1 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Idaho Competitiveness:
Creating a State Economic Strategy
For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm
For state economic profiles: www.isc.hbs.edu/econ-statesregions.htm
Professor Michael E. Porter Harvard Business School
March 20, 2012
2 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
The Economic Challenge for Governors in 2012
Enhancing State
Competitiveness
Achieving Fiscal Stability
3 Copyright 2012 © Professor Michael E. Porter 2012 State Competitiveness – Rich Bryden
What is Competitiveness?
• Competitiveness is the productivity with which a state utilizes its human, capital, and natural endowments to create value
• Productivity determines wages, jobs, and the standard of living
• It is not what fields a state competes in that determines its prosperity, but how productively it competes
4 Copyright 2012 © Professor Michael E. Porter 2012 State Competitiveness – Rich Bryden
Where Does Productivity Come From?
Businesses and government play different but interrelated roles in creating a productive economy
• Only businesses can create jobs and wealth
• States compete to offer the most productive environment for business
5 Copyright 2012 © Professor Michael E. Porter 2012 State Competitiveness – Rich Bryden
Agenda
1. How is your state doing?
2. Why?
3. Where to go from here?
State Performance Scorecard
Explaining your state’s performance, strengths, and weaknesses Action Steps
6 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
Idaho Performance Scorecard
• Information Technology (20)
• Agricultural Products (6)
• Processed Food (35)
• Heavy Machinery (31)
• Prefabricated Enclosures (31)
Prosperity GDP per Capita, 2000-2010
Innovation Patents per Employee, 2000-2010
Cluster Strength Employment in Strong Clusters, 1998-2009
Leading Clusters by employment size, 2009
(national rank)
Start Position
Trend
48
50
1-10
21-30
31-40
11-20 41-50
State Rank
Current Position
4
37
1
10
29
48
44
47 40
45
Wages Average Private Wage, 1998-2009
+1
-7
-3
-27
New Business Formation Traded Cluster Establishment Growth,
1998-2000 and 2007-2009
48 48 4 -44
Labor Mobilization Proportion of Working Age Population
in the Workforce, 2000-2010
43 27 18 -9
Job Creation Private Employment Growth,
1998-2000 and 2007-2009
47 46 3 -43
Labor Productivity GDP per Workforce Participant, 2000-2010 18 46 48 +2
7 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
Idaho
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
U.S. GDP per
Capita: $42,346
High and rising
prosperity
versus U.S.
Comparative State Prosperity Performance 2000 - 2010
Source: BEA. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
U.S. GDP per Capita
Real Growth Rate: 0.63%
Real Growth in Gross Domestic Product per Capita, 2000 to 2010
Gro
ss
Do
mes
tic P
rod
uct
pe
r C
ap
ita,
20
10
Low and declining
versus U.S.
Low but rising
versus U.S.
High but declining
versus U.S.
Alabama
Alaska
Arizona
Arkansas
California Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
8 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
Comparative State Labor Mobilization Performance 1999-2010
Change in Labor Force
Participation Rate: -2.4%
U.S. Labor Force
Participation Rate: 64.7%
Change in Proportion of Working Age Population in the Workforce, 1999-2010
Pro
po
rtio
n o
f W
ork
ing
Ag
e P
op
ula
tio
n i
n t
he W
ork
forc
e,
2010
High Labor Force Participation and
Participation rising versus U.S.
High but declining
versus U.S.
Low and declining
versus U.S. Low but rising
versus U.S.
Notes: Source BLS.
Alabama
Alaska
Arizona
Arkansas
California
Colorado Connecticut
Delaware
Florida Georgia Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin Wyoming
50%
55%
60%
65%
70%
75%
-7% -6% -5% -4% -3% -2% -1% 0% 1% 2%
9 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
Comparative State Labor Force Productivity Performance 2000-2010
Real Growth in Gross Domestic Product per Labor Force Participant, 2000-2010
Gro
ss
Do
mes
tic P
rod
uc
t p
er
Lab
or
Fo
rce
Pa
rtic
ipa
nt,
2
01
0
Highly productive
and productivity
rising versus U.S.
