Michael Porter on Competitiveness

people to our next speaker for taking time from experimental adventure you have his biography last night I would underscore Larry Summers drew ideas from two people that he cited one was Alexis discomfort and the other was Michael for ladies and gentlemen Michael well David as much as I love Columbus I wouldn't be here without David's gentle prodding he helped us lead a life sciences summit here in Massachusetts this is our core cluster in our economies life sciences and we got together all the leaders in that in that sector here six months or so ago and David helped us organize that session and led that session and I got such a large debt that I could not resist anything he wants me to do and this is not this is not repaying the debt this is just working towards okay so and it's a variation group the other thing that attracted me about about this is that all of you given the roles that you play and the important jobs that you have are actually here doing this this doesn't happen very often in my experience most times it's the government folks know why we're in here really getting these videos I think you know I might just find this we need this no no a lot of times this whole notion of building a community and building the economy is left to government it's left to people that are running the chambers of commerce and the various economic development organizations in principles it's ringing hold on it's going to be it's muted will I do it yeah we got it okay okay it's usually left to kind of the people whose job it is to do economic development Community Development and the fact that the principles are here willing to participate is something I find very very unusual and very very encouraging I've done a little bit of work actually we've looked a bit at the Columbus economy and I think you should be here I think there's some real issues about the vitality of the economy I don't think the economy is performing at a particularly advanced rate I think if there's some danger signs here that we need to talk about but I think the first step you all know that presumably because you know your data but but I think the first step in kind of revitalizing a region is really to get the leaders together to feel committed to being part of the process because as I'll say in a minute we found that the whole process of community and particularly of economic development has changed over the last 10 or 20 years it used to be a government driven process now we find that if it's a government driven process it fails now it has to be a private sector driven process in which the business community and the university community are absolutely driving the process rather than sort of lobbying in complaints and requests for government officials so the fact that we have this group here is really extraordinary and that more than anything else he even David really attracted me to be part of this session we have very little time today and what I'm hoping to do is just get you interested in the subject of competitiveness for a region and then compendious of the urban core of that region which is we find is a particular challenge if this is at all interesting then hopefully we can find some ways to continue the dialogue when we'll have had more time to collect more data and do more analysis and give you more value hopefully today big day today I'm only going to give you sort of a basic overview of how we think about a metropolitan or regional economy how we think about its prosperity the drivers of that prosperity what we've learned about some of the key issues and challenges that every region has to address I'm going to spend a little bit of time if I have it on that the economically distressed urban core of regional economies which is a major issue all across the country and then with that we'll take a few questions and hopefully that will be intriguing enough that that this dialogue will continue either among yourselves that in Columbus or or involving us with us here at Harvard I have I we've kind of prepared a little bit of a data pack on the Columbus economy drawing on our datasets we have very very large datasets on regional economies in the United States now I'm gonna hand that out at the end but I've learned over the time if I handed out at the beginning nobody listens and I have so much to cover in so short a time that I want to make sure that you listen to me so you'll get all these slides and and don't worry about that hopefully I want to kind of give you a kind of mental map or a mental framework with which to look at this challenge of economic development now I think the first thing we've got to understand is what makes a region competitive why do some regions improve their prosperity grow jobs grow income why does that happen well we what we come to understand is that the competitiveness of region it is is based on the productivity of that region productivity with which that region can use labor and capital to make valuable goods and services if a region is a very productive place to do business its prosperous now productivity is the value that's created for a day of work and every dollar of capital invested in that region if every worker in that region is producing a lot of output valuable output per day you can pay yourself high wages if every dollar of capital invested in your region is producing a lot of output you're going to earn a good return on that capital and that's the kind of iron law of prosperity if you're productive if you can fuse a lot of output per day a lot of put per dollar of capital invested you can be wealthy but if you're not going to give for whatever set of reasons your your incomes are going to be held down you're not going to attract your fair share of the new high wage jobs and so forth regions compete to be to be the most productive place to do business now obviously productivity has a lot to do with skill that has a lot to do with technology it has to luckily with infrastructure has to do a lot of things which we'll talk about later a couple of additional points that I want to make here it doesn't matter so much what particular fields a region competes it whether you do shoes or whether you make plastic products or whether you're in semiconductors actually turns out not to matter that much what matters is how sophisticated and productive you are at whatever you do and we find that near many many people get into the mindset that we have to be in high tech I talk it when I talk to groups like you everybody says oh we got to get into high tech we got to get into IT and actually that's not correct in fact what you find is that high tech and biotech and those new emerging technology industries only represent about four