Missouri Competitiveness: Creating a State Economic Strategy

Missouri Competitiveness: Creating a State Economic Strategy Professor Michael E. Porter Harvard Business School March 28, 2012 For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm For state economic profiles: www.isc.hbs.edu/econ-statesregions.htm 1 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

What is Competitiveness? Competitiveness is the productivity with which a state utilizes its human, capital, and natural endowments to create value Productivity determines wages, jobs, and the standard of living It is not what fields a state competes in that determines its prosperity, but how productively it competes 2012 State Competitiveness Rich Bryden 3 Copyright 2012 Professor Michael E. Porter

Where Does Productivity Come From? Businesses and government play different but interrelated roles in creating a productive economy Only businesses can create jobs and wealth States compete to offer the most productive environment for business 2012 State Competitiveness Rich Bryden 4 Copyright 2012 Professor Michael E. Porter

Agenda 1. How is your state doing? State Performance Scorecard 2. Why? 3. Where to go from here? Explaining your state s performance, strengths, and weaknesses Action Steps 2012 State Competitiveness Rich Bryden 5 Copyright 2012 Professor Michael E. Porter

Prosperity GDP per Capita, 2000-2010 Missouri Performance Scorecard Start Position Trend 27 45 Current Position 35-8 Wages Average Private Wage, 1998-2009 22 44 25-3 Job Creation Private Employment Growth, 1998-2000 and 2007-2009 Labor Mobilization Proportion of Working Age Population in the Workforce, 2000-2010 13 25 44 +19 46 28 14-14 Labor Productivity GDP per Workforce Participant, 2000-2010 41 39 32-7 New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009 Innovation Patents per Employee, 2000-2010 18 24 34 +10 34 16 33 +1 Cluster Strength Employment in Strong Clusters, 1998-2009 38 42 48-10 Leading Clusters by employment size, 2009 (national rank) Processed Food (10) Publishing and Printing (12) Chemical Products (7) Motor Driven Products (8) Biopharmaceuticals (12) State Rank 2012 State Competitiveness Rich Bryden 6 Copyright 2012 Professor Michael E. Porter 1-10 21-30 31-40 11-20 41-50

Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 2012 State Competitiveness Rich Bryden 7 Copyright 2012 Professor Michael E. Porter

Gross Domestic Product per Capita, 2010 $65,000 $60,000 Comparative State Prosperity Performance 2000-2010 High but declining versus U.S. Delaware Connecticut Alaska Wyoming High and rising prosperity versus U.S. $55,000 Massachusetts New York $50,000 New Jersey $45,000 $40,000 $35,000 $30,000 $25,000 U.S. GDP per Capita: $42,346 Georgia Michigan South Carolina Nevada Ohio Missouri Low and declining versus U.S. North Carolina Colorado Washington Texas New Hampshire California Illinois Minnesota Wisconsin Hawaii Rhode Island Kansas Indiana Pennsylvania Tennessee Utah Vermont Florida Oklahoma Arizona Maine New Mexico Kentucky Alabama Idaho Montana Arkansas West Virginia Mississippi U.S. GDP per Capita Real Growth Rate: 0.63% Maryland Nebraska Louisiana -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Capita, 2000 to 2010 Source: BEA. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. Low but rising versus U.S. 2012 State Competitiveness Rich Bryden 8 Copyright 2012 Professor Michael E. Porter Virginia Iowa South Dakota Oregon North Dakota

Proportion of Working Age Population in the Workforce, 2010 75% 70% 65% 60% Comparative State Labor Mobilization Performance 1999-2010 High but declining versus U.S. Michigan Delaware Indiana Georgia New Hampshire Wisconsin Alaska Colorado Utah Maryland Nevada Idaho Missouri Minnesota Nebraska Montana Hawaii North Carolina Tennessee South Carolina Texas Oregon Mississippi South Dakota Wyoming Washington Illinois Massachusetts Ohio Maine California Pennsylvania Arizona Florida Oklahoma New York Kentucky New Mexico Arkansas High Labor Force Participation and Participation rising versus U.S. Iowa Vermont Kansas New Jersey Louisiana North Dakota Virginia Connecticut Rhode Island U.S. Labor Force Participation Rate: 64.7% Alabama 55% West Virginia Change in Labor Force Participation Rate: -2.4% Low and declining Low but rising 50% versus U.S. versus U.S. -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% Change in Proportion of Working Age Population in the Workforce, 1999-2010 Notes: Source BLS. 2012 State Competitiveness Rich Bryden 9 Copyright 2012 Professor Michael E. Porter