High but
declining
versus U.S.
Low and
declining
versus U.S.
Low but rising
versus U.S.
U.S. GDP per Labor Force Participant
Real Growth: 0.803%
U.S. GDP per Labor Force
Participant: $85,229
Wisconsin
Oklahoma
Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
Delaware
Alaska
Wyoming
Connecticut
New York
North Dakota
New Jersey Massachusetts
California Louisiana Hawaii
Maryland
Oregon
South Dakota Nebraska
Texas Virginia
Washington Illinois Colorado
Nevada
Georgia
Ohio Michigan Arizona
South
Carolina
North Carolina Minnesota
Pennsylvania Indiana Rhode Island
New Mexico Iowa
West Virginia
Alabama
Arkansas
Idaho
Mississippi
Montana Vermont
Maine
Kentucky
New Hampshire Utah
Kansas
Tennessee Florida Missouri
10 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
Idaho
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
Comparative State Employee Productivity Performance 2000-2010
Real Growth in Gross Domestic Product per Employed Worker, 2000-2010
Gro
ss
Do
mes
tic P
rod
uct
pe
r E
mp
loye
d W
ork
er,
2
01
0
Highly productive
and productivity
rising versus U.S.
High but
declining
versus U.S.
Low and
declining
versus U.S.
Low but rising
versus U.S.
U.S. GDP per Employed Worker
Real Growth: 1.42%
U.S. GDP per Employed
Worker: $94,315
Wisconsin
Oklahoma
Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.
Delaware
Alaska
Connecticut
New York
Wyoming
Montana Vermont
Maine
North Dakota
Oregon
California New Jersey Massachusetts
Louisiana Hawaii
Maryland Washington
Texas Illinois
Nevada Colorado
Virginia
North Carolina
South Dakota
Alabama West Virginia
Mississippi
Iowa
Nebraska Indiana
Rhode Island
Ohio
Georgia
Arizona New Hampshire
Missouri
South Carolina Kentucky
Michigan Utah Kansas
Pennsylvania Minnesota
New Mexico
Tennessee Florida
Arkansas
11 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter
0
5
10
15
20
-6% -4% -2% 0% 2% 4% 6%
Comparative State Innovation Performance 2000 - 2010
Growth Rate of Patents per 10,000 Workers, 2000 to 2010
Pate
nts
per
10,0
00 W
ork
ers
, 2010
Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR).
U.S. average Growth
Rate of Patenting:
+2.25%
Arkansas Louisiana
Montana South Dakota West Virginia
Alaska
Idaho
Pennsylvania
Mississippi
Washington (16.5, +10.6%)
Oregon
New Jersey
Ohio
Delaware
Vermont
California
Massachusetts
North Carolina
North Dakota Wyoming
Georgia
Nebraska
Maine
Utah
Michigan
Minnesota
Colorado
New Hampshire Connecticut
Wisconsin
Rhode Island
Kansas
Nevada Iowa
Texas Arizona
New York
Illinois
Maryland
Indiana New Mexico
Florida
Tennessee
South Carolina Kentucky
Alabama
Oklahoma
U.S. average Patents per
10,000 Employees: 7.77
High and improving
innovation rate versus U.S.
High and declining
innovation
Low and declining innovation
Low and improving
innovation
= 2000 patents in 2010
= 500 patents in 2010
Hawaii
Missouri
Virginia
12 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Why?
What Drives State Productivity?
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
1. Quality of the
Overall Business
Environment
2. Cluster
Development
13 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Why?
What Drives State Productivity?