percent of the jobs and even if you're wildly successful that will never be the even close to the majority of your employment but what you need to be is productive in all of your industries you're never going to save your economy by trying to grow a biotech clip biotech cluster or an IT cluster that's not that those are good those can be helpful those can be part of a successful economy but you've got to learn to be productive across the board your economy in whatever fields you have expertise and uniqueness in it we'll talk about that later and I'll show you some of the coldest day so don't get too seduced by picking winners they're all winners you know the shoot Italians get rich making shoes because they can sell them for five hundred bucks a pair because they have the best soil and the best design and the best skill and the best brands you don't have to be in semiconductors to be prosperous you just have to be really really productive and the good news in this modern economy of ours is every field now is high-tech every single field in the economy is identical you can employ advanced technology to do just about anything from moving packages to making shoes to drilling for oil to to whatever it is you do so think about your fundamental role in building a prosperity in your region is raising the level of pro tuning of whatever you do and we find that you want to field on your strengths rather than dream about getting into some entirely new field that you don't exist in to make is that in the world that's what we okay now what allows you to be productive I some years ago I introduced a theory that's about the competitive productivity of locations and it says that in any location to be really productive you need four things number one you need very high quality inputs very highly skilled people very efficient infrastructure very good supply low-cost supplies of capital and so on wrong scientific base so the companies there can access that scientific infrastructure to help them compete so you need you need good inputs it stands to reason if you're going to be more productive you've got to have better inputs you can have the same old people in the same old tech same old technical base and the same old infrastructure being more productive you need the inputs to rise in quality of you need the right incentives so that the competition is a productivity or competition so many of these things are said in Washington in your case ain't good intellectual property protection you need investment incentives need a strong antitrust policy so that firms don't can't collude they actually have to compete because we find that when there's a lot of local competition you tend to have a prototypical improvement and we see that in many sectors in order to have a productive economy you take advantage of sophisticated local markets we find that regions are often competitive in those fields where they have very sophisticated local needs where your local market where your local customer where your local needs are very demanding that tends to allow you to enhance your productivity in your sophistication in that field you know one of the reasons why Italians are so great in making shoes is the Italians are very sophisticated customers of shoes the average Italian spends more on shoes per year than any other nationality but they buy fewer pairs than almost any other nationality because they buy very high average quality wouldn't wouldn't dream of going to a Kmart to buy shoes they want to go to a specialty store they want to talk to an expert they take their time it's a three-hour experience it's that sophisticated local need that helps them maintain their vitality and their dynamism to drive the productivity up over time so you're looking in your economy where are you demanding where do you have Siskin it needs in your industrial base in your consumer base that's one of the things you're looking for and the final thing you need to be really productive is you need clusters a cluster is where you just don't have one firm in a given field but where you have a whole cluster affirms in that field ah this is a great example of a cluster California wine 745 wineries in California not just one four thousand growers of grapes that are independent of the wineries ninety-five percent of all the wine produced in America is actually produced in California many people think it's because of the weather it actually isn't there's lots of places in the United States where you can grow fine one if you have Navy read the Wine Spectator you'll know that although you can do an Oregon you can do it and even Long Island Martha's Vineyard the reason that California is so successful in this field the reason they've gone from making Bartles and Jaymes the $35 bottles of wine is they become very productive very high skill very advanced in this deal they have a cluster there's a lot of firms but there's also all the associated supporting industries are there in that field so a California winery that wants to borrow money doesn't have to go to their local bank and put up their house for collateral they can go to a bank that knows their business and has loans where the grape where where the the aging inventory of the wine is collateral those are here that our bankers do you have any loans where your lender can put up inventory of wine as collateral of course not because you don't land you don't have expertise in that cluster but in California all the ad agencies all the banks understand that cluster and have specialized lending programs specialized program so that shows you some of the benefits for cluster where you have cluster you can be very productive all the skills are there all the technology is there all the expertise is there the suppliers are right there you don't need inventory everything is just in time and so when we look at an economy what we see in all advanced economies is that we see their their cluster you don't see a random distribution of industries in the economy of any region we tend to see regions unusually strong in in certain fields where they have that critical mass which allows them to be more productive than some other location and that and so you want to build on those things when you're dotson data layer we can show i've already really made the point that a to build an economy that's competitive and prosperous we found that the process the process has changed for if you look at this previous light and prickly this previous slide when you think about competitiveness the agony of competitiveness is everything matters the schools matter the roads matter everything matters the competitors therefore in order to improve competitiveness you have to have a sustained relentless effort to upgrade