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Michigan’s Broken Pipeline in Science and Technology

Feb 22, 2023 | Economic Development, Economy, Entrepreneurs, Future, Income, Michigan, Science, Technology | 0 comments

In 2020, I bought an SUV that notices things. If it get too close to an obstacle, it warns me. It switches on its headlights at twilight. It slows down to keep a safe distance when cars ahead of me slow down. Twenty years ago, you couldn’t buy a car that smart.

Today’s intelligent cars are clues about the world our kids will find as adults in the 2040s. In the next 20 years, more intelligence will be built into many of our things. More artificial intelligence will be built into the process of making and delivering them.

How will the kids of Michigan fare in an economy that revolves around science and technology? After a little research, I am seeing danger signals for Michigan.

A message from Milken Institute’s State Technology and Science Index

Every two years, this California think tank rates each U.S. state on dozens of factors. They believe these factors drive economic growth and innovation in high-tech sectors. I decided to test their claim that the index predicts future economic gains for the people of the states.

I found that when you compare the ranks of the 50 in 2010 with the states per capita personal incomes in 2021, the correlation (Pearson’s r) was .63. That is a very high in my experience. Milken may be on to something….

In Milken’s 2022 index, Michigan ranked 17th among states — not too bad. It gets more interesting when you dig into the five “components” that make up the index:

1. Research and Development Inputs measures the funding that goes into a state’s research and development from all sources. Michigan was ranked 10th among the 50 states.

2. Risk Capital and Entrepreneurial Infrastructure measures a state’s ability to attract venture capital. This is critical for new high-tech firms. Michigan was ranked 36th. What???? More on that later.

3. Human Capital Investment evaluates technical education at all levels. It also includes a measure of Internet broadband access. Michigan was 19th.

4. Technology and Science Workforce measures the share of a state’s workforce in technical fields. Michigan was 13th.

5. Technology Concentration and Dynamism measures the size of a state’s tech industries compared to its overall economy. Michigan was 26th. That deserves another what??

The innovation pipeline

What do these rankings mean for the next generation of Michiganders? For science and technology to create tangible benefits for the people of a state, I like to imagine a pipeline of –

  • Scientists to create new knowledge,
  • Engineers to translate the knowledge into designs,
  • Tech-savvy entrepreneurs to turn the designs into businesses,
  • Venture capital firms to fund start-up companies, and
  • A tech educated workforce to staff the businesses.

If this pipeline is flowing in a state, new and improved products pour out of the end — along with good paying jobs and business profits. The economy flourishes. But what if the pipeline is broken? What if a state like Michigan is a top ten research and development state, but drops to 36th place in attracting venture capital. What if it’s 26th in scaling up its tech sector?

Digging deeper, I looked at some data about this from the National Science Foundation. Michigan compares favorably with North Carolina — a similar sized state — on the front end of the pipeline. It has a strong legacy in technical fields with

  • Research and development spending about 50% higher than North Carolina,
  • 60% more patents filed in Michigan each year than in North Carolina, and
  • 1 in 17 workers with a technical degree compared to 1 in 20 in NC.

Michigan’s broken pipeline

After the initial stage, though, Michigan’s pipeline appears to breaks down. The PitchBook company tracks venture capital deals in the states. Their figures show that in the last 10 years:

  • North Carolina companies completed an annual average of $1.8 billion in venture capital deals.
  • Michigan’s companies only completed an average of $0.5 billion.

I see two possible explanations for this difference. Either:

  • Michigan’s tech entrepreneurs are not pitching credible business plans at the same rate as those in North Carolina, or
  • Michigan’s entrepreneurs are going to other states to finance their high-tech start-ups.

Either way, Michigan’s next generation loses ground in its future economy.

The Michigan Economic Development Commission makes the case that things are turning around in Michigan. They base their claim on a $3 billion venture capital boom in 2021. Detroit, they say, has become a leading “emerging start-up ecosystem.” Time will tell whether this is a sustainable trend or if the state had one good year.

I hope Michigan is repairing its broken pipeline. Michigan has many front-of-the-pipe advantages, but the 10-year averages tell me the state that has not lived up to its potential on the back end.

The next ten years may determine whether Michigan’s kids will find exciting opportunities at home when they become adults. Will they be able to start, manage, and work in new high-tech businesses? Or will Michigan be left behind in the high-tech economy of the future?

One final thought

Massachusetts has only 70% of the population of Michigan or North Carolina. Yet, PitchBook reports that it’s businesses averaged $11.7 billion in venture capital deals per year between 2012 and 2021. Maybe both states should be studying The Old Bay State’s “emerging start-up ecosystem.”

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