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A New Blueprint – Making the American South’s Manufacturing Sector More

Competit ive by 2030

FoundationfortheAmericanSouth

September2016

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Table of Contents

OVERVIEW 3

MANUFACTURING IN THE AMERICAN SOUTH – TODAY 7

MANUFACTURING IN THE AMERICAN SOUTH – INTO THE FUTURE 12

§ Begin with A Policy Focus on Competitiveness 13 § Use Cluster Practices as the Organizing Principle 14 § Understand, Anticipate and Embrace Change 17 § Ensure a Competitive Business Climate 19 § Enhance Workforce Skills 19 § Promote Innovation 25 § Invest in Infrastructure 28 § Collaborate to Compete 29

COMPETITIVENESS AND RECOMMENDATIONS FOR THE FUTURE 30

Researched and written by Ted Abernathy - Economic Leadership LLC, Raleigh, North Carolina

ted@econleadership.com

Contributors to this document include:

Diane Duff, Former Executive Director - Southern Governors Association

Michael Galiazzo, President - Regional Manufacturing Institute of Maryland

Ray McCarty, President & CEO – Associated Industries of Missouri

Rebecca R. McPhail, President - West Virginia Manufacturers Association

Brett A. Vassey, President & CEO - Virginia Manufacturers Association

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OVERVIEW Inthe1950smanyoftoday’sbabyboomerswatchedtheirparentsandgrandparentsgetupeachdayandgotoworkinfactories,makingthethingsthatbuiltprosperityandsupportedfamilies.IntheAmericanSouth,textilemillsandfurniturefactoriesfueledcommunitygrowthandprovidedthewagesandthewealththatboughthomesandsentmillionsinthenextgenerationtocollege.Today,weliveintimesofrapidchange.Lookingbackisnostalgicbutbylookingforwardcanstrengthenourfuture.

ManufacturingisimportanttoAmerica.Italwayshasbeen.ManufacturingisevenmoreimportanttomanyofthestatesintheAmericanSouth.Thesearecommonlyheldbeliefs,butglobalizationandrapidtechnologicaltransformationhascreatednewheadwindsforpolicymakersandelectedofficialsastheytrytosupportfuturemanufacturing.Overthepasthalfcentury,asservice-sectorjobshavegrown,manufacturingemploymenthasdeclinedandtraditionalindustrieshavebeenreplacedwithnewadvancedindustryclusters.Remaininggloballycompetitivedemandsrelentlessanalysisandnewthinking.

By2030,atypicalmanufacturingenterprisewillhavemorehighlyskilledworkers,moresophisticatedautomation,requiremoreadvancedinfrastructure,anddependonnewinnovationsandnewglobalmarketstosucceed.Thingsthatarenotyetconceivedofwillbeproducedinplacesthatcannotcurrentlycompete.Someplaceswillemergeasthebestdestinationformanufacturingandotherplaceswillseemanufacturingjobsdisappear. Thequestioniswhatcanourpolicymakersdotoimprovetheregion’slong-termmanufacturingcompetitiveness.

InSeptember2013,theFoundationfortheAmericanSouthattheSouthernGovernorsAssociation(SGA)beganexploringpossibilitiesfordevelopingaregionalmanufacturingstrategy.SGAhadundertakenavarietyofmanufacturingprojects,whichwerealreadycontributingtotheideathatsucharegionalstrategywouldbevaluabletosupportand

“Americanmanufacturing

wasthebedrockofa

centuryofAmerican

prosperityandsecurity.”

Make:AnAmericanManufacturingMovementTheCouncilonCompetitivenessandtheU.S.ManufacturingCompetitivenessInitiative,

2011

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acceleratethegrowthofthisimportantsector.TheprojectwassupportedwithagrantfromtheU.S.EconomicDevelopmentAdministration.

Theprojectfocusedondatacollectionandanalysis,andcollaboration,andincluded:

§ Creatingadiscussionandcollaborationgroupoftheregion’smanufacturingleaderstoidentifyprioritiesandconcerns;

§ AdeepdatadiveassessingmanufacturingintheAmericanSouth;§ ThereleaseandpromotionofInnovationU2.0,acompilationofuniversitybest

practicesforinstigatingtechnologicalinnovation,entrepreneurshipandbusinesspartnerships;

§ AnInnovationU2.0conferencetoreleasethefindings,followedbyanissueforumontheroleofhighereducationaspartofSGA’s2014annualmeetinginLittleRock,Arkansas;

§ DevelopmentofinformationdemonstratingtheimportanceofR&Dtothecontinuedsuccessofmanufacturingsub-sectors;particularlysmallandmediumsizedbusinesses;

§ Developmentofa“SouthernRegionalManufacturingIndex”toaggregatecomplexdataandallowmulti-factorcompetitiveanalysisbyindividualstateleaders;and

§ Aliteraturereviewtoinformthedevelopmentofasetofbestpracticerecommendationsinkeyareastoimprovemanufacturingcompetitiveness.

TheSouthernGovernors’2013AnnualReport,AdvancedManufacturingintheAmericanSouth,statesthat,“Thestartingpointforanaccelerationofadvancedmanufacturingdevelopmentshouldbeastrategicplanthatplacesadvancedmanufacturingwithinthestate’sbroadercontextofeconomicdevelopment.Regionalism,high-levelpolicycoordinationacrosseconomicdevelopmentfacilitatorsandtheaccountabilityinresourceuseareamongtheimportantprinciplesthatshouldguidepolicy.”Thistraditional,Governor-ledapproachcanstillbeaneffectivewaytostrengthenmanufacturing,butduringthecourseofthiseffort,basedonconversationswithGovernors,policyadvisors,sectororganizationleaders,andbusinesses,itbecameclearthatadifferentmethodmighthavebroaderimpact.

Multi-stateregionalcollaborationtodayischallenging,andnewapproachesareneeded.OrganizationsliketheSouthernGovernorsAssociationandtheSouthernGrowthPoliciesBoardthatoncecreatedtheopportunityforregularnonpartisandialogue,asharedvisionfortheregionanda“go-to”placeforbestpracticesarenolongerinoperation.PolicydeliberationsarenotjustheldinGovernors’officesorthecommitteeroomsoflegislatures,buthappentodayinachangingidealandscape.Policythink-tanks,businessgroupsandprivatelyfundedfoundationsareallmoreactiveandsophisticatedatcontributingideasandwheedlinginfluence.

Manyemergingeconomicdevelopmentideasbeginatthemetropolitanorregional(multi-county)level,oftencrossingstatelines.Somewheretodayagroupofpeopleororganizationsiscreatinganewapproachtoanemergingissue.Thismodelisneithertop-down,norisit

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traditionalgrassroots,butratheranetworkedapproachofthinkersanddoersacrosssectorsthatareseizingtheopportunitytocollaborateandaddressaneed.

Todaythealmostinstantaneousdemocratizationofideasandinformationthroughgovernmenttransparency,socialmediaandelectronicpublicationsallowsmorepeopleandinstitutionstoengageinboththedeliberationofpolicy,andtheimplementationofconcepts.Bestpracticescanbeeasilydisseminatedand,ifdeemedworthy,scaledbythepublicorprivatesector.PolicyDarwinismquicklyweedsouttheconceptsthatunderperform.Partnershipsbetweengovernments,nonprofitsandbusinessescanemergequicklyandorganically.Thefuelforfuturecollaborationsislessaboutinstitutionsandepisodicopportunitiesandmoreaboutideas,content,connectivity,action,andaboveall,results.

Justasmanyreportsrecognizethatmanufacturinghaschanged,somustourstrategicapproachtopolicy.Aregionalmanufacturingstrategyisnotjustareportordocumentwithalistofspecificactionsthateachstategovernmentshouldimplementordictatetoothers.Itmustcontainwell-reasonedideasthatcanbeeasilyadaptedandscaledtothespecificneedsofstatesandcommunitiesacrosstheSouth.Oldhierarchical,staticorsiloedapproachesarebeingsupplantedbynetworked,dynamicanddigitizeddesigns.

