The key to economic competitiveness lies in fostering innovation. And to be well-positioned to drive innovation-based growth, US state economies need to be structured around such factors as attracting more engineers and immigrant knowledge workers.

What's more, some states are way ahead, while others are woefully behind.

That's the conclusion of a report from the Kauffman Foundation and the Information Technology and Innovation Foundation, which  provides a ranking of the states according to how prepared they are to compete in the "New Economy." That term means economies that are "knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based." 

Massachusetts, Washington, Maryland, New Jersey and Connecticut came out on top. Mississippi, West Virginia, Wyoming, Alabama, and Arkansas were the losers. 

The report based its findings on 26 key indicators, divided into five categories:

--Knowledge jobs. That includes such factors as employment of IT professionals outside the IT industry, the educational attainment of the entire workforce, and immigration of knowledge workers.

--Globalization. All about the export orientation of manufacturing and services, and foreign direct investment.

--Economic dynamism. The number of entrepreneurs starting new businesses and the number of individual patents issued, among other things.

--Transformation to a digital economy. The percentage of the population that's online, use of information technology in the health care system and so on.

--Technological innovation capacity. That includes the number of jobs in technology-producing industries, the number of scientists and engineers in the workforce, the movement toward a green-energy economy, among other points.

In general, the top states came in high on the list, according to the report, because they ". . . not only have an abundance of high-tech firms, but also have a high concentration of managers, professionals and college-educated residents working in "knowledge jobs"." Plus "Most of these states also have a solid innovation infrastructure that fosters and supports technological innovation, and many have a good quality of life coupled with high levels of domestic and foreign immigration of highly skilled knowledge workers."

Specifically, Massachusetts is in the best position not only because it's home to a lot of software, hardware and biotech companies, but also because it has all those top-flight universities that can produce people to work in those companies. Washington is headquarters to such companies as Microsoft and Amazon and attracts a lot of highly skilled, highly educated workers. Maryland has a high concentration of knowledge workers. As for New Jersey, the report cites a "strong pharmaceutical industry, coupled with a high-tech agglomeration around direct investment."

But what about California, home to Silicon Valley, the epicenter of innovation? It came in at number seven.  Why did it do so much worse than Massachusetts? "Boston's Route 128 represents a much larger share of the state ecosystem than Silicon Valley in California," says Robert Atkinson, president of ITIF.

What's more, says Atkinson, in recent years, the Boston area has been able to address the previous decline of Route 128 technology firms by attracting biotechnology and clean energy firms, among others. These companies are more nimble and less rigid than the minicomputer businesses that once were the backbone of that area.

Ultimately, the report recommends the creation of state-federal "innovation-based economic development partnerships." And it proposes that states focus on so-called gazelles, the small number of companies with the potential for high growth and job creation.

That last point, in fact, has been an issue the Kauffman Foundation has advocated for a while now. Perhaps this report will provide more ammunition for that position.