President Obama's State of the Union speech unveiled a national competitiveness strategy that begins in Washington. But Washington can only help so much. It's up to each of the 50 states themselves to create their own plans to innovate and grow.

Which states are leading the country in innovation by attracting educated and highly skilled workers, funding their research, and producing world-leading tech companies? To answer that question, the Milken Institute produced the 2011 State Technology and Science Index, which grades each state according to about 80 indicators, including research and development funding, the education and skill level of the workforce, and the percent of companies in high-tech categories.* Here are the top ten states:

Looking for overarching trends? We spotted a few. First, the top states tend to be university and research meccas (e.g. Harvard and MIT in #1 Massachusetts, Johns Hopkins and NIH in #2 Maryland, and the UC system in #4 California). Second, many of these states feature cities that have established themselves as industry clusters (e.g. Seattle's software cluster in #6 Washington, medical devices in #7 New Hampshire, and defense firms in the D.C. suburbs of #8 Virginia). Third, some of the more surprising states -- #3 Colorado and #4 Utah -- climbed the list thanks to low-tax and regulation policies that attract in green tech and medicine firms.

"You have to innovate to be successful in a knowledge based economy," said Ross DeVol, an author of the report. "States need to utilize their assets, along with federal research and development money, to promote entrepreneurship and create new firms with high-paying jobs."

These days, you hear a lot about human capital -- econo-speak for "smart, competent people." But America's college graduates aren't always flocking to Milken's top-ranked states. According to new research from William Frey at the Brookings Institution, the 10 most popular cities for college graduates is still dominated by Sun Belt cities that experienced bubble growth in the 2000s:

When you compare the first gallery of innovative states to the second gallery of popular cities, you are seeing the central challenge of the next decade. How do we move our economic focus away from the frothy consumption binge of the 2000s, which attracted so much talent and produced so little good, toward an economy that corrals our best students to build new things with their tech savvy?

"Our strengths are heavily in the bio sciences, the pharmaceuticals, the medical devices, and electronic components like chips and semiconductors," DeVol said. "Ultimately the question is not only whether some of these states can be leaders in research and development [in these areas] but whether we turn research into jobs that sustain the middle class."

States might lead the way, but government should continue to play a role. The U.S. government has a long track record of leading technological breakthroughs, from the Internet and microchips to airplanes and nuclear power plants. The 1981 Bayh-Dole Act catalyzed the bioscience revolution of the 1980s and 1990s by giving universities and small businesses intellectual property control of products and ideas that came from federally funded R&D projects. DuVol said there is more the president should push for if he wants the United States to lead the world in innovation in science and tech, beginning with the president's call to reform the corporate income tax..

"We should make the R&D tax credit permanent," he said. "Extending it for five years at a time is not a way to encourage long term innovation and risk-taking. If you want to have more [industrial companies like] Caterpillar and Dow Chemical, we should allow a one-time repatriation of income earned abroad to be repatriated at a lower tax rate. We're sitting on trillions of dollars outside the U.S. and companies are not bringing it home because they have to pay taxes on income earned abroad."


*The slideshow text is adopted from the Institute's executive summary and my interview with author Ross DeVol.

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