Missouri Competitiveness: Creating a State Economic Strategy Professor Michael E. Porter

Missouri Competitiveness:
Creating a State Economic Strategy
Professor Michael E. Porter
Harvard Business School
March 28, 2012
For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm
1
2012 State Competitiveness
Bryden
For state– Rich
economic
profiles: www.isc.hbs.edu/econ-statesregions.htm
Copyright 2012 © Professor Michael E. Porter
The Economic Challenge for Governors in 2012
Achieving Fiscal Stability
Enhancing State
Competitiveness
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
What is Competitiveness?
• Competitiveness is the productivity with which a state utilizes its
human, capital, and natural endowments to create value
• Productivity determines wages, jobs, and the standard of living
• It is not what fields a state competes in that determines its
prosperity, but how productively it competes
2012 State Competitiveness – Rich Bryden
3
Copyright 2012 © Professor Michael E. Porter
Where Does Productivity Come From?
Businesses and government play different but interrelated roles in
creating a productive economy
• Only businesses can create jobs and wealth
• States compete to offer the most productive environment for
business
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © 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
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Missouri Performance Scorecard
Prosperity
GDP per Capita, 2000-2010
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, 2000-2010
Labor Productivity
GDP per Workforce Participant, 2000-2010
New Business Formation
Traded Cluster Establishment Growth,
1998-2000 and 2007-2009
Innovation
Patents per Employee, 2000-2010
Cluster Strength
Employment in Strong Clusters, 1998-2009
Leading Clusters
by employment size, 2009
(national rank)
2012 – State Competitiveness – Rich Bryden
•
•
•
•
•
Start Position
Trend
Current Position
27
45
35
-8
22
44
25
-3
44
13
25
+19
14
46
28
-14
32
41
39
-7
34
18
24
+10
34
16
33
+1
38
42
48
-10
Processed Food (10)
Publishing and Printing (12)
Chemical Products (7)
Motor Driven Products (8)
Biopharmaceuticals (12)
6
State Rank
21-30
1-10
31-40
11-20
41-50
Copyright © 2012 Professor Michael E. Porter
Why?
What Drives State Productivity?
1. Quality of the
Overall Business
Environment
2012 – State Competitiveness – Rich Bryden
2. Cluster
Development
7
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
Copyright 2012 © Professor Michael E. Porter
Comparative State Prosperity Performance
2000 - 2010
$65,000
High but declining
versus U.S.
Alaska
Delaware
Wyoming
$60,000
High and rising
prosperity
versus U.S.
Connecticut
Gross Domestic Product per Capita, 2010
$55,000
New York
Massachusetts
$50,000
$45,000
New Jersey
Colorado
Washington
U.S. GDP per
Capita: $42,346
$40,000
New Hampshire
North Carolina
Georgia
Missouri
Michigan
South Carolina
$30,000
Low and declining
versus U.S.
$25,000
-1.0%
-0.5%
Wisconsin
North Dakota
Maryland
Minnesota
Nebraska
Louisiana
Iowa
Rhode Island
Hawaii
South Dakota
Oregon
Kansas
Pennsylvania
Utah
Vermont
Florida
Oklahoma
Arizona
Maine New Mexico
Kentucky
Alabama
Montana
Idaho
Arkansas
West Virginia
Mississippi
Indiana
Tennessee
Ohio
$35,000
Illinois
Texas
Nevada
Virginia
California
U.S. GDP per Capita
Real Growth Rate: 0.63%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Real Growth in Gross Domestic Product per Capita, 2000 to 2010
Low but rising
versus U.S.
3.0%
3.5%
Source: BEA. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
2012 State Competitiveness – Rich Bryden
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Copyright 2012 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
Utah
Nevada
Maryland
Idaho
65%
Missouri
Texas
Oregon
Montana
Hawaii
Indiana
Georgia
North Carolina
Tennessee
Michigan
Delaware
Virginia
Connecticut
Rhode Island
South Carolina
60%
Washington
Illinois
Massachusetts
Ohio
Maine
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.
