Connecticut Competitiveness: Creating a State Economic Strategy
Professor Michael E. Porter Harvard Business School September 2011
For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm 1 2011 State Competitiveness Bryden For state– Rich economic profiles: www.isc.hbs.edu/econ-statesregions.htm
Copyright 2011 © Professor Michael E. Porter
The Economic Challenge for Governors in 2011
Achieving Fiscal Stability
Enhancing State Competitiveness
2011 State Competitiveness – Rich Bryden
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Copyright 2011 © 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
2011 State Competitiveness – Rich Bryden
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Copyright 2011 © 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
2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Agenda
1. How is your state doing?
State Performance Scorecard
2. Why?
Explaining your state’s performance, strengths, and weaknesses
3. Where to go from here?
Action Steps
2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Connecticut Performance Scorecard Position in 1998-1999
Trend
Current Position
3
18
4
-1
2
34
2
+0
43
10
21
+22
29
3
14
+15
3
33
4
-1
43
23
41
+2
4
28
8
-4
15
20
16
-1
Prosperity GDP per Capita, 1999-2009
Wages Average Private Wage, 1998-2009
Job Creation Private Employment Growth, 1998-2000 and 2007-2009
Labor Mobilization Proportion of Working Age Population in the Workforce, 1999-2010
Labor Productivity GDP per Worker, 1999-2009
New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009
Innovation Patents per Employee, 1999-2009
Cluster Strength Employment in Strong Clusters, 1998-2009
Leading Clusters by employment size, 2009 (national rank)
2011 – State Competitiveness – Rich Bryden
• • • • •
Financial Services (9) Education and Knowledge Creation (14) Aerospace Vehicles and Defense (6) Analytical Instruments (16) Aerospace Engines (2) 6
State Rank
21-30
1-10
31-40
11-20
41-50
Copyright © 2011 Professor Michael E. Porter
Comparative State Prosperity Performance 1999 - 2009 $70,000
High but declining versus U.S.
U.S. GDP per Capita Delaware Real Growth Rate: 0.86%
Wyoming
Alaska
$65,000
High and rising prosperity versus U.S.
Connecticut
Gross Domestic Product per Capita, 2009
$60,000
New Jersey
$55,000
Virginia California
Washington
$50,000
Illinois
Nevada U.S. GDP per Capita: $46,093
Texas
$45,000 North Carolina Georgia
$40,000
Colorado
Hawaii Maryland
Kentucky
South Carolina
Low and declining versus U.S.
North Dakota
Minnesota Nebraska
Louisiana New Hampshire Rhode Island Kansas Pennsylvania Wisconsin
Indiana Ohio Utah Missouri Florida Tennessee Maine Arizona
Michigan
$35,000
New York Massachusetts
New Mexico West Virginia
Vermont
Alabama Arkansas
Iowa
South Dakota
Oregon Oklahoma
Montana Idaho
Mississippi
Low but rising versus U.S.
$30,000 -1.0%
-0.5%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Real Growth in Gross Domestic Product per Capita, 1999 to 2009
3.5%
4.0%
Source: Bureau of Economic Analysis. Note: Growth rate is calculated as compound annual growth rate. 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Comparative State Labor Mobilization Performance 1999-2010 Proportion of Working Age Population in the Workforce, 2010
75%
High Labor Force Participation and Participation rising versus U.S.
High but declining versus U.S.
North Dakota
Minnesota
South Dakota Iowa Vermont Kansas Wyoming
Nebraska
New Hampshire
70%
Wisconsin Colorado
Alaska
Connecticut
Utah Nevada
Maryland Idaho
65%
Missouri
Texas Oregon Montana Hawaii
Indiana Georgia
North Carolina Tennessee
Michigan Delaware
Virginia
South Carolina
60%
Washington Illinois Massachusetts Ohio Maine
Rhode Island New Jersey
U.S. Labor Force Participation Rate: 64.7%
California Pennsylvania Arizona Florida Oklahoma New York Kentucky New Mexico Arkansas Louisiana
Mississippi Alabama
55% Change in Labor Force Participation Rate: -2.4%
West Virginia
50%
Low and declining versus U.S. -7%
Notes: Source BLS. 2011 State Competitiveness – Rich Bryden
-6%
Low but rising versus U.S. -5%
-4%
-3%
-2%
-1%
0%
1%
2%
Change in Proportion of Working Age Population in the Workforce, 1999-2010 8
Copyright © 2011 Professor Michael E. Porter
Comparative State Labor Productivity Performance 1999-2009 $150,000
Gross Domestic Product per Worker, 2009
$140,000
High but declining versus U.S.