Gross Domestic Product per Labor Force Participant, 2010 $140,000 $130,000 Comparative State Labor Force Productivity Performance High but declining versus U.S. 2000-2010 U.S. GDP per Labor Force Participant Real Growth: 0.803% Delaware Highly productive and productivity rising versus U.S. Alaska $120,000 Wyoming $110,000 Connecticut New York $100,000 $90,000 $80,000 $70,000 $60,000 Nevada Low and declining versus U.S. Washington New Jersey Texas Illinois Colorado Pennsylvania Georgia Rhode Island Ohio Michigan New Hampshire Utah Arizona Florida South Carolina Kentucky Maine Missouri Vermont Massachusetts California Louisiana Virginia North Carolina Minnesota Indiana Oklahoma Kansas Iowa New Mexico Tennessee Alabama Wisconsin West Virginia Arkansas -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Labor Force Participant, 2000-2010 Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 10 U.S. GDP per Labor Force Participant: $85,229 North Dakota Low but rising versus U.S. 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter Hawaii Idaho Mississippi Montana Maryland Nebraska Oregon South Dakota

Gross Domestic Product per Employed Worker, 2010 $150,000 $140,000 Comparative State Employee Productivity Performance High but declining versus U.S. 2000-2010 U.S. GDP per Employed Worker Real Growth: 1.42% Alaska Delaware Highly productive and productivity rising versus U.S. $130,000 $120,000 Connecticut New York Wyoming $110,000 New Jersey California Massachusetts $100,000 $90,000 $80,000 $70,000 $60,000 Low and declining versus U.S. Washington Texas Illinois Virginia Nevada Colorado Minnesota Pennsylvania Georgia Michigan Kansas Florida Utah Ohio Arizona Missouri New Hampshire Kentucky Wisconsin South Carolina Maine Vermont Louisiana North Carolina Montana 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Employed Worker, 2000-2010 Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 11 U.S. GDP per Employed Worker: $94,315 North Dakota Low but rising versus U.S. 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter Idaho Hawaii Rhode Island Indiana Nebraska Oklahoma Iowa New Mexico Tennessee Arkansas Maryland Alabama West Virginia Mississippi South Dakota Oregon

Patents per 10,000 Workers, 2010 20 High and declining innovation Comparative State Innovation Performance 2000-2010 U.S. average Growth Rate of Patenting: +2.25% California Vermont 15 Idaho Massachusetts Washington (16.5, +10.6%) Minnesota 10 5 0 Connecticut New Jersey Delaware New Hampshire Colorado Michigan -6% -4% -2% 0% 2% 4% 6% Growth Rate of Patents per 10,000 Workers, 2000 to 2010 Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR). 2012 State Competitiveness Rich Bryden 12 Copyright 2012 Professor Michael E. Porter Oregon High and improving innovation rate versus U.S. U.S. average Patents per 10,000 Employees: 7.77 New York Utah Texas Arizona Illinois Wisconsin North Carolina Pennsylvania Maryland Rhode Island Ohio New Mexico Indiana Iowa Nevada Florida Kansas Tennessee Virginia Georgia Oklahoma Missouri Kentucky North Dakota Wyoming Montana South Carolina Alabama Louisiana South Dakota West Virginia Nebraska Hawaii Arkansas Alaska Mississippi Low and declining innovation Maine Low and improving innovation = 2000 patents in 2010 = 500 patents in 2010