Withthesechangesinmind,andthemultitudeofexistingresearchaboutbestpracticestoencouragemanufacturing,thisdocumentisaninformationframeworkorblueprinttoenableefficientcollaborationandimmediateaction.Itraisesideasandexploreswaystomeasurecompetitiveness.Anewblueprintiscraftedbyaggregatingtheresearchandtherecommendationsfrommanyrecentreports

Thefoundationforthisreport’spolicyrecommendationsbeginsandbuildsfromtheSGA’sAdvancedManufacturingintheAmericanSouthreport.AlthoughoriginallytargetedtoGovernors,therecommendationsresonatewithabroadrangeofpolicyactivists.TheresearchyieldedthefollowingStatepolicyprinciples:

§ UtilizeStrategicPlanningtoproperlyallocateresourcesandcoordinateactions.Requiremeasurablegoalsandahigh-levelpolicychampiontohelpsecureresults.Clustersshouldbeidentifiedandincludedasacorecomponentofthestrategicplan.

§ FocusonRegionalismandRegion-BasedEconomicGrowth.Clustersincludefirmsandemployeesthatcrossthetraditionalboundariesofcities,countiesandstates.Regionsareoftenstrongerthantheircomponentjurisdictionsandincludeawidearrayofstakeholderswhocanbenefitfromacommonefforttopromoteindustrialdevelopment.

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§ EmbracePolicyCoordinationtofacilitatehorizontalandverticalstructuresingovernment.Well-definedpolicycoordinationinturnsupportspolicyaccountability.

§ EncourageAccountabilitywithquantifiablemetrics.§ PursuePartnershipsandCollaborationengagingmultiplepublicandprivate

organizationsandindividuals.§ EncourageCompetitiontogainresourceefficiency.§ PromoteValue-Added,NotSimplyLowCosts.Focusonthebuildingofincomeand

wealthforresidents.Thekeystopromotingvalue-addedaretoinvestinproductivity-enhancingassets,includingworkersandinfrastructure,andtorecruitfirmsthatofferthepromiseofhighearnings,highlevelsofcapitalinvestment,andanactiveR&Dagenda.

§ BuildonExistingStrengthstoseebetterandfasterresults.§ SupportAutonomyandDecentralizationtocustomizetheeffortstomeetlocalmarket

demandsandneeds.§ EnsureaCultureofAdaptabilityandFlexibilitytopositionforinevitableandrapid

change.

ParticipantsinthisSGAprojectconcludedthattargetedindustrialrecruitment,acluster-basedfocusonpublicinfrastructure,technologyresearchanddevelopment,incentives,entrepreneurship,andeducationandhumancapital“offerthegreatestpromiseofgrowthinadvancedmanufacturing.”

SGAemphasizedcontinuousmeasurement,regionalism,andafocusonvalue-added.Italsoraisedtheneedtobeflexibleandquicklyadaptable.

Basedonthesepreviousfindings,andthoseofmanyotherstudies,thisreviewfocusesonandoffersrecommendationsforimprovingmanufacturingcompetitivenessinabroadsense,withspecificemphasisonbusinessclimate,workforce,

innovation,andinfrastructure.Whiletherearemanyotherimportantfactors,thesearecommontoalmostallbest-thinkingliteraturetoday,andreflecttheinputfromthemanufacturinggroupsthathavecontributedthroughoutthisprocess.

ThesefourfocusareasalsoreflectthosethatmanyprivatesectorChambersofCommerceandassociationshaveincludedintheirstrategiccompetitivenessplansinrecentyears.Asanexample,theNorthCarolinaChamber’sVision2030includesfourpillars:Education&Talent

ManufacturingCompebbveness

Workforce

Infrastructure

BusinessClimate

Innovabon

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Supply,CompetitiveBusinessClimate,Infrastructure&GrowthLeadership,andEntrepreneurship&Innovation.Aligningthepublicandprivatestrategiceffortsisacommonwaytoaccelerateactivityandmaximizeresults.Increasedbusinessengagementtodevelopandimplementpolicyisstronglyrecommended.

MANUFACTURING IN THE AMERICAN SOUTH - TODAY Despiteacontinuousbarrageofeditorialsandarticlesbemoaningthedeathofmanufacturing,theUnitedStatesremainsoneofthemostcompetitivecountriesforgoodsproduction.Inits2016study,GlobalManufacturingCompetitiveIndex,Deloitte ToucheTohmatsuLimitedandtheU.S.CouncilonCompetitivenessconcludedthattheUnitedStates,ChinaandGermanycontinuetobethetopcountriesintheworldformanufacturingandwillremainsointhecomingyears.ThestudypredictsthattheUnitedStates,currentlyrankedsecond,willretakethetopspotby2020.

Thechartbelowshowsthosefactorsthatdriveourcountry’scompetitivenessandthefactorsthatwereusedtomeasuretheUnitedStatesagainstothercountries.Basedonthereport’sCEOSurvey,ourstrengthsareinnovationpolicyandinfrastructure,physicalinfrastructure,talentandthelegalandregulatoryenvironment.Ourweakestareawasincostcompetitiveness.

GlobalCEOSurvey:DriversofGlobalManufacturingCompetitiveness

Source:DeloitteToucheTohmatsuLimitedandU.S.CouncilonCompetitiveness,2016GlobalManufacturingCompetitivenessIndex

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Concernaboutthefutureofmanufacturingdatesbackseveraldecades.Almost30yearsago,StephenCohenandJohnZysman,intheirbook,ManufacturingMatters,discussedwhattheynamedthemythofthepost-industrialeconomy.Theywroteaboutthevalueofmanufacturingtoaneconomy,evenasthateconomywitnessedchange,andconcluded,“Thetransitionweareexperiencingisnotoutofindustryintoservice,butfromonekindofindustrialsocietytoanother.”Theyalsobelievedthatpublicpolicywouldplayamajorroleinourabilitytocompeteagainstothercountries.

Itdoesnottakeacrystalballtoknowthatthemanufacturingsectorwillcontinuetoexperiencerapidchange.Today,asbooksandreportsannouncethecomingofIndustry4.0,newconcerniswidespread.ThefuturefateofAmericanmanufacturingisacommondiscussioninbusinessboardroomsandatpoliticalevents.InTheIndustriesoftheFuture,AlexRossconcludes,“innovationandglobalizationhavecreatedopportunitythelikesofwhichhaveneverbeforeexisted”.Anotherofthispastyear’smosttalked-aboutbooks,MartinFord’sRiseoftheRobots,hasasubtitlethatcapturestheothersideofthediscussion,“TechnologyandtheThreatofaJoblessFuture.”

Muchofthepublicpolicyangsthasignoredmanufacturingoutputnumbers.Today,accordingtotheFederalReserve,andinspiteofthedoomsdayprophets,U.S.factoriesproducetwiceasmuchtheydidinthemid-1980s.Weknowthatoutputisonlyhalfofthestory.Weproducethosegoodswithone-thirdfewerworkers.Between1990andtheendof2015manufacturingemploymentintheUnitedStatesdroppedfrom17.8millionjobsto12.3million.Joblossesfromtechnologicalgains,globaloutsourcingandforeigncompetitionhavecostmillionstheirlivelihoodandcostmanysoutherncommunitiestheireconomicengines.

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Source:BLS.govQuarterlyCensusofEmploymentandWages

WhiletheU.S.continuestoproducecloseto20%ofallproductsworldwide,thatstatisticprovidesnocomforttoplacesthathavesufferedthelossofbusinessesandjobs.Boarded-upfactoriesinsoutherncitiesandsmalltownsareadailyreminderoftheirbygoneeconomicfoundations.TheAmericanSouthhasexperiencedsignificantlosses;nevertheless,manufacturingremainscriticaltotheregion’seconomicfutureandweneedtomaximizeitspotentialtosupportfuturegrowth.

Whilethelossofmanufacturingjobsduringtherecessionwassevere,since2010whentherecoverybegan,manufacturinghassteadilyaddedjobswiththestatesoftheAmericanSouthgrowingjobsfasterthantherestofthecountry.

