Title: Northeast Ohios Economic Development Challenge
1Northeast Ohios Economic Development Challenge
- Edward W. (Ned) Hill
- Vice President for Economic Development
- Cleveland State University
- Interim Dean, Levin College of Urban Affairs
2I dreamed that I was an economist and I had to
explain what happened!
3 Real Tombstones
4What is the outlook?
- Liquidity trap, credit crunch
- Macroeconomic problems affects core domestic
sectors in Ohio - Automobile assembly
- Housing related
- Construction and building materials
- Furniture
- Chemicals
- Public policy and pricing favors
- Energy
- Food processingwell growing
5Market activity from Barrons
Corporate Debt Friday, October 24, 2008 None
expected this week.
6Commercial Paper Outstanding
Source Board of Governors of the Federal Reserve
System
7Discount rate spread in the commercial paper
market
Source Board of Governors of the Federal Reserve
System
8Source Cleveland Federal Reserve Bank
9Oil Peak 145, now 68.50
Source St Louis Federal Reserve Bank, download
October 29, 2008
Source Wall Street Journal Market Data Center,
October 29, 2008
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11Northeast Ohios economic performance
Economic performance Ohio is Americas economic
battleground
12How big is the regional economy? Think of NEO as
the 17th largest metro economy in the US. Or, if
we were a nation, the 37nd largest national
economy
Economic performance NEO is a sizeable economy
- If Northeast Ohio were recognized as an economic
region we would rank behind - San Diego
- Ahead of
- Austin-San Antonio, Denver, St. Louis,
Charlotte, Portland
Source US Bureau of Economic Analysis, October
2,2008
Notes GMP Gross Metropolitan Product GSP
Gross State Product
13Metropolitan per capita income in 2006There are
challenges
Economic performance NEO is a sizeable economy
Real 2001 out of 363 metropolitan areas Source
US Bureau of Economic Analysis, October 2,2008
14The economic challenge for the region and Ohio
was in late 1990s until the end of the 2001
recession
United States
Ohio
Economic performance GDP growth rates trail the
nation
Cleveland-Akron CSA
15Manufacturing's death in Ohio has been greatly
exaggerated and overly anticipated
Economic performance Statewide manufacturing is
a driver
16Productivity gain from manufacturing in Ohio led
the states weak recovery from the 2001 recession
Why manufacturing?
Source US Bureau of Economic Analysis, October
2, 2008
17Why is job growth so slow? The big 5 forces
- Tyranny of the product cycle
- Unbalanced product portfolio weighted toward
older products - Changing competitive advantage of firms
- Creative destruction fewer recalls, job growth
comes from job creation not revitalization. In
the US Ohio capital investment may be the job
creation driver. - Productivity Growth better, faster, smarter,
fewer, cheaper a combination of technology,
management and global supply chain integration - Legacy work practices and cost uncertainty
- Work rules
- Cost uncertaintyhealth care, torts, mandates,
energy - Benefits wedge
- Failed business strategies of three key employers
Economic performance Legacy of place
18Ohio Growth
Ohio Competitiveness
Economic performance Portfolio of economic
drivers from 2000 - 2006
Chemistry combines five related industries
Soap, Cleaning Compound, and Toiletries (NAICS
3256), Rubber Product (NAICS 3262), Paint,
Coating, and Adhesive (NAICS 3255), Clay Product
Refractory (NAICS 3271), and Other Nonmetallic
Mineral Product (NAICS 3279)
1B in 2006 Output
IT intense
Source Economy.com
Compound Annual Growth Rate (CAGR) is the
year-over-year growth rate of an output over a
specified period of time
19Economic performance Portfolio of economic
drivers from 2000 - 2006
Compound Annual Growth Rate (CAGR) is the
year-over-year growth rate of an output over a
specified period of time
Chemistry combines five related industries
Soap, Cleaning Compound, and Toiletries (NAICS
3256), Rubber Product (NAICS 3262), Paint,
Coating, and Adhesive (NAICS 3255), Clay Product
Refractory (NAICS 3271), and Other Nonmetallic
Mineral Product (NAICS 3279))
Source Economy. com
IT Intense
1B in 2006 Output
20Four facts explain the performance of this market
area
Changing economic advantage
Low rates of innovation entrepreneurship
Economic performance Four observations
Failed corporate strategies and old products
Place-based legacy costs
21Strengths and opportunities in NEO
- Network of population centers, each with unique
characteristics and operating environments - Depth in professional services industries,
including banking, insurance, and medical
services - Depth in traditional manufacturing and technical
skill sets - Diversity of manufacturing (food, chemicals,
automotive, etc.) - Educational resources
- Air access, particularly its status as a
Continental hub - History as a strong headquarters location (in
particular, in banking and insurance) - Strong cultural institutions
- Multimodal freight transportation
- Strong tradition in research and scientific
initiatives
Economic perceptions Site location professionals
22Threats and challenges to NEO