U.S. GDP per Worker Real Growth: 1.09%
Highly productive and productivity rising versus U.S.
Delaware
$130,000
Wyoming
Alaska
Connecticut
$120,000
New York
$110,000 New Jersey
Massachusetts
Louisiana
$100,000
Washington Nevada
$90,000
Virginia Colorado
Texas Minnesota
Utah Indiana Georgia Arizona RI Kansas Tennessee Ohio Wisconsin Missouri Florida West Virginia New Mexico Mississippi New Hampshire Kentucky Arkansas South Carolina Maine Montana
Michigan
$70,000
Illinois
North Carolina Pennsylvania
$80,000
Low and declining versus U.S.
Hawaii
California Maryland
U.S. GDP per Worker: $92,382 Nebraska Oklahoma Iowa Alabama
South Oregon Dakota
North Dakota
Idaho
Vermont
Low but rising versus U.S.
$60,000 -0.5%
0.0%
0.5% 1.0% 1.5% 2.0% 2.5% Real Growth in Gross Domestic Product per Worker, 1999-2009
3.0%
3.5%
Source: Bureau of Economic Analysis. Notes: Growth rate is calculated as compound annual growth rate; worker = labor force participant. 2011 State Competitiveness – Rich Bryden
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Copyright © 2011 Professor Michael E. Porter
Comparative State Innovation Performance 1999 - 2009
14
High and declining innovation
U.S. average Growth Rate of Patenting: -0.30%
Idaho
California
12 Vermont
Patents per 10,000 Workers, 2009
Massachusetts
Washington (+8.0%, 13.53) Oregon (+4.9%, 10.31)
10
Minnesota
Connecticut
8
Delaware New Jersey
High and improving innovation rate versus U.S.
Michigan
New Hampshire
Colorado New York
Texas Arizona Wisconsin
6 Illinois Pennsylvania
Maryland Indiana New Mexico
2
Florida Montana (-5.7%, 1.58) Tennessee Louisiana (-6.0%, 1.34) Arkansas (-6.9%, 0.76) Oklahoma West Virginia Mississippi South Dakota Alaska
U.S. average Patents per 10,000 Employees: 5.96
Rhode Island Iowa
Ohio
4
Utah
North Carolina
Kansas
Georgia
Missouri
Virginia South Carolina Kentucky Alabama Hawaii
Nevada Maine
Nebraska
Low and improving innovation
Low and declining innovation 0 -5%
-4%
-3%
North Dakota
Wyoming
-2%
-1%
0%
1%
Growth Rate of Patents per 10,000 Workers, 1999 to 2009 Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR). 2011 State Competitiveness – Rich Bryden
10
2%
3% = 1000 patents in 2009 = 500 patents in 2009
Copyright © 2011 Professor Michael E. Porter
Why? What Drives State Productivity?
1. Quality of the Overall Business Environment
2011 – State Competitiveness – Rich Bryden
2. Cluster Development
11
3. Policy Coordination among Multiple Levels of Geography/ Government
Copyright 2011 © Professor Michael E. Porter
Why? What Drives State Productivity?
1. Quality of the Overall Business Environment
2011 – State Competitiveness – Rich Bryden
2. Cluster Development
12
3. Policy Coordination among Multiple Levels of Geography/ Government
Copyright 2011 © Professor Michael E. Porter
Quality of the Overall Business Environment Context for Firm Strategy and Rivalry
Factor (Input) Conditions
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
Access to high quality business inputs – – – –
Human resources Capital access Physical infrastructure Administrative processes (e.g., permitting, regulatory efficiency) – Scientific and technological infrastructure
Demand Conditions
Sophisticated and demanding local needs and customers
Related and Supporting Industries Local availability of suppliers and supporting industries
– 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 2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © 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 2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Why? What Drives State Productivity?
1. Quality of the Overall Business Environment
2011 – State Competitiveness – Rich Bryden
2. Cluster Development
15
3. Policy Coordination among Multiple Levels of Geography/ Government
Copyright 2011 © Professor Michael E. Porter
What is a Cluster?