AnnualManufacturingJobChanges2010-2015 2010 2011 2012 2013 2014 2015SouthernStates -3.7% 1.6% 1.8% 1.0% 1.7% 1.3%Non-SouthernStates -2.2% 2.0% 1.7% 0.6% 1.2% 1.0%UnitedStates -2.7% 1.9% 1.7% 0.8% 1.3% 1.1%Source:BLS.govQuarterlyCensusofEmploymentandWages

MANUFACTURINGJOBS-AVERAGEANNUALQCEW

2010 2015 changeinjobs %changeinjobs

AL 236,324 257,811 21,487 9.1%AR 160,091 154,865 (5,226) -3.3%FL 307,499 342,457 34,958 11.4%GA 343,111 375,838 32,727 9.5%

6,086,2454,347,055

17,797,353

12,290,293

-2,000,0004,000,0006,000,0008,000,00010,000,00012,000,00014,000,00016,000,00018,000,00020,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

ManufacturingJobsintheUnitedStatesandtheAmericanSouth1990-2015

South US

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KY 209,130 241,319 32,189 15.4%LA 137,283 143,720 6,437 4.7%MD 114,873 103,773 (11,100) -9.7%MS 135,956 141,622 5,666 4.2%MO 243,034 261,316 18,282 7.5%NC 431,545 460,883 29,338 6.8%OK 122,799 136,906 14,107 11.5%SC 207,803 235,824 28,021 13.5%TN 298,327 332,381 34,054 11.4%TX 810,160 878,009 67,849 8.4%VA 229,867 232,667 2,800 1.2%WV 49,075 47,664 (1,411) -2.9%Source:BLS.govQuarterlyCensusofEmploymentandWages

ThirteenofthesixteenstatesintheAmericanSouthhaveexperiencedgrowthandcollectivelytheregionhasnettedover300,000newmanufacturingjobs.

Source:BEA.govRegionalEconomicAccounts

11.9%

17.1%

14.5%

5.1%

10.8%

19.3% 19.4%

5.5%

15.2%

12.8%

19.6%

9.0%

16.6%16.2%

13.1%

8.6%9.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

USA AL AR FL GA KY LA MD MS MO NC OK SC TN TX VA WV

SouthernStatesManufacturingasaShareofGSP2015

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Source:BLS.govQuarterlyCensusofEmploymentandWages

AsthepreviouschartsshowthenumberofjobsorpercentageofstateGDPfrommanufacturingvariesgreatlyamongsouthernstates.Butindustrysectorsaretransformingandproductioncontinuestomove,soeverystatehastheopportunitytoexpandmanufacturinginthefuture.Becauseofthewell-documentedpublicbenefitsofmanufacturing,includingincreasedtaxbase,highermultiplierimpactsandhigherwages,policymakersoftentargettheindustryintheireconomicdevelopmentstrategies.

“AccordingtoU.S.Executives,favorableUSpolicies

centeredonsustainabilitytechnologytransfer,monetarycontrol,scienceandinnovation,foreign

directinvestment,intellectualpropertyprotection,

andsafetyandhealthregulationshelpcreatea

competitiveadvantagefortheirbusinesses.Onthe

otherhand,USexecutivesidentifiedpolicies

aroundcorporatetaxrates,healthcarepolicies,

laborandtaxationofforeignearningsasa

disadvantageformanufacturersintheUnited

States.”

2016GlobalManufacturing-CompetitivenessIndex,Deloitte

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

ManufacturingEmploymentByStateAmericanSouth1990-2015

AL AR FL GA KY LA MD MSMO NC OK SC TN TX VA WV

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Asthemanufacturingsectorcontinuestoevolve,theshifttohighervalueadvancedindustriesisincreasingthecompetitivenessofmoredevelopedplaces.TheDeloittereportconcludesthattalent,costcompetitiveness,productivity,andsuppliernetworksarethemostimportantfactors,inthatorder.

MANUFACTURING IN THE AMERICAN SOUTH – INTO THE FUTURE Remainingcompetitivebeginswithanticipatingthefutureneedsofmanufacturingcompaniesandforsomeplaces,arecalibrationofpublicpolicy.KPMG,inGlobalManufacturingOutlook:PreparingforBattle:ManufacturersGetReadyforTransformation2015,states“Constantdisruption,risingpricingpressures,volatileinputcosts,intensecompetitionandcontinuousinnovationhaveallforcedmanufacturerstorethinktheirbusinessmodelsandlong-termgrowthplans.”Policymakersneedtounderstandtheimplicationsofthesechangesandadjusttheirapproachaccordingly.

RobAtkinson,presidentoftheInformationTechnologyandInnovationFoundation,inthereportMeasuringUp,laysoutonevisionofchangingmanufacturingbusinessmodels:

NewvsOldManufacturingBusinessModels

Issue Old New

______________________________________________________________________________

Scopeofcompetition National Global

Organizationalform Hierarchical Networked

ProductionSystem Massproduction Flexibleproduction

Keyfactorofproduction Capital/Labor Innovation/Ideas

Keytechnologicaldriver Mechanization Digitization

Competitiveadvantage Economiesofscale Innovationquality

Relationshipsoffirms Go-it-alone Collaboration

Skills Job-specific Broadandchanging

Workforce Organizationalman “Intrapreneur”

NatureofEmployment Secure Risky

Thespeedoftechnologicalchange,therisingskillexpectationsofacompany’sworkforceandglobalcompetitionwithimmediateaccesstoideashasnecessitatedthesechanges.In

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aggregate,thesechangesportendaneedforpolicymakingthatisquicklyadaptable,futurefocusedandthatisinconstantdiscussionswithindustryleaders.

AccordingtotheInternationalEconomicDevelopmentCouncil(IEDC),“Manufacturingcompetitivenessrequiresseriousinvestmentinresearchanddevelopment.Onlybyconstantlyimprovingproductsandproductiontechniquescanmanufacturersstaygloballycompetitive.Companiescannolongeroperateentiresupplychains,conductallresearchanddevelopmentin-houseorcontractwithfirmsonlyintheirregion.”

IEDChashighlightedwhatitbelievesplacesneedtoprioritizetosupportnewmanufacturing.

§ “Buildingaqualityworkforce§ Cultivatinginnovationcapacity§ Supportingmanufacturingentrepreneurship§ Forgingglobalnetworks§ Goinggreenasmajormanufacturersaggressivelypursueenergyandwastereductions.

Corporatedecision-makersareincreasinglyevaluatinglocationsontheseterms.”

Dozensofothersstudiesoverthepastdecadegenerallyagreeonthekeyareasoffocustosupportmanufacturing.Theyprovidethefoundationfordevelopingintentionalstateorregionalaction.IftheUnitedStatesandtheAmericanSouthwanttocompetefornew

manufacturing,weneedtomaintainourbusinesscompetitiveness,educateandtrainour

citizenswithnewandhigherskills,enhanceourinfrastructurewithanemphasisondigital,

andimprovetheflowofnewideasandinnovations.Thesectionsthatfollowareachecklist

forimprovedmanufacturingcompetitiveness.

✓ Begin with A Policy Focus on Competitiveness Thequesttobemorecompetitivecanbeallconsuming,butwhatdoesitreallymean?InSouthernstates,understandingcompetitivenessiseasy:justputitintofootballorbasketballjargon.EveryKentuckyfanknowsthecompetitivestrengthsoftheirguardplaywhentheyplayNorthCarolina.InAlabama,eventhecasualfancandiscusswheretheyhaveacompetitivematchupadvantagewhentheyplayFloridaorTennessee.Therearewholetelevisionnetworksthatspendhourseachdaydiscussingstrengths,weaknessesandthreats.

“Manufacturinghasbeentransformed.Ifa

manufacturingworkerorplantownerfrom

1960weretransportedtothepresent,heor

shewouldrecognizelittleinthemodernworld

ofmanufacturing.Manufacturinghasbecomea

highlytechnical,innovative,dynamicand

networkedindustry”

IEDC-EconomicDevelopmentResearchPartnersJobsintheMaking:EconomicStrategiestoGrowManufacturing,2011

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Translatingthatgeneralunderstandingofcompetitivenesstomanufacturingisagoodwaytobeginastrategicdiscussion.Simply,whereareourcurrentadvantages,whatareourcompetition’sstrengthsandweaknesses,andwhatdoweneedtoimprovetowin?

