February 28, 2002
By Martin C. Jischke
President, Purdue University
U.S. governors hear message Indiana must heed
The National Governors Association this week (Sunday, 2/24) heard the message that the Alliance for Indiana's Future has been proclaiming to Hoosiers for the past several months:
For a state to compete in today's marketplace, it must partner with its business community and research universities.
Michael Porter, a professor in the Harvard School of Business and an expert on competitiveness, delivered the message at the governors conference in Washington, D.C. Sound familiar? It should.
Many of us back home in Indiana have been expressing that very same message. Here is an excerpt from a talk I delivered at the Economics Club of Indianapolis just last week (Wednesday, 2/20):
"This new economy is driven by science and technology. States that have most effectively developed this knowledge-intensive economy have succeeded by partnering with major research universities.
"Purdue, with its top-ranked programs in engineering, science, technology, computers, agriculture, veterinary medicine, biomedical engineering, nanotechnology, biotechnology, pharmacy, and management, is ideally situated to be an engine powering Indiana's success.
"Success, though, will take more than just a government-business-university partnership. It will take a revamping of our tax system to attract the kinds of start-up companies Indiana needs.
"Our business tax structure contributes to our financial problems. For example, we tax gross corporate revenues rather than net income. This hits start-up enterprises especially hard at a time when we need to help these new companies succeed. The situation is exacerbated by a structure that taxes inventory and property rather than profits. By doing so, we squander Indiana's comparative advantage as a natural center for distribution. Two-thirds of the nation's population lives within one day's drive of our state.
"In addition, our state's tax structure does not provide competitive incentives for high-skill, high-wage, technology-based start-up companies. And these are the enterprises that will fuel the life sciences, information technology, and advanced manufacturing industries of tomorrow.
"The fact that we are at or near the bottom in the number of small business start-ups is due, in part, to Indiana's increasingly archaic tax structure.
"Though the state's universities alone cannot solve all of Indiana's economic, financial, and educational challenges, we intend to carry more than our share of the load. Purdue is finding partners all across the state of Indiana who want to join us in these efforts and seize the new economic opportunities. There is a groundswell of understanding and commitment sweeping across our state.
"But, competing and growing in a global economy is about more than the structure of our tax system. More than ever, a vibrant economy requires a well-educated work force. Not only are well-educated workers better paid, they are less likely to be a drain on state coffers.
"With a well-educated population, communities and this state will collect more taxes, spend less on social services, and reap the huge benefits of creativity and entrepreneurship that translate into prosperity. Education is a low-risk, high-return investment a rare combination.
"We must act. And we must act now. Developments in this new economy are taking place rapidly. Other states are getting the message, and the competition will be fierce.
"Those who hesitate will be left behind. As President John F. Kennedy said: 'There are risks and costs to action. But they are far less than the long-range risks of ... inaction.'"