(FORTUNE Magazine) – ONCE UPON A TIME, a lot of backyard barbecues in Raleigh/Durham's tonier suburbs involved Sansabelted tobacco and textile executives. They would stand around grumbling about business, pounding down too many bourbons, and ingesting mass quantities of charred beef. My, how things have changed. These days you will more likely find a flock of microbiologists arguing about neurotransmitters as they knock back a few Evians. Or a gaggle of software designers huddled around a Powerbook while the tofu burgers burn. This chunk of piney-woods real estate in central North Carolina has smartened up over the past two decades and become a genuine intellectual capital, with one of the highest per capita concentrations of Ph.D.s in the U.S. A lot of brainy types who made their way to Raleigh/Durham were drawn by three top research universities. Duke is in the old tobacco town of Durham; the University of North Carolina is in Chapel Hill, ten miles or so to the south; North Carolina State University, in Raleigh, the state capital, is about 20 miles east. But the real action in the area involves commercial rather than purely academic pursuits. High-tech giants like IBM and Northern Telecom have put major research facilities in the region, as have big pharmaceutical companies like Glaxo and Burroughs-Wellcome. Dozens of small biotechnology and software operations are starting up each year and growing like kudzu in the fertile business climate. U.S. businesses, especially those whose success depends on staying atop new technologies and processes, increasingly want to be where hot new ideas are percolating. A presence in brainpower centers like Raleigh/Durham pays off in new products and new ways of doing business. As Glaxo research director James Niedel puts it, ''Business is a social activity, and you have to be where important work is taking place.'' All of which makes this rapidly growing metro area -- population: about 925,500 -- a clear choice to top our fifth annual list of Best Cities for Business. The New York corporate relocation consulting firm Moran Stahl & Boyer assisted in compiling data for the project (see box). Executives consistently say the most important factor in choosing a business location is the quality of the work force -- and the key workers of tomorrow will surely be knowledge workers. These folks don't fit traditional stereotypes that line up white collars on one side and blue on the other. Though often highly educated and sometimes engaged in arcane technical careers, many also often work with their hands. They might be computer field engineers or paralegals, physicists or accountants. Their value lies in their ability to solve problems in new ways and bring candlepower to teams. They spark innovation. Many jobs that didn't used to require knowledge workers soon will. Consider: Applied Materials, which makes large machines used in manufacturing semiconductors, has been hiring nothing but college graduates for its manufacturing jobs in Austin, Texas (No. 5 on the list). Says Irwin Carroll, the company's Austin site manager: ''It's probably not necessary right now, but it will be as these jobs become more complicated. And that's one of the reasons we are here.'' So cities that expect to thrive will have to furnish a growing supply of knowledge workers. Observes Steven Stavish, president of Moran Stahl & Boyer: ''The new reality will drive cities to focus on improvements such as better education rather than on short-term fixes to compete in the knowledge society we have become.'' A number of elements draw knowledge workers to a particular community. Top- flight research universities and research centers are a must, along with the presence of innovative business enterprises. In assembling this year's list, we considered all these factors, along with more traditional elements such as costs, general quality of the labor force, and local attitudes toward business. There were surprises. Certain older cities in the North rated extremely well, with business innovation and the presence of skilled technical workers among the key measures. New York City, home to many of the world's shrewdest financial and communications professionals, took second place. Boston, with its world-class universities and health care facilities, as well as a still potent high-tech presence, finished way up on the list. Philadelphia, the base for several pharmaceutical titans, made the cut, as did Chicago, home of innovative companies like Motorola and Abbott Laboratories. Seattle (with Microsoft and Boeing) and Minneapolis (with 3M and Honeywell) were obvious choices. Ditto Houston, with its vast medical infrastructure and NASA research complexes. San Jose, California, remains the premier global center for high- tech electronics of all sorts. Austin has become one of America's most vibrant centers of business innovation; it might have finished higher in our executive survey if more business people knew about it. More will soon. But for now, Raleigh/Durham shapes up as the model of a metro region geared to the rules of the new economic game. Companies that prosper in the future will emphasize constant learning and more high-order thinking, and nowhere in America are such values promulgated with greater fervor. At the heart of the area's innovative prowess is the 7,000-acre Research Triangle Park, an enormous high-tech campus roughly at the center of a triangle with the region's three big universities as the vertices. It is home to more than 34,000 scientists and researchers and over 50 corporate, academic, and government tenants specializing in microelectronics, telecommunications, chemicals, biotechnology, pharmaceuticals, and