TheGlobalCompetitivenessReportoftheWorldEconomicForumdefinescompetitivenessas"thesetofinstitutions,policies,andfactorsthatdeterminethelevelofproductivityofacountry".ThegoalforthestatesoftheAmericanSouthistostayfocusedonthefutureneedsofmanufacturingcompaniesandtotakespecificactionsthatimprovemeasurablecompetitiveness.Justassportsfocusongameplansandspecifictypesofoffensesanddefenses,amanufacturingstrategymuststartwithaspecificapproach.Ifweassumethatindividualplayershavestrengthsandweaknesses,wecanalsobegintounderstandthatthesameistrueforplaces.Justasacoachmustunderstandindividualassetsandliabilitiesandthendevelopanoverallgameplan,somustpolicymakersbeginwithaplanthatrecognizestheircompetitivereality.

✓ Use Cluster Practices as the Organizing Principle Astateandregionalclusterapproachprovidesaframeworkandtheorganizingprinciplesforactionsaswellasideasforspecificactions.

SinceDr.MichaelPorterofHarvardUniversitybeganspreadingthewordaboutthecompetitiveimplicationsofclustersinthe1990sithasbeenoneofthefeweconomicdevelopmentprinciplesthathasremainedrelevant,supportedandyetattimesfrustrating.Inthefaceofheightenedcompetition,clusterscreateacompetitiveorproductiveadvantage.AsdefinedintheNationalGovernorsAssociation(NGA)andtheU.S.CouncilonCompetitivenessreport,Cluster-BasedStrategiesforGrowingStateEconomies,“aclusterisagroupoffirms,relatedeconomicactors,andinstitutionsthatarelocatednearoneanotherandthatdrawproductiveadvantagefromtheirmutualproximityandconnections.”

Manystatesandregionshaveused“advancedmanufacturing”asatargetedcluster.TheBrookingsInstitutionhasevencreatedaspecificmethodologytoidentifythethirty-plusmanufacturingsubsectorsthattheyconsideradvanced.Butwhilegeneralstrategiescansupportallmanufacturing,morespecificsupportandinvestmentisbettersuitedforindividualsectors.

TheNGAhasbeenpublishingclusterreportsfor15yearsthatsuggeststatestrategiestobuildstrongerclustersandcreateadvantagesthatextendbeyondlowcosts.Their2002report,AGovernor’sGuidetoCluster-BasedEconomicDevelopment,discussedthehardandsoftbenefits

“Competitivenessisaneconomy’sabilitytoproducegoodsandservicesthatmeetthetestofinternationalmarketswhileits

citizensearnastandardoflivingthatisbothrisingandsustainableover

thelongrun.”

EconomistHowardRosen

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fromclustering.“Hardbenefitsaregainedfrommoreefficientbusinesstransactions,wiserinvestments,andreducedexpenditures…Softbenefitsarederivedfromlearningbenchmarkingandsharingthatexpandsknowledgeandleadstoinnovation,imitationandimprovement.”

Morespecifically,thereportclearlyshowshowthecompetitiveadvantagesareattained.

HardBenefitsofClusters

Asset Benefits

Localsupplychains Designefficiencies

Specializedworkforce Higherproductivity

Specializedservices Fasterandeasieraccess

Choicesofinputs Lowercosts,higherquality

Rangeoffirms Jointventures,networkopportunities

SoftBenefitsofClusters

Asset Benefits

Association Collectivevision,planninginfluence

Trust Inter-firmcollaborationandnetworks

Learning(1) Technologytransferandinnovation

Learning(2) Tacitknowledgeandknow-how

Informallabormarket Efficiencies,careerladders

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Forstatesthathaveprioritizedclusterstrategiesintheireconomicdevelopmentapproachthequestionhaslongbeen,whatspecificallydowedotohavethemostefficientimpact?AgaintheNGAandtheU.S.CouncilonCompetitiveness,inCluster-basedStrategiesforGrowingStateEconomies,madesixspecificrecommendationsforpolicymakers.

1) “Establishasolidfoundation:Everyclusterhassomefundamentalneedsthatarenotclusterspecificbutthataffecttheabilityofclusterstosucceed.Theseincludetheregion’seducationalassets,physicalinfrastructure,attractivenesstocreativetalent,andcapacityforaligningtheeffortsofregionaleducational,workforceandeconomicinstitutions.

2) Buildrelationships:Interfirmcollaborationfacilitateslearningandtheaggregationofintangibleassets,especiallythetacitknowledgethatresideswithincompanyemployeesandpractices.Stateleaderscanhelpbyconveningaclusterleadershipcouncilandsupportingclusterassociations.

3) Deepenskillsandtalent:Bynature,clustersattractandenhancetalent,butgovernmentcanreinforcethistendencybycreatingclusterhubsatcommunitycolleges,fosteringcluster-focusedprofessionalsciencemaster’sprogramsatnearbyuniversities,encouragecluster-trainingconsortia,andencouragingcluster-basedcareeradvancementpaths.

4) Aligninnovationinvestments:Statescanrealizehigherreturnsintheirinvestmentsinresearchanddevelopment(R&D)centersofexcellence,andbusinessinnovationbyfocusingonclusters.

5) Accelerateentrepreneurship:Talentandresearcharenecessary,butittakesentrepreneurshiptotranslategoodideasintosuccessfulproductsandservices.Governorscanpromoteentrepreneurshipbysupportingnetworks,creatingcluster-focusedincubators,organizingsmallbusiness

GrowingStateEconomiesTwelveActions

1) Createacompetitivetaxand

regulatoryenvironment

2) Putentrepreneurialactivityatthe

topofthestateagenda

3) Distinguishamongdifferentkinds

ofentrepreneursandbusinesses

4) Castawidenet

5) Teachentrepreneurshipskillsand

attitudesatalleducationallevels

6) Buildastart-upenvironmentand

culture

7) Findhigh-growthcompaniesand

helpthem

8) Getyourentrepreneurstogive

back

9) Helpcompaniesopendoorsto

newglobalcustomers

10) Rewardstrongtiesbetween

universities,companiesand

entrepreneurs

11) Buildinnovationclusters

12) Buildecosystemsnotprograms

TheNationalGovernorsAssociation-GrowingStateEconomies,2012

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centersaroundclusterexpertise,andencouragingentrepreneurshipeducationprogramsinhighschoolsandpostsecondaryinstitutions.

6) Openglobalpriorities:Successfulclustersextendtheirnetworkstodistantcompetitors,vendorsandinstitutions.Governmentcanhelpbysupportingparticipationininternationalconferences,tradeshows,andstudytours;byprovidingexportassistance;andbyestablishingcluster-basedlearningexchanges.”

✓ Understand, Anticipate and Embrace Change Advancedmanufacturing,thepathtoIndustry4.0andstrengtheningthemanufacturingecosystemintheAmericanSouth,requiresaconsistentefforttobothfollowtrendsandalsotoanticipatethefuture.Overthenext15years,nooneknowswhetherartificialintelligence,additive

manufacturing,autonomousvehicles,theInternetofThings,orvirtualrealitywillhavethemostimpactonmanufacturers.Eachwillalmostcertainlybringdisruptionandchangetothoseindustriesthatweclassifyas“advancedmanufacturing.”Manyoftheproductsandprocessesthatwecallnewandadvancedtodaywillbeobsoleteandforgottenby2030.

InPwC’sreport,HowtoDriveInnovationandBusinessGrowth,innovationsarecategorizedas:

§ IncrementalInnovationsmakesmallchangestoacompany’sexistingtechnologiesandbusinessmodels.

§ BreakthroughInnovationsmakesignificantchangestoeitherthetechnologyorbusinessmodel,producingsignificantgrowth.

§ RadicalInnovations,whichtakeplacemorerarely,combinetechnologyandbusinessmodelinnovationtocreatemajornewindustrieswithexponentialgrowth.

Radicalinnovationsareoftenrapid,followincrementalinnovationsandcantakeyearstodevelop.Butifrecenthistoryisanypredictor,weareenteringatimewhereradicalinnovationsmaybecomemorecommonplace.

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JusttenyearsagotherewerenoiPhones,Facebook,Twitter,YouTube,UberorPandora.Itdoesnottakemuchimaginationtoenvisiona2030manufacturingplantwhereuniqueproductionspecificsareelectronicallycontrolledbythecustomer,wherevirtualrealitytrainsandretrainsworkersdaily,wheredronesareamajorcomponentofdeliveryinfrastructureandwhereproductioniscompletelymobile,movesoftenandfollowsthebestbusinessenvironment.

