Cuyahoga County: Collaborating to Compete

Transcription

1 Issue Brief Cuyahoga County: Collaborating to Compete Preliminary report Prepared by the for Leadership Cleveland July 15, 2004

2 Cuyahoga County: Collaborating to Compete The at Case prepared this Issue Brief for Leadership Cleveland s Civic Summit on Thursday July 15, The information contained in this Issue Brief is preliminary and subject to revision. For comments, contact Ed Morrison at ed.morrison@case.edu

3 Section Page Defining Regionalism The challenge of globalization The costs of governing in Cuyahoga County

4 Defining Regionalism The challenge of globalization The costs of governing in Cuyahoga County 4

5 The main points on the term Regionalism The term regionalism is so broad that it is largely useless. A number of simultaneous policy discussions are taking place throughout the region. Within Cuyahoga County, a discussion is underway on how to streamline governance within the county. Among area foundations, a discussion is underway on how to invest in regional economic development through The Fund for Our Economic Future. Team NEO is launching the first truly regional economic development strategy. The economic region of Northeast Ohio represents 22 counties in Ohio and 1 in Pennsylvania. This region includes 4.7 million people and is big enough to compete on a global scale. 5

6 Regionalism is an imprecise term that has created confusion. Definition 1: Governance in Cuyahoga County The core issue: How can we govern ourselves more effectively? The Plain Dealer uses this definition in its series on A Region Divided 6

7 Definition 2: A region covered by foundations involved in the Fund for Our Economic Future Core Issue: How do we get regional economic development to scale? The foundation s definition of the region is determined by the foundations that have agreed to participate. 7

8 Definition 3: A region covered by Team NEO Core Issue: How do we market Northeast Ohio to outside investors? Team NEO s definition of the region is determined by the investors in Team NEO. 8

9 Definition 4: A region defined by economic factors Core Issue: How do we develop globally competitive strategies? Economic factors support the definition of the region as 22 counties in Northeast Ohio and 1 county in Northwest Pennsylvania. This region encompasses the definitions of major metro areas used by the Bureau of Economic Analysis This region includes 4.7 million people which is bigger than many states, including Kentucky, Colorado, and South Carolina. The size of the Northeast Ohio economy is comparable to Finland or Israel. 9

10 Defining Regionalism The challenge of globalization The costs of governing in Cuyahoga County 10

11 The main points on globalization The Northeast Ohio economy has undergone two major waves of globalization. The first wave focused on collapsing costs for conducting international trade transactions. These collapsing cost curves created new low cost production locations to global companies. The costs pressures from this first wave continue today, especially as logistics improve to support low cost production bases in China, India, Vietnam, Malaysia and other countries. The second wave of globalization started in 1994 with the commercial development of the Internet. Both waves place enormous pressures on Northeast Ohio companies to improve productivity by reducing costs and creating new revenues through collaboration-driven innovation. The same trends, operating in the public sector, are giving rise to more innovative approaches to delivering government services. 11

12 Globalization -- the integration of global markets -- is driving the push toward regionalism The collapse of costs for global trade started soon after World War II. Improved telecommunications and the introduction of containers in ocean freight dramatically altered the costs structures of companies engaged in international trade. The passage of the 1974 Trade Act began a relentless lowering of trade barriers...a trend that continues today. Cost index 1930= Source: World Bank Sea Freight Air Transport Telephone Satellite Beginning in the mid-1970 s, the character of the economy in Ohio began changing dramatically. Global cost pressures created enormous pressures on our industrial companies. 12

13 The cost driven explosion of global trade created the first wave of globalization. The Internet created the second wave. The acceleration of global trade meant that by the mid-1970 s relatively high wage, low skill jobs began to disappear from the U.S. The second wave of globalization started in 1994 with the invention of the Netscape web browser. This technology opened the door to the Internet for general use. The Internet has become our first mass interactive medium. Merchandise exports as percent of world GDP 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 0% Source: Nicholas Crafts and Anthony Venables, London School of Economics, Globalization in History: a Geographical Perspective (October 11, 2001) Internet host count, in millions % 16% 14% 12% 10% % 6% 4% 2% High wage, relatively low skill jobs begin to disappear Source: ISC

14 The growth of the Internet has profound implications for collaboration and competition. Organizations are moving away from hierarchies and toward networks. Within these networks, participants co-create value. So, for example, managing customer and vendor relationships has become a strategic thrust for many businesses. The steady growth of the customer relationship management (CRM) market reflects this trend. The growth of network-based market relationships will accelerate as e-commerce business volume increases. The growth of e-commerce, in turn, opens the door to more e-government applications. 14

15 The push toward globalization is leading regions to begin collaborating in ways they had never before considered. States like South Carolina are shifting strategies to focus on regional collaborations. South Carolina is moving from a strategy based on recruiting branch plants (based on a low cost value proposition) to a strategy based on clusters, productivity growth and innovation. These regional partnerships extend far beyond regional marketing that Team NEO is pursuing. 15

16 Defining Regionalism The challenge of globalization The costs of governing in Cuyahoga County 16

17 The main points on the costs of governing in Cuyahoga County Generally speaking, Southern states are more competitive than Northern states in the delivery of government services. Ohio has been adding higher levels of local public employment, despite relatively slow populations growth. Cuyahoga County has far higher levels of public employment than comparable counties. When compared to all U.S. counties, Cuyahoga County is relatively large, but the county does not realize any significant economies of scale from this size. To the contrary, Cuyahoga County is significantly less productive than other comparable counties. The productivity of the public sector is important, because it plays a tightly connected role with the region s competitive position. We can visualize these connections in cycles of prosperity and decline. Civic leaders in Cuyahoga County face a choice of which cycle we will enter. 17