Quality of the Overall Business Environment Context for Firm Strategy and Rivalry Factor (Input) Conditions Access to high quality business inputs Human resources Capital access Physical infrastructure Administrative processes (e.g., permitting, regulatory efficiency) Scientific and technological infrastructure Rules and incentives that encourage local competition, investment and productivity e.g., tax policy that encourages investment and R&D Flexible labor policies Intellectual property protection Antitrust enforcement Related and Supporting Industries Local availability of suppliers and supporting industries Demand Conditions Sophisticated and demanding local needs and customers e.g., Strict quality, safety, and environmental standards Consumer protection laws Government procurement of advanced technology Early demand for products and services Many things matter for competitiveness Economic development is the process of improving the business environment to enable companies to compete in increasingly sophisticated ways 2012 State Competitiveness Rich Bryden 14 Copyright 2012 Professor Michael E. Porter

Improving the Business Environment Common Action Items 1. Simplify and speed up regulation and permitting 2. Reduce unnecessary costs of doing business 3. Establish training programs that are aligned with the needs of the state s businesses 4. Focus infrastructure investments on the most leveraged areas for productivity and economic growth 5. Design all policies to support emerging growth companies 6. Protect and enhance the state s higher education and research institutions 7. Relentlessly improve the public education system, the essential foundation for productivity in the long run 2012 State Competitiveness Rich Bryden 15 Copyright 2012 Professor Michael E. Porter

What is a Cluster? A geographically concentrated group of interconnected companies and associated institutions in a particular field Traded Clusters Compete to serve national and international markets Can locate anywhere 30% of employment Local Clusters Serve almost exclusively the local market Not directly exposed to cross-regional competition 70% of employment 2012 State Competitiveness Rich Bryden 17 Copyright 2012 Professor Michael E. Porter

Example: Massachusetts Life Sciences Cluster Health and Beauty Products Teaching and Specialized Hospitals Cluster Organizations MassMedic, MassBio, others Surgical Instruments and Suppliers Medical Equipment Dental Instruments and Suppliers Biological Products Biopharmaceutical Products Specialized Business Services Banking, Accounting, Legal Ophthalmic Goods Specialized Risk Capital VC Firms, Angel Networks Diagnostic Substances Containers Research Organizations Specialized Research Service Providers Laboratory, Clinical Testing Analytical Instruments Cluster Educational Institutions Harvard, MIT, Tufts, Boston University, UMass 2012 State Competitiveness Rich Bryden 18 Copyright 2012 Professor Michael E. Porter

Example: Houston Oil and Gas Cluster Upstream Downstream Oil & Natural Gas Exploration & Development Oil & Natural Gas Completion & Production Oil Transportation Gas Gathering Oil Trading Gas Processing Oil Refining Gas Trading Oil Distribution Gas Transmission Oil Wholesale Marketing Gas Distribution Oil Retail Marketing Gas Marketing Oilfield Services/Engineering & Contracting Firms Equipment Suppliers Specialized Technology Services Subcontractors Business Services (e.g., Oil Field Chemicals, Drilling Rigs, Drill Tools) (e.g., Drilling Consultants, Reservoir Services, Laboratory Analysis) (e.g., Surveying, Mud Logging, Maintenance Services) (e.g., MIS Services, Technology Licenses, Risk Management) Specialized Institutions (e.g., Academic Institutions, Training Centers, Industry Associations) 2012 State Competitiveness Rich Bryden 19 Copyright 2012 Professor Michael E. Porter

Strong Clusters Drive Regional Performace Specialization in strong clusters Breadth of industries within each cluster Strength in related clusters Presence of a region s clusters in neighboring regions Job growth Higher wages Higher patenting rates Greater new business formation, growth and survival On average, cluster strength is much more important (78.1%) than cluster mix (21.9%) in driving regional performance in the U.S. Source: Porter/Stern/Delgado (2010), Porter (2003) 2012 State Competitiveness Rich Bryden 20 Copyright 2012 Professor Michael E. Porter

Clusters and Economic Diversification Jewelry & Precious Metals Footwear Financial Services Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. 2012 State Competitiveness Rich Bryden Processed Food Business Services Apparel Leather & Related Products Fishing & Fishing Products Agricultural Products Distribution Services Publishing & Printing Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Biopharmaceuticals Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Communications Equipment Prefabricated Enclosures Lighting & Electrical Equipment Building Fixtures, Equipment & Services Power Generation Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Mining & Metal Manufacturing Sporting & Recreation Goods Automotive 21 Copyright 2012 Professor Michael E. Porter