Thefirstthreeindustrialrevolutionsweredrivenbymechanizationandtheavailabilityofpower,assemblylineorganizationofproduction,andfinallycomputerizedautomation.Industry4.0wasfirstdefinedbytheGermangovernmentandrefers,inpart,tothenewabilityforinformationinteractionbetweentheproductionsystemsandtheproductsinvolved.Rapidtransformationcreatesrealcomplicationsforpolicymakers.

Dowemakerulesandmakeinvestmentsforthosethingsthatarecertaintodayordowetrytoanticipatewhatwillbeneededinthefuture?Byinjectinganticipationinthedecisionprocessweriskwasteandconstituentridicule.Butifwewaitfornewsectorstobefullyrealized,itisunlikelythatwewillbeonboardsoonenoughtocapturetherewards.Thefollowingfourareasofpolicyfocusbusinessclimate,workforceskills,

infrastructureandinnovation-whilesubjecttochange,

willremainthefoundationforacompetitiveplaceforthe

foreseeablefuture.Byfocusingonpolicyflexibilityand

continuouscompetitiveanalysis,decisionmakerscan

increasetheirimpact.

Asstatescompeteformanufacturingjobs,competitivenesshasbecomemorethanjustanexistingstrongmanufacturingpresence.Anenvironmentthatsupportsmanufacturingbusinessesacrossavarietyofneedsisnecessarytostandoutagainstthecompetition.EverystateintheAmericanSouthhasmanufacturingjobs.Thesectorsdifferandstate’sstrengthsandweaknessesareverydifferent,butinallcasesgoodpolicyshouldbesupportedbyrelevantinformation.

Everyweekadifferentrankingsarticle,indexorsetofnumbersisreleasedandeithercelebratedorlamented.Thespecificfactorsthatinfluenceanindividualinvestmentdecisionisparticulartoabusiness,butifweknowgenerallywhatisimportanttomanufacturers,itispossibletoaggregatefactorsandbetterunderstandastate’scompetitiveness.Asapartofthisproject,wedevelopedacompetitivenessindextohelpguidepolicydiscussionsineachofthestates.

TopFactorsforCompaniesConsideringNewInvestment

1) Availabilityofskilledlabor

2) Highwayaccessibility

3) QualityofLife

4) Occupancyorconstructioncosts

5) Availabilityofbuildings

6) Laborcosts

7) Corporatetaxrate

8) Proximitytomajormarkets

9) State&LocalIncentives

10) Energyavailabilityandcosts

11) Taxexemptions

12) Expeditedor“fasttrack”permitting

Source:AreaDevelopment30thAnnualSurveyofCorporateExecutives,March2016

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✓ Ensure a Competitive Business Climate Annuallyforthepast30yearsAreaDevelopmentmagazinehassurveyedcorporateexecutivesandsiteselectionconsultantstodeterminethetop10to15factorsthattheybelievearemostimportantforcorporateinvestmentdecisions.Thecorporatetaxrate,stateandlocalincentives,taxexemptionsandfasttrackpermittingareregularlyamongthemostimportantfactors.

Astate’soverallbusinessclimateisaproductofmanyfactorsincludingworkforcetalent,infrastructureandinnovationthatwillbediscussedinthenextthreesections.Apartfromthoseareasthecostsofdoingbusiness,taxandincentivepolicies,theregulatorysituationandtheconsistencyandfairnessofthestatelegalsystemsappeartobethemostoftencited.

TheHeritageFoundationsummarizes,“Economicresearchhasempiricallydemonstratedthatapositivebusinessenvironmentfostersenterprisedevelopmentandoveralleconomicgrowth.Determiningwhatconstitutesapositivebusinessenvironmentdependswidelyonfactorsoftenoutsidetheinfluenceoftheaveragebusinessowner.Thewiderangeoffactorsaffectingbusinessenvironmentsincludescommerciallaw,soundpublicinstitutions,opentradepolicy,infrastructure,technologyandothers.”

Forpolicymakers,ensuringthebestbusinessclimateisoftencomplicatedbytradeoffs.Regulationsversussafety,incentingsomecompaniesandnotothers,andfairnessinregulationaretypicaldiscussions.Inherently,developingstrategiesisaboutmakingchoices.Whatmaybethebestandobviouschoiceforsomeplaceswillbeanonstarterforothers.Oneoftheclearoutcomesfromthedataanalysisisthatthereisnoonewayforastatetobecompetitive.Whenweanalyzedandrankedsouthernstates,nonethatwereratedamongtheleadersinoverallmanufacturingstrengthwasratedinthetop10statesonallfactors.

Eachyearmanygroupsproducerankingsofthebeststatesforbusinessorforbusinessclimate.Whilenosinglestudyoffersanindisputableassessment,togethertheyprovidestatesanunderstandingofhowtheirstrengthsandweaknessesareviewed.Theyalsocontributetotheoverallbrandorimageofthestateamongdecisionmakers.

✓ Enhance Workforce Skills Amongbusinessgroups,tradeassociations,economicdevelopersandelectedofficials,thepolicyconundrumof2016isthemillionsofpeoplethatneedagoodjobandbusiness’loudlamentthattheycannotfindqualifiedworkers.Thisyearnootherpublicpolicyissueismorediscussedorbemoaned.

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U.S.manufacturersconsistentlysaythattheyhavetroublefindingworkers.TheManufacturingInstituteandDeloitteConsultingestimatethatnearly70%offirmswillexperience“moderatetosevereshortage”ofqualifiedworkersand84%believethatthereisatalentshortage.

Overcomingperceptionisoneissuethatmustbeaddressed.SME,anorganizationthatservesthemanufacturingindustry,releasedastudyin2016thatshowsthatmanyparentsviewmanufacturingasoutdated,dirty,notexcitingorchallengingandnotwell-paying.JeffreyKrause,CEOofSMEsaid,“Aseriousmisconceptionisthatmanufacturingisdirty,darkordangerous;andisn’tseenasanoptimalcareerchoice.Therealityisfarfromthat.”ThereportconcludesthattheaverageU.S.manufacturingworkermakes$77,506ayear.

Findingworkerswiththerightskillsisanotherareawherewecanmakeprogress.TheManufacturingInstituteandDeloitteConsultingreport,TheSkillsGapinManufacturingin2015andBeyond,statesthat“Overthenextdecade,nearlythreeandhalfmillionmanufacturingjobslikelyneedtobefilledandtheskillsgapisexpectedtoresultintwomillionofthosejobs

“Investmentsinaninnovativeeconomywillpayoffonlyifabaseofmiddle-skilledtalentisinplacetomeetprojecteddemandforskillsinnewinnovativeindustries.”

DrivingInnovationfromTheMiddle,SGA2011

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goingunfilled.Anestimated2.7millionjobsarelikelytobeneededasaresultofretirementsoftheexistingworkforce,while700,000arelikelytobecreatedduetonaturalbusinessgrowth.”Theskillshighlightedasmostdeficientincludetechnology/computer,problemsolving,basictechnicaltrainingandmath.

TheNationalAssociationofManufacturershasexaminedhowtoovercomethisskillsgap,suggestingthataunifiedvoicetoalignstakeholderscanbuildanewsystemtodelivermid-skilledmanufacturingtalent.InSGA’sDrivingInnovationfromtheMiddle-MiddleSkillJobsintheAmericanSouth’sEconomy,recommendationsincludedsectorpartnerships,establishingcareerpathwaysandcountingmiddle-skillcredentials.

Governorswereencouragedto:

§ Setaboldgoalforthenumberofresidentstobetrainedwithmarket-readyskills§ Changetheperceptionofmiddle-skilljobs;§ Makesurethattrainingdollarsgotowardin-demandcredentialsalignedwithrealjobs;§ Ensurethatcommunitycollegesandpublicuniversitiesarefillingthegaps;§ EngageyourWorkforceInvestmentBoards;and§ Conveneindustryleadersinapartnershiptargetingopenmiddle-skillpositions.

