New Economic Realities

1. New Economic Realities Implications for Everyone Mary Jo Waits Morrison Institute for Public Policy Arizona State University

2. Is Anyone Confused? 1999: Twenty-something Internet entrepreneurs are paradigm-shifting geniuses! 2001: Twenty-something Internet entrepreneurs are pathetic chumps who have to move back in with their parents! 1999: Jeff Bezos is Time Magazine’s Person of the Year! 2001: Jeff Bezos is the Idiot of the Young Century! 1999: Everyone is going to be a gazillionare! 2001: Everyone is going to be laid off! Daniel H. Pink Fast Company, May 2001 Morrison Institute for Public Policy – School of Public Affairs – College of Public Programs - ASU

3. 8 Realities Facing Everyone • Technology is a given • Globalism is here to stay • Knowledge builds wealth • People are the most important raw material • There’s no such thing as a smooth ride • Competition is relentless • Alliances are the way to get things done • Place still matters—but for different reasons Source: Waits, 1999

4. Technology is a Given “Today there is no such thing as a low-tech industry. There are onlylow-tech companies—that is, companies that fail to use world-class technology and practices to enhance productivity and innovation.” -- Michael Porter Harvard Business School

5. Globalism is Here to Stay Globalism is a deeply embedded characteristic of the new economy. It will not simply go away because we don’t like some of its worrisome implications or its destabilizing impacts.

6. Knowledge Builds Wealth • Wealth is being created byresearch, discovery, and innovation • know what / scientific knowledge • know how / technical knowledge (Amazon.com) • know who / social knowledge (Starbuck’s knowledge of demographics) • Economic landscape is filled with “invisible firms” • gazelles created 70% of the net new jobs added to U.S. economy • when the history of our time is written… the lead story will be the genomics revolution—not the digital revolution. And virtually no one knows anything about it.

7. Ideas Are Driving the Economy “The first 100 years of our country’s history were about who could build the biggest, most efficient farm. The second 100 years were about the race to build efficient factories. The third 100 years are about ideas.” -- Seth Godin Fast Company, August 2000

8. The Challenge for Economic Development How do ideas come about? Since we’re still figuring out some of the answers, it can be difficult to relate the production of ideas to economic development strategies But we know 2 very pertinent things: • Ideas require intelligent seeding • Ideas that sit on the shelf are worthless. Ideas have to move, grow, and touch lots of people and businesses to provide benefits

9. People are the Most Important Raw Material Composition of the Workforce 1995 Office + services: 80% Factory + farm: 20% 1959 Office + services: 60% Factory + farm: 40% Source: Progressive Policy Institute, The New Economy Index

10. Competitive Advantage: Lies In Brain Power “If we make great technology, that’s only because we’ve been able to hire great engineers.” Individuals are the new “means of production.” Individuals apply their knowledge to write software, manage mutual funds, solve technology problems, and develop new products.

11. There’s No Such Thing as a Smooth Ride Years ago, economist Joseph Schumpeter warned that progress requires the destruction of the old as well as the creation of the new. He termed this process “creative destruction.” Wired editor Kevin Kelly simply calls it “churn.”

12. The Tsunami Effect • The Internet companies are just a harbinger of what is coming. -- The Economist, June 26, 1999 • The new “dot-com” companies are “fireflies before the storm”—all stirred up, throwing off sparks. The storm that’s arriving—the real disturbance in the force—is when the thousands and thousands of institutions that exist today seize the power of this global computing and communications infrastructure and use it to transform themselves. That’s the real revolution. -- Lou Gerstner CEO, IBM

13. B2B: GE’s Jack Welch – One of the First to Enlist Stated in January 1999 – Realizes $ 5 billion in worldwide net revenue 3 pronged net strategy • Buy side, where GE interacts with suppliers • Sell side, in which GE interacts with customers • Make side, where GE interacts with its own operations

14. “Cappuccino Economy” • Milk/foam layer on top:high growth, fast-moving companies swirling around the economy • Coffee layer on bottom:slow-moving traditional companies far below “Two distinct layers, with the top layer slowly mixing in and infiltrating the one below it.” -- Eileen C. ShapiroHill Crest GroupThe Seven Deadly Sins of Business

15. Competition is Relentless • Global rivals • No immunity from competition (deregulation) • Numbers of new businesses added yearly • Competitors coming from outside the industry • Information technology • E-commerce • Competing against theclock and oneself

16. Alliances are aCompetitive Necessity Business is learning that if it wants to compete aggressively it has to collaborate generously.

