competitiveness & the dynamics of economic change. will … · 2019-12-30 · fundamental...
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Competitiveness & the Dynamics of Economic Change.
Will California be a Leader in the Newly Sprouted Knowledge Economy?
Bruce [email protected]
How Great Thou Art
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6
Default and Foreclosure Trends
Thinking about the Challenge
Baseline Considerations• How does California stack up as a wealth-producing
economy? Relative to what?• What are the strengths and weaknesses?• What about economic freedom?
Knowledge Economy• What is a Knowledge Economy?• The California Challenge• Lessons to consider
U.S. Employment Sectors: 1997
Mfg.15%
Cons.5%
TTU5%
Fin6%
Serv30%
Trade23%
Gvt.16%
California Sectors: 1997
Mfg.14%
Cons.4%
Fin6%
Serv31%
Trade23%
Gvt.17%
TTU5%
Source: Bureau of Labor Statistics
Percent Distribution of Percent Distribution of US US NonfarmNonfarm Employment Employment
by Industryby Industry20072007
Government16.2%
Leisure and Hospitality9.6%
Education and Health Services
13.1%
Professional and Business Services
12.8%
Financial Activities6.2%
Information2.3%
Trade, Transportation and Utilities
19.2%
Manufacturing10.5%
Construction5.6%
Source: Bureau of Labor Statistics
Percent Distribution of Percent Distribution of California California NonfarmNonfarm Employment Employment
by Industryby Industry20072007
Government16.8%
Leisure and Hospitality
10.0%
Education and Health Services
11.0%
Professional and Business Services
14.9%
Financial Activities6.0%
Inform. 3.0%
Trade, Transportation& Util.19.3%
Manufacturing9.0%
Construction6.0%
Share of Adult Population with College Degree in 1970
Manufacturing Share of Employment in 1970
Share of Adult Population with College Degree in 1970
Texas Per Capita Income Per Cent of U.S.
82
84
86
88
90
92
94
96
98
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Average Annual Per Capita Real GDP Growth: 2000-2006
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%M
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State & Local Tax BurdenFY2004
U.S. Average
Tax Freedom Day, 2007
Tax Foundation
STATE ECONOMIC FREEDOM INDEX: 2004
2005 Over 25 Population with High School Education
Percent of Population 25 or older with Bachelor’s Degree or Higher, 2005
Share of Over-25 with College Degrees and Per Capita Income2000
15.00
20.00
25.00
30.00
35.00
40.00
45.00
$20,000.00 $25,000.00 $30,000.00 $35,000.00 $40,000.00 $45,000.00 $50,000.00
Sh
are
wit
h C
oll
ege
De
gre
e
SC
W. Virginia
Mass.
NC
TEXAS
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
0 10000 20000 30000 40000 50000 60000 70000
Sh
are
of a
bo
ve 2
5 w
ith
deg
rees
Per Capita GDP
Bachelor's Degrees & Per Capita GDP, 2006
Delaware
W. Virginia
Massachusetts
S.C.
N.C.Texas
.
Conn.
New York
Miss. Nevada
Vermont
Maryland
Hawaii
KansasAlaska
La.
Arkansas
N.J.
Wyoming.
Montana
Tenn.
Va.
California
Growth Rates, Regional Real GDP, 1997-2006
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2000 2001 2002 2003 2004 2005 2006 2007
California Population Growth due to Natural Increase and Net Migration: 2000-2007
Natural Increase Net Migration
ALEC-Laffer State Performance Index: 1996-2006
7421210698233
211432
26464940374538474850
1223247311710233
461534
39271126364029444749
312122127928313
114914
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TexasFloridaArizonaVirginiaMontanaWyomingColoradoN. MexicoOklahomaIdaho
OregonCaliforniaKentucky
NebraskaMississippiLouisianaPennsylvaniaIowaIndianaNew YorkIllinoisOhioMichigan
12345678910
282930
41424344454647484950
EmploymentPer Capita Personal Income
Absolute Migration
StateRank
Average Annual Per Capita Real GDP Growth: 2000-2006
AVERAGE STATE GDP GROWTH: 2000-2005
Nominal Chained Dollars
Average State GDP Growth, Manufacturing, 2000-2005
GDP GROWTH FROM PROFESSIONAL & TECHNICAL SERVICES: 2000-2005
How Texas Cities Compare with115 Others
The Top Eight
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Share of Adult Population with College Degrees, 2000.
Source: U.S. Census, 2000
Percentage of Metropolitan Labor Force in Professional Occupations, 2000*
* Professional occupations include Computer and Mathematical Operations (15-000); Life, Physical and Social Science. Occupations (19-0000); and Architecture and Engineering Occupations (17-0000)
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* Source: 1997 Economic Census ** NAICS 54 activities include legal advice and representation; accounting, bookkeeping, and payroll services; architectural, engineering, and specialized design services; computer services; consulting services; research services; advertising services; photographic services; translation and interpretation services; veterinary services; and other professional, scientific, and technical services.