Specificsectorstrategiesalmostalwaysincluderecommendationstoaddressworkforceissues.TheNationalGovernorsAssociation’sCenterforBestPracticesreport,StateSectorStrategies:ComingofAge-ImplicationsforStateWorkforcePolicymakers,foundthatmanyofthenation’sstateshaveengagedinsectorstrategiestomeetidentifiedbusinessneeds.

“EightAreasforStateAction-AStateSectorStrategyFramework

1. CreateaSectorStrategyCommitteethatincludesrepresentativescriticaltothestateeconomy;leadershipfromkeypublicsystemssuchasworkforce,highereducation,economicdevelopment,andemploymentsupportservices;andlegislativemembers.

2. AlignPoliciesAcrossSystems.Justasittakespracticalcoordinationamongworkforce,education,andeconomicdevelopmentprogramstocreateasuccessfulpartnership,ittakespolicycoordinationatthestateleveltoremovebarriersandalignstrategiessothatthelocalstakeholderscanworkbettertogether.

3. CultivateBusinessChampionstopromoteasectorstrategyapproachwithotheremployers,industryassociationsandlegislators.

4. BuildLegislativeSupporttosecurefundingtosupportsectorpartnerships.5. ProvideGoodDataandIndustryExpertisetolocalstakeholderssothattheycanmake

gooddecisionsaboutindustries,occupations,workerpopulations,andregionallabormarkets.

“Thereisnogoodjobtodaythatdoesnotrequiremoreandbettereducationtogetit,holdit,or

advanceinit.”

ThomasFriedman

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6. FindandLeverageFundingtoSupportOn-the-GroundImplementation.Sectorpartnershipsneeddedicatedstafftocoordinateandfacilitate.Creatingsuchstafftakestimeandresources.

7. ProvideTrainingandCapacityBuildingforLocalPrograms.8. DevelopaSharedMessage,TrackOutcomes,andShareSuccessBroadly.Messaging

campaignscanhelpvariousconstituentsandstakeholdersunderstandthatsectorstrategiesarea“newwayofdoingbusiness,”notjustanotherprogram.Statescanbeespeciallyimportantinhelpinglocalpartnershipsmeasureandtracktheirimpactonworkersandemployers.”

“Technologicalunemployment"isanotheroftoday'shottesteconomictopics.What'sdrivingitandhowcanpublicpolicyaddressit?Fromautomation,tonewapps,toadvancesinrobotics,toemergingAI,disruptivetechnologiesarecurrentlychangingthemixofjobsavailableintheAmericanworkplace.In1930,whenJohnMaynardKeynesfirstcoinedthephrasetechnologicalunemploymenthepredictedthatby2030technologicaladvanceswouldallowtheaverageworkweektobereducedto15hours.AlthoughtheaveragehoursthatatypicalAmericanemployeeworkseachyearhasdroppeddramaticallyinthelast85years,Keynes’utopianoutlookisgenerallydisplacedbyconcernsaboutmassunemployment.Somepredictionssuggestthatasmanyas30%ofcurrentjobswillbecomeobsoleteinjustadecadeortwo.Technology-drivenproductivityadvanceshavealwaysraisedconcernsaboutrisingunemploymentandunderemployment.TheLudditeshavecriedwolfmanytimesinthepast.Isthistimedifferentoristhisjustonemoresetofadvancementswherejobsareeliminatedandthenreplacedwithnewjobsthatrequiregreaterskillsandpaygreaterwages?In2014,theSGAlookedcloselyatthepotentialimpactsoftechnologicalunemploymentonsouthernstates.Dr.MichaelWaldenofNorthCarolinaStateUniversityledadiscussionattheannualmeetinganddatawasdevelopedshowingthattheimpactswouldbefelt.AnexcerptfromDr.Walden’supcomingbooksummarizesthefindingswell.“Alargenumberoflowerandmiddle-payingoccupationsfacesignificantdownsizing,whilemanyhigher-payingoccupationsaremuchsaferfromtechnologicalencroachment.”Somesouthernstateshavebegunthetransitiontomoreadvancedmanufacturing,whileothersstillhavemanycitizensworkingin

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lessskilledandmoreroutinemanufacturing.Thesestateswillbemoreseverelyimpactedbychange.Thetalentbarforasuccessfulmanufacturingworkerisclearlyrising.Highschoolgraduationwasrarelyaprerequisiteforthetextilemill,buttoday’smanufacturingjobsoftenrequirecertificationandskillsearnedafterahighschooldiploma.Howdowebridgethegapbetweenthesouthernworkforce’scurrentskillsandwhatittakestobesuccessfulinthecomingyears?The2013ReportontheFutureoftheSouth,ReimaginingWorkforceDevelopment,researchedbytheSouthernGrowthPoliciesBoard,presentedthreebroadrecommendationsaskeytoourfuturesuccess.Borrowingfromthethree“Rs”thathavehistoricallybeencentraltooureducationsystem,weneedto:

1) Re-imagine Readiness Manysaythatwehavelostastrongconnectionbetweeneducationandjobs;thateducationneedstoberecoupledwithworkinamoresystemicway.

Key Actions:

• Strengthentheconnectionsbetweeneducationandjobskills• Re-thinkcredentialsandtheirvalueintheworkplace• Givestudentsmoreexposuretotheworldofwork• Scale technology so that every student can benefit from a high quality,

personalizedlearningexperience

2) Re-engage Adult Learners and Disconnected Youth Morethantwo-thirdsoftheworkforcein2020andnearlyhalfoftheworkforcein2030arealreadyworkingtoday.Atthesametime,morethanoneinsevenyoungpeoplearedisconnectedfromthefoundationsforfuturesuccess—neitherworkingnorinschool.Weneedtore-engagebothadultsandyouthintheeducationsystemtocontinuouslyupdatetheirskillsinordertomeetourneedforatalentedworkforceinthefuture.

Key Actions:

• Targetworkerswithsomecredits,butnodegreeorcredential• Helpdislocatedworkersrejointheworkforce• Recoverdisconnectedyouth

3) Re-align Relationships and Resources Weneedtobetteraligneducation,workforceandeconomicdevelopmentassetstocreateclearpathwaysandsmoothtransitionsthatwillfacilitatelifelonglearning.

Key Actions:

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• Create continuity in education and workforce development from earlychildhoodthroughcareer

• Alignandtrackdataacrosstheeducationalandworkforcepipeline• Engagebusinessesinameaningfulway

Tobetterengagingbusinessthepublicsectorneedstotakeademand-drivenapproach,focusingontheissuesoftheemployer.Byfocusingonthedemandsofbusiness,thisapproachallowslocalcitizensandworkforceserviceproviderstorecognizetheopportunitiesthatexistforfutureemploymentandwhatspecificskillsarenecessarytotakeadvantageofthoseopportunities.

Someofthekeycomponentsofademand-drivenworkforcedevelopmentsysteminclude:

▪ Formalconnectionsamongemployers,unions,educators,government,not-for-profitserviceproviders,andcitizensinthelabormarkettoidentify,anticipateandrespondtotrainingandeducationneeds;

▪ Up-to-dateandeasilyaccessiblelabormarketinformation▪ Jobplacement,retentionandsupportservicesthatimproveaccesstoemploymentand

helpbothemployersandemployees▪ Themeanstocertifyandquantifyknowledgeandskillsgainedoutsidetheformal

educationsystemthatareacceptedbyemployers

Traditionallyworkforcedevelopmentprogramsfocusontheneedsofcitizenslookingforajob.Workforceproviderscreatetrainingopportunitiestoimproveskillsandthenactas“connectors”toidentifyopportunitiesandmatchthejobseekerwiththejobs.

Byalsofocusingonthedemandside,thepublicworkforcesystemcanadvanceitsknowledgeaboutthejobsandskillsthatareneededandcanworkwithbusinessestohelpthemfindtheemployeestheyneed.

Supply-Side

Citizenslookingforgoodjobs

Demand-Side

Employerslookingforgoodlabor

WorkforceSystem

Organizationsthatimproveskills,provideinformationorconnections

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✓ Promote Innovation Rapidchangepredeterminesthatinnovationwillfuelgrowthandthatplacesthatembraceandsupportinnovationwillbenefit.Policiesthatsupportinnovationhavebeenanothermuch-publishedtopicoverthepastdecade.

