Washington views itself as having a “high-tech” economy and, by conventional metrics, it ranks high among the 50 states. For example, it is 10th in per capita GDP and ninth in per capita personal income, according to the state. However, Washington’s economy is not only facing growing global competition but also rapidly increasing investment by other states in technology-based economic development.
Such broad national investment is long overdue, as it is the only way to produce large numbers of high-paying jobs. Technology-based development strategies are based on investment in four major asset categories: technology, capital formation (largely hardware and software), skilled labor and a combination of technical, educational and financial infrastructures.
The good news is that Washington has one of the highest ratios of corporate research and development spending to GDP among states, according to the National Science Board. Because the technologies resulting from this investment drive productivity growth and consequently higher economic output and incomes, the state has experienced a relatively high rate of growth.
This is a critical metric because federal Bureau of Labor Statistics analyses show that high-tech workers earn 70% to 92% more than the average for all workers, depending on the definition of “high-tech.” In fact, the state’s real median hourly wage ranks sixth out of 50 states.
Politicians really do not need to know any more to support technology-based development initiatives. So, you would think that a major growth-policy focus would be designing and implementing supporting strategies, not just in the Seattle area, which is an established high-tech enclave, but across the entire state.
This is not happening. Washington and the rest of the country are caught up in a trend that has been repeated for centuries; namely, leading economies become complacent and then resistant to adaptation when new global economic patterns emerge. The English economy once dominated the world but has been in decline for more than a century, despite numerous efforts to reinvent itself.
The U.S. economy replaced the U.K. as the world’s leader, but it has been in decline for the past 40 years, as global competition has steadily increased while our growth politics have not responded. This is evident in declining personal-income growth and rising income inequality. The latter is being manifested in class warfare epitomized by an increasingly dysfunctional political system.
Thus, history is simply repeating itself. For the U.S. economy, this situation will not go away until better growth policies solve both the growth rate and the income inequality problems.
These two problems are correlated with national and individual state economies and their technology sectors. As The Seattle Times has pointed out, 19% of Seattle employees work in a high-tech field. This 19% rate compares to 13% for the U.S. economy. But most parts of the state have limited technology-based economic development infrastructure and have consequently experienced significantly lower rates of private-sector investment and hence worker-income growth that comes with these high-tech jobs.
The severity of this problem is evidenced by the disparity in income levels among the state’s 39 counties, which have per capita average incomes ranging from $36,000 to $90,000. Using a common metric for inequality (the ratio of the top 1% to the bottom 99%) puts the state slightly below the national average. The degree of inequality, according to the state, is evidenced by the fact that in 2018 only one county — King County — out of 39 had an average wage above the average for the entire state.
Of particular importance is the fact that the high-tech portion of the state’s economy is driven by three large companies. Their long-term residence has bred modest supporting supply chains and thereby enabled additional high-paying jobs.
However, their historical dominance has led to complacency on the part of state policymakers. This is reflected in a failure to ensure investment in the range of public and private assets necessary to attract much larger portions of these companies’ supply chains to the state and even to keep existing research and production assets.
A prominent recent negative example is Boeing’s decision to relocate more production to South Carolina and shutter its Advanced Developmental Composites Center. (Just 10 years ago, Boeing expanded this research facility, portraying it as a hub of future innovation for in-house manufacturing.) Another significant loss was Microsoft’s opening and then expansion of an artificial intelligence research center in Montreal.
A problem for Washington and other state governments is their minuscule funding for research and development. Such funding leverages private-sector investments, thereby making a state more attractive for establishing private R&D operations. In 2019, Washington spent only $87 per million dollars of state GDP on R&D). This ranks 26th among state governments, but even this mediocre ranking is achieved only because of similar underspending by other states. Equally important, the state’s paltry expenditure has declined over the past seven years, thereby further increasing reliance on federal R&D funding to stimulate local private investment.
A few states, such as California and Massachusetts, have made substantial investments in the range of technology-based economic development assets comprising a regional high-tech economy. Such assets include research consortia, incubators, accelerators, venture capital infrastructure, skilled labor and restructured community colleges and research universities.
So far, the technological intensity of the Seattle area has managed to keep the state highly ranked. The Information Technology and Innovation Foundation (ITIF), a think tank in Washington, D.C., has developed a 25-element “New Economy Index” that measures the extent to which state economies are “knowledge-based, globalized, entrepreneurial, IT-driven and innovation-oriented.” Using this index, ITIF ranks Washington fifth behind Massachusetts, California, Utah and Maryland. Of these five, four are in the Top 11 in terms of per capita GDP.
The bottom line is that, while Washington’s overall growth rate has so far remained above average, this amounts to damming with faint praise, as national growth rates have declined for decades and income inequality continues to create angst in a majority of counties. This, in turn, is fomenting political discontent. Thus, growth policies are needed that target entire high-tech supply chains distributed geographically across the state.
A ray of hope for achieving the necessary investments to create statewide high-tech jobs is in a congressional bill — the Endless Frontier Act, which would provide more than $200 billion not just for R&D funding, but also for the establishment of “innovation hubs” that would support the complete range of assets necessary to create state technology-based economic development clusters and hence a wide variety of high-tech jobs. Our state government and congressional delegation should enthusiastically support this legislation.
In fact, the federal government has an existing program, Manufacturing USA, which provides substantial funding to states to establish joint industry-government research consortia. So far, the program has funded 17 consortia across the country — yet none in Washington state. Such consortia are the core of innovation hubs and their substantial economic impact.