A geographically concentrated group of interconnected companies and associated institutions in a particular field
Traded Clusters
Local Clusters
• Compete to serve national and international markets • Can locate anywhere • 30% of employment
• Serve almost exclusively the local market • Not directly exposed to cross-regional competition • 70% of employment
2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Example: Massachusetts Life Sciences Cluster Health and Beauty Products
Cluster Organizations MassMedic, MassBio, others
Teaching and Specialized Hospitals
Surgical Instruments and Suppliers
Specialized Business Services
Medical Equipment
Dental Instruments and Suppliers
Biopharmaceutical Products
Biological Products
Banking, Accounting, Legal
Specialized Risk Capital Ophthalmic Goods
VC Firms, Angel Networks
Diagnostic Substances
Specialized Research Service Providers
Research Organizations Containers
Analytical Instruments Cluster 2011 State Competitiveness – Rich Bryden
Laboratory, Clinical Testing
Educational Institutions Harvard, MIT, Tufts, Boston University, UMass 17
Copyright 2011 © Professor Michael E. Porter
Example: Houston Oil and Gas Cluster Upstream
Oil & Natural Gas Exploration & Development
Downstream
Oil & Natural Gas Completion & Production
Oil Transportation
Oil Trading
Oil Refining
Oil Distribution
Oil Wholesale Marketing
Oil Retail Marketing
Gas Gathering
Gas Processing
Gas Trading
Gas Transmission
Gas Distribution
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) 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Strong Clusters Drive Regional Performace
• Specialization in strong clusters
• Job growth
• Breadth of industries within each cluster
• Higher wages
• Higher patenting rates
• Strength in related clusters
• Greater new business formation, growth and survival
• Presence of a region’s clusters in neighboring regions
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) 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Clusters and Economic Diversification Fishing & Fishing Products
Entertainment Hospitality & Tourism
Agricultural Products Processed Food
Jewelry & Precious Metals
Business Services
Financial Services
Aerospace Vehicles & Information Defense Tech.
Building Fixtures, Equipment & Services
Lighting & Electrical Analytical Equipment Education & Instruments Power Knowledge Medical Generation Creation Devices Communications Publishing Equipment & Printing Biopharmaceuticals Chemical Products
Apparel
Construction Materials Heavy Construction Services
Forest Products
Heavy Machinery
Motor Driven Products
Production Technology
Tobacco
Oil & Gas
Mining & Metal Automotive Aerospace Manufacturing Engines
Plastics
Footwear
Prefabricated Enclosures
Furniture
Transportation & Logistics
Distribution Services
Textiles
Leather & Related Products
Sporting & Recreation Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. 2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
The Evolution of Regional Economies San Diego Hospitality and Tourism
Climate and Geography
Sporting Equipment
Transportation and Logistics Power Generation
Communications Equipment
Aerospace Vehicles and Defense
U.S. Military
Information Technology
Analytical Instruments Education and Knowledge Creation
Medical Devices
Bioscience Research Centers 1910 2011 – State Competitiveness – Rich Bryden
1930
1950
Biotech / Pharmaceuticals
1970 21
1990 Copyright 2011 © Professor Michael E. Porter
Traded Cluster Composition of the Connecticut Economy 12.0%
Employment 1998-2008
Overall change in the Connecticut Share of US Traded Employment: -0.14%
Connecticut national employment share, 2009
Aerospace Engines
Added Jobs Lost Jobs
10.0%
Aerospace Vehicles and Defense
8.0%
6.0% Lighting and Electrical Equipment
4.0%
2.0%
Financial Services
Connecticut Overall Share of US Traded Employment: 1.43% Biopharmaceuticals
Entertainment
0.0% -8.0%
-6.0%
-4.0%
-2.0%
0.0%
Change in Connecticut 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. 2011 – State Competitiveness – Rich Bryden 22
2.0% Employees 10,800 = Copyright © 2011 Professor Michael E. Porter
Traded Cluster Composition of the Connecticut Economy (continued) 3.6% Overall change in the Connecticut Share of US Traded Employment: -0.14%