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
1. Quality of the
Overall Business
Environment
2. Cluster
Development
14 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Quality of the Overall Business Environment
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Factor (Input)
Conditions
Demand Conditions
Sophisticated and demanding local
needs and customers – e.g., Strict quality, safety, and
environmental standards
– Consumer protection laws
– Government procurement of
advanced technology
– Early demand for products and
services
Rules and incentives that encourage
local competition, investment and
productivity – e.g., tax policy that encourages
investment and R&D
– Flexible labor policies
– Intellectual property protection
– Antitrust enforcement
Access to high quality business
inputs – Human resources
– Capital access
– Physical infrastructure
– Administrative processes (e.g.,
permitting, regulatory efficiency)
– Scientific and technological
infrastructure
Local availability of suppliers and
supporting industries
• Many things matter for competitiveness
• Economic development is the process of improving the business environment to enable companies to compete in increasingly sophisticated ways
15 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Improving the Business Environment
Common Action Items
1. Simplify and speed up regulation and permitting
2. Reduce unnecessary costs of doing business
3. Establish training programs that are aligned with the needs of the
state’s businesses
4. Focus infrastructure investments on the most leveraged areas for
productivity and economic growth
5. Design all policies to support emerging growth companies
6. Protect and enhance the state’s higher education and research
institutions
7. Relentlessly improve the public education system, the essential
foundation for productivity in the long run
16 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Why?
What Drives State Productivity?
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
1. Quality of the
Overall Business
Environment
2. Cluster
Development
17 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
What is a Cluster?
A geographically concentrated group of interconnected
companies and associated institutions in a particular field
Traded Clusters
• Compete to serve national
and international markets
• Can locate anywhere
• 30% of employment
Local Clusters
• Serve almost exclusively
the local market
• Not directly exposed to
cross-regional competition
• 70% of employment
18 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Research Organizations
Biological
Products
Specialized Risk Capital VC Firms, Angel Networks
Biopharma-
ceutical
Products
Specialized Business
Services Banking, Accounting, Legal
Specialized Research
Service Providers Laboratory, Clinical Testing
Dental Instruments
and Suppliers
Surgical Instruments
and Suppliers
Diagnostic Substances
Containers
Medical Equipment
Ophthalmic Goods
Health and Beauty
Products Teaching and Specialized Hospitals
Educational Institutions Harvard, MIT, Tufts,
Boston University, UMass
Cluster Organizations MassMedic, MassBio, others
Example: Massachusetts Life Sciences Cluster
Analytical
Instruments
Cluster
19 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Equipment
Suppliers
(e.g., Oil Field
Chemicals,
Drilling Rigs,
Drill Tools)
Specialized
Technology
Services
(e.g., Drilling
Consultants,
Reservoir Services,
Laboratory
Analysis)
Subcontractors
(e.g., Surveying,
Mud Logging,
Maintenance
Services)
Business
Services
(e.g., MIS
Services,
Technology
Licenses,
Risk Management)
Specialized Institutions (e.g., Academic Institutions, Training Centers, Industry Associations)
Oil
Trans-
portation
Oil
Trading
Oil
Refining
Oil
Distribution
Oil
Wholesale
Marketing
Oil
Retail
Marketing
Gas
Gathering
Gas
Processing
Gas
Trading
Gas
Trans-
mission
Gas
Distribution
Gas
Marketing
Example: Houston Oil and Gas Cluster
Oil & Natural Gas
Completion &
Production
Oil & Natural Gas
Exploration &
Development
Upstream Downstream
Oilfield Services/Engineering & Contracting Firms
20 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Strong Clusters Drive Regional Performace
Source: Porter/Stern/Delgado (2010), Porter (2003)
• Specialization in strong clusters
• Breadth of industries within each
cluster
• Strength in related clusters
• Presence of a region’s clusters in
neighboring regions
• Job growth
• Higher wages
• Higher patenting rates
• Greater new business
formation, growth and survival
On average, cluster strength is much more important (78.1%) than cluster mix
(21.9%) in driving regional performance in the U.S.
21 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Clusters and Economic Diversification
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.