The Evolution of Regional Economies San Diego Climate and Geography Hospitality and Tourism Transportation and Logistics Sporting Equipment U.S. Military Aerospace Vehicles and Defense Power Generation Analytical Instruments Communications Equipment Information Technology Education and Knowledge Creation Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals 1910 1930 1950 1970 1990 2012 State Competitiveness Rich Bryden 22 Copyright 2012 Professor Michael E. Porter

Missouri national employment share, 2009 Traded Cluster Composition of the Missouri Economy 8.0% Overall change in the Missouri Share of US Traded Employment: -0.15% Footwear 7.0% 6.0% 5.0% Motor Driven Products Sporting, Recreational and Children s Goods Chemical Products Aerospace Engines 4.0% Processed Food Lighting and Electrical Equipment 3.0% Publishing and Printing 2.0% 1.0% 0.0% Aerospace Vehicles and Defense Missouri Overall Share of US Traded Employment: 2.01% Leather and Related Products Medical Devices Information Technology Oil and Gas Products and Services Analytical Instruments Textiles Jewelry and Precious Metals Fishing and Fishing Products -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% Change in Missouri share of National Employment, 1998 to 2009 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 23 Employment 1998-2009 Added Jobs Lost Jobs Employees 16,000 = 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

Missouri national employment share, 2009 2.8% Traded Cluster Composition of the Missouri Economy (continued) 2.6% Biopharmaceuticals Construction Materials 2.4% Automotive Building Fixtures, Equipment and Services 2.2% Production Technology Heavy Construction Services Power Generation and Transmission 2.0% 1.8% 1.6% 1.4% 1.2% Heavy Machinery Hospitality and Tourism Education and Knowledge Creation Plastics Furniture Entertainment Overall change in the Missouri Share of US Traded Employment: -0.15% Financial Services Transportation and Logistics Metal Manufacturing Distribution Services Agricultural Products Apparel Prefabricated Enclosures Communications Equipment Forest Products -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% Change in Missouri share of National Employment, 1998 to 2009 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 24 Business Services Missouri Overall Share of US Traded Employment: 2.01% Employment 1998-2009 Added Jobs Lost Jobs Employees 19,000 = 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

Job Creation, 1998 to 2009 Business Services Education and Knowledge Creation Transportation and Logistics Aerospace Engines Distribution Services Missouri Job Creation in Traded Clusters 1998 to 2009 Processed Food Heavy Construction Services Power Generation and Transmission Entertainment Analytical Instruments Textiles Oil and Gas Products and Services Fishing and Fishing Products Tobacco Agricultural Products Jewelry and Precious Metals Communications Equipment Forest Products Construction Materials Sporting, Recreational and Children's Goods Biopharmaceuticals Prefabricated Enclosures Building Fixtures, Equipment and Services Medical Devices Lighting and Electrical Equipment Footwear Information Technology Heavy Machinery Chemical Products Leather and Related Products Financial Services Furniture Motor Driven Products Production Technology Plastics Hospitality and Tourism Apparel Metal Manufacturing Publishing and Printing Automotive Aerospace Vehicles and Defense 50,000 40,000 30,000 20,000 Net traded job creation, 1998 to 2009: -69,219 10,000 0-10,000-20,000-30,000 Indicates expected job creation given national cluster growth.* -40,000 * Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be -38,425 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2012 State Competitiveness Rich Bryden 25 Copyright 2012 Professor Michael E. Porter

Missouri Wages in Traded Clusters vs. National Benchmarks Power Generation and Transmission Oil and Gas Products and Services Financial Services Information Technology Entertainment Biopharmaceuticals Business Services Aerospace Vehicles and Defense Distribution Services Medical Devices Chemical Products Automotive Production Technology Heavy Construction Services Analytical Instruments Jewelry and Precious Metals Processed Food Education and Knowledge Creation Publishing and Printing Agricultural Products Forest Products Sporting, Recreational and Motor Driven Products Heavy Machinery Plastics Lighting and Electrical Equipment Transportation and Logistics Metal Manufacturing Communications Equipment Building Fixtures, Equipment and Prefabricated Enclosures Leather and Related Products Construction Materials Textiles Furniture Hospitality and Tourism Apparel Aerospace Engines Tobacco Fishing and Fishing Products Footwear Missouri average traded wage: $45,784 $0 $25,000 $50,000 $75,000 $100,000 $125,000 Wages, 2009 l Indicates average national wage in the traded cluster U.S. average traded wage: $56,906 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2012 State Competitiveness Rich Bryden 26 Copyright 2012 Professor Michael E. Porter

