Arizona policy choices

              The New Economy:
Policy Choices for Arizona
J A N U A R Y 2 0 0 0
A R I Z O N A P O L I C Y C H O I C E S
The new economy is the buzz-phrase for the new
millennium’s first year. Everyone agrees that our
economy is fundamentally changing. But what is the
new economy? What does success mean in the new
economy? And, most important for Arizona, how can
we take advantage of the new economy to ensure
prosperity for our state’s people and places?
Morrison Institute for Public Policy explored
these questions in its October 1999 publication, The
New Economy: A Guide for Arizona.We described the
new economy in terms of eight broad characteristics:
• Technology is a given
• Globalism is here to stay
• Knowledge builds wealth
• People are the most important raw material
• There’s no such thing as a smooth ride
• Competition is relentless
• Alliances are the way to get things done
• Place still matters—but for different reasons
It’s a Whole New World
Four themes emerged from Morrison Institute’s
description of the new economy. First, the new economy
isn’t just about one thing. Most people think of the
new economy as simply the Internet. After all, it’s the
“dot-com” companies that are the darlings of Wall
Street, and the young “dot-com” entrepreneurs who are
getting rich as a result. But the new economy involves
much more than clicking, buying, and chatting. It’s
really the result of many forces coming together,
including global markets, technological advances,
intense competition, and so on—all of which can
create more opportunities and productivity for busi-nesses,
and therefore greater profits.
Second, the new economy isn’t just a phenomenon
of high-tech wizards who get rich when their companies
go public. It’s really built on a broad foundation of
businesses and workers who have learned to work
smarter. The wealth in the new economy comes, in
large part, from knowing how to take advantage of
technology and networks in dozens of different ways.
A Follow Up to THE NEW ECONOMY: A GUIDE FOR ARIZONA
This publication follows up on The New Economy: A Guide for Arizona that Morrison Institute for Public
Policy published in October 1999. The guide for Arizona described the new economy and provided data on
where Arizona stands. This report offers a broad set of choices to help Arizona’s people and places to prosper
in the new economy. The New Economy: A Guide for Arizona is available on Morrison Institute’s web site,
www.asu.edu/copp/morrison, as is this publication.
The New Ec o nomy:A Guidef or Ariz ona
OCT OBER 1999
ARIZONA POLICY CHOICES
2 The New Economy: Policy Choices for Arizona
And more and more, investors understand this. That’s why Wall Street is looking beyond Internet start-ups to
companies that know how to seize opportunities in the new economy, such as UPS and Federal Express. These
companies don’t just ship the products sold in the new economy, they know how to make information technology
and other new economy tools increase their competitiveness and profits.
Third, the competitive advantage of a specific place—a state, a region, or a city—now depends more than
ever on the quality of that place and the quality of the people who live there. Places cannot hope to succeed in
the new economy because of old-fashioned advantages such as proximity to raw materials or markets. Proximity
doesn’t matter much anymore. But the concept of “place” matters a lot.
Place matters because networking and access to such features as airports, trade associations, universities,
and research consortia are more important than ever. Knowing how to create competitive advantage out of
these local assets is becoming strategically important for companies and regions. So is the quality of a place—
the combination of culture, recreation, amenities, and lifestyle that will attract and retain the skilled workers the
new economy requires.
People matter because of the importance of a well-trained, knowledge-oriented workforce in virtually all
businesses today. Nowadays about 80 percent of workers move things, process or generate information, engage
in research and design, or provide services to people. Even those engaged in manufacturing (the other 20%) are
becoming “knowledge workers” because they must understand systems and technology much more than their
assembly-line predecessors.
In the new economy, successful companies are the ones that can hire and retain highly skilled knowledge
workers—no matter what their job description might be. Successful regions are those capable of providing a
workforce that can handle the challenges of the new economy.
A fourth theme in Morrison Institute’s new economy guide is that no one—not business owners, students,
workers, parents, and especially, public policymakers—can afford to ignore the new economy. Like it or not,
businesses are part of the new economy no matter what they make or sell. Students have to understand the
skills and knowledge they will need to thrive. Educators and parents must look beyond their own experiences
to guide today’s students. Public policymakers and civic leaders must understand that what makes an area
prosperous and the strategies for fostering economic growth are changing.
The need for research, capital, and technology are familiar to anyone conversant with the old economy. But
their significance, and the connections among them, have increased dramatically in the new economy. More than
ever, economic growth depends on new ideas and technological advances to lower costs, increase productivity,
and tap into global markets. Ideas and technology come from research and smart people, and research and smart
people depend on the availability of capital and top-notch education and training.When talent, research, and capital
come together, all sorts of opportunities to turn knowledge into lucrative new products and services emerge.
Arizona’s Ties to the New Economy
Morrison Institute’s October 1999 report asked pointed questions about Arizona and the new economy. How is
Arizona doing in the new economy? Is the state on the right track to evolve along with the new economy?