the standard in your region so you've got to be improving the schools you've got to be improving the technical schools you got to be improving the university base you got to be improving the physical infrastructure you got to make sure an airport sufficient you got is on and on it's a never-ending process of dealing with lots and lots of different sorts of things that all combine to shape the productivity of the region and what we find is that if you see economic development is just something that the government does it'll never get done and it won't be sustained you know if your economic development plan and in the region this is something with the mayor announces you know at the beginning of this term or her term that's always a death knell you've got to have an economic development process that just keeps going on doesn't matter who the mayor is it just keeps rolling because you've got institutions in place and you've got the private sector engagement and the university the people that are going to be there no matter what government is in power those are people have to do economic develop and how to organize yourself to do that is something that we've learned a lot about it and I don't have time to cover all these subjects are very important subject I'm just giving you a taste of this remember this is just sort of a little tasting menu and we can go into depth in any of these topics if you're into later now when we look at an economy like the Columbus area economy we look at it we see three very different kinds of businesses in that economy we see some businesses are in your region at least conceptually I'm not saying they are because you're not looking at competition we're looking at the United States some industries are located in a particular location because of natural resources okay so if you happen to have coal deposits in Columbus there might be some firms there that do coal okay so that's one class of firms in a regional economy people that are there because of natural resource endowments as you can see here less than one percent of all US jobs now are heavily dependent on natural resources there's a few of still left but but very few and these are declining what surprises many people is that actually the two-thirds of all the jobs in the Columbus region on average would be in local industries these are industries that every region has in roughly the same proportions local health services local construction retailing restaurants things like that these are businesses that don't compete across geography they basically serve almost exclusively the local market and we know that because as we look across the economic geography we see that every region has these industries in roughly the same proportions these industries are two-thirds of the jobs believe it or not two-thirds of all the jobs in your region are mobile they're serving the local market they've actually been this this category of jobs has actually been growing faster on average than any other category um but as we'll see later these jobs have relatively lower average wages why because these industries tend to deploy less technology less skill and therefore they they're less productive um the real core driver of any regional economy is what we call the traded clusters these are the firms in trees that make products and services that are traded across regions that are that are products in terms that are sold any sub across across the state across the country across the world in some cases we see that this is actually a little less than a third of all the jobs on average in the u.s. they're growing not hugely rapidly but they're growing but look at the average wage of the traded clusters versus the local clustering substantially higher higher relative wage 133 versus 84 on a relative standpoint the wage growth although the wage the job growth is higher here the wage growth is significant higher here and look at the relative productivity as we measure productivity these are highly much more productive and in terms of one of the metrics we use to look at that particular happening which is an indicator of technology we see look the patenting intensity of these industries is vastly higher higher than this so when we look at your region we look at we look at a region it's going to consist of these three buckets these here are important they're huge for jobs and we want to make sure that these are as productive as possible because our local businesses are not productive that will drag down the productivity of our traded businesses because our trend of businesses often depend on those local industry this is a great mistake in Japan for example if an thought they're just worried about the export businesses they could forget about local construction and wholesaling and all that sort of stuff and it became so costly to do business in Japan because those local industries were protected and subsidized that Japanese company stopped investing in Japan and started investing offshore okay so you can't ignore the local clusters they're really important you want them to be as efficient and productive as possible but this is what really drives your economy these are the really the the high wage industries that actually if these do well these do well if these guys are supporting high wages and high wage growth that creates higher in work so this can demand for these and drives them up and so we find that the level of traded wages in a region determines the level of local wages in the region and and so when you're thinking about your economy all of them are important but these you've got to really look at carefully okay now when we look at here is your economy what we see then is the traded clusters are very different depending on which region you're looking at because there's specialization and regions tend to do best in air they tend to do best in different fields so raleigh-durham we have one mix of traded clusters whereas in houston we have a different mix and land we have different mix and so forth so let's this now let's have some fun let's look at Columbus theory part you know we've gotten through well first of all let's let's think about how we measure data for a fake a region there's obviously the city the blue here is what's called the standard Metropolitan Statistical Area s MSA and the data I'm going to show you is for that particular area of geography the brown is what's called an economic area that's a bigger economic unit defined by the Department of Commerce and if I'd have a little more time and a little more energy we could have actually run the data for the economic area as well what we're finding is that when you look at a city you can't think of that city in isolation you have to think about