West Virginia Competitiveness: Creating a State Economic Strategy Professor Michael E Porter Harvard Business School April 10, 2012 For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm 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 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 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 Copyright 2012 © Professor Michael E Porter Agenda How is your state doing? State Performance Scorecard Why? Explaining your state’s performance, strengths, and weaknesses Where to go from here? Action Steps 2012 State Competitiveness – Rich Bryden Copyright 2012 © Professor Michael E Porter West Virginia 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 49 17 49 +0 45 39 46 -1 50 +43 50 28 50 +0 46 10 42 +4 47 30 49 -2 45 44 45 +0 31 26 26 +5 Heavy Construction Services (35) Oil and Gas Products and Services (11) Metal Manufacturing (31) Chemical Products (25) Plastics (32) State Rank 21-30 1-10 31-40 11-20 41-50 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 Michigan South Carolina Wisconsin North Dakota Maryland Minnesota Nebraska Louisiana Iowa Rhode Island Hawaii South Dakota Oregon Kansas Pennsylvania Utah Vermont Florida Oklahoma Missouri Arizona Maine New Mexico Kentucky Alabama Montana Idaho Arkansas Ohio $35,000 Illinois Texas Nevada Virginia California Indiana Tennessee West Virginia $30,000 Mississippi Low and declining versus U.S $25,000 -1.0% -0.5% 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 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 Utah Alaska Nevada Maryland Idaho 65% Missouri Texas Oregon Montana Hawaii Indiana Georgia North Carolina Tennessee Michigan Delaware South Carolina 60% Washington Illinois Massachusetts Ohio Maine Virginia Connecticut 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 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 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 Missouri West Virginia Kentucky Idaho Low and South Arkansas 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 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 New Jersey $100,000 Washington Texas Illinois Virginia Nevada Colorado California Massachusetts Louisiana Hawaii North Carolina Maryland U.S GDP per Employed Worker: $94,315 Oregon $90,000 Rhode Island Indiana South Dakota Nebraska New Mexico Florida Oklahoma Kansas Michigan Tennessee Utah Iowa Ohio Arizona Alabama Missouri New Hampshire Kentucky Wisconsin West Virginia South Carolina Idaho Mississippi Arkansas Maine Georgia $80,000 $70,000 $60,000 Minnesota Pennsylvania Low and declining versus U.S 0.0% North Dakota 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 10 Copyright 2012 Professor Michael E Porter Why? What Drives State Productivity? Quality of the Overall Business Environment 2012 – State Competitiveness – Rich Bryden Cluster Development 32 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 33 Copyright 2012 © Professor Michael E Porter Defining the Appropriate Economic Regions Pittsburgh Economic Area Columbus Economic Area PA Clarksburg Economic Area Washington Economic Area OH Charleston Economic Area MD Lexington Economic Area WV VA KY Roanoke Economic Area TN Harrisonburg Economic Area Johnson City Economic Area The economies of states are often an aggregation of distinct economic areas with differing circumstances Source: Data from Bureau of Economic Analysis 2010 Prof Michael E Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director 2012 State and City Competitiveness – Rich Bryden 34 Copyright © 2012 Professor Michael E Porter West Virginia Metropolitan Areas Cumberland MSA Morgantown MSA Hagerstown MSA Weirton MSA Wheeling MSA Parkersburg MSA Huntington MSA 2012 State and City Competitiveness – Rich Bryden Charleston MSA 35 Winchester MSA Washington MSA Copyright © 2012 Professor Michael E Porter Wage Performance in West Virginia Metropolitan Areas $44,000 West Virginia Growth Rate of Wages: 2.81% U.S Growth Rate of Wages: 3.01% U.S Average Private Wage: $42,403 $40,000 Average Private Wage, 2009 Charleston MSA $36,000 Huntington MSA* West Virginia Average Private Wage: $32,924 Morgantown MSA Hagerstown MSA* $32,000 Cumberland MSA* Wheeling MSA* Weirton MSA* Rest of State Parkersburg