FOB Lecture5

UNDERSTANDING OUR NEW NEW ECONOMY: 

November 2005 UNDERSTANDING OUR NEW NEW ECONOMY Joseph Cortright

The Challenge : 

The Challenge In a world of competing metropolitan economies, who will be the leaders, and who will lag behind?

Roadmap: 

Roadmap Globalization Technology Regions Clusters Talent Distinctiveness Strategy

Traded Sector Drives Growth: 

Traded Sector Drives Growth

Globalization: 

Globalization The New Reality

Globalization: 

Globalization A Threat An Opportunity Reality

The US Position: 

The US Position PAST: Cost competitive producers in a national economy dominated by production of stuff PRESENT: A high cost location in a global economy dominated by the creation of ideas

Global Competitors: 

Global Competitors The era of effortless superiority is over Rest of the world is catching up Education Technology Income Anything that is routine can be globalized Then: Apparel, Assembly Now: Call Centers, Tax Returns

More Skilled Workers Worldwide: 

More Skilled Workers Worldwide English Speaking 470 Million Speak English Worldwide One-quarter of world’s population speak or understand some English More Educated US Accounts for just 14 million of world’s 88 million college students 60% of the world’s population will attend secondary school Secondary school: nearly universal in Europe, Korea, Japan & 70% in China, 64% in Mexico, 60% in Brazil, 50% in India

Global Opportunities: 

Global Opportunities A majority of US high tech revenue comes from exports Intel, HP get most revenue from outside North America Our ideas and inventions are more valuable because more people can make use of them

Knowledge: 

Knowledge The Key to Our Economic Future

Technology: 

Technology A knowledge economy . . . Not an information economy What you know matters

The Economy is Changing: 

The Economy is Changing 19th Century: Objects Transforming & Moving stuff Infrastructure Power, Highways, Railroads, Ports, Pipes 21st Century: Ideas Creating Ideas Infrastructure Education, Entrepreneurship, Clusters, Community

What Drives Economic Growth?: 

What Drives Economic Growth? The economists’ answer to this question is changing

Capital: More & Bigger Factories: 

Capital: More & Bigger Factories

More & Smarter Workers: 

More & Smarter Workers

Why are we richer today?: 

Why are we richer today?

So, if its all about ideas . . .: 

So, if its all about ideas . . . Does it matter where you are . . . “Any economic activity can occur anywhere” “The Death of Distance”

Information v. Knowledge: 

Information v. Knowledge Information Data, facts -- “codifiable” Knowledge Know-who, know-how -- “tacit”

What can stay, what will go?: 

What can stay, what will go? Can Stay Research Design Management Marketing Proprietary Creative Core Sand box Will Go Routine Low Value Cost Sensitive Large Volume

Regions: 

Regions The Competitive Unit of A Global Economy

Regions: 

Regions Nations are less important, but the world isn’t flat Regions are the key competitive units Ideas get created in regions Different places specialize in different things

The Paradox of Globalization: 

The Paradox of Globalization As nations become less important Regions become more important Businesses depend more on regional and local attributes—especially workforce and ideas—for success

“The World is Flat”: 

“The World is Flat” not ^ It isn’t so much that the US competes against China and India Regions compete against other similar regions In high tech, San Jose & Austin compete against Bangalore and Guangdong

The World is Spiky: 

The World is Spiky Source: R. Florida

Competing Regions: 

Competing Regions

Clusters: 

Clusters The Importance of Specialization

Clustering is Critical: 

Clustering is Critical Economic success isn’t random Similar and related businesses draw advantages from proximity Clustering holds for most “traded” goods: autos, carpets, RVs, others

High Tech Centers: 

High Tech Centers Seattle Portland Silicon Valley San Diego Austin Salt Lake City Sacramento Minneapolis Boston Research Triangle Park Denver Atlanta Phoenix

High Tech is Specialized: 

High Tech is Specialized Seattle - Software Portland - Semiconductors - SME/EDA - Display - Computers Silicon Valley everything! San Diego - Communications Austin - Semiconductors - Computers - SME Salt Lake City - Software - Medical Devices - Storage Technology Sacramento - Computers Minneapolis - Computers - Medical Devices Boston - Computers Research Triangle Park - Software Denver - Telecommunications - Satellite - Storage Atlanta - Database - Telecommunications Phoenix - Semiconductors

Biotechnology: 9 Metros Dominate: 

Biotechnology: 9 Metros Dominate Boston Source: Brookings Institution, 2005

Convention Centers: 

Convention Centers Las Vegas, Orlando dominant centers of convention business Both have more than 100,000 hotel rooms Source: Brookings Institution, 2005

Specialization of Clusters: 