The report presented a generally upbeat assessment of Arizona’s role in the new economy based on a number of
recent national comparisons. Arizona got high marks for strong electronic and aerospace manufacturing industries,
its ties to growing international markets, its large number of fast-growing companies, its innovation capacity, and its
quality of life. However, the publication also warned that the state will suffer if it fails to solve some serious, vexing
problems. Unfortunately, the list of threats to the state’s new economy success is as long as its list of strengths.
Chief among these threats is a looming shortage of knowledge workers. This problem is caused generally by
a struggling education system that affects everyone and specifically by the growing gap between the “haves”
and “have-nots,” in income, education, technical skills, and access to technology. Other threats include: a limited
R&D base (Arizona has more high-tech branch office jobs than research jobs), inadequate venture capital; and
few start-up firms that result from university research. Finally, many surveys show that the state’s residents are
very unhappy with the high rate of population growth and the resulting traffic congestion and negative effects
on the environment and their quality of life.
What Comes Next 3
What Comes Next
It is time to make some defining choices.When the Morrison Institute published The New Economy: A Guide for
Arizona, we anticipated that, given the opportunity, the state’s residents would suggest some great choices for
Arizona in the new economy. Since then, we have found that Arizonans understand the need to focus on people
and places and to transition rapidly from the old economy to the new one.
Making the Right Policy Choices for the New Economy
On the following pages, we present your choices, along with some of ours, for further discussion and to form a
basis for action by leaders and residents across the state. These policies fall into six categories:
• Invest In New Ideas and Knowledge: Research & Development
• Venture Capital: Show Us the Money
• Workforce Development: Making the New Economy Work for Everyone
• Work Smarter: Using Technology Wisely
• Come Together: Strategic Alliances for a Competitive Advantage
• Place Matters: Investing In Quality of Place
Research &
Development
• Give state an R&D role
• Target world-class scientists/researchers
• Focus on academic centers of excellence
• Promote private R&D
• Encourage new economy start-ups
Venture
Capital
• Diversify state’s high-tech base
• Use state pension fund dollars
Workforce
Development
• Give every child a strong beginning
• Continue K-12 improvements
• Make academic standards a success
• Increase scholarships and financial help
• Put more choice/information in worker training
• Offer training tax credits
Using Technology
Wisely
• Foster access and technology use
• Put more technology in schools
• Create bold E-learning initiatives
• Add technology transfer to university missions
• Transition all businesses to new economy
• Resist old economy temptations
Strategic
Alliances
• Learn how innovation works
• Support cluster organizations
• Network with “gazelles”
• Create “cyberdistricts”
• Reinforce regional alliances
Quality
of Place
• Be honest about your assets
• Don’t sacrifice quality of place
• Be fast and flexible decisionmakers
POLICY CHOICES
for the
New Economy
4 The New Economy: Policy Choices for Arizona
Invest in New Ideas and Knowledge:Research & Development
Research and development is at the core of the new economy growth process. Without new knowledge, we
cannot create new products and services or foster entrepreneurship. In other words, we will be left out of the
new economy. The Progressive Policy Institute’s New Economy Index ranks Arizona 17th nationally in “capacity
for innovation.” But Arizona ranks 8th among the 10 Western states. Arizona has only two areas of high-tech
strength, and it lags in the type and number of workers who are critical to new economy innovations.
To encourage innovation, Arizona must use its university system to promote research. Also, the state should
support more R&D investments by private companies in Arizona. Here are the steps Arizona should take:
Give the state an active role in supporting R&D,
especially through university research
Nearly all R&D dollars come from corporate ($133 billion in 1997) or government investments
($63 billion). But as Congress considers reducing federal R&D spending to keep the budget
balanced, state support of basic and applied research has become a serious economic
development tool. For example, Michigan has earmarked $50 million in tobacco settlement
funds for medical and health research, with the lion’s share going to universities. The state
will also invest $1 billion over the next 20 years to create a “life sciences corridor.” This effort
will focus on making Michigan’s research institutions national leaders in biotechnology
applications and start-up companies. As part of the $165 million New Jersey Jobs for the New
Economy, Governor Christie Todd Whitman announced plans to promote economically viable
high-tech research at the state’s colleges and universities. The governor’s proposal provides
$10 million in state matching funds for new federal science and technology research grants.
In his 2000 State of the State address, California Governor Gray Davis proposed investing $75
million annually in California Institutes for Science and Innovation at three University of
California campuses. Governor Davis developed the initiative to combine world-class centers
for strategic innovation with training for new science and technology leaders. Arizona will have
to consider similar initiatives to gain a foothold in new high-tech arenas.
In the new economy,
"a potent concoction of
computers, a great idea,
a small team, a line to the
Web, a sprinkling of capital,
and a willingness to take a
leap of faith is enough to
rewrite the rules of an
entire industry."
Fast Company, September 1999
Making the Right Policy Choices for the New Economy 5
Target world-class scientists and academic researchers
for Arizona’s universities and institutions
Most of the great regional economic success stories of the 20th century didn’t just happen.