environmental health sciences. The roster of corporate residents includes Data General, Du Pont, Sumitomo, Ciba-Geigy, BASF, and CompuChem. The U.S. Environmental Protection Agency has established its largest field installation there, and the National Institutes of Health has put up a major biomedical research center. What makes the park work so well is a unique nexus of the business community, area universities, and state and local governments. Duke, UNC, and N.C. State oversee a central research institute within the park where scientists and technicians from the universities tackle R&D projects, often alongside colleagues from corporations. Private-sector clients benefit when their researchers gain insights from the academic world, while university scientists get a glimpse of the commercial side of things. This sort of interaction between academia and business is such a part of the Raleigh/Durham ethos that the N.C. State community barely blinked when ABB leased a new building right on campus and stuck its company logo on the side. At N.C. State, the potential benefits to students and faculty outweigh any worry that scholarly independence might be compromised. ''This is a place where people understand they can get things done in the real world,'' says Phillip Styles, who gave up a post as vice president for research at Brown University to become provost at N.C. State. The state legislature has been an important player in building the area's high-tech base, providing most of the startup money for thriving microelectronics and biotech research centers. The area has been especially active in biotech, with 43 small companies started in the past five years. The state has also hit the on-ramp of the information highway at high speed, developing with GTE and local phone companies what officials promise will be the world's fastest wide-area, multimedia communications network. While GTE and the phone companies are providing most of the millions to lay fiber-optic cable and upgrade switching, the state last year budgeted $4.4 million to help the effort. State officials are also supporting another large project, this one conceived by John Kasarda, director of the Kenan Institute of Private Enterprise at UNC. Kasarda's vision is to construct a giant air cargo complex some 70 miles west of Raleigh. Kasarda argues that such complexes, which he calls Global TransParks, are an inevitable next step in transportation because economic progress increasingly depends on global trade and speed of delivery. Ground has been broken at the North Carolina site and at another in Belgium; Thai officials were on the UNC campus this autumn to learn about the project and may locate another TransPark in their country. The concept may be an ambitious one, says Kasarda, but it is typical of the kind of visionary thinking that takes place in Raleigh/Durham these days. THE 15,000 graduates that local universities and colleges pump out annually strengthen Raleigh/Durham's economy, particularly since the larger schools' curricula complement high-tech employment needs. North Carolina State boasts highly regarded computer science and graduate engineering programs; Duke is strong in business, environmental science, and such leading-edge health fields as biomedical engineering; the University of North Carolina has excellent programs in business, health services, nursing, pharmacy, and dentistry. A less tangible though no less important business plus for Raleigh/Durham is the area's low-cost, laid-back lifestyle. Wages are lower than in the Northeast or on the West Coast; an accountant with a bachelor's degree earns less than $25,000 on average, while a mechanical engineer with a doctorate barely tops $50,000. But costs are lower too. A four-bedroom Victorian home that would run $900,000 in California or the Northeast goes for $300,000. Those with a yen for weekend recreation can choose the ski slopes on the Great Smoky Mountains three hours away or the beaches of the Atlantic Ocean about two hours away. A traffic jam consists of more than three cars in your immediate vicinity, and urban woes such as overcrowding, street crime, and pollution are rarely a problem. Employers have used quality of life as a powerful recruiting tool. Says James Goodnight, chief executive of the rapidly growing software firm SAS Institute: ''The ease of living here allows us to bring in specialists from just about anywhere in the country.'' AUSTIN, the pleasant college town that is home to the sprawling main campus of the University of Texas, also offers the crucial elements that attract major players in high tech. Situated in central Texas at the edge of the verdant hill country and in the middle of this year's top ten list, Austin represents the new wave of cities that draw knowledge workers. Like Raleigh/ Durham, it features healthy cooperation between academia, business, and government -- as well as the stiletto-sharp edge of innovation. This town fairly sizzles with optimism, new ideas for products, and new ways of doing business. As in Raleigh/Durham, the presence of a large university and thousands of highly educated workers forms the basis of Austin's innovative potential. Nearly 50,000 students attend the University of Texas, which has top-ranked programs in physics, various engineering disciplines, computer and health sciences, and business administration. Other area universities and community colleges -- Southwest Texas State University and Austin Community College among them -- push the student population past 100,000, or better than 10% of the Austin metro area total. With all those young people around, the town has long boasted a far more