2012 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
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Copyright 2012 Professor Michael E. Porter
Comparative State Labor Force Productivity Performance
2000-2010
Gross Domestic Product per Labor Force Participant, 2010
$140,000
High but
declining
versus U.S.
U.S. GDP per Labor Force Participant
Real Growth: 0.803%
Highly productive
and productivity
rising versus U.S.
Delaware
$130,000
Alaska
$120,000
Wyoming
Connecticut
$110,000
New York
$100,000
New Jersey
$90,000
Washington
Texas
Colorado
Illinois
$70,000
$60,000
Hawaii
Maryland
North Carolina
Minnesota
Nevada
$80,000
Massachusetts
California
Louisiana
Virginia
Nebraska
Pennsylvania
Rhode Island Kansas Indiana Oklahoma
Georgia
Iowa
New Hampshire Utah
New Mexico
Michigan Arizona
Tennessee
Florida
Alabama
Ohio
Wisconsin
West Virginia
Missouri
Kentucky
Low and
South
Arkansas Idaho Mississippi
Maine
declining Carolina
Montana
Vermont
versus U.S.
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
U.S. GDP per Labor Force
Participant: $85,229
Oregon
South Dakota
North Dakota
Low but rising
versus U.S.
2.5%
3.0%
3.5%
Real Growth in Gross Domestic Product per Labor Force Participant, 2000-2010
Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
2012 State Competitiveness – Rich Bryden
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Copyright 2012 Professor Michael E. Porter
Comparative State Employee Productivity Performance
2000-2010
$150,000
Gross Domestic Product per Employed Worker, 2010
High but
declining
versus U.S.
$140,000
U.S. GDP per Employed Worker
Real Growth: 1.42%
Delaware
Highly productive
and productivity
rising versus U.S.
Alaska
$130,000
Wyoming
Connecticut
$120,000
New York
$110,000
California
Massachusetts
New Jersey
$100,000
Washington
Texas
Illinois Virginia
Nevada
Colorado
Louisiana
Hawaii
U.S. GDP per Employed
Worker: $94,315
Maryland
North Carolina
Oregon
$90,000
Georgia
$60,000
Rhode Island
Indiana
Nebraska
New Mexico
Florida
Oklahoma
Kansas
Tennessee
Utah
Iowa
Michigan
Ohio Arizona
Missouri
New Hampshire
Kentucky
South Carolina
$80,000
$70,000
Minnesota
Pennsylvania
Maine
Low and
declining
versus U.S.
0.0%
Alabama
West Virginia
Wisconsin
Arkansas
North Dakota
South Dakota
Idaho
Mississippi
Montana
Vermont
Low but rising
versus U.S.
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Real Growth in Gross Domestic Product per Employed Worker, 2000-2010
Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
2012 State Competitiveness – Rich Bryden
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Copyright 2012 Professor Michael E. Porter
Comparative State Innovation Performance
2000 - 2010
20
High and declining
innovation
Vermont
U.S. average Growth
Rate of Patenting:
+2.25%
California
Massachusetts
Idaho
Washington
Patents per 10,000 Workers, 2010
15
(16.5, +10.6%)
Minnesota
Oregon
Connecticut
New Jersey
Delaware
10
U.S. average Patents per
10,000 Employees: 7.77
Illinois
Michigan
Colorado
New York
Texas
Arizona
Pennsylvania
Rhode Island
5
New Hampshire
Utah
Wisconsin
Maryland
Ohio
Indiana
Florida
Tennessee
Oklahoma
Louisiana
Arkansas
Alaska
High and improving
innovation rate versus U.S.
Kentucky
South
Carolina
Montana
Nebraska
South Dakota West Virginia
Mississippi
North Carolina
New Mexico
Iowa
Virginia Georgia
Missouri
North Dakota
-4%
-2%
0%
2%
Growth Rate of Patents per 10,000 Workers, 2000 to 2010
Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR).
2012 State Competitiveness – Rich Bryden
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Wyoming
Alabama
Maine
Hawaii
Low and improving
innovation
Low and declining innovation
0
-6%
Nevada
Kansas
4%
6%
= 2000 patents in 2010
= 500 patents in 2010
Copyright 2012 Professor Michael E. Porter
Why?
