Marketplace of Ideas Blog

The latest policy prescription to cure the ills of the state’s business climate comes from the Wisconsin Technology Council.

“Looking to the Future: A Case for Bold Action” focuses on four areas in this order of importance to WTC — increasing access to capital for entrepreneurs, workforce development, infrastructure and business climate, and technology development.

The council sees this as the logical extension of previous evolutions of the state’s economy, from wheat fields to dairy farms, and from lead mines to logging camps to “world-class manufacturing,” says WTC president Tom Still:

None of that happened without innovation and risk. Ingenious and often entrepreneurial people made bold decisions, in private and public settings, to keep Wisconsin prosperous in the face of changing markets and technologies.

Wisconsin is remaking its economy yet again, this time to compete in a world where the challenges to its prosperity are more likely to come from Shanghai or Mumbai than Chicago or Minneapolis. As the state enters an election year in which a new governor and Legislature will be elected, the candidates for those public offices and more deserve to hear some of the best ideas available for — yet again — transforming Wisconsin’s economy.

That transformation is well under way in part because the markets wait for no one, and because Wisconsin represents only a fraction of the national and world economies. It is also under way because some bold choices have been made. Those choices in recent years include building on the state’s research and development foundation, standing by investors who stand by homegrown companies, and working to awaken an entrepreneurial culture that was all but dormant.

Those choices were made during a decade in which Wisconsin lost 160,000 jobs in manufacturing, a shock wave that reverberates through the state to this day. Economists believe three-quarters of those jobs will never return. To prosper anew and to protect its historic quality of life, Wisconsin must now nurture emerging industry sectors as well as the physical and educational infrastructure that will support them.

The most important area to WTC is in access to capital — for early and mid-stage companies that tend to have higher growth than more established companies, promoting angel investing, “creating a Wisconsin Venture Network to support later-stage venture capital formation,” and modernizing the state’s tax code “to better attract and retain capital.”

One specific proposal is the creation of a “fund of funds,” a fund for “investing in top-tier venture capital funds” with a manager hired “to generate a superior rate of return for the fund-of-funds.” Such a fund can be created through the state pension fund, in a public–private partnership funded by state investor tax credits but administered in the private sector, or in a public–private partnership funded by state debt and tax credits.

The Wisconsin State Journal in Madison (for whom Still was its associate editor, and which was read by your favorite business magazine editor beginning at age 2, according to his parents) agrees with the council’s venture capital priority:

In fact, UW–Madison makes Wisconsin a prime candidate to generate the ideas and entrepreneurs to be matched with venture capital. The university annually ranks among the top five universities in the country in attracting research dollars.

However, Wisconsin has been slow to capitalize on this asset. Consider that in the 12 months ended with the first quarter of 2010, Wisconsin attracted $26 million in venture capital, according to a survey by PricewaterhouseCoopers and the National Venture Capital Association.

During the same period, neighboring Minnesota attracted $235 million. Even smaller Iowa attracted $84 million.

Venture capital totals can be dramatically affected by the timing of a single investment and by reporting differences. Nonetheless, Wisconsin is virtually always near the bottom of venture capital rankings.

Wisconsin has created some venture capital programs, with measurable success. But too often the programs have been too restricted or have not been renewed.

Taxes have a big role in the council’s proposal — early-stage investment tax credits (the Act 255 program), increasing the 25 percent investment tax credit to 40 percent for the first $500,000 invested in a startup, the ability to convert tax credits (which are of value only to those paying Wisconsin income taxes) to refundable credits, restoring the state capital gains exclusion to its original 60 percent rate and maintaining the 100 percent rollover exclusion, and changing the R&D tax credit to an R&D tax refund (which would help young companies that aren’t profitable yet and thus don’t have to pay income taxes).

The council has focused on workforce development for years, and here proposes improving access to higher education, increasing state K–12 funding in STEM (Science, Technology, Engineering and Math) education, and “focus on the needs of business when it comes to filling critical workforce needs, and develop sustainable relationships between higher education and industry.”

Related are three proposals in technology development — “focus on the needs of business when it comes to filling workforce voids” and develop “sustainable relationships” between higher education and industry, develop “collaborative public–private relationships” in R&D and tech transfer, and promote “Emerging Technology Centers” at UW campuses, mainly Madison and Milwaukee.

The final area focuses on the state’s business climate and infrastructure (which I would argue are separate areas, but my name’s not on it). The white paper espouses protecting “recent policy initiatives and actions that have given Wisconsin a foothold” in technology-based development and creating “an inviting regulatory climate that attracts new companies and workers while retaining those who have already invested in Wisconsin.”

The infrastructure part of this proposal espouses building “an infrastructure that improves and creates the right pathways into the state, from safe roads and bridges to high speed electronic commerce and telecommunications, to a cost-efficient and environmentally responsible energy portfolio.”

We’ll evaluate some of these proposals in this space Thursday.