ThePewCenterontheStatesandtheNationalGovernorsAssociationidentifiedaframeworkforinnovation,andtheirresearchsuggestedthatwhenthesecomponentswerepresentinnovationwasmorelikely:

§ Expertise-newdiscoveries,newknowledgeandnewinsightcomesfrompeoplewiththenecessaryresources

§ Interactionbetweensectorsandindividuals§ Diversityofthought§ Application-commercialization

In2015,theWhiteHousereleasedanationalstrategywithpoliciestheyfeltwouldincreaseinnovationandserveasaguidetotargetfederalfunding.Inthereport,AStrategyforAmericanInnovation-NationalEconomicCouncilandtheOfficeofScienceandTechnologyPolicy,October2015,aseriesofinnovationbuildingblockswerediscussed.Theyincluded:

Experbse

Diversity

Applicabon

Interacbon

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§ Makingworld-leadinginvestmentsinfundamentalresearch§ Boostingaccesstohigh-qualitySTEMeducation§ ClearingapathforimmigrantstohelppropeltheInnovationEconomy§ Buildingaleading21stcenturyphysicalinfrastructure§ Buildinganext-generationdigitalinfrastructure§ Fuelingtheengineofprivate-sectorinnovationbystrengtheningtheResearchand

ExperimentationTaxCreditviabroadening,extending,andmakingthecreditpermanent;supportinginnovativeentrepreneurs;commercializingfederally-fundedresearch;andhelpingAmericanbusinessescompeteabroad

§ Crowdsourcing§ Supportforadvancedmanufacturing

andnewbreakthroughtechnologies

PreviousresearchfromtheSouthernGrowthPoliciesBoardrecommendedthatastronginnovation-focusedstatewould:

1) Buildagovernancestructurecompetitivelypositionedontaxes,regulation,andleadership.

2) Conductaregulatoryaudittoidentifyimpedimentstobusinessinnovation.

3) Promoteaculturethatsupportsentrepreneurship,creativity,risk,andchange.4) Continuouslymonitorchangingeconomicconditionswithbroadlydistributed

feedback,includingbenchmarkingagainstcompetitors.5) Monitorandengagenewglobalmarketsandshiftingprioritiesfordirectforeign

investmentandexportpromotion.6) Maintainconsistentorganizationalcapacitywithresponsibilitytocreate

innovation-basedjobsandcompanies.7) Establishanadvisorygroupforscienceand

technology,withrepresentativesfromgovernment,educationandtheprivatesector,toadvisethegovernorandlegislators.

Amajorcomponentofthiseffortwastolookattheroleofuniversitiesininnovationandthetransitioningeconomy.The2014releaseofInnovationU2.0:ReinventingUniversityRolesinaKnowledgeEconomy(InnovationU2.0),byLouisG.TornatzkyandElaineC.Rideoutofferedareadybasetounderstanduniversityparticipationinsupportofadvancedmanufacturing.Thebook

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describeshowtechnologicalinnovation,entrepreneurshipandbusinesspartnershipshappenincarefullyselectedcasesamplesoftwelvemajorU.S.universitiesandincludesdozensofexamplesofbestpractices,policiesandprogramsthatarerelatedtotechnologicalinnovation,industryandcommunityengagement,andthecommercializationofinventions.

AlthoughU.S.universitiesexcelateducationandresearch,manyuniversitieshavealsofocusedonimpactingregionalandnationaleconomies.Suchcommercializationandindustry-partneredresearcheffortsenhancetheuniversities’othermissions.Sincethecreation,distributionandultimateutilizationofknowledgearethecornerstonesoftheinnovation-basedeconomy,universitiescanplayacentralroleineconomicadvancement.

Theeconomic-impactbehaviorsoftwelvebestpracticeuniversitiesdescribedinInnovationU2.0demonstratehowuniversitiescanadvancetheirwidereconomies.Someofthepolicyinsightsfromtheauthorscaninformdecisionsonthepromotionofinnovativeadvancemanufacturing.

§ Theforceforcommercializationmustcomefromthetopleadershipoftheuniversity.

§ Priorengagementwiththeprivatesectorcanbeanadditionalusefulcriterionforthehiringofuniversitypresidents.

§ Senioruniversitymanagementwithsuccessfulengagementofbusinesscanenhanceaculturalshifttowardsentrepreneurshipandrisk-taking.

§ Bestpracticesuniversitiesoftenincludeinteractionswithindustryandcommercializationactivitiesasoneofthekeycomponentsinfacultyhiringandadvancementdecisions.

§ Commercializationisonlyonemechanismofbusinessengagement.Cooperativeresearchprojects,ifartfullycrafted,benefituniversities,studentsandbusinesses.

§ Modeluniversitiesoftenrestructuredisciplinesandresearchintonew,morefunctionalunits.

§ Acentralpointofcontact,forindustrylookingforuniversityinventionorresearch,isahallmarkofsuccessfuluniversities.

§ Programsforstudententrepreneurship,curricularexpansion,co-curricularandextra-curricularsystemsthatworktogetherforallstudentsyieldresults.

§ Mostsuccessfuluniversitiessponsorincubatorsoracceleratorsforstudentandfacultystartups.

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✓ Invest in Infrastructure The2016IEDCEconomicDevelopmentResearchPartnersreport,CriticalCondition:InfrastructureforEconomicDevelopment,definesinfrastructureas“thephysicalcomponentsofinterrelatedsystemsprovidingcommoditiesandservicesessentialtoenable,sustain,orenhancesocietallivingconditions.”EconomicinfrastructureisdefinedbyscholarJohanFourieas,“infrastructurethatpromoteseconomicactivitysuchasroads,highways,railroads,airports,seaports,electricity,telecommunications,watersupplyandsanitation”.

ThisreportandmanyothershavesoundedalarmsabouttheriskofadeclininginfrastructureinAmerica.“HistoricalevidencesuggeststhattheastonishingeconomicdevelopmentthattheUnitedStatesexperiencedoverthepasttwocenturieswasmadepossiblebythehighqualityinfrastructurethenationhadtheforesighttoinvestin.”Butthenationalinfrastructuretoday,“facesseriouschallengesthatdeserveurgentattention.”

Infrastructurehasalwaysbeenimportantforcorporateinvestmentdecisions.KPMG’sreport,BridgingtheGlobalInfrastructureGap,reportsthatonly14%ofseniorexecutivesbelievethatcurrentinfrastructureis“completelyadequate”,while90%saythat“thequalityandavailabilityofinfrastructuredirectlyaffectswheretheylocateandexpandbusinessoperations.”

GlobalrankingssuchasthosebytheWorldEconomicForumandnationalassessmentssuchasthosefromtheAmericanSocietyofCivilEngineerswarnthatwhatwasonceaclearcompetitiveadvantagefortheUnitedStatesislesssotoday.InvestmentsinpublicinfrastructurearefallingandtheAmericanSocietyofCivilEngineersestimatesitwilltakeover$3.5trillioninnewinvestmenttobringthenation’sinfrastructureintogoodrepair.Withoutgoodinfrastructurejobgrowthwanesandinvestmentsflowtoopportunitieselsewhere.

Thefederalgovernmentisexacerbatingtheproblem.

“Despitethefactthatinfrastructureisacritical

partofdailylifeforAmericans,the

infrastructuredeficitintheUnitedStatesgrowswitheachpassingday.”PayingforLocalInfrastructureina

NewEraofFederalism

NationalLeagueofCities

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Atthebeginningofthelastcenturythefederalgovernmentwasthemajorplayerprovidinginfrastructure.TheFederalHighwayActof1916createdafundingmodelwherethefederalgovernmentpaidfortheconstructionofnewroads,andstateandlocalgovernmentsmaintainedthem.Similararrangementshelpedsmallcommunitiesbuildwaterandsewersystems.DuringtheGreatDepression,theWorksProgressAdministration(WPA)putpeoplebacktoworkbuildinghundredsofthousandsofmilesofroads,thousandsofbridgesandiconicprojectssuchastheGoldenGateBridgeandtheHooverDam.TheAmericanSouthishometoseveralofthebusiestairportsandseaportsinthecountry.Interstatehighwayscrisscrosstheregionandtheavailabilityofwaterandenergyhavelongbeenadvantagesformanufacturers.AccordingtotheCenterforBudgetandPolicyPriorities,stateandlocalgovernmentsaccountfornearly75%ofpublicinfrastructurespending(thisparticularreportcountseducationbuildingininfrastructure).