Connecticut national employment share, 2009
3.2% Power Generation and Transmission Communications Equipment
2.8%
Jewelry and Precious Metals Education and Knowledge Creation
2.4%
Analytical Instruments
Metal Manufacturing
2.0% Production Technology Medical Devices
1.6%
Sporting, Recreational and Children’s Goods
Connecticut Overall Share of US Traded Employment: 1.43%
Publishing and Printing
Tobacco Building Fixtures, Equipment and Services Construction Information Technology Plastics Materials Business Services Prefabricated Enclosures Textiles Transportation and Logistics Leather and Automotive Chemical Products Forest Related Products Employment Agricultural Products Products 1998-2008 Heavy Construction Processed Motor Driven Hospitality and Tourism Apparel Added Jobs Services Food Products Furniture Heavy Machinery Fishing and Fishing Products Lost Jobs Oil and Gas Products and Services Distribution Services
1.2%
0.8%
0.4%
0.0% -1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
Change in Connecticut 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. 2011 – State Competitiveness – Rich Bryden 23
0.8%
1.0%
1.2%
Employees 9,600 = Copyright © 2011 Professor Michael E. Porter
2011 State Competitiveness – Rich Bryden
-20,000
24
Footwear
Entertainment
Aerospace Engines
Heavy Construction Services
Biopharmaceuticals
Metal Manufacturing
Communications Equipment
Automotive
Analytical Instruments
Business Services
Plastics
15,000
Textiles
20,000
Processed Food
Lighting and Electrical Equipment
Production Technology
Publishing and Printing
Forest Products
Apparel
Motor Driven Products
Leather and Related Products
Sporting, Recreational and Children's Goods
Medical Devices
Furniture
Aerospace Vehicles and Defense
Chemical Products
Jewelry and Precious Metals
Construction Materials
Heavy Machinery
Fishing and Fishing Products
Building Fixtures, Equipment and Services
Tobacco
Oil and Gas Products and Services
Agricultural Products
Prefabricated Enclosures
-15,000
Power Generation and Transmission
-10,000
Information Technology
Hospitality and Tourism
Distribution Services
Transportation and Logistics
Financial Services
Education and Knowledge Creation
Job Creation, 1998 to 2009
Connecticut Job Creation in Traded Clusters 1998 to 2009
25,000
Net traded job creation, 1998 to 2009: -59,287
10,000
5,000
0
-5,000
Indicates expected job creation given national cluster growth.*
* Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be -7,727 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright © 2011 Professor Michael E. Porter
Connecticut Wages in Traded Clusters vs. National Benchmarks Financial Services Oil and Gas Products and Services Information Technology Distribution Services Business Services Chemical Products Forest Products Aerospace Engines Analytical Instruments Education and Knowledge Creation Agricultural Products Publishing and Printing Medical Devices Heavy Construction Services Communications Equipment Biopharmaceuticals Motor Driven Products Transportation and Logistics Automotive Production Technology Heavy Machinery Metal Manufacturing Lighting and Electrical Equipment Building Fixtures, Equipment and Services Leather and Related Products Plastics Construction Materials Processed Food Textiles Furniture Jewelry and Precious Metals Entertainment Sporting, Recreational and Children's Goods Hospitality and Tourism Power Generation and Transmission Aerospace Vehicles and Defense Tobacco Prefabricated Enclosures Fishing and Fishing Products Footwear Apparel $0
l
Indicates average national wage in the traded cluster
Connecticut average traded wage: $74,918
U.S. average traded wage: $56,906 $25,000
$50,000
$75,000
$100,000
$125,000
$150,000
$175,000
$200,000
Wages, 2009 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2011 – State Competitiveness – Rich Bryden
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Copyright © 2011 Professor Michael E. Porter
Productivity Depends on How a State Competes, Not What Industries It Competes In State Connecticut New York Massachusetts New Jersey California Maryland Washington Virginia Illinois Colorado Texas Delaware Alaska Pennsylvania Louisiana Georgia Minnesota New Hampshire Arizona Kansas Wyoming Michigan North Carolina Ohio Rhode Island