Many of them—including Silicon Valley—were built on a strong academic foundation.
California in the 1960s and Texas in the 1980s stimulated a high-tech boom by attracting the
best academic researchers. Today Georgia plans to recruit 85 new scientists and professors
to its universities, committing millions of state dollars to the task. The “talent recruitment”
package includes new university research facilities and enhanced base salaries. Arizona should
consider a similar program to attract more world-class scientists and researchers. To do this, the
state’s universities will have to have first class facilities, advanced equipment, and attractive
compensation packages.
Focus on centers of excellence at Arizona’s universities
Research specialties in universities and related institutions have substantial “spill-over” effects
on the state’s economy. But it has been almost 15 years since Arizona’s industry, university, and
government leaders worked together to enhance the state’s leadership in academic research.
After losing two high-tech facilities to Texas in the early 1980s, Arizona’s three universities
focused on building specific areas of excellence. These public/private partnerships resulted in
such top centers as ASU’s Center for Solid State Electronics Research and the Services
Marketing Center and the University of Arizona’s optics and health centers. These efforts and
others have helped to keep Arizona in the new economy race thus far. But, as the new econo-my
continues to grow, we must reaffirm our commitment to sustained investment in existing
and new centers of excellence so that Arizona will be world class in more fields. Whether the
goal is to improve the treatment of heart disease or design the next generation of computers,
Arizona universities should have the resources to lead the charge.
Promote more R&D among private companies
Arizona encourages R&D investments in several ways. A state R&D tax credit is available. Also,
state dollars support Arizona companies when they apply for federal Small Business Innovation
Research Awards. But Arizona could—and should—do more to encourage research in private
facilities and promote the state as a good place for the R&D centers that are the “brains” of
businesses. For example, Arizona should further support and promote its two university
research parks in Tempe and Tucson as locations for more private research facilities and jobs.
Encourage and support new economy start-ups
Start-up businesses are the soul of the new economy. Thus, business incubators that help to
turn R&D into new goods and services have become the focus of universities and economic
development organizations in many states. New Jersey, for example, plans to open ten new
incubators, doubling the current number of facilities around the state. Arizona has technology
incubators affiliated with Arizona State University and the University of Arizona. These centers
have promising records and could expand with more support from the universities, state
agencies, and leading businesses.
6 The New Economy: Policy Choices for Arizona
Venture Capital: Show Us the Money
The new economy cannot grow without investment. “Venture capitalists��� are investors who encourage the
growth of promising companies in high-growth industries—especially such new economy areas as multimedia,
telecommunications, and software.Without venture capital to turn ideas into new goods and services, no industry,
regardless of its potential, can grow rapidly.
Though the actual investors are typically large institutions such as pension funds, insurance companies, and
university endowments, the firms that decide on and manage the venture investments are typically located in
regions with clusters of high-growth industries. Where the firms are located and where they invest tend to be
the same area. Two good examples are Boston and Silicon Valley. This accounts partly for why Massachusetts
firms secured 11 percent of U.S. venture capital in 1997 ($1.2 billion), while Arizona captured less than 1 percent
($122 million).
To attract more venture capital, Arizona must prove that it has the potential to become a major player in the
new economy. To do so, Arizona must take two important steps:
Diversify the state’s high-tech base
Arizona is lagging in venture capital funds partly because it is strong in only a few new economy
sectors. But fortunately Arizona’s share of software and Internet, financial services, and
biotechnology is growing, and the optics cluster is developing rapidly. (See below.) The state
should enhance and consolidate its gains in these areas, thus ensuring that venture capital
THE POWER OF COLLABORATION
The story of Arizona’s optics industry is a prime example of the power of developing an agenda for collaborative action. Ten years ago, few people
even knew optics companies existed in any concentration in the state. Not surprisingly, there were few programs aimed at developing the optics
industry and optics CEOs did not have a seat at many civic leadership “tables.” Today the story is different. Here is how it happened:
IDENTIFIED CRITICAL MASS
In 1990, Arizona companies—in fields as diverse as optical components; optical design software; lasers for medical, industrial, and graphics applica-tion;
optical telescopes; and digital electronic camera systems—for the first time began thinking of themselves as an industry. They researched the
size of their industry and discussed common problems. They involved other organizations that could help or hinder their industry’s development:
universities, national laboratories, and financial institutions. Many began to believe firmly that, by contributing time to developing the state’s capacity
to support optics companies, they could turn Arizona into an international center of excellence in optics technology, which would benefit them all.
In 1992, the optics cluster companies (approximately 48 firms) incorporated as the Arizona Optics Industry Association, Inc. (AOIA).
NATIONAL RECOGNITION
Soon after, AOIA landed a cover story in Business Week, which dubbed Tucson “Optics Valley.”