Productivity Depends on How a State Competes, Not What Industries It Competes In State State Traded Wage versus National Average Cluster Mix Effect Relative Cluster Wage Effect State State Traded Wage versus National Average Cluster Mix Effect Relative Cluster Wage Effect Connecticut +27,171 7,028 20,142 Oregon -10,359-1,304-9,056 New York +24,102 3,628 20,474 Missouri -10,427-1,425-9,002 Massachusetts +16,169 4,391 11,778 Alabama -10,934-3,563-7,371 New Jersey +13,535 3,761 9,774 Florida -11,007-1,559-9,448 California +9,573 349 9,224 Wisconsin -11,722-3,516-8,206 Maryland +6,651 2,496 4,155 Nebraska -11,777 241-12,018 Washington +5,652 2,692 2,960 Utah -11,992 2,072-14,064 Virginia +5,319 1,617 3,702 Tennessee -12,172-3,156-9,016 Illinois +2,658 16 2,642 Indiana -12,554-4,840-7,714 Colorado +1,662 2,416-754 Vermont -13,368-1,572-11,796 Texas +352 2,494-2,142 Oklahoma -13,572 497-14,069 Delaware +164 11,060-10,896 Nevada -14,277-2,365-11,911 Alaska -930-2,417 1,487 North Dakota -14,394 1,004-15,397 Pennsylvania -3,970-995 -2,975 South Carolina -15,276-5,067-10,209 Louisiana -4,280 95-4,375 Arkansas -15,378-4,560-10,818 Georgia -5,322-1,102-4,220 Hawaii -16,043-12,555-3,487 Minnesota -5,576-425 -5,150 New Mexico -16,123-288 -15,835 New Hampshire -6,387 374-6,761 Kentucky -16,215-5,024-11,191 Arizona -7,021 1,149-8,169 Maine -16,379-968 -15,412 Kansas -7,705 2,241-9,946 Iowa -16,606-2,721-13,885 Wyoming -8,057 1,040-9,097 West Virginia -16,645-3,894-12,751 Michigan -8,176-2,544-5,633 Idaho -18,671-787 -17,884 North Carolina -9,245-4,330-4,915 Mississippi -19,942-5,291-14,651 Ohio -9,284-2,495-6,788 Montana -20,073-2,259-17,815 Rhode Island -9,791-2,290-7,501 South Dakota -20,968 289-21,257 On average, cluster strength is much more important (78.1%) than cluster mix (21.9%) in driving regional performance in the U.S. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2009 data. 27 2012 - State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

Missouri Cluster Portfolio, 2009 Jewelry & Precious Metals Financial Services Apparel Processed Food Leather & Related Products Business Services Fishing & Fishing Products Distribution Services Publishing & Printing Agricultural Products Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Biopharmaceuticals Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Communi cations Equipment Lighting & Electrical Equipment Prefabricated Enclosures Building Fixtures, Equipment & Services Power Generation & Transmission Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Metal Manufacturing Footwear LQ > 1. Sporting & Recreation LQ, or Location Quotient, measures the state s share in cluster employment relative to its overall share of U.S. employment. Goods An LQ > 1 indicates an above average employment share in a cluster. Automotive 2012 State Competitiveness Rich Bryden 28 Copyright 2012 Professor Michael E. Porter LQ > 4 LQ > 2