that city in the context of the surrounding regional economy because there's some things that should be done in the city in the center but other things that are more efficiently done outside of the city and having the right efficient spatial distribution of Industry is important but for purses of the slides that I'm going to show you I'm showing you the blue and the yellow okay now let's look at some of the ways that we would look at the success of an economic area and unfortunately our data ends in the year 2001 because that's when the federal government has seen fit to spit out the data we are hoping that 2002 shows up soon maybe 2003 someday the minute we get it we will we will we will update all this data this is as of 2001 for most regions 2001 was starting to look a little shaky but it was still sort of the tail end what had been a very good period in 2002 generally looks a lot less exciting but these are all 2001 and when we compare you to other regions we're comparing inferred for that period and this data tends to look at the decade from what 1990 to 2001 now Columbus according to our data is the thirty seventh largest s MSA in terms of employment in in America so your pre bit Europe up there pretty high pecking order uh employment growth however you rank 117 so what we'll find here is that Columbus is a pretty good solid prosperous prosperous region but you're not you're not your prosperity is a little bit lagging your size in terms of your ranking and your measures of vitality and and dynamism are the things that cause me to be concerned so what do I sit so employment growth 117 versus versus your size of 37 your employment growth according to our data is a little less than two percent versus almost two and a half in the nation as a whole unemployment rate you know again good but but lower than your size right average wage 53rd for metropolitan ears not bad good solid ranking but wage growth ranked a hundred so we get the sense that that this is this is a kind of a good solid median level region in terms of performance but it's lagging a bit on the measures of how well will you progress it on the innovation side we only have a number of measures that we were able to look at here but but in terms of patenting rates patenting we look at as a measure of innovation output patents per 10,000 employees in your region or 4.7 rank 149 among regions so see where we're falling down the pecking word you know size wages now we're down down lower growth and patents again the gap here is a little bit less but but again roughly the same as your paddling rate trade and establishment formulations the number of new establishments or entities in the trade and economy how fast are we spitting out new entities again your your rank is lower well below your your other ring so again I think that that this is I think assigned to me that that this is not a region that's in crisis or that there's a you know deep economic problems but it's a region that actually has some issues to address in terms of you know what's our vitality what's what's holding us back why are we doing better now this is the employment in your region by training cluster and what you see here is where your region your SMS a ranks nationally in this particular cluster so your top cluster according to our data is Financial Services and this is the traded part of financial services there's also some local finishes business services number two distribution services number three that's an interesting one education and knowledge creation so we got some major educational employment in this region hospitality tourism heavy construction so look at how the service is really dominating and that's not unusual that that's typical for all for all regions you have a number one ranking actually in construction materials of all metropolitan areas your other high rankings and pretty high ranking and financial services remember your thirty seventh largest so anything where you're higher than thirty seven you have sort of over penetration from the very deserted 318 these these are metropolitan areas we're not looking at the whole economy we're looking at just metropolitan areas okay you have an issue ranking and lighting and electrical commits Footwear is tiny but you have an issue ranking their communications equipment plastics these are areas where you have some strength as measured by unemployment okay now here's your kind of business portfolio if you will in the traded economy again the local economy you've got pretty much the same local industries of their Vale stuff okay so we focus here we saw the construction materials with solar communications equipment so basically what we do here is we say okay where what's our average share of national employment in the area so you turn out to be 0.67 percent of national traded employee in the Columbus Metropolitan Area so if you have more than that that means that you have a strength in that cluster that is your over penetrated you have more employment there than we would expect just given your average size so that's above the line and then here is where you're kind of gaining position relative to other regions losing position relative to other regions and so we see the outliers let's scroll in on this part of the economy because this is perhaps a little bit more so we see that the financial services is actually quite a interesting case where you're not only are you strong like you're like kind of double as strong as you would expect given your size but you're also gaining share so this is an area of strength vitality distributions services we see that I'll show you some examples chemicals lighting you see that then interesting growth in IT which which is nice to see we do see however some large clusters are kind of declining losing position not necessarily declining in absolute terms but not growing as fast as the cluster is nationally so again education knowledge creation losing relative employment share what is that universities of all kinds of educational institutions also research organizations think tanks there's a whole array of the businesses that would be in this each of these is a collection of businesses but not local schools not not anything that would be local and everybody would happen okay business services this is a very large cluster in the US economy and we're this is a mishmash of things you know consulting a whole bunch of things we'll look at this in a minute classics is quite strong slightly losing over a little bit a share so that that's kind of what the portfolio looks like that is actually not an alarming chart I've looked at a lot of these in a lot of regions uh you know you've got you've got some good strong things that are doing well you've got