Despite Economic Challenges, California Maintains Fourth Place in National Rankings of High-Tech Economies, According to Milken Institute Study

Continued Success Hinges on Investment in Human Capital

For Immediate Release
April 11, 2011

(LOS ANGELES) California's technology industries are still gaining ground, but the state's eroding investment in education may put the brakes on those sectors, potentially stunting California's growth for years to come.

According to the Milken Institute report, California's Position in Technology and Science, released today, the state still ranks fourth in the nation, but the gap between California and top-ranked Massachusetts continues to grow.

"The big issue for California is educating its future workforce," said Kevin Klowden, managing economist and director of the Milken Institute California Center. "California remains one of the nation's leaders in technology, and it ranks high in a number of key measures. But continued success in all those categories hinges on investment in human capital."

The index, the Institute's fourth since 2002, is a bellwether of the state's economic performance, which relies heavily on its vital tech and science assets. A complement to the Institute's national State Technology and Science Index 2010, the California version provides key stakeholders in California with direct evidence of how the state is faring in the sectors that are most likely to impact the state's future economic position.

Five Composite Indexes
The report compares California to other states using five composite indexes based on 79 different indicators.

 With top 10 performances in four of the five composite indexes, California's lowest ranking is 13th in the Human Capital Investment Composite Index, which measures state spending on higher education, the availability of skilled workers, and the proportion of recent graduates in key science and engineering fields. The state lags behind in producing and retaining graduates in those fields. Unless a means can be found to improve this weakness, there is no guarantee the state's future workforce will match the quality of the current one.
 California slid to fourth in the Research and Development Inputs Composite Index, which gauges a state's ability to attract federal, industry and academic funding for R&D. Academic R&D funding remains a concern, especially when compared to the leader, Massachusetts.
 California ceded the top ranking in the Risk Capital and Entrepreneurial Infrastructure Composite Index to Massachusetts. This index examines venture capital investment, patent applications, new businesses formed, and initial public offerings - all key to turning research into products and services. California's weakness in this area is a lack of business incubators.
 The state slipped one spot to seventh in the Technology and Science Workforce Composite Index, a look at the relevant labor pool. The decline is due more to Delaware's improved performance than to a change in California's fortunes. Still, California's cost of living and some reluctance of leading tech firms to expand hiring are partly responsible for some tech and science workers leaving the state.
 The Technology Concentration and Dynamism Composite Index provided a bright spot, with California climbing two spots to fifth. This index measures growth in tech sectors, indicating how effective states are at attracting those companies. California is the leader in the number of high-tech industries, and finished in the top five in percent of employment and payroll in high-tech industries.

"The state's two greatest challenges are bolstering the development of human capital and arresting the decline of its finances," Klowden said. "California's legislature and governor must address not only short-term revenue concerns but also long-term structural imbalances. As long as the state's finances are unstable, funding for its universities will be inconsistent, placing the state at a competitive disadvantage in both the areas of R&D and human capital."

Both an executive summary of the report and the full version are available at www.milkeninstitute.org.

Contact
Jeff Monford, Interim Director of Communications, (310) 570-4623; jmonford@milkeninstitute.org

About the Institute: The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It is based in Santa Monica, CA. (www.milkeninstitute.org)