Prosperity GDP per Capita, 2000-2010 Missouri Performance Scorecard Start Position Trend 27 45 Current Position 35-8 Wages Average Private Wage, 1998-2009 22 44 25-3 Job Creation Private Employment Growth, 1998-2000 and 2007-2009 Labor Mobilization Proportion of Working Age Population in the Workforce, 2000-2010 13 25 44 +19 46 28 14-14 Labor Productivity GDP per Workforce Participant, 2000-2010 41 39 32-7 New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009 Innovation Patents per Employee, 2000-2010 18 24 34 +10 34 16 33 +1 Cluster Strength Employment in Strong Clusters, 1998-2009 38 42 48-10 Leading Clusters by employment size, 2009 (national rank) Processed Food (10) Publishing and Printing (12) Chemical Products (7) Motor Driven Products (8) Biopharmaceuticals (12) State Rank 2012 State Competitiveness Rich Bryden 29 Copyright 2012 Professor Michael E. Porter 1-10 21-30 31-40 11-20 41-50

Cluster Development Common Action Items 1. Build on the state s existing and emerging clusters rather than chase hot fields 2. Pursue economic diversification within clusters and across related clusters 3. Create a private sector-led cluster upgrading program with matching support for participating private sector cluster organizations Government should listen and remove obstacles to cluster improvement 4. Align other state economic policies and programs with clusters 2012 State Competitiveness Rich Bryden Source: Porter/Stern/Delgado (2010), Porter (2003) 30 Copyright 2012 Professor Michael E. Porter

Aligning Economic Policy and Clusters Business Attraction Education and Workforce Training Export Promotion Natural Resource Protection Clusters Science and Technology Investments (e.g., centers, university departments) Standard Setting / Certification Organizations Specialized Physical Infrastructure Environmental Improvement Clusters provide a framework for organizing the implementation of many public policies and public investments to achieve greater effectiveness 2012 State Competitiveness Rich Bryden 31 Copyright 2012 Professor Michael E. Porter

Geographic and Governmental Influences on Productivity Nation Neighboring State State Neighboring State Metropolitan Areas Metropolitan Areas Metropolitan Areas Rural Regions Rural Regions Rural Regions 2012 State Competitiveness Rich Bryden 33 Copyright 2012 Professor Michael E. Porter

Defining the Appropriate Economic Regions Omaha Economic Area NE Columbia Economic Area IA IL Peoria Economic Area Springfield (IL) Economic Area Kansas City Economic Area St. Louis Economic Area KS MO KY Joplin Economic Area TN OK AR Jonesboro Economic Area Cape Girardeau Economic Area Fayetteville Economic Area Springfield (MO) Economic Area The economies of states are often an aggregation of distinct economic areas with differing circumstances Source: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director. 2012 State and City Competitiveness Rich Bryden 34 Copyright 2012 Professor Michael E. Porter

Missouri Metropolitan Areas St. Joseph MSA Columbia MSA Jefferson City MSA St. Louis MSA Kansas City MSA Joplin MSA Fayetteville MSA Springfield MSA 2012 State and City Competitiveness Rich Bryden 35 Copyright 2012 Professor Michael E. Porter

Average Private Wage, 2009 Wage Performance in Missouri Metropolitan Areas $46,000 $42,000 U.S. Average Private Wage: $42,403 Kansas City MSA* St. Louis MSA* $38,000 Missouri Average Private Wage: $37,652 $34,000 $30,000 St. Joseph MSA* Springfield MSA Columbia MSA Joplin MSA Jefferson City MSA Rest of State $26,000 Missouri Growth Rate U.S. Growth Rate $22,000 of Wages: 2.73% of Wages: 3.01% 2.2% 2.4% 2.6% 2.8% 3.0% 3.2% 3.4% 3.6% Growth Rate of Private Wages, 1998-2009 *Missouri portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in 2009. 36 2012 State Competitiveness Rich Bryden Fayetteville MSA* Copyright 2012 Professor Michael E. Porter

Average Private Wage, 2009 Employment Performance in Missouri Metropolitan Areas $46,000 $42,000 St. Louis MSA* U.S. Average Private Wage: $42,403 Kansas City MSA* $38,000 Missouri Average Private Wage: $37,652 $34,000 Jefferson City MSA Joplin MSA St. Joseph MSA* $30,000 Springfield MSA Rest of State $26,000 Missouri Growth Rate U.S. Growth Rate of Employment: 0.19% of Employment: 0.52% $22,000-0.4% 0.0% 0.4% 0.8% 1.2% 1.6% 2.0% 2.4% Growth Rate of Private Employment, 1998-2009 *Missouri portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in 2009. 37 2012 State Competitiveness Rich Bryden Fayetteville MSA* Copyright 2012 Professor Michael E. Porter