some emerging things that are they're gaming position it's not an alarming position but it also wouldn't look like Atlanta or or a region that's really steaming ahead that would tend to be a lot of stuff up in the upper earth here's where the jobs were created over the decade from 1992 to 2001 and what we see here the little blue line would be the national benchmark so basically in financial services if you just grew as fast as national financial services you would have created this many jobs which actually created this many and that's why you're gaining share so so you did well here but in business services national benchmark you to created that many jobs and you only created that many so the the Columbus as kind of a business services hub is losing position okay transportation logistics quite quite hot job generation distribution again overperformed communications equipment overperform this has been flat nationally over this period where did you lose well well the good news is there's not any big disasters I'm doing a project now on the state of South Carolina and they got some big disasters you don't motor driven products these are a variety of things they're unified by the fact that there's a motor at the core of whatever it is analytical instruments and small job losses automotive some small job losses so this is basically a healthy story that you're you're creating net net net traded jobs that's why your unemployment rate is pretty low but but it's interesting to look at this mix and and and see what what is telling us about about the nature of our economy where we're working well we're working world what I've given you in your data pack is sort of now let's take each one of our clusters and tear it apart a little bit this is financial services where we're really doing well in financial services is insurance that's not steaming ahead growing generating most all of the jobs that were generated in this cluster came out of insurance we can show you which companies those are we can give you the companies in each of these bubbles to the extent that the data is not perfect we can give you a lot of the list of who who's here who's there who's there again all this stuff we have and we'll be happy to share with this starts to give you kind of this picture of what's your economy how is it evolving what can we do to make it better so here's the insurance dominates the jobs but here's another pattern we tend to see in in Columbus as we look through a lot of these charts we tend to see that you know we have you know we have decent wages but these charts on wages this little diamond is the national average wage in that sub cluster so yes you have securities brokers dealers and change employment in your region but you know compared to the average national wage in that your love so you see that in software and computer program you see that in a lot of fields in that so many advanced services fields and advanced manufacturing fields you're there but you're in segments or you're doing things that are only supporting a somewhat lower wage so that tells us that you know we got to find a way to raise the the skill base raises sophistication raise the technology base of our economy such as drive the wages up okay now what I've talked about so far and I've taken 98% of my time already is the regional economy as a whole and there's so much more to talk about and so much more we can cover in terms of how to how to think about it how to diagnose it what to do about it we can cover that in the Q&A now as requested I'd like to scroll down from the region as a whole to the actually the urban core because what we find is that in many regions we have sort of a doughnut effect and that is we have a pretty high level of prosperity around the tasty part but then there's kind of a hole in the middle and there's actually quite a bit of poverty and unemployment and lack of economic success right in the middle of the doughnut right in the actual inner city itself and that's also true in Columbus based on what little bit again we got a little data done here but but not a whole lot but that that is an issue and so one of the things we understand is that that situation actually is intolerable in the long run we can't have a healthy regional economy unless our urban core is healthy why how do I know that because that's what the data tells us potato tells us that regional vitality is affected by the vitality of the court now there's been a wide recognition that inner cities are a big problem in the United States we know that poverty in the US concentrated in inner cities you know you're not you know Houston or Los Angeles but but you have your own version of a of the urban core not being as vital as the rest of the region what do we do about that well the traditional kind of way of addressing the urban core was a model that looked like this basically the whole focus was how can we help these poor people the way to help them is to figure out all the deficiencies that they have and all the social needs they have housing health care you know etc and pour money and resources into that the economic space that was looked at was the neighborhood so we held these Community Development Corporation's neighborhood by neighborhood block by block and the lead actor in this process was government that is it was government's job to deal with all these poor people in the neighborhoods by helping them address their their social needs and that is correct as far as it goes that is the folks living in these communities have a lot of needs and housing stocks are not up to stuff and homeownership is low and education levels are inadequate and so all that effort was critically necessary to kind of get us to a certain level but but what we've come to believe is that that's not enough that you can't just try you just you can't just try to to focus on the weaknesses and deficiencies you actually have to make sure that you also think about how to create a healthy economic base in those communities because unless these urban core areas are participating in the economy unless the residents of these communities can actively participate in the economy then there is no amount of money that will ever solve this problem because it'll just will just be ameliorating a problem rather than dealing with the underlying solution so so what we've been working on and is say okay let's view the inner city not only as a social problem but also as an economic problem and how what steps can we take to actually build healthy economies in our urban core now for many people that seems to be an impossible dream because people kind of assume that well the place where the economic activity should really be is in the suburbs but actually what we've