State Traded Wage versus National Average +27,171 +24,102 +16,169 +13,535 +9,573 +6,651 +5,652 +5,319 +2,658 +1,662 +352 +164 -930 -3,970 -4,280 -5,322 -5,576 -6,387 -7,021 -7,705 -8,057 -8,176 -9,245 -9,284 -9,791
Cluster Mix Effect
Relative Cluster Wage Effect
7,028 3,628 4,391 3,761 349 2,496 2,692 1,617 16 2,416 2,494 11,060 -2,417 -995 95 -1,102 -425 374 1,149 2,241 1,040 -2,544 -4,330 -2,495 -2,290
20,142 20,474 11,778 9,774 9,224 4,155 2,960 3,702 2,642 -754 -2,142 -10,896 1,487 -2,975 -4,375 -4,220 -5,150 -6,761 -8,169 -9,946 -9,097 -5,633 -4,915 -6,788 -7,501
State Oregon Missouri Alabama Florida Wisconsin Nebraska Utah Tennessee Indiana Vermont Oklahoma Nevada North Dakota South Carolina Arkansas Hawaii New Mexico Kentucky Maine Iowa West Virginia Idaho Mississippi Montana South Dakota
State Traded Wage versus National Average -10,359 -10,427 -10,934 -11,007 -11,722 -11,777 -11,992 -12,172 -12,554 -13,368 -13,572 -14,277 -14,394 -15,276 -15,378 -16,043 -16,123 -16,215 -16,379 -16,606 -16,645 -18,671 -19,942 -20,073 -20,968
Cluster Mix Effect
Relative Cluster Wage Effect
-1,304 -1,425 -3,563 -1,559 -3,516 241 2,072 -3,156 -4,840 -1,572 497 -2,365 1,004 -5,067 -4,560 -12,555 -288 -5,024 -968 -2,721 -3,894 -787 -5,291 -2,259 289
-9,056 -9,002 -7,371 -9,448 -8,206 -12,018 -14,064 -9,016 -7,714 -11,796 -14,069 -11,911 -15,397 -10,209 -10,818 -3,487 -15,835 -11,191 -15,412 -13,885 -12,751 -17,884 -14,651 -17,815 -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. 2011 - State Competitiveness – Rich Bryden
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Copyright © 2011 Professor Michael E. Porter
Connecticut Cluster Portfolio, 2009 Fishing & Fishing Products
Entertainment
Processed Food
Transportation & Logistics Aerospace Vehicles & Information Defense Tech.
Distribution Services
Jewelry & Precious Metals
Financial Services
Business Services
Education & Knowledge Creation
Publishing & Printing
Analytical Instruments Medical Devices
Prefabricated Enclosures
Building Fixtures, Equipment & Services
Furniture Construction Materials Heavy Construction Services
Lighting & Electrical Equipment
Communi cations Equipment
Biopharmaceuticals Chemical Products
Apparel Leather & Related Products
Hospitality & Tourism
Agricultural Products
Textiles
Forest Products
Power Generation & Transmission Heavy Machinery Motor Driven Products
Tobacco
Oil & Gas
Plastics
LQ > 4 LQ > 2
Metal Automotive Aerospace Manufacturing Engines
Footwear LQ > 1. LQ, or Location Quotient, measures the state’s share in cluster employment relative to its overall share of U.S. employment. An LQ > 1 indicates an above average employment share in a cluster. 2011 – State Competitiveness – Rich Bryden
Production Technology
27
Sporting & Recreation Goods Copyright © 2011 Professor Michael E. Porter
Connecticut Performance Scorecard Position in 1998-1999
Trend
Current Position
3
18
4
-1
2
34
2
+0
43
10
21
+22
29
3
14
+15
3
33
4
-1
43
23
41
+2
4
28
8
-4
15
20
16
-1
Prosperity GDP per Capita, 1999-2009
Wages Average Private Wage, 1998-2009
Job Creation Private Employment Growth, 1998-2000 and 2007-2009
Labor Mobilization Proportion of Working Age Population in the Workforce, 1999-2010
Labor Productivity GDP per Worker, 1999-2009
New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009
Innovation Patents per Employee, 1999-2009
Cluster Strength Employment in Strong Clusters, 1998-2009
Leading Clusters by employment size, 2009 (national rank)
2011 – State Competitiveness – Rich Bryden
• • • • •
Financial Services (9) Education and Knowledge Creation (14) Aerospace Vehicles and Defense (6) Analytical Instruments (16) Aerospace Engines (2) 28
State Rank
21-30
1-10
31-40
11-20
41-50
Copyright © 2011 Professor Michael E. Porter
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
Source: Porter/Stern/Delgado (2010), Porter (2003)
2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Aligning Economic Policy and Clusters Business Attraction
Education and Workforce Training
Export Promotion
Clusters Natural Resource Protection
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
2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Why? What Drives State Productivity?