MSA* $28,000 Washington MSA* Winchester MSA* $24,000 1.0% 1.5% 2.0% 2.5% 3.0% Growth Rate of Private Wages, 1998-2009 3.5% 4.0% 4.5% *West Virginia portion only Source: Census CBP, authors’ analysis Note: “Bubble” size in chart is proportional to employment in 2009 2012 State Competitiveness – Rich Bryden 36 Copyright 2012 © Professor Michael E Porter Employment Performance in West Virginia Metropolitan Areas $44,000 West Virginia Growth Rate of Employment: 0.42% U.S Growth Rate of Employment: 0.52% U.S Average Private Wage: $42,403 $40,000 Average Private Wage, 2009 Charleston MSA $36,000 Morgantown MSA West Virginia Average Private Wage: $32,924 Huntington MSA* Hagerstown MSA* $32,000 Wheeling MSA* Rest of State Cumberland MSA* Weirton MSA* Parkersburg MSA* $28,000 Washington MSA* Winchester MSA* $24,000 -3.0% -2.0% -1.0% 0.0% 1.0% Growth Rate of Private Employment, 1998-2009 2.0% 3.0% 4.0% *West Virginia portion only Source: Census CBP, authors’ analysis Note: “Bubble” size in chart is proportional to employment in 2009 2012 State Competitiveness – Rich Bryden 37 Copyright 2012 © Professor Michael E Porter Geographic and Governmental Influences on Productivity Nation Neighboring State Integrate policies and infrastructure planning with neighbors 2012 State Competitiveness – Rich Bryden State Influence and access federal policies and programs Neighboring State Metropolitan Areas Metropolitan Areas Metropolitan Areas Work with each metro area to develop a prioritized strategic agenda Rural Regions Rural Regions Rural Regions Connect rural regions with proximate urban areas 38 Copyright 2012 © Professor Michael E Porter Agenda How is your state doing? State Performance Scorecard Why? Explaining your state’s performance, strengths, and weaknesses Where to go from here? Action Steps 2012 State Competitiveness – Rich Bryden 39 Copyright 2012 © Professor Michael E Porter Agenda How is your state doing? State Performance Scorecard Why? Explaining your state’s performance, strengths, and weaknesses Where to go from here? Action Steps Biggest Action Item of All 2012 State Competitiveness – Rich Bryden 40 Copyright 2012 © Professor Michael E Porter Create an Economic Strategy • What is the distinctive competitive position of the state or region given its location, legacy, existing strengths, and potential strengths? – What unique value as a business location? – For what types of activities and clusters? Define the Value Proposition 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 41 Copyright 2012 © Professor Michael E Porter How Should States Compete for Investment? Tactical (Zero Sum Competition) Strategic (Positive Sum Competition) • Focus on attracting new investments • 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 42 Copyright 2012 © Professor Michael E Porter Harnessing the New Process of Economic Development Competitiveness is the result of both top-down and bottom-up processes in which many companies and institutions take responsibility Old Model New Model • Government drives economic development through policy decisions and incentives 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 43 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 44 Copyright 2012 © Professor Michael E Porter Summary • The goal of economic strategy is to enhance productivity This is the only way to create jobs, high income, and wealth in the long run • Improving productivity and innovation must be the guiding principles for every state policy choice • Improving productivity does not require new public resources, but using existing resources better • Improving productivity demands that governors mobilize the private sector, not rely on government alone • Economic strategy is non-partisan and about getting results 2012 State Competitiveness – Rich Bryden 45 Copyright 2012 © Professor Michael E Porter Next Steps Reach out to your team Reach out to the business community Take advantage of Harvard Business School data and tools to support this effort Go to www.isc.hbs.edu The prosperity of the U.S economy will depend more on the success of states in improving competitiveness than what happens in Washington 2012 State Competitiveness – Rich Bryden 46 Copyright 2012 © Professor Michael E Porter