JOINT VENTURES AMONG OPTICS FIRMS
In addition, over a three-year period, cluster companies bid together and successfully won a large contract that individually they could not have even
bid on, worked jointly with the University of Arizona to create centers of excellence in optical manufacturing technology, put assistants in eight local
schools to promote careers in science, and developed specialized curricula for community colleges.
PROGRAMS TO BUILD THE OPTICS INDUSTRY
The cluster, in partnership with the state’s major international service providers, has focused on building long-term export capacity for its member
firms. The results are significant: millions in immediate sales, establishment of an annual industry show in Arizona that draws nearly 100 domestic
and international firms, and a joint Arizona-Mexico university research agreement. More recently, the Arizona Department of Commerce awarded
AOIA grants to work with K-12 institutions to develop school-to-work programs.
RETURNS TO INDUSTRY
Individual firms, the industry, and the state’s economy have benefitted from AOIA efforts. The markets for optics-related firms have generally grown
through the cluster activities. One optics CEO, for example, calculates that his three years spent on cluster activities and networking, which cost his
company $50,000, have resulted in over $700,000 in new business for a $3 million company.
RETURNS TO ARIZONA
By 1999 the number of optics companies in Arizona had swelled to over 180 and is still growing. Moreover, a number of optics-related firms have chosen
to relocate to Arizona as a result of the growing recognition of this industry in the state. Currently, 23 companies are considering “Optics Valley.”
Making the Right Policy Choices for the New Economy 7
firms will recognize and invest in Arizona’s new economy strengths. Action on the policy choices
outlined in this document should move Arizona in that direction. However, interaction with the
state’s emerging industry leaders to devise a specialized action agenda could jumpstart the
broadening of Arizona’s high-tech base.
Use state programs already on the books
For some years, the Arizona State Retirement System has had the authority to invest up to one
percent of its funds in venture capital projects, although it has not done so. Critics have
claimed that such investments would be too risky and costly. But, most pension funds invest a
small amount of money in venture capital pools. With leadership from the private sector,
Oklahoma has created a program that leverages substantial venture capital at little or no cost
to the state. Arizona’s retirement fund should learn from the experience of other states and
leading private firms and begin investing in promising new economy areas in the state.
Workforce Development:
Making the New Economy Work for Everyone
People are the most important raw material in the new economy. In fact, a pool of talented workers is fast
becoming the most important competitive weapon in the new economy. The key difference among states and
regions may soon be which one can deliver the people industry needs when and where they need them.
In theory, the workforce delivery system is in place, as
shown in Figure 1. In practice, however, the workforce
pipeline in Arizona and elsewhere has some serious
shortcomings. For example, the 1970s baby “bust” has
meant that fewer people are entering the job market. The
education system is not producing enough graduates
who are ready to work in the new economy. Companies
focusing on downsizing have ignored employee training
and development. On the other hand, mid-career workers
do not seem to place a high priority on lifelong learning,
even when they have been “restructured” out of a job.
Many individuals are unprepared to be productive work-ers
in part because their past choices and current
lifestyles (i.e., drugs, criminal activity, teen pregnancy)
have put up significant barriers to employment.
Arizona must take steps to ensure that every worker can further the new economy, and that the new economy
can “work” for every worker. Toward that end, these choices make sense.
Give every child a strong beginning
To be successful as an adult in the workplace—and especially in the new economy—an
excellent early childhood education is a fundamental requirement. Unfortunately, Arizona has
no coherent system to ensure that all young children have access to quality preschool. Georgia
uses lottery funds to provide access to quality preschool for every four-year-old child. In
1998, Californians voted to increase the state’s cigarette tax by 50¢ per pack to fund early
childhood health and education programs. Arizona should make similar commitments to make
preschool and full-day kindergarten part of our education system.
Workforce Supply
FIGURE 1:
Matching Workforce Supply with Industry Demands
Un/underemployed Adults
or Adults Who Need Retraining
Industry Demands
Immediate,
or Short-term Needs
Community / Four-Year
College Students
Intermediate Needs
K-12 Students Long-term Needs
Preschool Long-term Needs
8 The New Economy: Policy Choices for Arizona
Focus on more than school funding and choice
Arizona has made charter schools, Students FIRST, and the AIMS academic standards the
cornerstones of school reform. These changes may help to improve training and education for
our children. But it is clear that by themselves they will not solve all of our education problems.
Issues such as class size, teacher pay, and school technology warrant attention. The emerging
problem of teacher supply as age and poor working conditions drive many people out of the
profession will also need to be considered. All of these issues are intertwined. In California, a
highly publicized class size reduction program has stimulated interest in teaching among
young workers and renewed interest among mid-career professionals who bring much life
experience to the task.
Make academic standards a success
In grades K-12, students need to acquire the math, science, language, and technology skills
they need to succeed in the new economy. Where kids fail to meet academic standards, Arizona
should take action. Teacher training and tools should be strengthened, and struggling students
should have access to help. Milwaukee, for example, provides tutors for young students not
reading at second-grade level. Arizona should also focus on high quality after-school activities.
