov. Ted Strickland, said the report doesn't reflect promising recent developments.
"We believe this is a flawed analysis that does not reflect an accurate portrayal of Ohio - both in terms of not counting large high-tech sectors of the economy and also because it appears the people who wrote the study are unaware of the energy legislation passed this year, which ensures stable and predictable energy prices," Mr. Dailey said.
One paragraph of the study says the drawn-out battle over the state's electricity regulation over the past two years was a costly drag on the economy, driving businesses to friendlier states.
"This uncertainty has deterred international investment at a moment when Ohioans need jobs," the study says.
Mr. Dailey pointed out that two months ago the General Assembly passed and Mr. Strickland signed a law establishing electricity rate regulation for the foreseeable future.
And he pointed to Mr. Strickland's $1.57 billion stimulus package, part of which will go to biotechnology, the biomedical industry, and advanced energy - "all areas the Milken Institute highlights are the new focus of their methodology."
Mr. Klowden said that there's a two-year delay between events and the data showing up and being digested in state-by-state rankings, and so Mr. Dailey has a point.
"Between when [the report] was written and when it went to press Ohio has started to address the issue," Mr. Klowden said."
While Ohio saw a large drop in its ranking, another heavily auto-centric state - Michigan - fell only one spot, from 25th to 26th, despite the change in methodology.
That's because the auto headquarters centered in Detroit invest heavily in research and development. And Ann Arbor, home of the University of Michigan, has seen a boom in technology-related business.
"Ohio has long been a hub of manufacturing and industry, but as those jobs continue to disappear, a new approach is needed," the study states. "Michigan has also suffered serious manufacturing losses due to job cuts by the 'Big Three' automakers, but it has been buoyed by the presence of relatively more educated workers who were better able to transition to other jobs through retaining programs."
Mr. Klowden said Ohio has retained a well-trained work force from the strong industrial days, has great research universities, but has had trouble attracting new money and retaining well-educated college graduates.
And, in a familiar critique, he said Ohio suffers from the lack of one large city where different technology-related industries combine.
"There's a real split among the different cities in Ohio," Mr. Klowden said. "None of them stands out as being a clear center of high technology, in any particular sector. Cleveland might be the best off in terms of life sciences, but it's not a leader in the same way that Philadelphia is, or Boston is."
Pennsylvania rose from 16th to 13th, benefiting from investor capital and a large number of well-trained college graduates. Pittsburgh has established itself as a center for computers and robotics, while Philadelphia has become a cluster for life sciences industries, Mr. Klowden said.
Meanwhile, many of Ohio's smaller cities have yet to find signature new industries.
"Whether it's Toledo, whether it's Akron, whether it's Dayton, the cities are still heavily defined by the industrial past and not as much by any particular up-and-coming industries," Mr. Klowden said.
To turn itself around, Ohio needs to create partnerships between the universities and industries, create incentives to keep recent graduates in the state, and find innovative ways to attract venture capital - such as matching private investments with public dollars or investing state pension funds in technology firms.
That's what Ohio is doing, according to many involved in Toledo's education and economic development groups.
University of Toledo President Lloyd Jacobs on Friday said he has seen the Milken report and said it rings true.
"I believe that universities are absolutely essential to the rejuvenation of the economy of the Midwest. The upper Midwest is the manufacturing belt, the area of the greatest strength of our country, but it is suffering in the transition from manufacturing to technology," Mr. Jacobs said.
He said Ohio, including northwest Ohio, is on track and actually ahead of the curve in adapting to the new economy in areas including photovoltaics, transportation and shipping logistics, and medicine.
Frank Calzonetti, the vice president for research and development for UT, suggests that recognition of Toledo as a technology cluster is on the horizon.
"The area of technology clusters is an area where Toledo is really out in front and moving forward," Mr. Calzonetti said. "If you compare emerging technology clusters against existing technology clusters, we're not going to look as good."
One such cluster is solar power industries, such as Xunlight or First Solar.