Furniture Building
Fixtures,
Equipment &
Services
Fishing &
Fishing
Products
Hospitality
& Tourism Agricultural
Products
Transportation
& Logistics
Plastics
Oil &
Gas
Chemical
Products
Biopharma-
ceuticals
Power
Generation
Aerospace
Vehicles &
Defense
Lighting &
Electrical
Equipment
Financial
Services
Publishing
& Printing
Entertainment
Information
Tech.
Communi-
cations
Equipment
Aerospace
Engines
Business
Services
Distribution
Services
Forest
Products
Heavy
Construction
Services
Construction
Materials
Prefabricated
Enclosures
Heavy
Machinery
Sporting
& Recreation
Goods
Automotive
Production
Technology Motor Driven
Products
Mining & Metal
Manufacturing
Jewelry &
Precious
Metals
Textiles
Footwear
Processed
Food
Tobacco
Medical
Devices
Analytical
Instruments Education &
Knowledge
Creation
Apparel
Leather &
Related
Products
22 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
The Evolution of Regional Economies San Diego
U.S.
Military
Communications
Equipment
Sporting
Equipment
Analytical Instruments
Power Generation
Aerospace Vehicles
and Defense
Transportation
and Logistics
Information Technology
1910 1930 1950 1990 1970
Bioscience
Research
Centers
Climate
and
Geography
Hospitality and Tourism
Medical Devices
Biotech / Pharmaceuticals
Education and
Knowledge Creation
23 2012 – State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
-0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4%
Change in Idaho share of National Employment, 1998 to 2009
Idah
o n
ati
on
al
em
plo
ym
en
t sh
are
, 2009
Employees 2,700 =
Traded Cluster Composition of the Idaho Economy
Overall change in the Idaho Share of US
Traded Employment: 0.03%
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Idaho Overall Share of US
Traded Employment: 0.43%
Added Jobs
Lost Jobs
Employment
1998-2009
Information Technology
Agricultural Products
Heavy Construction
Services
Analytical Instruments
Biopharmaceuticals
Medical Devices
Heavy Machinery
Prefabricated
Enclosures
Fishing and
Fishing Products
Sporting, Recreational
and Children’s Goods
Forest Products
Building Fixtures,
Equipment and Services
24 2012 – State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
-0.08% -0.04% 0.00% 0.04% 0.08% 0.12% 0.16% 0.20% 0.24%
Change in Idaho share of National Employment, 1998 to 2009
Idah
o n
ati
on
al
em
plo
ym
en
t sh
are
, 2009
Employees 2,400 =
Traded Cluster Composition of the Idaho Economy (continued)
Overall change in the Idaho Share of US
Traded Employment: 0.03%
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Idaho Overall Share of US
Traded Employment: 0.43%
Added Jobs
Lost Jobs
Employment
1998-2009
Production Technology
Power Generation
and Transmission
Furniture
Entertainment
Aerospace Vehicles
and Defense
Construction Materials
Jewelry and Precious Metals
Apparel
Metal Manufacturing
Financial Services
Publishing and Printing
Education and
Knowledge Creation
Textiles
Chemical
Products
Processed Food
Motor Driven
Products
Footwear
Leather and
Related Products
Oil and Gas Products
and Services
Hospitality and Tourism
Automotive
Lighting and
