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ECONOMIC PROSPERITY Creating Opportunities for a Rising Standard of Living

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ECONOMIC PROSPERITY Creating Opportunities for a Rising Standard of Living CHAPTER 4E ECONOMIC PROSPERITY Creating Opportunities for a Rising Standard of Living 2030 VISION Our region is economically diverse. We have an educated and well-trained workforce, an innovative business culture, and excellent universities. Our transportation, water, and energy infrastructure systems serve the needs of the greater region while meeting the demands of the modern global marketplace. The region’s K-12 school system has the resources to provide well-trained teachers, deliver education programs that meet the needs of learners at all skill levels, and parents and families are committed partners in the education process. The region has a highly educated and well-trained workforce and all segments of society are able to participate in our economic prosperity. Our workforce is capable of adapting to the ever-changing needs of modern industry. Local businesses work closely with schools to develop programs that fit their needs. We embrace our economic and social diversity. A majority of our residents have gainful employment with improved purchasing power and increasing economic prosperity. These attributes place our region among the most competitive in the world and have contributed to a significantly higher and sustainable standard of living for all our residents. Environmentally-friendly and sustainable business practices have become a hallmark of the region. INTRODUCTION Presidential, gubernatorial, and local elections are often decided on the candidates’ economic policies and on the state of the economy itself. Growth and migration directly correlate with fluctuations in national and regional economies. The reputations of cities and regions are often based on the strength of their local industries. People, constantly searching for a higher standard of living, count on the economic opportunities provided in their area. No matter how localized or community- specific our jobs may be, none of us work in a vacuum. We all operate within the broader context of a regional and global economic setting. 149 CHAPTER 4E Within this context, the San Diego-Baja California binational region faces increasing domestic and global competition. Many people are aware of globalization, but few understand that regionalization, or the increasing importance of regional economies, is the other side of the coin. As Neal Pierce, a nationally syndicated columnist, and others have observed: Only regions have the necessary scale and diversity to compete in the global marketplace.1 Individual counties and cities lack the essential infrastructure or a sufficiently skilled labor pool to compete at that level. In economic terms, our region is directly connected to the greater Los Angeles area; it’s our gateway to the domestic and international marketplaces. To our south, we depend on Baja California for an important part of our labor pool. Southwestern Riverside is becoming an increasingly important source of labor and an alternative housing choice for many. Our relationships with our neighbors influence our regional economic planning process and decisions. On that stage, the San Diego region has the scale and diversity to compete. To maintain and expand the San Diego region’s economic vitality, we need to attract and retain the best and brightest people to live and work here. Research shows that CEOs who are considering relocating their companies are significantly influenced by the quality of life they can expect for themselves, their families, and their employees in a new location. The Regional Economic Prosperity Strategy (REPS) serves as the primary economic element of the Regional Comprehensive Plan (RCP), which applies a quality of life approach to growth management.2 EXISTING SETTING The recession of the early 1990s reminded us that our economic prosperity should not be taken for granted. Cutbacks in military defense spending further intensified that recession, but the San Diego region eventually emerged from stalled growth in its per capita income levels by 1995, as shown in Figure 4E.1. By monitoring per capita income, we can measure individuals’ job quality and purchasing power in the marketplace; thus reflecting workforce health. Economists use real per capita income to measure standard of living. Figure 4E.1 compares the change in per capita income over time for the region, state, and nation. The way to track change is by setting the standard of living for the region, state, and nation equal to zero in 1980, and then measure the change over time.3 The chart shows that our standard of living is growing slower than the nation’s, but at a rate similar to that of the state. Historically, growth in the San Diego region’s real per capita income (adjusted for inflation) has lagged behind the state and nation. Robust growth from the mid-1990’s increased income levels for the region, state, and nation. Growth slowed in all areas after 1998, although San Diego displayed a significantly stronger upward trend until 1999. After that, all areas began to enter the most recent recession and have continued to struggle. However, Figure 4E.1 shows that growth in per capita income for the nation outpaced California and San Diego. 