What Drives State Productivity?
1. Quality of the
Overall Business
Environment
2012 – State Competitiveness – Rich Bryden
2. Cluster
Development
13
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
Copyright 2012 © 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
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Improving the Business Environment
Common Action Items
1. Simplify and speed up regulation and permitting
2. Reduce unnecessary costs of doing business
3. Establish training programs that are aligned with the needs of the
state’s businesses
4. Focus infrastructure investments on the most leveraged areas for
productivity and economic growth
5. Design all policies to support emerging growth companies
6. Protect and enhance the state’s higher education and research
institutions
7. Relentlessly improve the public education system, the essential
foundation for productivity in the long run
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Why?
What Drives State Productivity?
1. Quality of the
Overall Business
Environment
2012 – State Competitiveness – Rich Bryden
2. Cluster
Development
16
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
Copyright 2012 © Professor Michael E. Porter
What is a Cluster?
A geographically concentrated group of interconnected
companies and associated institutions in a particular field
Traded Clusters
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
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © 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
2012 State Competitiveness – Rich Bryden
Laboratory, Clinical Testing
Educational Institutions
Harvard, MIT, Tufts,
Boston University, UMass
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Copyright 2012 © 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)
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © 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)
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © 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.
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © 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
2012 – State Competitiveness – Rich Bryden
1930
1950
Biotech / Pharmaceuticals
1970
22
1990
Copyright 2012 © Professor Michael E. Porter
Traded Cluster Composition of the Missouri Economy
8.0%
Footwear
Overall change in the Missouri Share of US
Traded Employment: -0.15%
Missouri national employment share, 2009
7.0%
6.0%
5.0%
Sporting, Recreational
and Children’s Goods
Motor Driven Products
Aerospace
Engines
Chemical Products
4.0%
Processed Food
Lighting and Electrical Equipment
3.0%
Publishing and Printing
Aerospace Vehicles
and Defense
2.0%
Missouri Overall Share of US
Traded Employment: 2.01%
Leather and Related Products
0.0%
-8.0%
Analytical Instruments
Textiles
Jewelry and Precious Metals
Medical Devices
Information Technology
1.0%
Oil and Gas Products and Services
-6.0%
-4.0%
-2.0%
Employment
1998-2009
Added Jobs
Lost Jobs
Fishing and Fishing Products
0.0%
2.0%
Change in Missouri share of National Employment, 1998 to 2009
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
2012 – State Competitiveness – Rich Bryden
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4.0%
6.0%
Employees 16,000 =
Copyright © 2012 Professor Michael E. Porter
Traded Cluster Composition of the Missouri Economy
(continued)
2.8%
Biopharmaceuticals
Construction Materials
Missouri national employment share, 2009
2.6%
Building Fixtures,
Equipment and Services
Automotive
2.4%
Production Technology
Power Generation
and Transmission
Heavy Construction Services
2.2%
Education and
Knowledge Creation
2.0%
Business Services
Metal Manufacturing
Furniture
Heavy Machinery
Missouri Overall Share of US
Traded Employment: 2.01%
Financial Services
1.8%
Plastics
Transportation
and Logistics
Hospitality
and Tourism
Prefabricated Enclosures
Entertainment
1.6%
Distribution Services
Agricultural Products
Apparel
1.4%
Communications
Equipment
Forest Products
Employment
1998-2009
Added Jobs
Overall change in the Missouri Share of US
Traded Employment: -0.15%
1.2%
-0.8%
-0.6%
-0.4%
-0.2%
Lost Jobs
0.0%
0.2%
0.4%
0.6%
Change in Missouri share of National Employment, 1998 to 2009
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
2012 – State Competitiveness – Rich Bryden
24
0.8%
1.0%
Employees 19,000 =
Copyright © 2012 Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
25
-40,000
Aerospace Vehicles and Defense
Automotive
Publishing and Printing
Metal Manufacturing
Apparel
Hospitality and Tourism
Plastics
Production Technology
Motor Driven Products
Furniture
Financial Services
30,000
Leather and Related Products
40,000
Chemical Products
Heavy Machinery
Information Technology
Footwear