come to find is that that's actually not the natural state of affairs in fact the urban core ought to be a very vital economic region if we think about it the right way and that and we can change that in many cities so what we've been doing in our work on inner cities is to say okay let's change the model here let's keep doing some of this stuff but let's also think about not just reducing property but creating jobs and wealth not just focusing on deficiencies but where where can we find the competitive advantages where could we find the assets of our urban core what could we build on in terms of an economic goals rather than looking at the neighborhood let's look at the whole region and think about where the urban core could fit into the spatial economy of the region and and again how can we kind of shift the leadership now the basic the basic starting point for it we're thinking about how to revitalize the urban core is to say okay what are the competitive advantages that the urban core might have as a place for business what sort of businesses should be thriving in those areas versus the suburbs and the basic theory and again I don't have time to cover all of this is that there there's there's again four key hooks that we find for urban economic developer number one is one one hook is the workforce we often have this seems a little strange now because we've been in toward an economic downturn but we are facing a worker shortage in America there's absolutely no doubt about it and we're going to have no workers very sick economies just continues a little bit longer we're already seeing Changez the reason we know we're not going to be workers is that the workforce is growing at 1% and the economy is growing in two and a half or 3% and remember what it was like you know before we hit the downturn it was impossible to find workers and the last basically pool of underutilized workers in most regions is in the urban core and so it's absolutely that becomes a real asset and for businesses that don't require very high levels of skilled people the urban core becomes a critical place in fact before the downturn we've had companies starting to move back into their report because that was the place where they can attract and retain or workforce a second thing we find it urban core and again I don't know Columbus here so I can't tell you how much these principles map and all of them all of them don't necessarily matter but we tend to find in the urban core is because of population density even though the average income is low we tend to see a very large market for retail goods and services and often commercial goods and service that has been abandoned all the retailers moved out all this you know all the supermarket's moved out and and there's a pool of underutilized demand that often can be a really important engine for getting investment flowing back into those regions the data we have on Columbus suggest that this is absolutely true in Columbus that in the so-called inner-city areas of Columbus which we've tried to chart and I'll show you that in a minute if the actually purchasing power per square mile is much higher in the urban core than it is in the region as a whole yet I don't know degree to which the retailers have actually come back to the urban core your community they are starting to come back in some parts of the country on we find that the urban core is truly a strategic location near the central business district near the transportation network sewing businesses that are logistical II sensitive that require a lot of deliveries and and logistics the urban core tends to be a good location and then we find opportunities to link the urban core or locations to the clusters in the the regional economy and the basic principle is to look at the city look at the region understand what that urban core looks like what assets it brings as a business location and then start to change the mindset start to change the mindset towards what can we do to enhance and encourage and revitalize our business base in the urban core how can we improve the business environment how do we deal with the things that the city is doing to get in the way etcetera etc okay again just a little bit of data and then I'm going to stop these green census tracts are defined as economically distressed urban neighborhoods using our methodology we look at three metrics with a poverty rate unemployment rate and average income and based on those three metrics we would take all the census tracts in a city or metropolitan area and we would classify them as being economically stressed in their city or not and using our methodology these areas which means something to you they mean nothing to me are actually the ones that qualify as economically distressed okay in these green census tracts we find 26% of the city's total population according to our date okay um now in these census tracts there are about 6,000 establishments so there is a business base and a fairly substantial business basis of employing a fair number of workers but we find that like in many cities the employment growth in that area is actually negative 1.3 percent whereas the average employment growth is much higher in the MSA so so this is a classic pattern this area you know often has a business base it's but it's not been looked at as a place in which economic development and business development is the central agenda it's been looked at as a place where we got to dealing with the poor people the largest inner city clusters in Columbus are all four of them are local clusters which is not atypical and we see some substantial financial services important so this is kind of a snapshot which really tells us that you know lumbus does have an inner city and it is not economically vital and so you're not you're not you're not breaking that particular trend on so here's some more other statistics about your inner city again about 187 thousand people you know substantially lower median household income 25 versus rusticity 43 versus rest of them and say 52 this is household income not individual wage unemployment rate three times higher high school attainment lower not disastrously low but but lower minority population substantial although this is not a high percent respective of all cities in fairly young population but actually a lower young population than then outside home ownership rate lower income density purchasing power per square mile actually fifty-seven thousand versus seven in the MSX so you can see that that there's a lot of concentrated purchasing power there that's why retailers should be in these communities because they actually are very good markets though and we're seeing seeing that all across the country couple more data