Electrical Equipment
Plastics Transportation
and Logistics
Business Services
Distribution Services
Communications
Equipment
Aerospace Engines
25 2012 State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
Idaho Job Creation in Traded Clusters 1998 to 2009
Jo
b C
reati
on
, 1998 t
o 2
009
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000E
du
ca
tio
n a
nd
Kn
ow
led
ge
Cre
atio
n
Bu
sin
ess S
erv
ice
s
Fin
an
cia
l S
erv
ice
s
En
tert
ain
me
nt
Tra
nsp
ort
atio
n a
nd
Lo
gis
tics
Ho
sp
ita
lity
an
d T
ou
rism
Dis
trib
utio
n S
erv
ice
s
Bu
ild
ing
Fix
ture
s, E
qu
ipm
en
t a
nd
Se
rvic
es
Pro
du
ctio
n T
ech
no
log
y
Ae
rosp
ace
Ve
hic
les a
nd
De
fen
se
Pu
blish
ing
an
d P
rin
tin
g
Po
we
r G
en
era
tio
n a
nd
Tra
nsm
issio
n
Me
tal M
an
ufa
ctu
rin
g
Oil a
nd
Ga
s P
rod
ucts
an
d S
erv
ice
s
Fis
hin
g a
nd
Fis
hin
g P
rod
ucts
Co
nstr
uctio
n M
ate
ria
ls
Mo
tor
Dri
ve
n P
rod
ucts
Sp
ort
ing
, R
ecre
atio
na
l a
nd
Ch
ild
ren
's G
oo
ds
Pro
ce
sse
d F
oo
d
Je
we
lry a
nd
Pre
cio
us M
eta
ls
Te
xtile
s
Fo
otw
ea
r
Le
ath
er
an
d R
ela
ted
Pro
du
cts
Ae
rosp
ace
En
gin
es
Ap
pa
rel
Lig
htin
g a
nd
Ele
ctr
ica
l E
qu
ipm
en
t
Ch
em
ica
l P
rod
ucts
Au
tom
otive
Fo
rest P
rod
ucts
Bio
ph
arm
ace
utica
ls
Fu
rnitu
re
Co
mm
un
ica
tio
ns E
qu
ipm
en
t
He
avy M
ach
ine
ry
Me
dic
al D
evic
es
Pla
stics
Info
rma
tio
n T
ech
no
log
y
Pre
fab
rica
ted
En
clo
su
res
Ag
ricu
ltu
ral P
rod
ucts
An
aly
tica
l In
str
um
en
ts
He
avy C
on
str
uctio
n S
erv
ice
s
Net traded job creation,
1998 to 2009:
+6,588
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. * Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be 814
Indicates expected job creation
given national cluster growth.*
26 2012 – State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
$0 $25,000 $50,000 $75,000 $100,000 $125,000
FootwearJewelry and Precious Metals
Lighting and Electrical EquipmentTobacco
Aerospace EnginesCommunications Equipment
Power Generation and TransmissionEntertainment
Hospitality and TourismEducation and Knowledge Creation
ApparelTextiles
Fishing and Fishing ProductsLeather and Related Products
Prefabricated EnclosuresFurniture
Building Fixtures, Equipment and ServicesSporting, Recreational and Children's
Agricultural ProductsTransportation and Logistics
Construction MaterialsMedical Devices
BiopharmaceuticalsAutomotive
Publishing and PrintingOil and Gas Products and Services
Forest ProductsAerospace Vehicles and Defense
Processed FoodHeavy Machinery
PlasticsMetal Manufacturing
Analytical InstrumentsProduction TechnologyMotor Driven Products
Heavy Construction ServicesDistribution Services
Business ServicesChemical Products
Information TechnologyFinancial Services
Idaho Wages in Traded Clusters vs. National Benchmarks
Wages, 2009
Idaho average traded
wage: $35,500
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
U.S. average
traded wage: $56,906
l Indicates average
national wage in
the traded cluster
27 2012 - State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
State
State Traded Wage versus
National Average