Jim Tuschman, a Toledo lawyer and member of the Ohio Board of Regents, said that under Chancellor Eric Fingerhut, the board is focusing on partnering with new technology firms and retaining college graduates.
"I feel we have made progress in that area. We will continue to strive for an aggressive position with respect to working with business and industry," Mr. Tuschman said.
Rocket Ventures, managed by the Regional Growth Partnership, is an example of a public-private partnership to spur high-tech industries, said Greg Knudson, fund director.
Rocket Ventures has received about $15 million from the state's Third Frontier Program, and has received $7.5 million in private investments. The fund gives grants and start-up support to young technology firms in the area.
Changing from an industrial economy to a technology-driven economy will continue to be difficult, Mr. Knudson said.
"We've had 70, 80, 90 years of that. That really gets into the DNA of a state," Mr. Knudson. "It's a tough transition."
The up-and-down movements of states on the rankings show that a state can achieve eminence in science and technology either as a result of the sheer combined weight of its money, industry, and technical know-how - as in the case of Massachusetts - or through a coordinated program with modest expenditure, as was the case with North Dakota.
Massachusetts ranks first on the State Technology and Science Index, retaining the rank it had in the previous indexes in 2002 and 2004.
"I think it has a great deal to do with our universities, and the innovation economy, the availability of venture capital, the strength of the hospitals, and the collaboration among those sectors," said Susan Houston, executive director of the Massachusetts Alliance for Economic Development, a private nonprofit organization that helps the state attract new business. "We have a very high concentration of venture capital in Massachusetts."
Massachusetts Gov. Deval Patrick recently announced plans for a $10 billion investment over 10 years in the life sciences.
North Dakota moved up 14 points, passing Ohio.
Its Centers of Excellence program has provided $40 million to North Dakota universities to help them expand technology-based companies, said Shane Goettle, commerce commissioner for the state governor.
The program began as a pilot in 2003 and now has more than 100 companies partnering with the state's colleges and universities. It's resulted in 500 technology jobs, 500 support jobs, and the anticipation of another 2,500 jobs through the existing projects.
"We moved North Dakota from the bottom tier to the middle tier in a short period of time. We're very pleased with that. We've established what we think is the most aggressive research and development tax credit in the country," Mr. Goettle said - 25 percent off the state income tax on the first $100,000 of R&D and 20 percent on every dollar above that.
Another state that saw a substantial increase, Alabama, benefited from being the site of numerous federal installations.
Like Ohio, Alabama relied on heavy industry, such as textile and auto manufacturing. But it has seen a resurgence with military and NASA investments, which have spurred a technology boom, according to Ahmad Ijaz, economist with the Center for Business and Economic Research at the University of Alabama.
Alabama rose from 36th to 29th in the rankings.
"Every metro area is growing - Birmingham, Mobile, Montgomery," Mr. Ijaz. "It's definitely changed the perception of Alabama. For the last three or four years, we've had more people move in than move out."
In Ohio, a lot of hope is riding on three recent initiatives out of the state government:
•The energy bill that was signed May 1, which, in addition to setting electricity rate regulation policies, encourages the expansion of solar, wind, and other renewable energy sources.
•The $1.57 billion economic stimulus package signed by the governor two weeks ago, which invests in advanced and renewable energy, logistics and distribution, bridge and highway construction, college internships and "co-ops," and armland and green space preservation.
•A two-year freeze on college tuition instituted in 2007, followed recently by a 10-year state plan unveiled by Mr. Fingerhut, the higher education chancellor, to boost Ohio's production of college graduates from its present rank of 37th in the nation.
Toledo Mayor Carty Finkbeiner said Ohio's ranking in the Milken report was "disturbing." However, the mayor said he has confidence in Mr. Strickland's appointments of Mr. Fingerhut as chancellor and Lt. Gov. Lee Fisher as state development director.
"If they stay focused for the four years, if not the eight years, there should be gains," Mr. Finkbeiner said. "It's going to take a decade to see us ramp up from 36th to where we need to be. We need to be approaching the top 15."
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