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South Carolina Better Business Bureau

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					South Carolina
Economic Summit
Douglas P. Woodward
Director, Division of Research
Moore School of Business
University of South Carolina
Overview of Remarks
   Porter’s main points about competitiveness
       Long-run prosperity: raise per capita income
       Support clusters
       Develop innovative capacity
   How do we measure up against other states?
       Per capita income
       Innovative capacity and human capital
              Porter’s Stages of Competitive
              Development


                  Factor-Driven                                               Investment-         Innovation-
                    Economy                                                 Driven Economy     Driven Economy


                           Input                                          Efficiency Through       Unique
                           Cost                                           Heavy Investment          Value




Source: Porter, Michael E., The Competitive Advantage of Nations, The Free Press, 1990
 Clusters advance competitiveness

What are clusters?

  A critical mass of firms in a particular industry
   and related industries

  Shared activities, technologies, channels,
   customer relationships, logistics and
   transportation

Geographically concentrated, deeply rooted
                                                       4
Cluster participants
 Supplier industries
 Downstream or channel industries
 Providers of specialized services
 Financial institutions
 Infrastructure providers
 Educational and training institutions
    Clusters and Productivity

Clusters increase productivity and efficiency
   Efficient access to specialized inputs, services, employees,
    information, institutions, and “public goods” (e.g. training
    programs)
   Ease of coordination and transactions across firms
   Rapid diffusion of best practices
   Ongoing, visible performance comparisons and strong
    incentives to improve vs. local rivals
Higher Per Capita Income



•   Higher productivity = higher income
•   How does South Carolina rank?
•   Are we building a higher-income economy?
Per Capita Income in South Carolina in 2004

   South Carolina: $27,153
     United States average: $33,041
   S.C. as percent of U.S.: 82.2 %
     Up from 81.8 % in 2000
   Rank: 43rd in the nation
SC Relative Per Capita Income
                                                         10-Year Moving Averages
                                           100
        % of reference per capita income

                                            90

                                            80

                                            70


                                            60

                                            50

                                            40
                                              1930 1940 1950 1960 1970 1980 1990 2000

                                                       Relative to US      Relative to NC
                                                       Relative to GA      Relative to TN
                           $15,000
                                                                $20,000
                                                                          $25,000
                                                                                                     $30,000
                                                                                                                                          $35,000
                                                                                                                                                     $40,000
                                                                                                                                                                $45,000
                                                                                                                                                                           $50,000




                                                                                                               $ 30,945
District of Columbia
         Connecticut
         New Jersey
     Massachusetts
            Maryland
            New York
            Colorado
    New Hampshire
           Minnesota
            California
              Virginia
                Illinois
         Washington
            Delaware




                                     Source: US Census Bureau
               Alaska
            Wyoming
       Rhode Island
              Nevada
       Pennsylvania
             Michigan
           Wisconsin
             Vermont
               Hawaii
               Florida
            Nebraska
                   Ohio
                                                                                                                                                                                         2001-2003




              Kansas
              Georgia
                Texas
                                                                                                                          United States




              Oregon
             Missouri
                Maine
              Indiana
      North Carolina
                   Iowa
                                                                                                                                                                            Rank State




          Tennessee
       South Dakota
                                                                                                                                             5 Maryland




       North Dakota
              Arizona
                                                                                                                                             3 New Jersey
                                                                                                                                             2 Connecticut




           Oklahoma
                                                                                                                                            42 South Carolina
                                                                                                                                             4 Massachusetts




            Kentucky
     South Carolina
             Alabama
                                                                                                                                             1 District of Columbia




            Louisiana
                                                                                                                                                                                                     Average Per Capita Personal Income




                 Idaho
             Montana
                   Utah
                                                                                       $ 25,553




         New Mexico
       West Virginia
                                                                                    South Carolina