Cluster Mix Effect
Relative Cluster
Wage Effect State
State Traded Wage versus
National Average
Cluster Mix Effect
Relative Cluster
Wage Effect
Connecticut +27,171 7,028 20,142 Oregon -10,359 -1,304 -9,056
New York +24,102 3,628 20,474 Missouri -10,427 -1,425 -9,002
Massachusetts +16,169 4,391 11,778 Alabama -10,934 -3,563 -7,371
New Jersey +13,535 3,761 9,774 Florida -11,007 -1,559 -9,448
California +9,573 349 9,224 Wisconsin -11,722 -3,516 -8,206
Maryland +6,651 2,496 4,155 Nebraska -11,777 241 -12,018
Washington +5,652 2,692 2,960 Utah -11,992 2,072 -14,064
Virginia +5,319 1,617 3,702 Tennessee -12,172 -3,156 -9,016
Illinois +2,658 16 2,642 Indiana -12,554 -4,840 -7,714
Colorado +1,662 2,416 -754 Vermont -13,368 -1,572 -11,796
Texas +352 2,494 -2,142 Oklahoma -13,572 497 -14,069
Delaware +164 11,060 -10,896 Nevada -14,277 -2,365 -11,911
Alaska -930 -2,417 1,487 North Dakota -14,394 1,004 -15,397
Pennsylvania -3,970 -995 -2,975 South Carolina -15,276 -5,067 -10,209
Louisiana -4,280 95 -4,375 Arkansas -15,378 -4,560 -10,818
Georgia -5,322 -1,102 -4,220 Hawaii -16,043 -12,555 -3,487
Minnesota -5,576 -425 -5,150 New Mexico -16,123 -288 -15,835
New Hampshire -6,387 374 -6,761 Kentucky -16,215 -5,024 -11,191
Arizona -7,021 1,149 -8,169 Maine -16,379 -968 -15,412
Kansas -7,705 2,241 -9,946 Iowa -16,606 -2,721 -13,885
Wyoming -8,057 1,040 -9,097 West Virginia -16,645 -3,894 -12,751
Michigan -8,176 -2,544 -5,633 Idaho -18,671 -787 -17,884
North Carolina -9,245 -4,330 -4,915 Mississippi -19,942 -5,291 -14,651
Ohio -9,284 -2,495 -6,788 Montana -20,073 -2,259 -17,815
Rhode Island -9,791 -2,290 -7,501 South Dakota -20,968 289 -21,257
Productivity Depends on How a State Competes,
Not What Industries It Competes In
On average, cluster strength is much more important (78.1%) than cluster mix
(21.9%) in driving regional performance in the U.S.
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2009 data.
28 2012 – State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
Furniture Building
Fixtures,
Equipment &
Services
Fishing &
Fishing
Products
Hospitality
& Tourism Agricultural
Products
Transportation
& Logistics
Idaho Cluster Portfolio, 2009
Plastics
Oil &
Gas
Chemical
Products
Biopharma-
ceuticals
Power
Generation &
Transmission
Aerospace
Vehicles &
Defense
Lighting &
Electrical
Equipment
Financial
Services
Publishing
& Printing
Entertainment
Information
Tech.
Communi
cations
Equipment
Aerospace
Engines
Business
Services
Distribution
Services
Forest
Products
Heavy
Construction
Services
Construction
Materials
Prefabricated
Enclosures
Heavy
Machinery
Sporting
& Recreation
Goods
Automotive
Production
Technology Motor Driven
Products
Metal
Manufacturing
Apparel
Leather &
Related
Products
Jewelry &
Precious
Metals
Textiles
Footwear
Processed
Food
Tobacco
Medical
Devices
Analytical
Instruments Education &
Knowledge
Creation
LQ > 4
LQ > 2
LQ > 1.
LQ, or Location Quotient, measures the state’s share in cluster employment relative to its overall share of U.S. employment.
An LQ > 1 indicates an above average employment share in a cluster.