Research shows that structured after-school activities and mentors are two answers to the
question of “what works?” to reduce social problems and boost academic achievement.
Increase opportunities for college scholarships
and financial help with training
A college education is a critical component in creating a workforce for the new economy.
Economist Lester Thurow points out that while many Americans are behind their counterparts
in other industrialized countries when they graduate from high school, they “close the gap” in
college. Thus, students who complete college are more likely to get ahead; those who have only
a high school education may be left behind.
Arizona must follow the lead of other states in using scholarships and internships to boost
achievement and participation in post-secondary education. Georgia’s HOPE scholarships
provide college financial aid for all of the state’s high school graduates who meet basic
standards. Pennsylvania created the SciTech scholarship and GI Bill for the New Economy to
increase the number of science and technology workers in the state. Arizona started to create
the same type of program with ASPIRE, but failed to follow through with funds. Now it’s time to
renew the state’s commitment to these ideas.
Put more choice, competition, and information
into worker training
Unless companies have skilled workers and workers have the necessary skills, neither one can
expect to prosper in the new economy. Unfortunately, Arizona’s numerous training programs
are too often mismatched to both people’s and industries’ needs.
The challenge is not simply to provide better training, or to move people off welfare into jobs.
The goal is to help all current and potential workers, regardless of where they are on the career
ladder, as they seek to adapt to the new economy. Experts say that such an effective worker
training system requires choice, competition, and information in the worker-training sector.
Making the Right Policy Choices for the New Economy 9
Companies and individuals should have enough information to make insightful decisions
about training. “Report cards” should be used to track the performance of the system so that policy-makers,
business leaders, and workers have the same information and influence on services.
The new federal Workforce Investment Act, along with the expected end of the federally funded
portion of the “school-to-work” program, gives Arizona the framework to build a training system
tailored to the new economy. However, top policymakers and business leaders, especially those
in technology industries, will have to be heavily involved in implementation if the training system
leaders talk about is going to become a reality any time soon.
Offer training tax credits or accounts for workers and firms
Training related to work and focused on specific industries or technologies is usually the most
beneficial. But frequently, companies fail to use training opportunities well. Government can
encourage companies and individuals to invest more in training through such standard tools
as tax credits, grants, loans, and other subsidies to companies and individuals. Fortunately, the
lessons in this area can be readily learned from others. For example, the federal government is
testing loan programs for qualified training expenses at a subsidized interest rate, with the
repayment schedule tied to the borrower’s income level. Our state’s information technology
industry has been building a case for an information technology training tax credit. Arizona
needs to act on such creative ideas as these and move quickly to provide training incentives for
everyone from the preschool teacher to the lab technician to physicist.
Work Smarter: Using Technology Wisely
Technology will continue to be a major driver of the new economy. As business guru Michael Porter has said,
“Today there is no such thing as a low-tech industry. There are only low-tech companies. Any company in any
industry can be more productive and more competitive by using technology well.” The same is true for a city,
state, or region. Technology is not an end in itself. Rather, it is a tool to be used to move people and communities
toward prosperity. How can we take advantage of technology’s potential and do so in a way that helps rich
and poor alike to achieve their goals? Arizona must make policy choices that increase access to new economy
technologies and make them affordable for everyone. In particular, the state must use technology to support
education and workforce development at all stages. It can do so in the following ways.
Foster universal access to broadband telecommunications and
encourage advanced services throughout Arizona
The lack of telecommunications capacity, especially to homes, is a barrier to progress in the
information age. State action to remove obstacles to market-led investments in broadband
infrastructure is vital. Public investments must be made to ensure that rural areas and inner
cities are not required to overpay to connect to new infrastructure or are not left out
altogether. There are many models for public investment. Virginia, for example, created
Net.Work.Virginia to provide the entire state with high-capacity access that costs the same
regardless of location. The Washington legislature recently appropriated $54 million to create
the largest educational network in the country, which will eventually connect all universities,
colleges, schools, and libraries with one another, the Internet, and other telecommunications
services. For Arizona, a fundamental overhaul of the Corporation Commission which, most
agree, no longer fits today’s fast-paced technological age could be a key to progress.
10 The New Economy: Policy Choices for Arizona
Put more technology know-how in schools
Arizona brags that the state’s public school technology standard is now one computer for
every eight students. A few years ago that ratio would have won awards, but today it’s no longer
enough. Many states have a technology standard of one computer for every four students. But,
teachers and students must know what to do with the machines. Technology should be inte-grated
with curricula and teacher preparation, along with standards that specify what kids
should know about and be able to do.
Set Arizona apart with a bold E-learning initiative
Experts suggest that E-learning (learning via the Internet and other technologies) will be “the
next big thing” after E-commerce. Major high-tech companies are moving rapidly to participate
in education and training in dramatically new ways. The best advice for traditional educational
institutions is to get ready for a tidal wave of competition. For example, Hewlett-Packard has
launched an initiative to “help e-workers and e-students enjoy e-classes taught by e-instructors
in real time on the Internet.” Microsoft has teamed with the Massachusetts Institute of
Technology to create the “I-Campus” for “higher-tech higher education.” Arizona needs to work
quickly to be a leader in E-learning. The starting point should be our universities and community
colleges. Arizona’s E-learning initiative should seek to build a strong foundation for new economy
industries by using a variety of technologies to deliver quality education quickly and directly
to homes, workplaces, and schools.