            Arkansas
          Mississippi
                                                                                                                                                                        25,553
                                                                                                                                                                        36,459
                                                                                                                                                                        39,088
                                                                                                                                                                        39,508
                                                                                                                                                                        42,987
                                                                                                                                                                        45,979
                                                                                                                                                                     Per capita
                                                                                                                                                                    (2001-2003)
                    0.0%
                                               1.0%
                                                                2.0%
                                                                                    3.0%
                                                                                               4.0%
                                                                                                        5.0%
                                                                                                                 6.0%
  North Dakota
         Hawaii
    Tennessee
  West Virginia
      Alabama
    Mississippi
          Maine
   New Mexico
      Nebraska
      District of
      Kentucky
      Wyoming
  South Dakota




                    Source: US Census Bureau
      Maryland
     Louisiana
       Vermont
      Arkansas
  Rhode Island
  Pennsylvania
       Montana
        Indiana
            Ohio
     Wisconsin
            Iowa
 South Carolina
         Alaska
       Missouri
                                                                                                                                2001-2003




      Michigan
      Delaware
     Minnesota
        Virginia
                                                                          + 2.2%




        Kansas
                                                                                           25
                                                                                            5
                                                                                            4
                                                                                            3
                                                                                            2
                                                                                            1




        Arizona
                                                                       South Carolina




 North Carolina
   Washington
         Florida
                                                                                                                   Rank State


                                                                                           Hawaii




New Hampshire
   New Jersey
                                                                                           Alabama




          Idaho
                                                                                           Tennessee




     Oklahoma
                                                         + 1.4%




            Utah
                                                                                           North Dakota


                                                                                           West Virginia




                                                      United States
                                                                                           South Carolina




     New York
        Nevada
         Illinois
                                                                                                                                            Growth Per Capita Personal Income




       Georgia
      California
        Oregon
 Massachusetts
   Connecticut
                                                                                                            Growth




          Texas
                                                                                                          (2001-2003)




                                                                                                                 2.2%
                                                                                                                 3.0%
                                                                                                                 3.0%
                                                                                                                 3.1%
                                                                                                                 3.4%
                                                                                                                 5.0%




      Colorado
                                               30,000
                                                        35,000
                                                                 40,000
                                                                                           45,000
                                                                                                                      50,000
                                                                                                                                        55,000
                                                                                                                                                 60,000
                              New Jersey
                                 Maryland
                           New Hampshire
                                    Alaska
                              Connecticut
                                Minnesota
                                   Virginia
                            Massachusetts
                                 Delaware
                                 Colorado
                                    Hawaii




Source: US Census Bureau
                                       Utah
                                 California
                                Wisconsin
                                   Nevada
                              Washington
                                    Illinois
                             Rhode Island
                                 Michigan
                                 Nebraska
                                                                                                                                                          Income, 2001-2003




                             Pennsylvania
                                   Kansas
                                  Georgia
                                       Ohio
                                  Missouri                                                    $
                                                                                                    43
                                  Vermont                                                                ,5
                                New York                                                                   27
                                 District of                                                                    U
                                                                                                                     ni
                                   Oregon                                                                              te
                                                                                                                         d
                                   Indiana                                                                                     St
                                   Arizona                                                                                       at
                                                                                                                                   es
                                       Iowa
                                 Wyoming
                                     Texas
                                     Idaho
                             South Dakota
                            South Carolina                           $
                                    Florida                               38
                             North Dakota                                      ,7
                                                                                 91
                                 Kentucky                                             So
                            North Carolina                                              ut
                                     Maine                                                h
                               Tennessee                                                            C
                                                                                                     ar
                                 Alabama                                                                  ol
                                                                                                            in
                                Oklahoma                                                                         a
                              New Mexico
                                  Montana
                                Louisiana
                                 Arkansas
                               Mississippi
                                                                                                                                                          Three-Year-Average Median Household




                             West Virginia
  States with similar patterns
         These states are not statistically different from South
       Carolina, according to average per capita personal
       income and average median household income


