South Carolina Economic Summit

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South CarolinaEconomic Summit

• Douglas P. Woodward
• Director, Division of Research
• Moore School of Business
• University of South Carolina

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Overview of Remarks

• Porters 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

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Porters Stages of Competitive Development
Input Cost
Unique Value
Efficiency Through Heavy Investment
Source Porter, Michael E., The Competitive
Advantage of Nations, The Free Press, 1990
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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

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Cluster participants

• Supplier industries
• Downstream or channel industries
• Providers of specialized services
• Financial institutions
• Infrastructure providers
• Educational and training institutions

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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

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Higher Per Capita Income

• Higher productivity higher income
• How does South Carolina rank?
• Are we building a higher-income economy?

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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

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SC Relative Per Capita Income
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Average Per Capita Personal Income2001-2003
Source US Census Bureau
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Growth Per Capita Personal Income2001-2003
Source US Census Bureau
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Three-Year-Average Median Household Income,
2001-2003
Source US Census Bureau
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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

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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
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South Carolina United States Households Income
and Benefits (2003 inflation adjusted-dollars)
Source US Census Bureau- American Community
Survey 2003 Multi-Year Profile 2003.
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Long-run Competitiveness

• Innovative capacity
• Creative, knowledge occupations
• Supports cluster development
• Measures creative occupations and innovation
  capacity by state
• How does South Carolina rank?

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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

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Determinants of Per Capita Income, 1

• Per Capita Income Level 2002
• Explanatory variables
• Human capital (Percent of population with BS
  degree)
• Patents
• University RD
• 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 RD 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)

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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 RD, 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
  RD, 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.

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Knowledge Occupations
There is a high correlation between education
attainment and managerial and professional
occupations
Source US Bureau of Census
South Carolina in both cases is below the U.S.
average
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Knowledge Jobs, Creative Class
Percentage of management, professional and
related occupations as a share of total workforce
Bachelors degree or higher (percentage of
persons age 25 )
Source U.S. Bureau of Census and Science and
Engineering indicators 2004.
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Innovation CapacityRD as a Percentage of Gross
State Product
The top five states and South Carolina
Source Science Engineering indicators 2004.
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Innovative Capacity
A state with a high intensity of RD activity
supports higher proportion of high tech jobs.
Source Science Engineering indicators 2004.
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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.
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Porters Path
Prosperity
Productivity
Clusters
Innovative Capacity
Porters theory There are no low-tech
industries, only low-tech firms
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Porters Prescription Shifting Responsibilities
for Economic Development
Old Model
New Model

• Government drives economic development through
  policy decisions and incentives

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