Lighting and Electrical Equipment
Medical Devices
Building Fixtures, Equipment and Services
Prefabricated Enclosures
Biopharmaceuticals
Sporting, Recreational and Children's Goods
Construction Materials
Forest Products
Communications Equipment
Jewelry and Precious Metals
Agricultural Products
Tobacco
Fishing and Fishing Products
Oil and Gas Products and Services
Textiles
Analytical Instruments
Entertainment
Power Generation and Transmission
-30,000
Heavy Construction Services
-20,000
Processed Food
Distribution Services
Aerospace Engines
Transportation and Logistics
Education and Knowledge Creation
Business Services
Job Creation, 1998 to 2009
Missouri Job Creation in Traded Clusters
1998 to 2009
50,000
Net traded job creation,
1998 to 2009:
-69,219
20,000
10,000
0
-10,000
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 -38,425
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Copyright © 2012 Professor Michael E. Porter
Missouri Wages in Traded Clusters
vs. National Benchmarks
Power Generation and Transmission
Oil and Gas Products and Services
Financial Services
Information Technology
Entertainment
Biopharmaceuticals
Business Services
Aerospace Vehicles and Defense
Distribution Services
Medical Devices
Chemical Products
Automotive
Production Technology
Heavy Construction Services
Analytical Instruments
Jewelry and Precious Metals
Processed Food
Education and Knowledge Creation
Publishing and Printing
Agricultural Products
Forest Products
Sporting, Recreational and
Motor Driven Products
Heavy Machinery
Plastics
Lighting and Electrical Equipment
Transportation and Logistics
Metal Manufacturing
Communications Equipment
Building Fixtures, Equipment and
Prefabricated Enclosures
Leather and Related Products
Construction Materials
Textiles
Furniture
Hospitality and Tourism
Apparel
Aerospace Engines
Tobacco
Fishing and Fishing Products
Footwear
$0
l
Indicates average
national wage in
the traded cluster
Missouri average traded
wage: $45,784
U.S. average
traded wage: $56,906
$25,000
$50,000
$75,000
$100,000
$125,000
Wages, 2009
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
2012 – State Competitiveness – Rich Bryden
26
Copyright © 2012 Professor Michael E. Porter
Productivity Depends on How a State Competes,
Not What Industries It Competes In
State
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.
2012 - State Competitiveness – Rich Bryden
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Copyright © 2012 Professor Michael E. Porter
Missouri 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.
2012 – State Competitiveness – Rich Bryden
Production
Technology
28
Sporting
& Recreation
Goods
Copyright © 2012 Professor Michael E. Porter
Missouri Performance Scorecard
Prosperity
GDP per Capita, 2000-2010
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, 2000-2010
Labor Productivity
GDP per Workforce Participant, 2000-2010
New Business Formation
Traded Cluster Establishment Growth,
1998-2000 and 2007-2009
Innovation
Patents per Employee, 2000-2010
Cluster Strength
Employment in Strong Clusters, 1998-2009
Leading Clusters
by employment size, 2009
(national rank)
2012 – State Competitiveness – Rich Bryden
•
•
•
•
•
Start Position
Trend
Current Position
27
45
35
-8
22
44
25
-3
44
13
25
+19
14
46
28
-14
32
41
39
-7
34
18
24
+10
34
16
33
+1
38
42
48
-10
Processed Food (10)
Publishing and Printing (12)
Chemical Products (7)
Motor Driven Products (8)
Biopharmaceuticals (12)
29
State Rank
21-30
1-10
31-40
11-20
41-50
Copyright © 2012 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)
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © 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
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Why?
What Drives State Productivity?
1. Quality of the
Overall Business
Environment
2012 – State Competitiveness – Rich Bryden
2. Cluster
Development
32
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
Copyright 2012 © Professor Michael E. Porter
Geographic and Governmental Influences on Productivity
Nation
Neighboring State
State
Neighboring State
Metropolitan Areas
Metropolitan Areas
Metropolitan Areas
Rural Regions
Rural Regions
Rural Regions
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Defining the Appropriate Economic Regions
Columbia
Economic Area
Omaha
Economic Area
Peoria
Economic Area
IA
NE
Springfield (IL)
Economic Area
IL
St. Louis
Economic Area
Kansas City
Economic Area
MO
KS
KY
Joplin
Economic Area
TN
OK
AR
Jonesboro
Economic Area
Fayetteville
Economic Area
Cape Girardeau
Economic Area
Springfield (MO)
Economic Area
The economies of states are often an aggregation of distinct
economic areas with differing circumstances
Source: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director.