 Three-Year-Average Per capita Personal Income    Three-Year-Average Median Household Income
Rank        State                (2001-2003)     Rank        State            (2001-2003)
       41   Kentucky                    25,576          35   Idaho                    40,230
       42   South Carolina              25,553          36   South Dakota             39,829
       43   Alabama                     25,472          37   South Carolina           38,791
       44   Louisiana                   25,356          38   Florida                  38,572
       45   Idaho                       25,305          39   North Dakota             38,212
Source: US Census Bureau                         Source: US Census Bureau
Similarities and Differences

                 Bachelor's     Labor Force     Poverty
                 degree or      Participation   Rate, 2003
                 higher, 2000   rate, 2003

     Alabama               19           62.4             15

     Florida             22.3           61.8            12.7

     Idaho               21.7           68.3            10.2

     Kentucky            17.1             62            14.4

     Louisiana           18.7           60.8             17
     North
     Dakota                22           70.7             9.7
     South
     Carolina            20.4           63.7            12.7
     South
     Dakota              21.5           73.8            12.7
South Carolina & United States Households Income
and Benefits (2003 inflation adjusted-dollars)
                                                                            14.0%
 $100,000 or more
                                                           9.9%
                                                                                            United States
                                                               10.9%
$75,000 to $99,999                                                                          South Carolina
                                                            10.1%

                                                                                               19.1%
$50,000 to $74,999
                                                                                            18.0%
                                                                                    15.8%
$35,000 to $49,999
                                                                                       16.5%

                                                                    12.2%
$25,000 to $34,999
                                                                       12.9%

                                                                       12.7%
$15,000 to $24,999
                                                                               14.7%

                                              6.4%
$10,000 to $14,999
                                               7.0%

                                                        9.0%
Less than $10,000
                                                               11.1%

                     0%               5%                10%                 15%                20%           25%
                     Source: US Census Bureau- American Community Survey 2003 Multi-Year Profile 2003.
Long-run Competitiveness
•   Innovative capacity
•   Creative, knowledge occupations
•   Supports cluster development
•   Measures: creative occupations and
    innovation capacity by state
•   How does South Carolina rank?
Long-run Competitiveness Indicators
   Knowledge occupations
       Managers, professional, and technicians as a share of total
        workforce
       Educational attainment of the workforce
   Innovation capacity
       High-tech jobs
       R & D as a percentage of Gross State Product
       Patents per 1,000 workers
Determinants of Per Capita Income, 1
 Per Capita Income Level 2002
 Explanatory variables
   Human capital (Percent of population with BS
      degree)
   Patents
   University R&D
 R-squared: The fraction of variation in the dependent
  variable that is explained by variation in the
  independent variable. A high value indicates a strong
  relationship between the two variables.
 Regression with human capital (BS percent), patents,
  and Univ R&D explains has R-squared of 56% with
  each variable significantly positive at better than the
  1% level.
 With state controls, the R-squared is 62% and each
  variable maintains a positive and significant impact)
Determinants of Per Capita Income, 2
 Per Capita Income Growth
   Explaining variation in per capita income growth from
     1997 to 2002 with the same variables
   Regression on levels of: BS percent, patents, university
     R&D, and initial per
     capita income level (and state controls)
 This has an R-squared of 26%..
 The variables are significant and the right sign
    Positive for BS Percent, Patents,
     University R&D, and negative for initial income level (consistent
     with conditional convergence).
    Patents are significant at the 3 percent level,
    Everything else at better than 1 percent.
Knowledge                                                                   There is a high correlation between education
                                                                            attainment and managerial and professional
Occupations                                                                 occupations
                                     60
                                                                                               District of Columbia
                                                                                                Bach.       39.1%
                                              Source: US Bureau of Census                       Mgmt. job 51.1%
                                     50
  Management and professional jobs




                                                                                  United States
    as a share of total workforce




                                                                                 Bach.     24.4%
                                                                                 Mgmt. job 33.6%
                                     40



                                     30
                                                                                         South Carolina
                                                                                        Bach.     20.4%
                                                                                        Mgmt. job 29.1%
                                     20



