Wisconsin Competitiveness: Creating a State Economic Strategy

Transcription

1 Wisconsin Competitiveness: Creating a State Economic Strategy Professor Michael E. Porter Harvard Business School March 20, 2012 For further material on regional competitiveness and clusters: For state economic profiles: 1 Copyright 2012 Professor Michael E. Porter

2 The Economic Challenge for Governors in 2012 Achieving Fiscal Stability Enhancing State Competitiveness 2 Copyright 2012 Professor Michael E. Porter

3 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 3 Copyright 2012 Professor Michael E. Porter

4 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 4 Copyright 2012 Professor Michael E. Porter

5 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 5 Copyright 2012 Professor Michael E. Porter

6 Prosperity GDP per Capita, Wisconsin Performance Scorecard Start Position Trend Current Position 29-4 Wages Average Private Wage, Job Creation Private Employment Growth, and Labor Mobilization Proportion of Working Age Population in the Workforce, Labor Productivity GDP per Workforce Participant, New Business Formation Traded Cluster Establishment Growth, and Innovation Patents per Employee, Cluster Strength Employment in Strong Clusters, Leading Clusters by employment size, 2009 (national rank) Processed Food (5) Metal Manufacturing (8) Forest Products (1) Automotive (10) Production Technology (6) State Rank 6 Copyright 2012 Professor Michael E. Porter

7 Gross Domestic Product per Capita, 2010 $65,000 $60,000 Comparative State Prosperity Performance High but declining versus U.S. Delaware Connecticut Alaska Wyoming High and rising prosperity versus U.S. $55,000 $50,000 New Jersey Massachusetts New York $45,000 $40,000 $35,000 $30,000 $25,000 U.S. GDP per Capita: $42,346 Nevada Low and declining versus U.S. North Carolina Colorado Washington Texas New Hampshire California Illinois Minnesota Wisconsin Hawaii Rhode Island Kansas U.S. GDP per Capita Real Growth Rate: 0.63% Maryland Nebraska Louisiana Georgia Indiana Pennsylvania Ohio Tennessee Utah Vermont Missouri Florida Oklahoma Arizona Michigan Maine New Mexico Kentucky Alabama Idaho Montana South Carolina Arkansas West Virginia Mississippi -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. 7 Copyright 2012 Professor Michael E. Porter Virginia Iowa South Dakota Oregon North Dakota

8 Proportion of Working Age Population in the Workforce, % 70% 65% 60% Comparative State Labor Mobilization Performance High but declining versus U.S. Michigan Delaware Indiana Georgia Alabama 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% 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, Notes: Source BLS. 8 Copyright 2012 Professor Michael E. Porter

9 Gross Domestic Product per Labor Force Participant, 2010 $140,000 $130,000 Comparative State Labor Force Productivity Performance High but declining versus U.S 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 Missouri Kentucky South Maine Carolina Vermont Massachusetts California Louisiana Virginia North Carolina Minnesota Indiana Oklahoma Kansas Iowa New Mexico Tennessee Alabama West Virginia Wisconsin 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, Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 9 U.S. GDP per Labor Force Participant: $85,229 North Dakota Low but rising versus U.S. Copyright 2012 Professor Michael E. Porter Hawaii Idaho Mississippi Montana Maryland Nebraska Oregon South Dakota

10 Gross Domestic Product per Employed Worker, 2010 $150,000 $140,000 Comparative State Employee Productivity Performance High but declining versus U.S U.S. GDP per Employed Worker Real Growth: 1.42% Delaware Highly productive and productivity rising versus U.S. Alaska $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 South Carolina Maine Vermont Louisiana North Carolina Wisconsin 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, Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 10 U.S. GDP per Employed Worker: $94,315 North Dakota Low but rising versus U.S. 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

11 Patents per 10,000 Workers, High and declining innovation Comparative State Innovation Performance U.S. average Growth Rate of Patenting: +2.25% California Vermont 15 Idaho Massachusetts Washington (16.5, +10.6%) Minnesota 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). 11 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 Missouri Georgia Virginia Oklahoma 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

12 Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 12 Copyright 2012 Professor Michael E. Porter

13 Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 13 Copyright 2012 Professor Michael E. Porter

14 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 14 Copyright 2012 Professor Michael E. Porter

15 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 15 Copyright 2012 Professor Michael E. Porter

16 Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 2011 State Competitiveness Rich Bryden 16 Copyright 2012 Professor Michael E. Porter

17 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 2011 State Competitiveness Rich Bryden 17 Copyright 2012 Professor Michael E. Porter

18 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 18 Copyright 2012 Professor Michael E. Porter

19 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) 19 Copyright 2012 Professor Michael E. Porter