hang-loose, freewheeling atmosphere than other large Texas cities. City council members tend to be relatively liberal, and you can spot the occasional superannuated hippie wandering downtown. First-time visitors, expecting the flat terrain of Houston or Dallas, are usually shocked to discover Austin's rolling hills, lushly covered with oak and cedar. Seven lakes dot the area, and one even has a nude beach. Thanks in large part to the college-age population, nightlife choices are extensive; around 180 saloons and nightclubs offer live entertainment. Austin's music industry has flourished and pumps about $400 million annually into the local economy. But we are not talking here about some large-scale Berkeley. Thanks mostly to the diligent efforts of academic, government, and business leaders over the past two decades, Austin has been transformed into one of America's most important bases for emerging technologies and industries. Dell Computer is based there, and just about every big high-tech player in the U.S., from IBM and 3M to Texas Instruments and Applied Materials, maintains a research or manufacturing presence. IBM, Apple, and Motorola chose Austin as the location for their high-profile PowerPC joint project, aimed at developing technology that will run Windows, Mac, OS/2, and Unix software with equal ease. Motorola and Advanced Micro Devices, both of which manufacture semiconductors in Austin, each announced in recent months $1 billion expansions to their local facilities. The town's highly educated work force is the main attraction for many employers: About one-third of Austin's citizens hold college degrees, and the city ranks near the top nationwide in number of books purchased per capita. Low costs help too; wages run about 70% of those in Atlanta or Dallas, and the median home price is $116,000. The rapidly reengineering Apple Computer, smarting over labor costs in California, recently moved most of its back- office operations -- including customer service telephone lines, accounting, payroll, and employee travel services -- to Austin. Says Apple site manager James O'Neill: ''It was simply too expensive to continue doing these manually intensive functions in the Bay Area.'' A lot of techie types -- ''propeller heads'' in the local parlance -- seem drawn to the area because of the easygoing lifestyle. The dozen big technology companies -- including Hewlett-Packard, Digital Equipment, NCR, and Rockwell -- that located Sematech, a semiconductor research consortium, in Austin failed to anticipate the brain drain that would hit them as a result. Researchers are supposed to be detached to the project from their companies for a maximum of two years, but, says Sematech's chief administration officer, Frank Squires, ''My biggest problem is getting them to go back to their hometowns.'' SMALLER COMPANIES even closer to the leading edge are also discovering Austin's innovative magic. In addition to the heavy corporate hitters on the scene, dozens of high-tech startups continue to enrich the local business mix. Some of the more promising of these young firms were spawned in a highly successful University of Texas business incubator, where new companies get cheap office space and assistance on everything from how to market their product to where to get inexpensive legal assistance. Eight solvent high-tech businesses -- including an outfit that produces polymer-based products for the health care industry and a software firm that develops smart sensors for integrated-circuit manufacturing -- have been hatched from the incubator. A couple of dozen more are gestating. It all adds up to a steady flow of new ideas and products -- and the sort of business atmosphere it pays to be near. That woman you meet at a business lunch may be working on a new process or a new product that will cut your costs in half; that guy you encounter on the first tee may become a dream customer for the computer program your company just developed. As James Truchard, a University of Texas Ph.D. who stayed in Austin to found a thriving computer and software company called National Instruments, puts it: ''You've got to be aware of trends before they happen, and early warning is critical. Change comes faster and faster.'' All ten of the metro areas on this year's Best Cities list have a critical mass of dynamism to fuel business innovation. Megacities like New York, Philadelphia, Houston, and Chicago are more often pilloried for crime and crumbling infrastructure than they are held high for the skills of their citizens. But each retains a core of educational institutions and forward- looking enterprises that draws knowledge workers by the thousands. In that way, the older cities on this list are much like the new high-tech centers, the Raleigh/Durhams and the Austins. Perhaps the biggest difference between the old and new is attitude. The rapidly blooming Sunbelt cities are on the make, and the entrepreneurial energy radiating from them is palpable. They reek of the future.

BOX: THE TOP TEN

1. RALEIGH/DURHAM 2. NEW YORK 3. BOSTON 4. SEATTLE 5. AUSTIN 6. CHICAGO 7. HOUSTON 8. SAN JOSE 9. PHILADEPHIA 10. MINNEAPOLIS

BOX: THE REST OF THE MAJOR CITIES

ALBANY ATLANTA BALTIMORE BIRMINGHAM BUFFALO CHARLOTTE CINCINNATI CLEVELAND COLUMBUS DALLAS DAYTON DENVER DETROIT FORT LAUDERDALE FORT WORTH GRAND RAPIDS GREENSBORO HARTFORD HONOLULU INDIANAPOLIS JACKSONVILLE KANSAS CITY LAS VEGAS LOS ANGELES LOUISVILLE MEMPHIS MIAMI MILWAUKEE NASHVILLE NEW ORLEANS NORFOLK OAKLAND OKLAHOMA CITY ORLANDO PHOENIX PITTSBURGH PORTLAND RICHMOND ROCHESTER SACRAMENTO ST. LOUIS SALT LAKE CITY SAN ANTONIO SAN DIEGO SAN FRANCISCO SCRANTON TAMPA TULSA WASHINGTON, D.C. WEST PALM BEACH