Add technology transfer to university missions
Arizona’s universities have a critical part to play in the new economy. These institutions should
add technology transfer to their traditional goals of teaching, research, and service. Just last
year, Arizona’s High-Technology Industry Cluster and other technology clusters were successful
in securing a change in the Arizona Board of Regents’ tech transfer policy to make university-generated
technology more available to businesses. The implementation of this policy should
include incentives and flexibility for faculty members to become temporarily involved in a
start-up company, or work part-time without negative effects on tenure or promotions.
Economic development officials, the financial community, and state political leaders could foster
university tech transfer strength through a “technology extension” program. Small companies
could obtain technical assistance from faculty experts, and professors could collaborate with
firms on research. Arizona’s software and Internet industry (about 2,400 mostly small, new
firms) has ranked this type of program as among its most critical needs.
Form “new economy transition” partnerships
Local and state economic development organizations and industry associations should
reconsider their missions and reorient their technical assistance programs to help all busi-nesses
meet the challenges of the new economy. Greater Phoenix Economic Council (GPEC)
is well underway with a redefinition of its mission and purpose. In addition, GPEC is using its
web site to link communities, companies, media, and consultants in new ways. America
Online’s “Digital Opportunity Partnership” is another model for economic development
organizations to follow. AOL is partnering with nonprofit organizations to provide technical
assistance, training seminars, and establish “circuit riders” to promote access to digital
technology and new economy adaptations.
Making the Right Policy Choices for the New Economy 11
Resist the temptation to protect the old economy
It would be natural for business and interest groups threatened by the Internet and new economy
to try to use the power of government to protect themselves against economic changes. The
first step is to avoid creating laws that will put a drag on the new economy.
Come Together: Strategic Alliances
for a Competitive Advantage
Regions and communities cannot succeed in the new economy if “everybody goes their own way.” Alliances are
necessary to stimulate economic growth and to ensure that this growth benefits the entire community. Indeed,
collaboration and connectivity are the keys to the new economy. Collaborative Economics’ Doug Henton notes
that “increasingly, the process of innovation is not conducted simply within an individual company but through
knowledge-creating networks of individuals with ideas in companies, universities, and other institutions. The key
is the sharing of knowledge over time through interactive processes based on trust, willingness to share, and
mutually beneficial exchange.” Once new products are on the market, the Internet is enabling businesses to
create “information partnerships” with their suppliers and customers. Together they find ways of improving
operations and sharing the benefits.
All organizations—not just businesses—are kicking the old “go-it-alone habit.” City and state governments,
educational institutions and community organizations must learn to collaborate generously to compete in the
new economy. Places like Silicon Valley, Austin, and Chattanooga have recognized the power of collaboration
and are finding ways to work across the boundaries of business, government, education, and community to
enhance the region’s role in the global economy. Arizona’s communities must do the same.
Arizona and its communities can take five key steps to encourage the creation of strategic collaboration in
the new economy:
Learn how businesses interact and innovation works
Arizona’s political and business leaders need to be as attuned to how innovation works as they
are to real estate issues. High-tech analysts note that Arizona’s political culture is still domi-nated
by real estate interests. Leaders in the top new economy regions have developed a deep
understanding of the industries and dynamics shaping the new, networked economy and
created insightful strategies for their economies. Arizona can get into this learning process
with updated cluster studies like The Changing Face of the Software Cluster in Arizona. The
last in-depth examination of Arizona’s key industry clusters was a decade ago when data were
collected for the Arizona Strategic Plan for Economic Development. New cluster analyses
would provide the information necessary to set goals in workforce development, university
excellence, and many other new economy areas.
Support cluster organizations because of their dominance
and strategic importance for networking
Arizona was one of the first states in the U.S. to focus on industry clusters—groups of compet-itive
firms in related industries that are located close together and share needs for talent and
technology—as the centerpiece of its economic development strategy. As part of its plan, the
state encouraged the formation of cluster organizations as a way for firms to interact and learn
from each other. These cluster groups have attracted similar businesses to Arizona. It is time for
Arizona’s political and economic leaders to recognize the benefits these organizations are gen-erating
for the state and provide them with financial support.
12 The New Economy: Policy Choices for Arizona
Network with the “gazelles” and web-generation entrepreneurs
The new economy is driven by small, but fast-growing, companies known as “gazelles.” Arizona
ranks third in employment by gazelles nationally, but these companies are rarely engaged in
traditional economic development and leadership circles. The all-consuming lifestyle of entre-preneurs
leaves little time to participate in boards or task forces or to consider lobbying. To
promote better networking with this vital part of the new economy, universities, state agencies,
and economic development boards should make a place at the table for new industries and the
gazelle entrepreneurs. Better still, reinvent economic development networking by meeting in
coffee houses, business incubators, or cyberspace at times more befitting their schedules.