20 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) 20 Copyright 2012 Professor Michael E. Porter

21 Clusters and Economic Diversification Jewelry & Precious Metals Footwear Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. Financial Services 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 Lightning & Electrical Equipment Prefabricated Enclosures 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

22 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 Copyright 2012 Professor Michael E. Porter

23 Wisconsin national employment share, 2009 Traded Cluster Composition of the Wisconsin Economy 8.0% 7.0% 6.0% Forest Products (-0.26%,12.04%) Heavy Machinery Overall change in the Wisconsin Share of US Traded Employment: -0.15% Production Technology Footwear Processed Food 5.0% Sporting, Recreational and Children s Goods Motor Driven Products Metal Manufacturing 4.0% 3.0% Power Generation and Transmission Automotive Publishing and Printing Building Fixtures, Equipment and Services Plastics Construction Materials Medical Furniture Devices Lighting and Electrical Equipment Leather and Related Products Agricultural Products 2.0% Wisconsin Overall Share of US Traded Employment: 2.29% 1.0% 0.0% Tobacco Jewelry and Precious Metals -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Change in Wisconsin 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 Added Jobs Lost Jobs Employees 8,000 = Copyright 2012 Professor Michael E. Porter

24 Wisconsin national employment share, 2009 Traded Cluster Composition of the Wisconsin Economy (continued) Overall change in the Wisconsin Share of US Traded Employment: -0.15% 2.5% Chemical Products Financial Services 2.0% Prefabricated Enclosures 1.5% Distribution Services Analytical Instruments Education and Knowledge Creation Heavy Construction Services Hospitality and Tourism Entertainment Transportation and Logistics Business Services Information Technology 1.0% Apparel Wisconsin Overall Share of US Traded Employment: 2.29% Biopharmaceuticals Textiles Communications Equipment 0.5% Fishing and Fishing Products Employment Aerospace Engines Added Jobs Aerospace Vehicles and Defense Oil and Gas Products and Services Lost Jobs 0.0% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% Change in Wisconsin 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 Employees 8,000 = Copyright 2012 Professor Michael E. Porter

25 Job Creation, 1998 to 2009 Business Services Transportation and Logistics Education and Knowledge Creation Medical Devices Wisconsin Job Creation in Traded Clusters 1998 to 2009 Information Technology Entertainment Processed Food Agricultural Products Communications Equipment Biopharmaceuticals Hospitality and Tourism Distribution Services Oil and Gas Products and Services Fishing and Fishing Products Aerospace Engines Aerospace Vehicles and Defense Leather and Related Products Tobacco Textiles Construction Materials Footwear Jewelry and Precious Metals Furniture Prefabricated Enclosures Chemical Products Financial Services Apparel Lighting and Electrical Equipment Sporting, Recreational and Children's Goods Power Generation and Transmission Heavy Machinery Publishing and Printing Plastics Analytical Instruments Heavy Construction Services Building Fixtures, Equipment and Services Motor Driven Products Production Technology Metal Manufacturing Forest Products Automotive 30,000 20,000 10,000 Net traded job creation, 1998 to 2009: -72, ,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 -99,783 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 25 Copyright 2012 Professor Michael E. Porter

26 Wisconsin Wages in Traded Clusters vs. National Benchmarks Financial Services Power Generation and Transmission Oil and Gas Products and Services Information Technology Heavy Construction Services Forest Products Business Services Heavy Machinery Chemical Products Sporting, Recreational and Children's Production Technology Agricultural Products Medical Devices Analytical Instruments Motor Driven Products Communications Equipment Automotive Distribution Services Aerospace Vehicles and Defense Jewelry and Precious Metals Lighting and Electrical Equipment Biopharmaceuticals Plastics Processed Food Metal Manufacturing Transportation and Logistics Prefabricated Enclosures Publishing and Printing Education and Knowledge Creation Leather and Related Products Building Fixtures, Equipment and Services Aerospace Engines Textiles Construction Materials Fishing and Fishing Products Furniture Entertainment Apparel Hospitality and Tourism Tobacco Footwear Wisconsin average traded wage: $45,341 $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. 26 Copyright 2012 Professor Michael E. Porter

27 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, ,224 Wisconsin -11,722-3,516-8,206 Maryland +6,651 2,496 4,155 Nebraska -11, ,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, ,642 Indiana -12,554-4,840-7,714 Colorado +1,662 2, Vermont -13,368-1,572-11,796 Texas ,494-2,142 Oklahoma -13, ,069 Delaware ,060-10,896 Nevada -14,277-2,365-11,911 Alaska ,417 1,487 North Dakota -14,394 1,004-15,397 Pennsylvania -3, ,975 South Carolina -15,276-5,067-10,209 Louisiana -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, ,150 New Mexico -16, ,835 New Hampshire -6, ,761 Kentucky -16,215-5,024-11,191 Arizona -7,021 1,149-8,169 Maine -16, ,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, ,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, ,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 data. 27 Copyright 2012 Professor Michael E. Porter