Globaltradehasgrown,andtobecompetitiveU.S.companiesneedtoefficientlymovegoods.Moreoftentodaytheirbusinessmodelisbuiltonjust-in-timedelivery.Businesstravelisincreasing.Powergenerationanddistributionistransforming.Finally,thedigitalrevolutiondependsoncellularandbroadbandnetworksthatconnectusall.Strategictradeoffsarevexingpolicymakersastheyseeknewrevenuesourcesforimprovingandextendinginfrastructure.Userfees,tollroads,revisedgastaxmodels,I-banks,andpublic-privatepartnershipsaredebatedanddiscussedassolutions,butmanystatesfacecomplexoppositiontoeveryalternative.

IEDC’sCriticalCondition-InfrastructureforEconomicDevelopmentrecommendsthateconomicdevelopers:

§ “Participateinlocal,regional,andstateinfrastructureplanning§ Educatecommunityleadersontheimportanceofinfrastructuretocompetitiveness§ Takeactiononthesechallengesbyworkingwithlawmakersandbusinessleaders§ Analyzehownationalchallengeswillmanifestthemselvesintheircommunities§ Supportfinancingofinfrastructureconstructionandmaintenanceatboththelocaland

statelevel.”

Infrastructurecompetitivenesswillbedeterminedbyacombinationoffuturefundingfromfederal,stateandlocalsources.Whilethiscomplicatestheprocessofcollaboration,itissimilartobusinessclimate,workforceskillsandinnovation,eachwithmultiplefundersandactors.

✓ Collaborate to Compete Aswashighlightedearlierinthispaper,collaborationishard.Ahyper-politicizedpolicyenvironment,special-interestinfluenceandascarcityofresourcescombinetomakeworkingtogethertoimprovegeneralcompetitivenessataskforonlytheardentfew.Despitethe

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difficulties,bestpracticeresearchsuggeststhatcollaborative,multi-sector,often,bipartisanapproachesmustbedeveloped.

TheU.S.CouncilonCompetitiveness’2010report,Collaboration,examinedhowcollaborationamongregionalactorsworkedbest.Theyfoundthat:

§ “Lesssuccessfulregions…seemtolacktheabilitytothink,planandactregionally§ Regardlessofwhetheraregioncanbringtherightpeopletothetableordevelopa

strategicplan,thetruetestiswhethertheregioncanacteffectively§ Thekeytocreatingcollaborationiseffectiveregionalleadership§ Thestructuresaremorefrequentlynetworkedthanformalized§ Leadersneedtobebridgebuilders,boundarycrossers,andconveners”

DespiterecentdecisionstoclosesomeoftheSouth’straditionalcollaborativeconveners(SouthernGovernorsAssociationandSouthernGrowthPoliciesBoard),theabilityforsouthernstatestoworktogetherremainscritical.Newopportunitiesfortheregion’sresearchuniversitiestocollaborateonmultistateclusterssuchasautomotive,aerospaceandenergywillbeneededtoadvanceinnovation.Infrastructurebyitsnatureconnectsplacestoopportunities.Understandingwhichpracticesarebestcanallowstatestoreacttochangeandimplementnewprogramsfaster.

Movingforward,thekeytocollaborationwillbeforstatesandcommunitiestopartnerandengagewiththeprivatesectorandwithnonprofitsthatspecializeinspecificcompetitiveissues.BusinessandmanufacturinggroupshavearobustinfrastructuretoworktogetherthroughtheNationalAssociationofManufacturers,theU.S.ChamberofCommerceandtheAssociationofChamberofCommerceExecutives.TheNationalSkillsCoalition,theSouthernRegionalEducationBoardandtheSoutheastEmploymentandTrainingAssociationeachoffersaplatformforideaexchangesoncriticalworkforceissues.

UNDERSTANDING THE AMERICAN SOUTH’S MANUFACTURING COMPETITIVENESS AND RECOMMENDATIONS FOR THE FUTURE Althoughverydifferentfromstatetostate,amanufacturingcompetitivenessanalysis(providedinaseparatereport)oftheregionshowsthatmostofthestatesenjoyanexcellentbusinessclimateandthepresenceofstronguniversitiescommittedtotechnologytransfer.Thisprovidesasolidfoundationformanufacturingsuccess.Asthesectorcontinuestoevolve,agreaterfocusonhigherskillsforworkersandincreasedinnovationisneeded.Infrastructure,whilecurrentlyacompetitiveadvantage,willneedaggressiveimprovementstomaintainthatpositioninthecomingyears.

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SWOT Analysis of the South’s Manufacturing Competitiveness Strengths Weaknesses

• Strongexistingmanufacturingpresence

• Strongmanufacturingoutputandindustryhealth

• Excellentbusinessclimate(lowwages,lowtaxes)

• Universityresearchandtechnologytransfer

• Sloweroveralleconomicgrowth• Lowlevelsofinnovationfunding• Largeramountsofpeoplenotinthe

laborforce• Difficultlegalclimate• Lowerinvestmentinhighway

infrastructurefromstategovernments

Opportunities Threats • Continuetoleverageuniversitiesto

growtechnologysectorandattractinnovationassets

• WorkforcedevelopmentimprovementscouldstrengthentheSouth’scompetitiveness

• Withworkforcedevelopment,opportunityexiststoattractmoreadvancedhigh-techmanufacturingwithlowerwagesandlowenergycosts.

• Workforceagingoutandregionlessabletoattractmillennialworkers

• Deterioratinghighwayinfrastructure• Lackofinnovationassetscontributesto

slowgrowthinadvancedmanufacturingintheregion

Overall Strategic Checklist to Strengthen Manufacturing in the American South

•  BeginwithAPolicyFocusonCompebbveness

•  UseClusterPracbcesastheOrganizingPrinciple

•  Understand,AnbcipateandEmbraceChange

•  EnsureaCompebbveBusinessClimate

•  EnhanceWorkforceSkills

•  PromoteInnovabon

•  InvestinInfrastructure •  CollaboratetoCompete

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25 Policy Recommendations to Strengthen Manufacturing

Overall 1) Utilizestrategicplanningatthestateandregionallevel2) Focusonregionalism3) Embracepolicycoordination4) Encourageaccountability5) Pursuepartnershipsandcollaboration6) Encouragecompetition7) Promotevalue-added,notsimplylowcosts8) Buildonexistingstrengths9) Supportautonomyanddecentralization10) Ensureacultureofadaptabilityandflexibility

For Business Climate 11) Buildagovernancestructurecompetitivelypositionedontaxes,regulation,legal

environmentandleadership.12) Promotetransparencyandcontinuousmonitoring

For Workforce

13) Re-imaginereadinessbystrengtheningtheconnectionsbetweeneducationandjobskills,rethinkingcredentialsandgivingstudentsmoreexposuretowork.

14) Re-engageadultlearnersanddisconnectedyouthbytargetingassistancetoworkerswithsomecreditsbutnodegreeorcredential,todislocatedworkersandyouth

15) Re-alignrelationshipsandresourcesbycreatinglifelongcontinuityineducationandworkforcedevelopment

16) Focusonmiddleskilljobsbychangingthepublicperception17) Engagebusinessesinameaningfulway

For Innovation 18) Increaseaccesstohigh-qualitySTEMeducation19) Buildaleading21stcenturyphysicalinfrastructureincludingdigital20) Promoteaculturethatsupportsentrepreneurship,creativity,risk,andchange.21) Monitorandengagenewglobalmarketsandshiftingprioritiesfordirectforeign

investmentandexportpromotion.22) Engageexpertisefromeducationandtheprivatesectortoembracescienceand

technologychanges23) Encourageandrewarduniversityleadershiptobuildbusinesspartnershipsto

commercializenewideas

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Infrastructure 24) Supportexistingandinnovativefinancingoptionsforinfrastructureconstructionand

maintenanceatboththelocalandstatelevel25) Expanddigitalinfrastructurebroadlytocreatenewopportunities