Create “cyberdistricts” and vibrant community centers where
housing, employment, and services are located together
As noted, the new economy is based on new ways that business operate and new ways that
people work. Moreover, the “cleaner” nature of the new economy makes it possible to locate
homes, workplaces, and recreational areas closer together. Arizona needs to challenge its real
estate industry and city leaders to build vital centers and cyberdevelopments that promote
interaction and creativity and are attractive to new economy workers and entrepreneurs. The
city of Tempe has begun to talk with software and Internet companies about their needs, which
include high-speed telecommunications service and flexible leases. They also need restaurants
and services that support an around-the-clock work life.
Arizona has some of the most innovative developers in the world and a proven track record
for revitalizing downtowns. Building the types of vital, mixed-use centers that new economy
businesses value would surely result in projects to rival efforts already underway in San
Francisco and Seattle. These two cities are aggressively converting downtown warehouses into
software-friendly office locations. New Jersey is considering $2 million in planning grants for
municipalities interested in creating downtown “cyberdistricts,” or targeted areas where high-tech
companies will be encouraged to locate.
Reinforce regional alliances to get more done
Nearly everyone that has studied what makes a region successful in the new economy
concludes that its not just the ingredients that are important, but how they are put together.
In other words, the important part is how a state and regions leverage public and private assets
to achieve competitive advantage for their area and for the people located there. Many factors
affect this ability, but a key one is a group of regional leaders who know how to turn scattered
assets into something that is greater than the sum of its parts. To do this, a catalyst is usually
required—a strong leader or a strong organization—to start and keep interaction going.
Inclusion is critical, as are staff members to get things done.
In Arizona we have proven our ability to build productive partnerships in economic develop-ment
such as the Greater Phoenix Economic Council, Greater Tucson Economic Council, and
Governor’s Strategic Partnership for Economic Development. But in the years ahead, these
regional organizations should direct their energies to an expanded set of challenges. They have
to be more involved in taking care of the basics, creating the education, research, and financial
Making the Right Policy Choices for the New Economy 13
ingredients necessary for success. They have to be more conversant in what truly drives
economic performance. They have to call attention to new economy people and companies
and help them leverage public and private assets for commercial benefit. And as Greater
Phoenix Economic Council has done, more organizations have to set the stage for communities,
businesses, universities, civic groups, and government to work together to make sure Arizona
has the right recipe for success in the new economy.
Place Matters: Investing in Quality of Place
The new economy is not dependent on proximity to markets or raw materials. But region and community
actually matter more, not less. In a network-oriented economy, companies want to be in locations that provide a
critical mass of competitors, suppliers, and customers; a strong talent pool; unique institutions; and a desirable
quality of life. Knowing how to create competitive advantage out of these local factors is becoming strategically
important for both companies and communities.
Part of this competitive advantage lies in business networks and part in personal preferences. It is much easier
for companies to attract and keep top-notch talent in communities with a high quality of life. And the notion of
“quality of life” is changing as well. As the Starbucks phenomenon reveals, most Americans have a renewed
yearning for neighborhood-scale “places” where they can feel connected to their community.
No region or community can assume that its qualities will give it a permanent competitive advantage.
Arizona has long been regarded as a desirable locale. Yet a recent survey suggests that nearly half of Maricopa
County’s residents would leave if given the opportunity.
Arizona’s regions and communities seeking to maintain and improve place-based advantages should focus
on the following three principles and be as fast and flexible as the new economy.
Be honest about your assets
Every region has assets and attributes that affect its economy, quality of life, and sense of
community. Government controls some of these (public schools, for example), while others are
driven primarily by the private sector (i.e., the availability of business finance). Still others are
the result of geography (i.e., desert environment and warm weather).
Each region and community must be brutally honest in identifying their “core” assets. As stated
above, smart workers, university-industry partnerships, and business networks are among the
most important assets for any place today. Similarly, each region and community must under-stand
what its strengths are in terms of quality of life—open space, clean air, safe neighborhoods,
good transportation, or a suitable labor force. Arizona and its regions and communities can
forge an effective new economy strategy only if they understand which place-based assets the
new economy values, and which ones already exist locally.
Don’t sacrifice quality of place
Forget cheaper. The new economy rewards those who focus on quality. This principle is as true
for regions and states as it is for businesses. Many states and regions throughout the U.S. have
learned the hard lesson that competitive advantage based on low cost is a dead end. Locations
in other parts of the world will always be cheaper.