Geographic and Governmental Influences on Productivity Nation 1. Influence and access federal policies and programs Neighboring State State Neighboring State 4. Integrate policies and infrastructure planning with neighbors Metropolitan Areas Metropolitan Areas Metropolitan Areas 2. Work with each metro area to develop a prioritized strategic agenda Rural Regions Rural Regions Rural Regions 3. Connect rural regions with proximate urban areas 2012 State Competitiveness Rich Bryden 38 Copyright 2012 Professor Michael E. Porter

Agenda 1. How is your state doing? State Performance Scorecard 2. Why? 3. Where to go from here? Explaining your state s performance, strengths, and weaknesses Action Steps 2012 State Competitiveness Rich Bryden 39 Copyright 2012 Professor Michael E. Porter

Agenda 1. How is your state doing? State Performance Scorecard 2. Why? 3. Where to go from here? Explaining your state s performance, strengths, and weaknesses Action Steps Biggest Action Item of All 2012 State Competitiveness Rich Bryden 40 Copyright 2012 Professor Michael E. Porter

Create an Economic Strategy What is the distinctive competitive position of the state or region given its location, legacy, existing strengths, and potential strengths? What unique value as a business location? For what types of activities and clusters? Define the Value Proposition Develop Unique Strengths What elements of the business environment can be unique strengths relative to peers/neighbors? What existing and emerging clusters represent local strengths? Achieve and Maintain Parity with Peers What weaknesses must be addressed to remove key constraints and achieve parity with peer locations? Economic strategy requires setting priorities and moving beyond long lists of separate recommendations. 2012 State Competitiveness Rich Bryden 41 Copyright 2012 Professor Michael E. Porter

How Should States Compete for Investment? Tactical (Zero Sum Competition) Strategic (Positive Sum Competition) Focus on attracting new investments Compete for every plant Offer generalized tax breaks Provide subsidies to lower / offset business costs Every city and sub-region for itself Government drives investment attraction Also support greater local investment by existing companies Reinforce areas of specialization and emerging cluster strength Provide state support for training, infrastructure, and institutions with enduring benefits Improve the efficiency of doing business Harness efficiencies and coordination across jurisdictions, especially with neighbors Government and the private sector collaborate to build cluster strength 2012 State Competitiveness Rich Bryden 42 Copyright 2012 Professor Michael E. Porter

Harnessing the New Process of Economic Development Competitiveness is the result of both top-down and bottom-up processes in which many companies and institutions take responsibility Old Model New Model Government drives economic development through policy decisions and incentives Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations 2012 State Competitiveness Rich Bryden 43 Copyright 2012 Professor Michael E. Porter

Example: Organizing for Economic Development Cluster Committees South Carolina Council on Competitiveness Executive Committee Chaired by a business leader and reporting to the governor Convenes working groups, provides direction and strength, holds working groups accountable Coordinating Staff Task Forces Automotive Apparel Cluster Activation Education / Workforce Hydrogen / Fuel Cells Agriculture Research / Investment Start-ups / Local Firms Textiles Travel and Tourism Distressed / Disadvan. Areas Measuring Progress Effective economic policy also requires coordination within government 2012 State Competitiveness Rich Bryden 44 Copyright 2012 Professor Michael E. Porter

Summary The goal of economic strategy is to enhance productivity. This is the only way to create jobs, high income, and wealth in the long run Improving productivity and innovation must be the guiding principles for every state policy choice Improving productivity does not require new public resources, but using existing resources better Improving productivity demands that governors mobilize the private sector, not rely on government alone Economic strategy is non-partisan and about getting results 2012 State Competitiveness Rich Bryden 45 Copyright 2012 Professor Michael E. Porter

Next Steps 1. Reach out to your team 2. Reach out to the business community 3. Take advantage of Harvard Business School data and tools to support this effort. Go to www.isc.hbs.edu. The prosperity of the U.S. economy will depend more on the success of states in improving competitiveness than what happens in Washington 2012 State Competitiveness Rich Bryden 46 Copyright 2012 Professor Michael E. Porter