slides and then then we'll stop this this measures some measures of the business space so you know the employment I said thirty six thousand six thousand establishments negative growth here slow growth in the city pretty rapid growth outside of the city business startups instantly enough pretty tricky bankruptcy is actually lower so this is an interesting here's the sort of the portfolio chart for that the vs the area and you can see again some some good things and some bad things this this looks at how much the urban core is of the metropolitan areas employment and then you know is it growing or shrinking we've got too many big bubbles below the line that are shrinking but this what this says is that 50% of all the metropolitan areas transportation and logistics is actually in the urban core so that's a sign that one of those competitive damages you know if you're going to run a translation logistics operation you want to be in the center so you can go out as opposed to be out trying to fight your way around and in so again I've kind of given you a lots of data here some some thoughts I guess what I would just close with is that today you know we are in a very very open and competitive economy your region is competing not only with every other region in America but it's also competing with other locations around the world we're never going to win based on low wages we'll never we'll never win if all we offer is low wages or low cost of doing business because we have you know low electric power cost or cheap water or you know whatever we'll never win that game you won't win it even in America because there are many other places in America that are much lower cost places to do business then then Columbus as a region so in order to have a vital economy we've got to figure out what we need to do to create a more productive more sophisticated environment in which businesses can operate in order to do that we found that that we need to not think about some general policies like you know just improving the roads but we also got to start to think about clusters and where we can develop unique specializations and unique assets and unique technical expertise and unique educational programs and unique think tanks and and university research institutes we're going to need to start to think about how we can be unusually octave unusually competitive in a field but when we think about economic development we can't just think about the region we also have to put a lot of weight on the urban core as well because that turns out to be often one of the things that's really very strongly affecting the overall results in the region as a whole okay well I can stay a little bit longer if anybody has any questions and again I hope this will encourage you to do a little bit more work on this I don't know what your plans are but I'd be interested in hearing about those as well David Michael but if if you were a member of the partnership and what you got in your head around this and you went home to Columbus you think okay where do we go from here yeah where do we look for our other models in the United States that might be somewhere in our air in our it looked like us but have also been come more vital right where would you look how would you do it yeah well we can first of all I think what this says is that if you haven't already done it every so often every community ought to do sort of a competitive assessment where are we and the most important thing you do a competitive assessment about usually about your economy and its health so so I think you know I think that's one implication and and so this is just a teaser you know this is just the beginning of what that process is and ideally out of that process would not only come you know where you're doing well we're doing poorly but why what are the issue you know one of the challenges what are the constraints one of the weaknesses that we need to address and why is this happening and what can we do about it and so I think the second point I make is that the regions that do well have a strategy you know Research Triangle was just a bunch of corn fields and then they had an idea that they could take these three universities that happen to be there pretty much completely disconnect the economy historically and they can take these three universities and create a strategy around and it took a long time it took 20 years or so but then they ended up with a very vital dynamic region okay so you need a strategy you need to do a competitive assessment you need to do a strategy who should do that we believe it should be done with sort of a group that crosses the constituencies that I've been talking about obviously the government has to be involved but the private sector and this group is an excellent starting point to be the champion of that effort and so you need to organize yourself and you need to create an organization that has an enduring commitment to carrying this on over time rather than just wants to have a burst of energy and get everybody excited for a year and then have a daya so that's that's the third implication in terms of looking for models we've actually we've actually done some some studies I didn't I realized too late last night that I should have brought you some documents that I can give you that actually document a number of other regions that are interesting that have done interesting things so we can share with you a lot of a lot of material would be happy to share it with whoever here is the person you you have a team of analysts and the private sector as well as the business schools who are working with regions and right we have an interesting story here because there's there's two there I work with in the inner-city initiative is an organization I created to work on the urban core issues and they've actually worked with Milwaukee and you happen to have the person who knows that case very well so you could hear about that example that's an example of working on the urban core issue there it so happens that the ICAC is working with Akron right now and the reason or the dacra is that the mayor has been mayor for forever I understand I've met him just once he's also now the chairman of the Conference of Mayors okay and so when things were trying to do is get him to be a national leader in kind of putting out some of this thinking with his colleagues so the ICC is one asset that can be perhaps helpful in looking at the urban core issues particularly with respect to the economy as a whole again as I mentioned earlier we have tremendous data sets that we have and I'd be happy to make those available but that's a Harvard and then there are some firms on the outside that can do this kind of work and again we can give you