1 San Diego Regional Economic Prosperity Strategy: Toward a Shared Economic Vision for the San Diego Region, SANDAG, 1998. 2 San Diego Regional Economic Prosperity Strategy: Toward a Shared Economic Vision for the San Diego Region, SANDAG, 1998. 3 Yearly variations in growth are measured by indexing the values to 100 (or 0 percent) in 1980, then tracking the annual change over time. The percentage change has been indexed to zero. 150 CHAPTER 4E FIGURE 4E.1—SAN DIEGO REGION’S STANDARD OF LIVING INDEX OF REAL PER CAPITA INCOME IN THE U.S., CALIFORNIA, & SAN DIEGO (1980-2002) 100% 80% 60% 40% 20% 0% San Diego -20% California United States -40% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Source: Bureau of Economic Analysis, SA1-3 Annual State Per Capita Personal Income Series, 2004 Despite our slower growth rate, compared to the U.S. and California, the San Diego region’s real per capita income is slightly higher (refer to Table 4E.1), although it is in the middle when compared to other major metropolitan areas similar to ours.4 It is important that the region continue to make investment and policy decisions with the goal of increasing economic competitiveness if we wish to outpace the state and nation in terms of per capita income growth. TABLE 4E.1—REAL PER CAPITA INCOME U.S., CALIFORNIA, & SAN DIEGO (1999-2001) SD CA US 1999 $34,726 $32,491 $30,106 2000 $35,628 $34,196 $31,091 2001 $35,070 $33,286 $30,894 Source: Bureau of Economic Analysis, SA1-3 Annual State Per Capita Personal Income Series 4 SANDAG, Indicators of Sustainable Competitiveness, 2003. 151 CHAPTER 4E During the recession, the down-sizing of the region’s defense industry resulted in a shrinking of the economy and high unemployment. The region saw an exodus of long-time residents seeking work elsewhere. In search of solutions, economists focused on the idea of fostering specific groups of industries that can add wealth to a local economy while not wholly depending on the size or health of the local market for their own growth. These groups are known as “traded” or export-oriented industry clusters. Industrial clusters are groups of complementary, competing, and interdependent industries. They make money—for themselves, and, indirectly, for the region—primarily through export of goods and services. Economists identified 16 such clusters (described in Table 4E.2) that are not constrained by the size of the local market and are most responsible for setting wage rates in the region. They also drive the expansion of local businesses that provide support services. Maintaining and improving the health of the region’s clusters is an integral step towards improving the region’s economic prosperity. Experts forecast continued low levels of unemployment for the region. As such, the quality of new jobs and skills of the remaining workforce becomes increasingly important as we seek to raise incomes. This concept is directly related to the core values and policy objectives of the RCP, which can be simplified into the following: San Diego residents want good jobs and regional employers want skilled employees. The Economic Prosperity Strategy seeks to address both of these areas through infrastructure investments and public policies that promote traded industry clusters, and by focusing on improving the skills and abilities of the local labor force. At one time, firms depended mostly on local resources such as labor, raw materials, capital, and infrastructure. These resources are known as factor costs, and the firm with the lowest factor costs won. The changing nature of competition now supersedes this historical model. Globalization allows firms to acquire factors such as low-cost labor, raw materials, capital, and even generic scientific knowledge from international markets. Burgeoning technology also helps firms overcome or circumvent weaknesses in local factors. For example, high product quality and extraordinary technical standards can offset high wages. The most dynamic and innovative companies often outpace the competition, even those entrenched competitors that enjoy economies of scale. Intense competition and close cooperation spur innovation across industries, often spawning the development of entirely new companies and industries. As they develop, cluster firms create demand for new types of products and services, some of which can be supplied by existing or new local firms. In short, the cluster dynamic gives companies and their regions a competitive leg-up against others because clustering helps firms to continually innovate and upgrade. 152 CHAPTER 4E Industrial Clusters: The San Diego Region’s Export Engines The productivity of all regional economies depends on the sophistication and efficiency of all its industries. All industries contribute to determining individual worker productivity. However, it is important to distinguish between those industries that are primarily local and those that export their products.
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