1. Quality of the Overall Business Environment
2011 – State Competitiveness – Rich Bryden
2. Cluster Development
31
3. Policy Coordination among Multiple Levels of Geography/ Government
Copyright 2011 © 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
2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Defining the Appropriate Economic Regions
NY
MA
CT
RI
Hartford Economic Area
PA
NJ
New York 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. 2011 State and City Competitiveness – Rich Bryden
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Copyright © 2011 Professor Michael E. Porter
Connecticut Metropolitan Areas
Hartford MSA
Norwich MSA Bridgeport MSA New Haven MSA
2011 State and City Competitiveness – Rich Bryden
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Copyright © 2011 Professor Michael E. Porter
Wage Performance in Connecticut Metropolitan Areas $75,000
Connecticut Growth Rate of Wages: 3.44%
U.S. Growth Rate of Wages: 2.86%
$70,000 Bridgeport MSA
Average Private Wage, 2009
$65,000
$60,000
Connecticut Average Private Wage: $53,141
$55,000
$50,000
Hartford MSA
$45,000
New Haven MSA Norwich MSA
$40,000
$35,000 2.4%
U.S. Average Private Wage: $42,403
Rest of State
2.5%
2.6%
2.7% 2.8% 2.9% Growth Rate of Private Wages, 1998-2009
3.0%
3.1%
3.2%
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009. 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Employment Performance in Connecticut Metropolitan Areas $75,000
Connecticut Growth Rate of Employment: -0.16%
U.S. Growth Rate of Employment: 0.52%
$70,000 Bridgeport MSA
Average Private Wage, 2009
$65,000
$60,000
$55,000
Connecticut Average Private Wage: $53,141
$50,000
Hartford MSA
$45,000
New Haven MSA Norwich MSA
$40,000
U.S. Average Private Wage: $42,403 Rest of State
$35,000 -0.6%
-0.4%
-0.2% 0.0% 0.2% Growth Rate of Private Employment, 1998-2009
0.4%
0.6%
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009. 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
Geographic and Governmental Influences on Productivity
Nation
Neighboring State
4. Integrate policies and infrastructure planning with neighbors
2011 State Competitiveness – Rich Bryden
State
1. Influence and access federal policies and programs
Neighboring State
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
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Copyright 2011 © Professor Michael E. Porter
Agenda
1. How is your state doing?
State Performance Scorecard
2. Why?
Explaining your state’s performance, strengths, and weaknesses
3. Where to go from here?
Action Steps
2011 State Competitiveness – Rich Bryden
38
Copyright 2011 © Professor Michael E. Porter
Agenda
1. How is your state doing?
State Performance Scorecard
2. Why?
Explaining your state’s performance, strengths, and weaknesses
3. Where to go from here?
Action Steps
Biggest Action Item of All 2011 State Competitiveness – Rich Bryden
39
Copyright 2011 © 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
Achieve and Maintain Parity with Peers
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?
• 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. 2011 – State Competitiveness – Rich Bryden
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Copyright 2011 © Professor Michael E. Porter
How Should States Compete for Investment?
Tactical (Zero Sum Competition)
Strategic (Positive Sum Competition)
• Focus on attracting new investments
• Also support greater local investment by existing companies
• Compete for every plant
• Reinforce areas of specialization and emerging cluster strength
• Offer generalized tax breaks
• Provide state support for training, infrastructure, and institutions with enduring benefits
• Provide subsidies to lower / offset business costs
• Improve the efficiency of doing business
• Every city and sub-region for itself
• Harness efficiencies and coordination across jurisdictions, especially with neighbors
• Government drives investment attraction
• Government and the private sector collaborate to build cluster strength
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Copyright 2011 © 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
2011 State Competitiveness – Rich Bryden
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
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Copyright 2011 © Professor Michael E. Porter
Example: Organizing for Economic Development 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 Cluster Committees
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 2011 State Competitiveness – Rich Bryden
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Copyright 2011 © 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
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Copyright 2011 © 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
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Copyright 2011 © Professor Michael E. Porter