David Kluskiewicz

Stock market indices have been a staple of business news for decades. They summarize countless economic factors into single data points, ones that command almost as much attention as the weather forecast. They generate enough conversation to keep millions of investors engaged, whether they understand the underlying factors or not. Now that generations have renewed interest in the economy from following the big indices (NYSE, AMEX, NASDAQ), I think it’s time that we begin observing small indices (yet to be formed) too. They’re more interesting and they often have a much bigger impact on our lives.

There are two reasons to index small, local markets. First, they would give us a better idea of how our local communities’ economies work. Do we help new businesses grow? Which ones thrive here? Which ones prosper? Second, they would help increase investments in local communities. Typically, only angel investors and venture capitalists can tolerate risks associated with early stage companies. But if that risk is spread out, just as it is with a 401k, those early stage investments become far more accessible, providing more capital and a chance for smaller investors to enjoy a big reward. Local investment is particularly valuable because those companies are likely to become your clients, employers and neighbors. The localization of investment provides an excellent opportunity to become involved with the economy that will have the greatest impact on your wealth and quality of life.

State tech councils fostering innovation and bootstrapping early stage businesses are beginning to collect all the information needed to create small indices - maybe even exchanges. This kind of local investment could open the doors to a real innovation economy.

State supported early-stage funding is tough. Even though the payoff could net new jobs (and new income tax revenue) many states find it hard to take the risk. After all, they’re gambling with taxpayer money.

Kentucky has found a good way to mitigate some of this risk and still stay in the game to attract and retain its young innovators. They follow the Fed and assume that if a company qualifies for a Small Business Loan, it won’t burn the state’s cash.
Technology & Innovation - Funding| The Kentucky Cabinet for Economic Development

This morning’s “Rising Star” breakfast presentation by the Governor didn’t inspire much confidence. It came in the wake of sobering study, conducted by the Connecticut Economic Resource Center. Some of the findings included:

• For the five sectors showing the biggest declines, the average 2005 wage was more than $63,000 versus almost $36,000 for jobs in the sectors with the most growth.
• Connecticut ranked 48th among the best states for entrepreneurs in 2006, down from 43rd in 2005. In 2006, the Hartford metropolitan area ranked 50th out of the 50 largest metros that are best for entrepreneurs.
• Between 1990 and 2000 Connecticut had the largest relative shrinkage in the 18-34 year age cohort of any state in the nation. The state had a 23 percent decline in this age group, equating to a loss of more than 200,000 individuals. This is a critical cohort of individuals who are completing their education, embarking on their careers and establishing families.

Though it’s discouraging, this study underscores how important a culture of innovation is for us and our future. This may not be silicon valley, but Connecticut has its share of creators. Connecticut is remarkably well educated and, as one of the wealthiest states in the nation, has the potential to develop serious businesses for the future.