29 2012 – State Competitiveness – Rich Bryden Copyright © 2012 Professor Michael E. Porter
Idaho Performance Scorecard
• Information Technology (20)
• Agricultural Products (6)
• Processed Food (35)
• Heavy Machinery (31)
• Prefabricated Enclosures (31)
Prosperity GDP per Capita, 2000-2010
Innovation Patents per Employee, 2000-2010
Cluster Strength Employment in Strong Clusters, 1998-2009
Leading Clusters by employment size, 2009
(national rank)
Start Position
Trend
48
50
1-10
21-30
31-40
11-20 41-50
State Rank
Current Position
4
37
1
10
29
48
44
47 40
45
Wages Average Private Wage, 1998-2009
+1
-7
-3
-27
New Business Formation Traded Cluster Establishment Growth,
1998-2000 and 2007-2009
48 48 4 -44
Labor Mobilization Proportion of Working Age Population
in the Workforce, 2000-2010
43 27 18 -9
Job Creation Private Employment Growth,
1998-2000 and 2007-2009
47 46 3 -43
Labor Productivity GDP per Workforce Participant, 2000-2010 18 46 48 +2
30 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Cluster Development
Common Action Items
Source: Porter/Stern/Delgado (2010), Porter (2003)
1. Build on the state’s existing and emerging clusters rather than chase
“hot” fields
2. Pursue economic diversification within clusters and across related
clusters
3. Create a private sector-led cluster upgrading program with matching
support for participating private sector cluster organizations
• Government should listen and remove obstacles to cluster
improvement
4. Align other state economic policies and programs with clusters
31 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Aligning Economic Policy and Clusters
Specialized Physical
Infrastructure
Natural Resource
Protection
Environmental Improvement
Science and Technology
Investments
(e.g., centers, university
departments)
Education and Workforce Training Business Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of many
public policies and public investments to achieve greater effectiveness
Standard Setting / Certification
Organizations
Clusters
32 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Why?
What Drives State Productivity?
3. Policy
Coordination
among Multiple
Levels of
Geography/
Government
1. Quality of the
Overall Business
Environment
2. Cluster
Development
33 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Geographic and Governmental Influences on Productivity
State
Metropolitan Areas
Neighboring State
Nation
Rural Regions
Neighboring State
Metropolitan Areas Metropolitan Areas
Rural Regions Rural Regions
34 Copyright © 2012 Professor Michael E. Porter 2012 State and City Competitiveness – Rich Bryden
Defining the Appropriate Economic Regions
Source: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director.
The economies of states are often an aggregation of distinct
economic areas with differing circumstances
Spokane
Economic Area
Casper
Economic Area
Lewiston
Economic Area
Salt Lake City
Economic Area
WA
NV
Boise City
Economic Area
Twin Falls
Economic Area
Idaho Falls
Economic Area
OR
UT
WY
MT
ID
35 Copyright © 2012 Professor Michael E. Porter 2012 State and City Competitiveness – Rich Bryden
Idaho Metropolitan Areas
Idaho Falls MSA
Boise City MSA
Coeur d'Alene MSA
Pocatello MSA
Lewiston MSA
Logan MSA
36 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
1.5% 2.0% 2.5% 3.0% 3.5%
Wage Performance in Idaho Metropolitan Areas
Growth Rate of Private Wages, 1998-2009
Ave
rag
e P
riva
te W
ag
e,
20
09
*Idaho portion only
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.
U.S. Average
Private Wage: $42,403
U.S. Growth Rate
of Wages: 3.01%
Idaho Growth Rate
of Wages: 2.45%
Idaho Average
Private Wage: $32,642
Idaho Falls MSA
Pocatello MSA
Rest of State
Logan MSA*
Lewiston MSA* Coeur d'Alene MSA
Boise City MSA
37 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%
Employment Performance in Idaho Metropolitan Areas
Growth Rate of Private Employment, 1998-2009
Ave
rag
e P
riva
te W
ag
e,
20
09
*Idaho portion only
Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.
