Connecticut Competitiveness: Creating a State Economic Strategy

Connecticut Competitiveness: Creating a State Economic Strategy Professor Michael E. Porter Harvard Business School September 2011 For further mater...
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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

3

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

5

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

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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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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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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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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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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