November 2005

UNDERSTANDING OURUNDERSTANDING OUR NEW NEW NEW ECONOMY NEW ECONOMY

Joseph Cortright

The ChallengeThe Challenge

In a world of competing metropolitan

economies, who will be the leaders,

and who will lag behind?

RoadmapRoadmap

GlobalizationTechnologyRegionsClustersTalentDistinctivenessStrategy

Traded Sector Drives GrowthTraded Sector Drives Growth

Traded/Export Sector

Suppliers

Local

Sales to the rest of the world

Most jobs are here: schools, hospitals, grocery stores, restaurants

But firms in this sector drive the economy

GlobalizationGlobalization

The New Reality

GlobalizationGlobalization

A ThreatAn OpportunityReality

The US PositionThe 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 CompetitorsGlobal 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 WorldwideMore 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 OpportunitiesGlobal 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

KnowledgeKnowledge

The Key to Our Economic Future

TechnologyTechnology

A knowledge economy . . .Not an information economyWhat you know matters

The Economy is ChangingThe 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 FactoriesCapital: More & Bigger Factories

More & Smarter WorkersMore & 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. KnowledgeInformation v. Knowledge

Information Data, facts -- “codifiable”

KnowledgeKnow-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

RegionsRegions

The Competitive Unit of A Global Economy

RegionsRegions

Nations are less important, but the world isn’t flat

Regions are the key competitive units

Ideas get created in regionsDifferent places specialize in

different things

The Paradox of GlobalizationThe Paradox of Globalization

As nations become less importantRegions become more importantBusinesses 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 SpikyThe World is Spiky

Source: R. Florida

Competing RegionsCompeting Regions

ClustersClusters

The Importance of Specialization

Clustering is CriticalClustering 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 CentersHigh Tech CentersSeattle

Portland

Silicon Valley

San Diego

Austin

Salt Lake CitySacramento

Minneapolis

Boston

Research Triangle Park

Denver

AtlantaPhoenix

High Tech is SpecializedHigh Tech is SpecializedSeattle- SoftwarePortland

- Semiconductors- SME/EDA- Display- Computers

Silicon Valleyeverything!

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 DominateBiotechnology: 9 Metros DominateSeattle

San Francisco

San Diego

Washington-Los Angeles

N. Y.Philadelphia

Research Triangle Park

Boston

Source: Brookings Institution, 2005

Convention CentersConvention Centers

Las Vegas, Orlando dominant centers of convention business

Both have more than 100,000 hotel rooms

Source: Brookings Institution, 2005

Specialization of ClustersSpecialization of Clusters

Source: Council on Competitiveness

Traditional Metro Portland ClustersTraditional Metro Portland ClustersCluster EmploymentHigh Tech 62,000Metals/Machinery 36,786Agriculture Food Processing 26,398Forest 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 ClustersEmerging Metro Portland Clusters

Cluster EmploymentCreative Services 13,000Apparel/Sporting Goods 9,000 Nursery Products 7,500Pharma/Life Science R&D 1,200Professional Services 26,000*

Source: Oregon Employment Department, 2001 data(* Legal, Engineering & Management Services, Estimated on a different basis than other data, 2000)

A conventional viewA conventional view

0

20

40

60

80

100

120

0 10 20 30 40 50 60

Supply

Demand

Quantity

Price

Theory: How Economies WorkTheory: How Economies Work

The efficient invisible handvs.

Or . . .Or . . .

TalentTalent

People Matter for New Ideas

Best Educated Metros Had Higher Best Educated Metros Had Higher Income Growth Income Growth

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%

Ten Best Educated Ten Least Educated

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

Talented Young Workersand the Prospects for

Metropolitan Prosperity

DemographicsDemographics

Fewer 25 to 34 year-oldsFewer 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 ShortageFuture 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 attainmentplateaus

= Labor Shortage

-40% -20% 0% 20% 40%

% Change 25-34 year-olds, 1990 to 2000

50 Most P

opulous Metro

Areas

Average of Top 50 Metros

Big Shifts Among Metro AreasBig Shifts Among Metro Areas

Biggest Shifts in Talented 25-34sBiggest 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 wealthShifting sources of wealth

ResourcesCostsProximityClustersKnowledgeTalentQuality of Life

Current

Traditional

Inherited Assets

Created Assets

DistinctivenessDistinctiveness

The Economic Importance of Being Different

It’s clear what won’t workIt’s clear what won’t work

“Me too, cheaper”Poor imitations of othersFollowing the herd

And what has a chanceAnd what has a chance• First• Best• Only

Being DifferentBeing Different

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

Different Places, Different PathsDifferent 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 Public Policy: Institutions MatterMatter “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 StepsNext StepsDo 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?

ConclusionsConclusions

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 InformationFor More Information

www.ImpresaConsulting.com