                                     10                                                South Carolina in
                                                                                       both cases is below
                                                                                       the U.S. average
                                      0
                                          0           5         10          15    20      25         30       35      40   45
                                                      Bachelor's degree or higher (as % of population aged 25 or over)
 Knowledge Jobs, Creative Class
Percentage of management,                            Bachelor’s degree or higher
professional and related occupations                 (percentage of persons age 25 +)
as a share of total workforce
 Rank State                           %                Rank State                       %
       1 District of Columbia       51.1                     1 District of Columbia   39.1
       2 Maryland                   41.3                     2 Massachusetts          33.2
       3 Massachusetts              41.1                     3 Colorado               32.7
       4 Connecticut                39.1                     4 Connecticut            31.4
       5 Virginia                   38.2                     5 Maryland               31.4
       6 New Jersey                   38                     6 New Jersey             29.8
       7 Colorado                   37.4                     7 Virginia               29.5
       8 New York                   36.7                     8 Vermont                29.4
       9 Vermont                    36.3                     9 New Hampshire          28.7
      10 California                   36                    10 Washington             27.7
         United States              33.6                       United States          24.4
      45 South Carolina             29.1                    41 South Carolina         20.4

  Source: U.S. Bureau of Census and Science and Engineering indicators 2004.
Innovation Capacity—R&D as a
Percentage of Gross State Product
                      The top five states and South Carolina
     New Mexico                                                            5.87



        Michigan                                                           5.84



     Washington                                                 4.82



        Maryland                                              4.67



   Massachusetts                                             4.59



    United States                         2.48
                                                   Source: Science &
                                                   Engineering indicators 2004.
   South Carolina           1.00   Ranked # 35


                    0.0   1.0       2.0      3.0     4.0       5.0        6.0     7.0
   Innovative Capacity
A state with a high intensity of R&D activity supports higher proportion of high tech jobs.
                                       14.0


                                       12.0
                                                     South Carolina
        Percentage of High Tech Jobs




                                                     HT Jobs (8.56%)
                                       10.0          R&D      (1.00%)



                                        8.0
                                                                                           United States
                                                                                           HT Jobs (8.84%)
                                        6.0
                                                                                           R&D      (2.48%)


                                        4.0


                                        2.0

                                                    Source: Science & Engineering indicators 2004.
                                        0.0
                                              0.0              1.0             2.0             3.0            4.0   5.0   6.0
                                                                            R & D as a percentage of GSP
Innovative Performance:
Patents per 1,000 Workers
   Patent per workers as a measure of new product innovation shows minor
   changes among the top ten states. Only the significant improvement of
   Idaho and Vermont and the modest increase of New Jersey.

   South Carolina is behind the U.S. average.
                        Year 1999                                       Year 1995
   Rank State              patents per 1,000 workers                  Rank     Level
       1 Idaho                        1.98                             11      0.54
       2 Delaware                     1.11                              1      1.17
       3 Massachusetts                1.11                              4      0.72
       4 Connecticut                  1.08                              2      0.96
       5 California                   1.07                              7      0.65
       6 Vermont                      1.05                             14      0.49
       7 Minnesota                    1.01                              5      0.67
       8 New Hampshire                1.00                              6      0.66
       9 New Jersey                   0.99                              3      0.72
      10 Colorado                     0.82                             10      0.55
         United States                0.63                             n/a     0.45
      36 South Carolina               0.30                             31      0.25
    Source: US Patent and Trademark Office and US Bureau of Census.
                  Porter’s Path

                      Prosperity




                     Productivity                    Clusters




                  Innovative Capacity



Porter’s theory
“There are no low-tech industries, only low-tech firms”
Porter’s Prescription: Shifting
Responsibilities for Economic
Development
          Old Model                      New Model



• Government drives economic   • Economic development is a
  development through policy     collaborative process involving
  decisions and incentives       government at multiple levels,
                                 private companies, teaching and
                                 research institutions, and new
                                 institutions for collaboration

				
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