18 From a competitiveness viewpoint the key question is this: How much public overhead is required to support a given level of population (or income)? Southern states have generally less fragmentation than Northern states. Each local governmental unit tends to serve a larger population base. Northern States WI IL IN PA OH MI Southern States KY TX SC GA TN NC 1,785 1,825 1,996 2,452 3,141 3,584 2, ,000 4,000 6,000 8,000 10,000 Population per governmental unit Source: US Statistical Abstract 4,555 5,859 5,912 6,233 8,667 The cost consequences show up in, for example, the number of local government administration staff per 1,000 population. Southern states generally employ fewer local government administrators per 1,000 population. Northern States WI IN MI IL PA OH Southern States NC KY TN TX SC GA Local government administration employment per 1,000 population Source: US Statistical Abstract 18

19 From 1990 to 2001, local government employment per capita in Ohio has grown significantly. On average, Ohio has added nearly 6 employees per 1,000 population. Northern States PA MI IL WI IN OH Southern States GA TX TN NC SC KY Ohio is adding local government employment per capita, despite the relatively slow growth in the state s population. 19 US Change in local employment per 1,000 residents, Source: US Statistical Abstract Population growth in percent % J GA 25% 20% 15% J US J TX J TN J NC J SC 10% J J J J WI IN KY J IL MI 5% J J OH PA 0% Growth in number of local employees per 1,000 residents Source: US Statistical Abstract

20 The cost consequences of relatively low productivity in the public sector is relatively high. Jobs is the public sector generally pay well. Total state and local White collar occupations Professional/technical Executive/managerial Admininstrative support $20.72 $31.89 $35.43 $41.45 $39.81 Blue collar occupations Service Occupations $25.30 $24.26 Source: US Statistical Abstract $0 $10 $20 $30 $40 Hourly compensation and benefits, 2002 If, for example, we compare local government expenditures between Ohio and North Carolina, we find that Ohio is paying a far higher cost per capita in local administration than North Carolina. Education Administration Health Public welfare Police Highways Sewer Interest Parks Hospitals Housing Corrections Solid waste Other Fire $215 $105 $169 $153 $168 $142 $167 $128 $160 $47 $115 $74 $97 $84 $92 $56 $89 $60 $86 $75 $68 $40 $31 $34 $68 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Local government expenditures per capita, 2000 Source: US Census 20 $213 $221 $320 Ohio per capita NC Per capita $1,312 $1,237

21 Now we turn our attention to Cuyahoga County. As a consequence of the globalization pressures we outlined earlier, coupled with suburban sprawl, Cuyahoga County s population has declined. Population growth index (1900=100) Cuyahoga County Ohio US

22 Cuyahoga County suffers from the same problem as Ohio: a relatively inefficient public sector. Cuyahoga County is a relatively large county, but generally speaking, the costs of local employment are far higher than in comparable counties. Note that public employment in each county includes employment by the county and subunits of the county. Local government employment per 1,000 residents, Cuyahoga (Cleveland) J 50 Hamilton (Columbus) Franklin (Cincinnati) Wake (Raleigh) J J Lucas (Toledo) J J J 40 Allegheny (Pittsburgh) Jefferson (Louisville) J J Marion (Indianaoplis) , , , ,000 1,000,000 1,200,000 1,400,000 County population,

23 Log Per Capita Public Employment If we compare Cuyahoga County to all counties nationwide, we see that Cuyahoga County does not generate any of the efficiencies in public employment one would expect with a larger county. As the size of a county increases, per capita public employment generally decreases to reflect efficiencies. Source: REIS Database, analyzed by REI Log Population 23

24 Log Per Capita Income Spent on Public Payroll Generally speaking, Cuyahoga County is paying a higher proportion of its per capita income to support local government employment, compared to counties of comparable size. Source: REIS Database, analyzed by REI Log Population 24

25 In part as a consequence of relatively low productivity, Cuyahoga County taxes are relatively high. Tax burden for a family of four at $50,000 CLEVELAND / SHAKER HEIGHTS NEW YORK CITY / NEW YORK CITY PITTSBURGH / PITTSBURGH CLEVELAND / EASTERN SUBURB INDIANAPOLIS / MARION COUNTY SAN FRANCISCO / S. F. COUNTY CINCINNATI / HAMILTON COUNTY PITTSBURGH / ALLEGHENY COUNTY ATLANTA / FULTON COUNTY CHICAGO / COOK COUNTY CHICAGO / DUPAGE COUNTY COLUMBUS / COLUMBUS MIAMI / DADE COUNTY $6,425 $6,336 $5,738 $5,564 $5,375 $5,162 $5,142 $4,888 $4,608 $4,590 $4,394 $4,243 $4,204 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Source: Greater Cleveland Partnership, preliminary estimates 25

26 The productivity of the public sector matters. Prosperous economies are able to support higher levels of public services and investment through a prosperity cycle of growth and investment 26

27 In downward economies, the opposite happens. Public investments erode and taxes tend to increase. As taxes rise and public service deteriorates, the climate for private investment worsens. 27

28 Cuyahoga County s civic leadership now faces a choice of whether to innovate or fall farther behind. 28