14 The New Economy: Policy Choices for Arizona
As business analyst Joel Kotkin has pointed out, “Technology ’haves’ choose quality locales.” In
the long run, a quality workforce, strength in high-growth business sectors, and a sense of
place will be far more important than cost. Indeed, those places that already rank among the
top tier of the new economy find they must work harder than emerging regions to maintain
their assets. Under Kotkin’s new hierarchy of places, Silicon Valley, Austin, and Denver have
moved beyond whether they are good places to do business and worry mostly about whether
they are good places to live.
Be fast and flexible decision makers
The new economy rewards speed, flexibility, and effective networking. Regions and communities
must do the same. Policymakers who take years haggling over how to fix problems risk making
their state or city powerless in the new economy. Higher education institutions that are slow
to respond to industry needs risk becoming irrelevant, as industry looks elsewhere. To stay
competitive, regions and communities must be flexible and prepared to adapt quickly to
changing circumstances. They must also be ready to foster collaboration to solve problems.
Conclusion
Today, competitiveness requires a mix of strategies based on a new world view. The new economy is fast-paced
and footloose, and it depends on different factors than the old one. Arizona and its communities can take
advantage of the opportunities the new economy offers if the state’s leaders and residents revisit and revise our
priorities and policies.
Action on the New Economy 15
Action on the New Economy
Morrison Institute for Public Policy’s Board of Advisors wisely selected the topic of the new economy for the
third edition of Arizona Policy Choices. The following people and institutions have also moved quickly to lead
the debate about the new economy and to address the issues it raises. Their foresight and aggressive action will
serve Arizona well.
• Governor Jane Hull appointed the Arizona Partnership for the New Economy in December 1999. This high-level,
statewide group will recommend a new economy agenda for Arizona. Their report is expected in
October 2000.
• Greater Phoenix Economic Council, under the leadership of CEO Rick Weddle and Board Chairman Mike
Welborn, has hosted a dozen high-level, high-visibility sessions on the new economy and has adopted the
new economy as part of its mission. GPEC has also reoriented its web site to connect companies, communities,
and media, and consultants. GPEC has sponsored the New Economy Summit, planning retreats, and regional
roundtables and produced a short video on the new economy that is being distributed to policymakers and
community groups throughout Maricopa County.
• Greater Phoenix Leadership has advocated for the Arizona Partnership for the New Economy and a companion
group, the Governor’s Task Force on Higher Education.
• From front page and editorial coverage to discussions with local experts, The Arizona Republic, Arizona
Daily Star, and The Business Journal have publicized The New Economy: A Guide for Arizona extensively
and have continued to encourage action on the issues.
The following organizations have engaged their members in learning and talking about the new economy since
the publication of The New Economy: A Guide for Arizona.
• Arizona Planning Association
• Arizona Department of Economic Security
• Arizona High-Technology Industry Cluster
• Arizona State University Research Park Board of Directors
• Arizona School Services Through Educational Technology
• ASU President’s Breakfast Series
• Chandler Futures Forum
• Governor’s Task Force on Higher Education
• Governor’s Small Business Advisory Council
• Greater Phoenix Black Chamber of Commerce
• Greater Phoenix Chamber of Commerce
• Maricopa County Community College District
• Mesa City Council
• Mesa Leadership Development
• Scottsdale Chamber of Commerce
• Scottsdale Partnership
• Valley Citizens League
• Western Governors’ Association
• Yavapai Community College Annual Employee Development Day
APC Series Editor
John Stuart Hall, Ph.D.
School of Public Affairs
Editor
Nancy Welch
Morrison Institute for Public Policy
Contributors
Mary Jo Waits
Morrison Institute for Public Policy
Nancy Welch
Morrison Institute for Public Policy
William Fulton
Illustration
©1999 John Nelson
John Nelson is a nationally-known artist who lives in
Tempe, Arizona. His donation of artwork is appreciated.
Design
Karen C. Heard
Chalk Graphic Design
Morrison Institute for Public Policy conducts research which informs, advises, and assists Arizonans. A part of the School of Public Affairs
(College of Public Programs) at Arizona State University, the Institute is a bridge between the university and the community. Through a
variety of publications and forums, Morrison Institute shares research results with and provides services to public officials, private sector
leaders, and community members who shape public policy. A nonpartisan advisory board of leading Arizona business people, scholars,
public officials, and public policy experts assists Morrison Institute with its work. Morrison Institute was established in 1981 through a grant
from Marvin and June Morrison of Gilbert, Arizona and is supported by private and public funds and contract research.
Publisher
Rob Melnick, Ph.D. , Morrison Institute for Public Policy
The New Economy: Policy Choices for Arizona
J A N U A R Y 2 0 0 0
A R I Z O N A P O L I C Y C H O I C E S
MORRISON INSTITUTE FOR PUBLIC POLICY
School of Public Affairs / College of Public Programs
Arizona State University
P.O. Box 874405, Tempe, AZ 85287-4405
(480) 965-4525 voice / (480) 965-9219 fax
www.asu.edu/copp/morrison
This document is copyrighted ©2000 by the Arizona Board of Regents for and on behalf of Arizona State University and its Morrison Institute for Public Policy.