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Competitiveness & the Dynamics of Economic Change. Will California be a Leader in the Newly Sprouted Knowledge Economy? Bruce Yandle [email protected]

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Page 1: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Competitiveness & the Dynamics of Economic Change.

Will California be a Leader in the Newly Sprouted Knowledge Economy?

Bruce [email protected]

Page 2: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 3: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

How Great Thou Art

Page 4: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

��������������������� �������������������

Page 5: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 6: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

6

Default and Foreclosure Trends

Page 7: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 8: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 9: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 10: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

U.S. Employment Sectors: 1997

Mfg.15%

Cons.5%

TTU5%

Fin6%

Serv30%

Trade23%

Gvt.16%

Page 11: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

California Sectors: 1997

Mfg.14%

Cons.4%

Fin6%

Serv31%

Trade23%

Gvt.17%

TTU5%

Page 12: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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%

Page 13: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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%

Page 14: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Share of Adult Population with College Degree in 1970

Page 15: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Manufacturing Share of Employment in 1970

Page 16: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Share of Adult Population with College Degree in 1970

Page 17: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 18: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 19: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 20: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 21: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 22: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 23: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 24: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Average Annual Per Capita Real GDP Growth: 2000-2006

Page 25: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%M

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Ala

.T

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el.

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.A

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.S.

State & Local Tax BurdenFY2004

U.S. Average

Page 26: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 27: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Tax Freedom Day, 2007

Tax Foundation

Page 28: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

STATE ECONOMIC FREEDOM INDEX: 2004

Page 29: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

2005 Over 25 Population with High School Education

Page 30: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Percent of Population 25 or older with Bachelor’s Degree or Higher, 2005

Page 31: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

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Page 33: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 34: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Growth Rates, Regional Real GDP, 1997-2006

Page 35: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 36: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

ALEC-Laffer State Performance Index: 1996-2006

7421210698233

211432

26464940374538474850

1223247311710233

461534

39271126364029444749

312122127928313

114914

37384132383250484543

TexasFloridaArizonaVirginiaMontanaWyomingColoradoN. MexicoOklahomaIdaho

OregonCaliforniaKentucky

NebraskaMississippiLouisianaPennsylvaniaIowaIndianaNew YorkIllinoisOhioMichigan

12345678910

282930

41424344454647484950

EmploymentPer Capita Personal Income

Absolute Migration

StateRank

Page 37: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Average Annual Per Capita Real GDP Growth: 2000-2006

Page 38: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 39: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

AVERAGE STATE GDP GROWTH: 2000-2005

Nominal Chained Dollars

Page 40: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Average State GDP Growth, Manufacturing, 2000-2005

Page 41: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

GDP GROWTH FROM PROFESSIONAL & TECHNICAL SERVICES: 2000-2005

Page 42: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 43: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

How Texas Cities Compare with115 Others

The Top Eight

Page 44: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Share of Adult Population with College Degrees, 2000.

Source: U.S. Census, 2000

Page 45: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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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Page 46: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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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

Page 47: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Patents Per 1000 People by Southern Metropolitan Area, 1995-1999

Page 48: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Source: National Science Foundation

Page 49: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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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%

Page 50: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Source: National Commission on Entrepreneurship, 2001.

Entrepreneurial Growth Companies as a Share ofBusiness in Labor Market Areas, 1991-1996.

Page 51: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 52: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.

Page 53: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Page 54: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.

Page 55: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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?

Page 56: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.

Page 57: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Page 58: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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Page 59: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Firms and Institutions are also Disintegrating

Hierarchies are collapsing.Organizations are decentralizing.

Individuals are breaking down walls.

Page 60: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Collapsing hierarchies lead to small knowledge-based entrepreneur-led firms and activities.

And more frequent bright ideas

Page 61: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 62: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Per Capita Income = F(Industrial R&D, Fast Growth Firms, Work Force Ed, Median Age).

Page 63: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.

Page 64: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Knowledge Economy Index

Page 65: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Voting with their Feet

Voting with their Feet

Page 66: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 67: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community
Page 68: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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%

Page 69: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 70: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 71: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

Modeling Migration

SHARE MOVING = F(CREATIVTY, FREEDOM, PBS, INCOME)

MODELING MIGRATION

Page 72: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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

Page 73: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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)

Page 74: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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)

Page 75: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.

Page 76: Competitiveness & the Dynamics of Economic Change. Will … · 2019-12-30 · fundamental economic problem faced by all human communities, from the earliest origins to global community

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.