South CarolinaEconomic 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 Economy

Factor-Driven Economy

Investment-Driven Economy

Investment-Driven Economy

Innovation- Driven Economy

Innovation- Driven Economy

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

InputCost

Efficiency Through Heavy Investment

Unique Value

4

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

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

40

50

60

70

80

90

100

1930 1940 1950 1960 1970 1980 1990 2000

Relative to USRelative to GA

Relative to NCRelative to TN

10-Year Moving Averages

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United States$ 30,945

South Carolina$ 25,553

Source: US Census Bureau

Rank State Per capita(2001-2003)

1 District of Columbia 45,979 2 Connecticut 42,987 3 New Jersey 39,508 4 Massachusetts 39,088 5 Maryland 36,459

42 South Carolina 25,553

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United States+ 1.4%

South Carolina+ 2.2%

Growth Per Capita Personal Income2001-2003

Source: US Census Bureau

Rank State Growth(2001-2003)

1 North Dakota 5.0%2 Hawaii 3.4%3 Tennessee 3.1%4 West Virginia 3.0%5 Alabama 3.0%

25 South Carolina 2.2%

Three-Year-Average Median Household Income, 2001-2003

$ 43

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$ 38

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Source: US Census Bureau

States with similar patterns

Rank State (2001-2003)

41 Kentucky 25,576 42 South Carolina 25,553 43 Alabama 25,472 44 Louisiana 25,356 45 Idaho 25,305

Source: US Census Bureau

Three-Year-Average Per capita Personal Income

Rank State (2001-2003)

35 Idaho 40,230 36 South Dakota 39,829 37 South Carolina 38,791 38 Florida 38,572 39 North Dakota 38,212

Source: US Census Bureau

Three-Year-Average Median Household Income

These states are not statistically different from South Carolina, according to average per capita personal income and average median household income

Similarities and Differences

Bachelor's degree or higher, 2000

Labor Force Participation rate, 2003

Poverty 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

11.1%

7.0%

14.7%

19.1%

10.9%

12.9%

16.5%

18.0%

10.1%

9.9%

9.0%

6.4%

12.7%

12.2%

15.8%

14.0%

0% 5% 10% 15% 20% 25%

Less than $10,000

$10,000 to $14,999

$15,000 to $24,999

$25,000 to $34,999

$35,000 to $49,999

$50,000 to $74,999

$75,000 to $99,999

$100,000 or more

United States

South Carolina

South Carolina & United States Households Income and Benefits (2003 inflation adjusted-dollars)

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.

0

10

20

30

40

50

60

0 5 10 15 20 25 30 35 40 45

Bachelor's degree or higher (as % of population aged 25 or over)

Man

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United StatesBach. 24.4% Mgmt. job 33.6%

South Carolina Bach. 20.4% Mgmt. job 29.1%

District of Columbia Bach. 39.1%Mgmt. job 51.1%

Knowledge Occupations

There is a high correlation between education attainment and managerial and professional occupations

South Carolina in both cases is below the U.S. average

Source: US Bureau of Census

Knowledge Jobs, Creative ClassPercentage of management, professional and related occupations as a share of total workforce

Rank State %1 District of Columbia 51.12 Maryland 41.33 Massachusetts 41.14 Connecticut 39.15 Virginia 38.26 New Jersey 387 Colorado 37.48 New York 36.79 Vermont 36.3

10 California 36United States 33.6

45 South Carolina 29.1

Rank State %1 District of Columbia 39.12 Massachusetts 33.23 Colorado 32.74 Connecticut 31.45 Maryland 31.46 New Jersey 29.87 Virginia 29.58 Vermont 29.49 New Hampshire 28.7

10 Washington 27.7 United States 24.4

41 South Carolina 20.4

Bachelor’s degree or higher(percentage of persons age 25 +)

Source: U.S. Bureau of Census and Science and Engineering indicators 2004.

Innovation Capacity—R&D as a Percentage of Gross State Product

1.00

2.48

4.59

4.67

4.82

5.84

5.87

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

South Carolina

United States

Massachusetts

Maryland

Washington

Michigan

New Mexico

Ranked # 35

The top five states and South Carolina

Source: Science & Engineering indicators 2004.

Innovative Capacity

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

R & D as a percentage of GSP

Per

cen

tag

e o

f H

igh

Tec

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ob

s South CarolinaHT Jobs (8.56%)R&D (1.00%)

United StatesHT Jobs (8.84%)R&D (2.48%)

Source: Science & Engineering indicators 2004.

A state with a high intensity of R&D activity supports higher proportion of high tech jobs.

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.

Source: US Patent and Trademark Office and US Bureau of Census.

Rank State patents per 1,000 workers Rank Level1 Idaho 1.98 11 0.542 Delaware 1.11 1 1.173 Massachusetts 1.11 4 0.724 Connecticut 1.08 2 0.965 California 1.07 7 0.656 Vermont 1.05 14 0.497 Minnesota 1.01 5 0.678 New Hampshire 1.00 6 0.669 New Jersey 0.99 3 0.72

10 Colorado 0.82 10 0.55United States 0.63 n/a 0.45

36 South Carolina 0.30 31 0.25

Year 1999 Year 1995

Porter’s Path

ProductivityProductivity

Innovative CapacityInnovative CapacityInnovative CapacityInnovative Capacity

Clusters

Porter’s theory

“There are no low-tech industries, only low-tech firms”

ProsperityProsperity

Porter’s Prescription: Shifting Responsibilities for Economic Development

Old ModelOld Model

• Government drives economic development through policy decisions and incentives

• Government drives economic development through policy decisions and incentives

New ModelNew Model

• Economic development is a collaborative process involving government at multiple levels, private companies, teaching and research institutions, and new institutions for collaboration

• Economic development is a collaborative process involving government at multiple levels, private companies, teaching and research institutions, and new institutions for collaboration