Specialization of Clusters Source: Council on Competitiveness

Traditional Metro Portland Clusters: 

Traditional Metro Portland Clusters Cluster Employment High Tech 62,000 Metals/Machinery 36,786 Agriculture Food Processing 26,398 Forest Products 13,737 “Travel” 31,800* Source: Oregon Employment Department, 2001 data (* Dean Runyan & Associates, Estimated on a different basis than other data, 2000)

Emerging Metro Portland Clusters: 

Emerging Metro Portland Clusters Cluster Employment Creative Services 13,000 Apparel/Sporting Goods 9,000 Nursery Products 7,500 Pharma/Life Science R&D 1,200 Professional Services 26,000* Source: Oregon Employment Department, 2001 data (* Legal, Engineering & Management Services, Estimated on a different basis than other data, 2000)

A conventional view: 

A conventional view

Theory: How Economies Work: 

Theory: How Economies Work The efficient invisible hand vs.

Or . . .: 

Or . . .

Talent: 

Talent People Matter for New Ideas

Best Educated Metros Had Higher Income Growth : 

Best Educated Metros Had Higher Income Growth Source: Gottlieb & Fogarty Per Capita Income Growth in the 1990s Best and Worst Educated Large Metropolitan Areas, 1990

Smart Cities?: 

Smart Cities? (1) Seattle 48.8% (12) Portland 36.8% (13) Albuquerque 36.5% (18) Denver 33.8% (44) Phoenix 23.5% (58) Las Vegas 18.7% Source: American Community Survey, Rank Among 70 Largest Cities City Adult 4-Year College Degree Attainment, 2002

Demographics: 

Talented Young Workers and the Prospects for Metropolitan Prosperity Demographics

Fewer 25 to 34 year-olds: 

Fewer 25 to 34 year-olds U.S. 25 to 34 Year Old Population 1990: 43.5 Million 2000: 39.6 Million Today 3.9 Million Fewer a 9% Decline

Future Outlook: Labor Shortage: 

Future Outlook: Labor Shortage Last 30 Years Boomers enter prime work years Women’s labor market participation nearly doubles Educational attainment up sharply = Labor Surplus Next 30 Years Boomers retire; many early Women’s labor market participation plateaus Educational attainment plateaus = Labor Shortage

Big Shifts Among Metro Areas: 

% Change 25-34 year-olds, 1990 to 2000 50 Most Populous Metro Areas Average of Top 50 Metros Big Shifts Among Metro Areas

Biggest Shifts in Talented 25-34s: 

Biggest Shifts in Talented 25-34s Rank Metropolitan Area Change, 1990-2000 2 Charlotte, NC MSA 56.6% 3 Austin--San Marcos, TX MSA 56.2% 4 Portland--Salem, OR--WA CMSA 50.0% 5 Atlanta, GA MSA 46.2% 6 Denver--Boulder--Greeley, CO CMSA 40.1% 42 St. Louis, MO, MSA -0.7% 45 New Orleans, LA MSA -4.3% 49 Providence, RI MSA -7.0% Change in College Educated 25-34s

Shifting sources of wealth: 

Shifting sources of wealth Resources Costs Proximity Clusters Knowledge Talent Quality of Life Current Traditional Inherited Assets Created Assets

Distinctiveness: 

Distinctiveness The Economic Importance of Being Different

It’s clear what won’t work: 

It’s clear what won’t work “Me too, cheaper” Poor imitations of others Following the herd And what has a chance First Best Only

Being Different: 

Being Different In a global economy, local distinctiveness is one important source of the new ideas that can help drive economic prosperity

Different Places, Different Paths: 

Different Places, Different Paths Global Hubs - New York, Chicago New Ideas – Seattle (Microsoft, Amazon, Biotech, Starbucks) High Tech Centers – Austin, Boise Entertainment Machine – Las Vegas, Orlando Education Centers - Providence, Philadelphia Retirement Mecca – Phoenix, S. Florida

Public Policy: Institutions Matter: 

Public Policy: Institutions Matter “As the world becomes more closely integrated, the feature that will increasingly differentiate one city or country from another will be the quality of public institutions. The most successful will be those that support collective interests, especially the creation of new ideas.” Paul Romer

Next Steps: 

Next Steps Do you have a strategy for your region’s globally competitive clusters? Do you view your people as a critical economic asset? In what ways is your city “First, Best or Only?” Is your city a fertile environment for innovation and entrepreneurship?

Conclusions: 

Conclusions Regions are the key building blocks of a global economy Ideas and innovation are key to success Talent is the critical resource Each city has different opportunities Building a great city for entrepreneurs, workers, consumers, citizens

For More Information: 

For More Information www.ImpresaConsulting.com