some examples of that but it's the kind of thing that that you have you know you're here talking about a lot of different issues and you know you've got to decide which two or three of those are the most important for the long-term future of the region right now and you might conclude that the economy is ok I mean it's it's not great you know but it's certainly not you know I've seen a lot worse frankly I've seen a lot of depressed people sitting around the room buckets wondering why their unemployment rate is double the national average you know and so you're not in a key so you may not conclude that the economy is that it but but what we found is the economy is so crucial to everything else you have a good economy that all of a sudden dealing with educational issues and so forth because it becomes a lot easier so so you got to decide whether you're packing or but if the economy is comes up high on your radar screen or if the inner city part of the economy comes upon your river screen then I then you need to kind of have a strategy yes sir the during your speech it sounded as though printing clusters and local clusters and similar balance in the inner city versus the suburb there could be presumably strategies in which the trading cluster was around the circle but absolutely but the local cluster was in the circle and indeed your raleigh-durham example is a Research Triangle example is not an inner city development in ICU inner city issue determining that in that region they have relatively small urban centers and the the that they created essentially a large park that that was sort of between those three universities and that's where they they they poured their attention in terms of improving the vitality of the business environment and connecting all the institutions into a weekend I can send you actually a story about that particular case but no it we would expect that the urban core would be the place where some of the local services were provided so it's not at all surprising to see the financial services in the urban core local health you tend to have hospital complexes you tend to have universities in many cases located in the urban core all that is perfectly natural so I'm not implying that there should be an equal balance within the region but what we find is across regions we tend to find about the same proportion of local industry and our local clusters in every region we look at and you all are pretty much averaged there you know have very high level of training employment on the low level pretty much on the media uhm yes sir you said that the data suggests that the help of the intercity urban core is a key factor in deterring the telephone region right what's the conceptual basis well first of all it's just part of it is just simply math you know that if the urban core is 166 thousand people and they have very very very low average incomes then that simply pulls down the average for the whole region so that that's part of it but what we what we find found is that in fact I have a slide which I skipped over yeah if you have a healthy urban core you get some benefits number one you free up resources in terms of a public investment that is now going to address the distress and that that resource gets to be invested more broadly in the region you tend to you tend to see that that congestion urban sprawl some of the problems that many regions have can be mitigated if if your urban core is healthy and so rather than driving more and more destruction of more and more green space to farther and farther away you end up with a situation where your urban core is has good healthy neighborhoods and people want to live there and people move back in and all of a sudden your your infrastructure in the region gets more efficiently utilize rather than stretch than having you don't have to build more and more and more infrastructure for Sandland and infrastructure and if you get the urban core healthy you add resources that allow you to grow faster so I've made the point about the workforce you know if Columbus region is tapped out in terms of workers and you still have 150,000 underemployed people what that gives you another Corunna growth so and then there's this issue of spatial organization of Industry some things are more efficiently done in the urban core other things are more efficiently dealing with periphery so you know we would tend to see transportation logistics food processing you know tertiary healthcare all those things should really be happening in your core gathering people from the whole the whole economic area whereas it the urban core is is failing then you end up you end up driving businesses out of that urban core and you have less efficiency any problems that that would be kind of the conceptual underpinnings of why you should care beyond equity beyond just doing the right thing why you should care economically about the health of you here no more you've done some writing on corporate philanthropy right does it have a role in building a business absolutely I I guess I understand more Cramer my my co-author is coming in today um I think that this is good at only 30 seconds I'm going to be a lil provocative I think that that that the economic health of the region is probably the area where corporate philanthropy can have the biggest potential impact because who knows better what it takes to build a healthy economy than the private sector and that the private sector ought to be thinking about how to deploy its corporate philanthropy that in ways that really improve the business vitality in the business context in the region and that's an area where corporations have unusual expertise in unusual knowledge so so I would I think that I also would say the same thing about the Community Foundation I don't know the Community Foundation in Columbus but but I think the Community Foundation has a special role it's the guy any foundation I think also has a very fundamental role in sort of economic development of the region so so the private sector philanthropy working closely with community foundation is a very excellent focal point here but you're going to need some kind of an organizational structure perhaps this partnership can be the core of that in order to do the assessment do the research develop a strategy and then and then sustain the implementation of the time and I'll get to to you some documents that will that will hopefully add further thoughts David Michael Porter thank you very much

Channel: HarvardCPL

Views: 345,001

Keywords: cpl, harvard, kennedyschool, hks, leadership, porter, competitiveness, hbs, harvardbusiness, michaelporter, monitorgroup, strategy

Id: y5I_cnpP99U

Length: 60min 20sec (3620 seconds)

Published: Tue Aug 26 2008