17. Why Are AlliancesSo Important? • Companies can concentrate on core activities • It is the key to new ideas, speed, and flexibility • Collaborationwith universities for new ideas • Joint ventures provide quick entry into new markets • Workingwith suppliers enhances products and services • Customer relationships provide early insights into demands and needs

18. Place Still Matters — But for Different Reasons “The enduring competitive advantages in a global economy lie increasingly in local things—knowledge, relationships, motivation—that distant rivals cannot match.” Michael Porter Harvard Business School -

19. Traditional Business Costs Tax Structure Compensation Costs Space Costs Capital Costs Business Climate Specific to High-Tech Proximity to Excellent Research Institutions Access to Venture Capital Educated Workforce Network of Suppliers Technology Spillovers Climate and Quality of Life High-TechnologyLocation Factors Existing High-Tech Presence Source: Milken Institute, America’s High-Tech Economy, 1999

20. New Economics of Place More and more companies & skilled labor locate where they want—not where they must. Ross Devol, The Milken Institute Review, 2002

21. (1940s-1980s) Mass production Low cost Quantity Stability Capital equipment Control (1990s-future) Flexible Specialization Knowledge Quality Speed Flexibility Networks New Economics of Place Basis of Competitive Advantage Source: Collaborative Economics, Inc., 1998

22. For Places Policy agenda is to build communities where people want to live and work and where cutting-edge companies want to cluster and can grow • Protect and provide key quality of life attributes • Provide new economy infrastructure (Internet access, airports, incubators, E-government) • Build intellectual capacity (R&D at universities, recruit top-flight faculty, retain/recruit knowledge workers) • Build mechanisms to transfer knowledge and link researchers, entrepreneurs, and VC (cluster organizations, informal networks, tech transfer)

23. For People Policy agenda includes: • Build and support education at world-class level • Ensure students have right technology tools and know-how • Make sure every child is ready to start school and stays in school • Provide flexible ways for adults to continue their education throughout their lifetimes (bold e-learning)

24. Addendum: After a Year of Disruption • The stock market is a side show • It’s been a bad decade for strategy • The new economy is getting real; the old economy will soon be re-made • Ideas are (still) driving the economy • Talent is (still) the issue • Success does not rely on chance

25. The Stock Market is a Side Show • Technology is invading our lives and businesses as it never has before • Communications make the global seem local • Individuals are gaining enormous, unaccustomed power both as workers and as customers • Smaller and smaller organizations are able to wallop much bigger entities • We have been conditioned not just to believe in the possibility of massive change, but to expect it

26. It’s Been a Bad Decade for Strategy Sound strategy starts with having the right goal. The only goal… is superior profitability. If your goal is anything but profitability--if it’s to be big, or grow fast, or to become a technology leader---you’ve got problems. -- Michael Porter Harvard Business Review, March 2001

27. The New Economy is getting real; the Old Economy will soon be re-made The prosperity of a region depends on the productivity of all its industries. Productivity does not depend on what industries a region competes in, but on how it competes. Clusters of Innovation Initiative, 2001

28. Ideas Are Driving the Economy Innovation is inclusive—all places (from urban to rural) and all industries (from emerging to established) can be innovators. Sustainable economic growth arises from “ideas” that are the basis for “new recipes that transform products and services from low to high value.” -- Paul Romer Stanford University Economist

29. Talent is (still) the issue Three groups especially: • Yuppie baby boomers at the peak of their productivity may be anticipating an active retirement • Young knowledge workers in their 20’s and 30’s want to do cutting-edge work in exciting places • Highly skilled immigrants are choosing places with inclusive neighborhoods and fast-growing economies.

30. Success does not rely on Chance • Recognize changes underway • New economic realities • New faces • New geography • Develop “inherited assets” (geography, climate, research centers,companies), create new assets, & link companies and people to assets. • Market assets/amenities to others

31. Smart Thought Memo to the folks in Silicon Valley: You will have good jobs for 20 more years. By 2020 though, computer chips will be cheaper than bubble-gum wrappers, and PCs will be in museums…. A whole new generation of computers will emerge: DNA computers, protein computers, quantum-dot computers. Silicon Valleywill become the Rust Belt of the new economy. -- Michio Kaku Visions: How Science Will Revolutionize the 21st Century

32. The Future at a Glance • New Economy: Technology advances mean new challenges for regions. • Industry not “bolted down” • Places to network/interact • Innovation imperative • New Faces: New groups are changing the way things are done • Magnetic power of talent • Different melting pot • Talent shortage • New Geography: Place still matters--but for different reasons • Quality of place • Regional imperative Source: Morrison Institute, Milken Institute, Collaborative Economics, Joel Kotkin