U.S. Average
Private Wage: $42,403
U.S. Growth Rate
of Employment: 0.52% Idaho Growth Rate
of Employment: 1.52%
Idaho Average
Private Wage: $32,642
Boise City MSA
Pocatello MSA
Rest of State
Logan MSA*
Lewiston MSA*
Idaho Falls MSA
Coeur d'Alene MSA
38 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Geographic and Governmental Influences on Productivity
State
Metropolitan Areas
Neighboring State
Nation
Rural Regions
Neighboring State
Metropolitan Areas Metropolitan Areas
Rural Regions Rural Regions
1. Influence and access
federal policies and
programs
4. Integrate policies and
infrastructure planning
with neighbors
2. Work with each metro
area to develop a
prioritized strategic
agenda
3. Connect rural regions
with proximate urban
areas
39 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Agenda
1. How is your state doing?
2. Why?
3. Where to go from here?
State Performance Scorecard
Explaining your state’s performance, strengths, and weaknesses Action Steps
40 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Agenda
1. How is your state doing?
2. Why?
3. Where to go from here?
State Performance Scorecard
Explaining your state’s performance, strengths, and weaknesses Action Steps
Biggest Action Item of All
41 Copyright 2012 © Professor Michael E. Porter 2012 – State Competitiveness – Rich Bryden
Define the Value Proposition
Create an Economic Strategy
Develop Unique Strengths Achieve and Maintain
Parity with Peers
• What elements of the business
environment can be unique strengths
relative to peers/neighbors?
• What existing and emerging clusters
represent local strengths?
• What weaknesses must be addressed to
remove key constraints and achieve
parity with peer locations?
• What is the distinctive competitive position of the state or
region given its location, legacy, existing strengths, and
potential strengths? – What unique value as a business location?
– For what types of activities and clusters?
• Economic strategy requires setting priorities and moving beyond long lists of
separate recommendations.
42 Copyright 2012 © Professor Michael E. Porter 2012 State Competitiveness – Rich Bryden
How Should States Compete for Investment?
Tactical
(Zero Sum
Competition)
Strategic
(Positive Sum
Competition)
• Focus on attracting new investments
• Compete for every plant
• Offer generalized tax breaks
• Provide subsidies to lower / offset
business costs
• Every city and sub-region for itself
• Government drives investment
attraction
• Also support greater local investment
by existing companies
• Reinforce areas of specialization
and emerging cluster strength
• Provide state support for training,
infrastructure, and institutions with
enduring benefits
• Improve the efficiency of doing
business
• Harness efficiencies and
coordination across jurisdictions,
especially with neighbors
• Government and the private sector
collaborate to build cluster strength
43 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Harnessing the New Process of Economic Development
Old Model
• Government drives economic
development through policy
decisions and incentives
New Model
• Economic development is a
collaborative process involving
government at multiple levels,
companies, teaching and research
institutions, and private sector
organizations
Competitiveness is the result of both top-down and bottom-up processes
in which many companies and institutions take responsibility
44 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Example: Organizing for Economic Development
South Carolina Council
on Competitiveness
Research /
Investment
Executive
Committee
Measuring
Progress
Chaired by a business leader and reporting
to the governor
Convenes working groups, provides
direction and strength, holds working groups
accountable
Task Forces
Education /
Workforce
Coordinating
Staff
Cluster Committees
Start-ups /
Local Firms
Cluster
Activation
Distressed /
Disadvan.
Areas
Hydrogen /
Fuel Cells
Travel and
Tourism
Apparel
Agriculture
Automotive
Textiles
Effective economic policy also requires coordination within government
45 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Summary
• The goal of economic strategy is to enhance productivity. This is the only
way to create jobs, high income, and wealth in the long run
• Improving productivity and innovation must be the guiding principles for
every state policy choice
• Improving productivity does not require new public resources, but using
existing resources better
• Improving productivity demands that governors mobilize the private
sector, not rely on government alone
• Economic strategy is non-partisan and about getting results
46 Copyright 2012 © Professor Michael E. Porter
2012 State Competitiveness – Rich Bryden
Next Steps
1. Reach out to your team
2. Reach out to the business community
3. Take advantage of Harvard Business School data and tools to support
this effort. Go to www.isc.hbs.edu.
The prosperity of the U.S. economy will depend more on the success of
states in improving competitiveness than what happens in Washington