Unconventional Wisdom;

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Don't simply create new public-sector programs. Change private-sector behavior instead. Unless a state can change what happens in the marketplace -- how banks treat small businesses, how much corporations invest in training, how well academia and business interact -- it is unlikely to have much impact.

Don't judge economic-development efforts by how much money is spent. The Michigan and Pennsylvania programs are relatively inexpensive; they leverage far greater amounts of private investment.

Don't chase smokestacks. Smokestack chasing generally buys a state exactly the wrong kind of industries -- those most susceptible to foreign competition. The subsidies required deplete the resources needed to create an environment conducive to company formation.

Don't count on low taxes to generate growth. Ten years ago, South Dakota, Mississippi, and Arkansas all had low taxes, while California, New York, and Massachusetts had high taxes. Which states showed the strongest growth? There is little connection between taxes and growth. The connection is between wise investments -- in quality universities, school systems, and transportation networks -- and rapid growth.

Don't target small business. Small business is the buzzword of the 1980s. Yet only 10% to 15% of small businesses are potential growth companies. Target innovation, no matter what the size of the company.

Don't offer low-interest loans. Usually a few percentage points won't make or break a deal. It's generally more effective to make capital available, at market rates, to companies that couldn't otherwise get it because they are too small, too new, or too risky.