28 Wisconsin 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 28 Copyright 2012 Professor Michael E. Porter LQ > 4 LQ > 2

29 Prosperity GDP per Capita, Wisconsin Performance Scorecard Start Position Trend Current Position 29-4 Wages Average Private Wage, Job Creation Private Employment Growth, and Labor Mobilization Proportion of Working Age Population in the Workforce, Labor Productivity GDP per Workforce Participant, New Business Formation Traded Cluster Establishment Growth, and Innovation Patents per Employee, Cluster Strength Employment in Strong Clusters, Leading Clusters by employment size, 2009 (national rank) Processed Food (5) Metal Manufacturing (8) Forest Products (1) Automotive (10) Production Technology (6) State Rank 29 Copyright 2012 Professor Michael E. Porter

30 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) 30 Copyright 2012 Professor Michael E. Porter

31 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 31 Copyright 2012 Professor Michael E. Porter

32 Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 32 Copyright 2012 Professor Michael E. Porter

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

34 Defining the Appropriate Economic Regions Duluth Economic Area Wausau Economic Area Minneapolis Economic Area Marinette Economic Area SD MN WI Appleton Economic Area MI La Crosse Economic Area IA Madison Economic Area Milwaukee Economic Area IL IN Chicago Economic Area The economies of states are often an aggregation of distinct economic areas with differing circumstances Source: Data from Bureau of Economic Analysis Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director State and City Competitiveness Rich Bryden 34 Copyright 2012 Professor Michael E. Porter

35 Wisconsin Metropolitan Areas Duluth MSA Oshkosh MSA Appleton MSA Minneapolis MSA Wausau MSA Eau Claire MSA Green Bay MSA Sheboygan MSA La Crosse MSA Madison MSA Fond du Lac MSA Janesville MSA Milwaukee MSA Racine MSA Chicago MSA 2011 State and City Competitiveness Rich Bryden 35 Copyright 2012 Professor Michael E. Porter

36 Average Private Wage, 2009 Wage Performance in Wisconsin Metropolitan Areas $46,000 $44,000 $42,000 Wisconsin Growth Rate of Wages: 2.80% Oshkosh MSA U.S. Growth Rate of Wages: 3.01% Milwaukee MSA U.S. Average Private Wage: $42,403 Green Bay MSA $40,000 $38,000 Racine MSA Madison MSA Wisconsin Average Private Wage: $37,937 $36,000 Janesville MSA Wausau MSA Appleton MSA $34,000 $32,000 Sheboygan MSA La Crosse MSA* Fond du Lac MSA Chicago MSA* Rest of State Eau Claire MSA Duluth MSA* Minneapolis MSA* $30, % 2.0% 2.5% 3.0% 3.5% Growth Rate of Private Wages, *Wisconsin portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in Copyright 2012 Professor Michael E. Porter

37 Average Private Wage, 2009 Employment Performance in Wisconsin Metropolitan Areas $46,000 $44,000 Milwaukee MSA Wisconsin Growth Rate of Employment: 0.14% U.S. Growth Rate of Employment: 0.52% U.S. Average Private Wage: $42,403 $42,000 Oshkosh MSA Madison MSA $40,000 Green Bay MSA $38,000 Racine MSA Wisconsin Average Private Wage: $37,937 $36,000 Appleton MSA $34,000 Janesville MSA Fond du Lac MSA Sheboygan MSA Chicago MSA* La Crosse MSA* Wausau MSA Eau Claire MSA $32,000 Rest of State Duluth MSA* Minneapolis MSA* $30, % -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% Growth Rate of Private Employment, *Wisconsin portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in Copyright 2012 Professor Michael E. Porter

38 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 38 Copyright 2012 Professor Michael E. Porter

39 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 39 Copyright 2012 Professor Michael E. Porter

40 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 40 Copyright 2012 Professor Michael E. Porter

41 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 State Competitiveness Rich Bryden 41 Copyright 2012 Professor Michael E. Porter

42 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 42 Copyright 2012 Professor Michael E. Porter

43 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 43 Copyright 2012 Professor Michael E. Porter

44 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 44 Copyright 2012 Professor Michael E. Porter

45 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 45 Copyright 2012 Professor Michael E. Porter

46 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 The prosperity of the U.S. economy will depend more on the success of states in improving competitiveness than what happens in Washington 46 Copyright 2012 Professor Michael E. Porter