2012 State and City Competitiveness – Rich Bryden
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Copyright © 2012 Professor Michael E. Porter
Missouri Metropolitan Areas
Columbia MSA
Jefferson City MSA
St. Joseph MSA
St. Louis MSA
Kansas City MSA
Joplin MSA
Fayetteville MSA
2012 State and City Competitiveness – Rich Bryden
Springfield MSA
35
Copyright © 2012 Professor Michael E. Porter
Wage Performance in Missouri Metropolitan Areas
$46,000
U.S. Average
Private Wage: $42,403
$42,000
Average Private Wage, 2009
Kansas City MSA*
St. Louis MSA*
Missouri Average
Private Wage: $37,652
$38,000
$34,000
Jefferson City MSA
St. Joseph MSA*
Columbia MSA
Joplin MSA
$30,000
Springfield MSA
Rest of State
$26,000
Fayetteville MSA*
Missouri Growth Rate
of Wages: 2.73%
$22,000
2.2%
2.4%
U.S. Growth Rate
of Wages: 3.01%
2.6%
2.8%
3.0%
Growth Rate of Private Wages, 1998-2009
3.2%
3.4%
3.6%
*Missouri portion only
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.
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Copyright 2012 © Professor Michael E. Porter
Employment Performance in Missouri Metropolitan Areas
$46,000
U.S. Average
Private Wage: $42,403
St. Louis MSA*
$42,000
Average Private Wage, 2009
Kansas City MSA*
$38,000
Missouri Average
Private Wage: $37,652
$34,000
Jefferson City MSA
St. Joseph MSA*
Joplin MSA
Springfield MSA
$30,000
Rest of State
$26,000
Fayetteville MSA*
Missouri Growth Rate
of Employment: 0.19%
$22,000
-0.4%
0.0%
U.S. Growth Rate
of Employment: 0.52%
0.4%
0.8%
1.2%
Growth Rate of Private Employment, 1998-2009
1.6%
2.0%
2.4%
*Missouri portion only
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Geographic and Governmental Influences on Productivity
Nation
Neighboring State
4. Integrate policies and
infrastructure planning
with neighbors
2012 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 2012 © 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
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Copyright 2012 © 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
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Copyright 2012 © Professor Michael E. Porter
Create an Economic Strategy
• What is the distinctive competitive position of the state or
region given its location, legacy, existing strengths, and
potential strengths?
– What unique value as a business location?
– For what types of activities and clusters?
Define the Value Proposition
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.
2012 – State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
How Should States Compete for Investment?
Tactical
(Zero Sum
Competition)
Strategic
(Positive Sum
Competition)
• Focus on attracting new investments
• 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
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Harnessing the New Process of Economic Development
Competitiveness is the result of both top-down and bottom-up processes
in which many companies and institutions take responsibility
Old Model
New Model
• Government drives economic
development through policy
decisions and incentives
2012 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 2012 © 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
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Summary
• The goal of economic strategy is to enhance productivity. This is the only
way to create jobs, high income, and wealth in the long run
• Improving productivity and innovation must be the guiding principles for
every state policy choice
• Improving productivity does not require new public resources, but using
existing resources better
• Improving productivity demands that governors mobilize the private
sector, not rely on government alone
• Economic strategy is non-partisan and about getting results
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter
Next Steps
1. Reach out to your team
2. Reach out to the business community
3. Take advantage of Harvard Business School data and tools to support
this effort. Go to www.isc.hbs.edu.
The prosperity of the U.S. economy will depend more on the success of
states in improving competitiveness than what happens in Washington
2012 State Competitiveness – Rich Bryden
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Copyright 2012 © Professor Michael E. Porter