Share of Establishments in Professional, Scientific, and Technical Services Industries (NAICS 54), 1997
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Patents Per 1000 People by Southern Metropolitan Area, 1995-1999
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1992-93-94 2002-03-04 PercentageState Average Average Change
Change in Utility Patent Activity 1992-2004, Southern States
South Carolina 426 564 +32.4%
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Source: National Commission on Entrepreneurship, 2001.
Entrepreneurial Growth Companies as a Share ofBusiness in Labor Market Areas, 1991-1996.
Economic Performance: Summary
• Weak recent record of economic growth and wealth creation.
• High and growing tax burden.• Low economic freedom.• Weak secondary education baseline. But strong
higher education component.• Large services economy.• Exporting domestic population
The New Economy
California ranks number 5 in 2007, following Massachusetts, New Jersey, Washington, and Maryland. Was number 2 in 1999 and 2002.
Number one in patents. Number 3 in IPOs. High in fast growth firms and IT related activities.
Weak in attracting knowledge workers.
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But wait a minute.What is the Knowledge Economy?
• A situation where value lies increasingly in new ideas, software, services and relationships.
• An economy characterized by the recognition of knowledge as the source of competitiveness, the increasing importance of science, research, technology and innovation in knowledge creation, and the use of computers and the internet to generate,share and apply knowledge.
oOoFor countries in the vanguard of the world economy, the balance
between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living—more than land, than tools, than labor. Today’s most technologically advanced economies are truly knowledge-based.
The Knowledge Problem
The KNOWLEDGE PROBLEM joins ORDER as the fundamental economic problem faced by all human communities, from the earliest origins to global community life today.
The knowledge problem is not just about ignorance. It’s about the challenge of finding and organizing existing knowledge.
Knowledge is dispersed. Yet human challenges are concentrated in time and place.
How do we get all those brains connected?
Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. …[B]y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Adam Smith. Inquiry into the Nature and Causes of the Wealth of Nations.1776. Book IV, Ch. 8.
[G]uiding any invisible hand there must be an “invisible brain.” Its neurons are people. The more neurons there are in regular and easy contact, the better the brain works—the more finely it can divide economic labor, the more diverse the resulting products. And, not incidentally, the more rapidly technological innovations take shape and spread.
Robert Wright. Nonzero: The Logic of Human Destiny.2000. Ch. 4, 48.
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Firms and Institutions are also Disintegrating
Hierarchies are collapsing.Organizations are decentralizing.
Individuals are breaking down walls.
Collapsing hierarchies lead to small knowledge-based entrepreneur-led firms and activities.
And more frequent bright ideas
Per Capita Income = F(Industrial R&D, Fast Growth Firms, Work Force Ed, Median Age).
Variable Descriptions
• Industrial R&D – Industry-performed research and development as a percentage of total worker earnings.
• Fast Growth Firms – The number of Deloitte Technology Fast 500 and Inc. 500 firms as a share of total firms in each state.
• Workforce Education – A weighted measure of the educational attainment (advanced degrees, bachelor’s degrees, associates degrees, or some college coursework) of each state’s workforce.
Knowledge Economy Index
Voting with their Feet
Voting with their Feet
NET 1990-2000 INTERNAL MIGRATION,PERCENT OF 2000 POPULATION
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
6.01% plus
2.01% to 6.00%
0.01% to 2.00%
-2.99% to 0.00% Below -3.00%
NET 1995-2000 INTERNAL MIGRATIONOF PEOPLE WHO WERE 20 TO 34,PERCENT OF 2000 POPULATION
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
0.61% plus
0.171% to 0.60%
-0.34% to 0.17%
-0.8% to -0.35% Below -.8%
VA
NET 1995-2000 INTERNAL MIGRATION OF PEOPLE WHO WERE 25-39, SINGLE & COLLEGE EDUCATED
PERCENT OF 2000 POPULATION
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
0.09% plus
0% to 0.089%
-0.1% to 0%
-0.2% to -0.11% Below -0.2%
VA
Modeling Migration
SHARE MOVING = F(CREATIVTY, FREEDOM, PBS, INCOME)
MODELING MIGRATION
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
1 to 10 (10 states)
11 to 20 (10)
21 to 30 (10)
31 to 40 (10) 41 to 50 (10)
CREATIVITY INDEX 2003 RANKINGS
U.S. ECONOMIC FREEDOM INDEX, 1999
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
1 to 10 (10 states)
11 to 20 (10)
21 to 30 (10)
31 to 40 (10) 41 to 50 (10)
U.S. FREEDOM FISCAL INDEX, 1999
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
1 to 10 (10 states)
11 to 20 (10)
21 to 30 (10)
31 to 40 (10) 41 to 50 (10)
What did we learn?
Go Getters are:• Highly attracted by larger PBS sector.• Repelled by state taxes.• Attracted by “cool” locations.• Are not sensitive to high versus low
income locations.
Lessons to Apply?
• Improve economic freedom.• Avoid new regulatory burdens. User fees,
performance standards where possible.• Reduce the tax burden.• Allow innovation in secondary schools.• Offer new incentives for investment in
graduate education tied to remaining.• Become world leader in water markets.