- Low to declining population growth
- Does this make economic sense? Is cause and
effect backwards? - Role for targeted talent recruitmentremember the
labor agents of the early 20th Century - The threat of becoming an increasingly
commodity-driven economy, dominated by global
competitors (China and possibly India) - Why the China model for industrial production is
beginning to break down - How this can fit into NE Ohios revival
- A legacy of organized labor work rules legacy
costs - The antidote is new firms new industries new
business culture - An overall perception of the region as dominated
by industries under stress or in decline (rust
belt image) - The response has to be opportunity
Economic perceptions Site location professionals
23What local business leaders in the region say
- Ingrained mindset The culture of Northeast Ohio
is resistant to change. Its very difficult to
do business in Northeast Ohio. Workers see the
company as the enemy. - Unions Unions are seen as being averse to
change, or slow to change, because of internal
political pressures. This is a perception that
the panelists consider detrimental to the area
because it seems so out of sync with todays
rapidly changing world. - Finance As bankers, its tough to get our arms
around and get behind how older industries are
trying to innovate.
Economic perceptions Regional business leaders
24What local business leaders in the region say
- Workforce That aging workforce bodes problems
for the future. - Most praise their incumbent workers, and many say
they are able to hold onto these prized workers
by compensating and treating them well. - The difficulty, they said, is in finding
replacement workers with the right skills,
attitude, and ethic. - Moving to Northeast Ohio is viewed as too risky a
prospect for managers experienced in leading
entrepreneurial companies because they see few
other opportunities in the area. If the venture
fails, they have nowhere to go with their skill
sets. - Manufacturing companies with new operations in
the Southwest state that the Economic Development
service and training programs are superior in the
Southeastern states but that work ethic is
superior in Ohio.
Economic perceptions Regional business leaders
25Workforce challenges
STEM education
Focus on workforce
Fast growth management
Technical training
Innovation practices
Workplace literacy numeracy
Process improvement
26Lessons learned
- No silver bullet that will turn a slow-moving
traditional-based economy into a vibrant, high
performance one - A skilled workforce and strong business dynamics
are most highly correlated with regional economic
growth - The pursuit of societal goals, such as racial
inclusion and income equality, can enhance growth - While positively related to growth, locational
amenities are not as important as other factors - A region must overcome legacy of place costs
Conclusions From the academic literature
Source W.E. Upjohn Institute, NEO Dashboard
Indicators
27Observationsrequired changes in business behavior
- Business strategy needs to shift to top line
revenue growth, while maintaining middle line
cost discipline - There is a difference between a lean
organization and an anorexic organization. - You cannot starve yourself to health.
- If you cannot export in this dollar environment
you have a problem. - In product innovation there should be no such
thing as failure, only feedback. You need a
system of constant and low cost feedback. - Fail fast fail cheap.Doug Hall
Economic perceptions Regional business leaders
28What is Northeast Ohios competitive advantage?
29The competitive advantage of Northeast Ohio
- Portfolio economy mix of what Baumol, Litan,
Schramm call large firm capitalism emerging
entrepreneurial capitalism - Required areas of product improvement
- Education workforce (incumbent workers)
- Entrepreneurial management
- Workplace flexibility
- Areas of demonstrated competitive competence
- Headquarters, insurance, banking health care
- Materials production/fabrication
- Chemistry
- Industrial design
- Secondarily logistics
Competitive advantage Managing portfolios, not
betting on silver bullets
30The regions economic health depends on corporate
strategies and the portfolio age of the regions
products. Five categories of companies
- Product innovators Grow the top line of their
income statement without blowing up their cost
structure. Can manage continuous product
innovation and own intellectual property or have
proprietary knowledge. - Process innovators and global competitors
Manage the middle of their cash statements and
ride their product catalogs. Have deployed IT to
tighten supply and customer chains. Developing
global supply chain. - Lifestyle firms Goal is not growth but owners
control and earning target income. Are not
profit maximizers. Frequently have no
intellectual property or proprietary competitive
advantage. - One trick ponies Commodity business dependent
on a single business or production relationship. - Dead and dying companies Job shops in auction
markets.
Conclusion Where is your firm?
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