1. South Carolina Economic Summit
Douglas P. Woodward
Director, Division of Research
Moore School of Business
University of South Carolina

2. 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

3. Porter’s Stages of Competitive Development
Factor-Driven Economy
Investment-Driven Economy
Innovation- Driven Economy
Input
Cost
Unique Value
Efficiency Through
Heavy Investment
Source: Porter, Michael E., The Competitive Advantage of Nations, The Free Press, 1990

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

5. Cluster participants Supplier industries
Downstream or channel industries
Providers of specialized services
Financial institutions
Infrastructure providers
Educational and training institutions

6. 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 2 2

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

8. Per Capita Income in South Carolina in 2004
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

9. SC Relative Per Capita Income

10. Average Per Capita Personal Income 2001-2003
Source: US Census Bureau

11. Growth Per Capita Personal Income 2001-2003
Source: US Census Bureau

12. Three-Year-Average Median Household Income, 2001-2003
Source: US Census Bureau

13. 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

14. 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
South Dakota
21.5
73.8

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

16. Long-run Competitiveness
Innovative capacity
Creative, knowledge occupations
Supports cluster development
Measures: creative occupations and innovation capacity by state
How does South Carolina rank?

17. 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

18. 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)

19. 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.

20. Knowledge Occupations
There is a high correlation between education attainment and managerial and professional occupations
Knowledge Occupations
Source: US Bureau of Census
South Carolina in both cases is below the U.S. average

21. Knowledge Jobs, Creative Class
Percentage of management, professional and related occupations as a share of total workforce
Bachelor’s degree or higher
(percentage of persons age 25 +)
Source: U.S. Bureau of Census and Science and Engineering indicators 2004.

22. Innovation Capacity—R&D as a Percentage of Gross State Product
The top five states and South Carolina
Source: Science & Engineering indicators 2004.

23. Innovative Capacity
A state with a high intensity of R&D activity supports higher proportion of high tech jobs.
Source: Science & Engineering indicators 2004.

24. 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.

25. Porter’s Path Clusters Porter’s theory
Prosperity
Productivity
Clusters
Innovative Capacity
Talking Points:
1) Low cost to high value: prosperous regions are not those with a low cost structure, but rather those with high innovation output.
2) Focus on regions: Important decisions are made in Washington DC, but increasingly it is local strategies that most affect a region’s competitiveness and prosperity.
3) The current economic troubles are cyclical not structural. Economic stimulus policies from Washington are important, but long term prosperity will depend more on increasing innovation. This depends largely on decisions made in the regions.
Porter’s theory
“There are no low-tech industries, only low-tech firms”

26. Porter’s 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