toward a new prosperity building regional competitiveness across the commonwealth www.mass.gov/econ/newprosperity executive summary toward a new prosperity: building regional competitiveness across the commonwealth Massachusetts has undergone a profound economic transition for policy development by highlighting competitive imperatives over the past ten years. As our old manufacturing base lost much that must be addressed to ensure our economic future. of its competitive edge, we adapted — by necessity as much as by choice — to a “New Economy” characterized by knowledge–intensive Part II profiles the seven distinct economic regions of the production, high-tech innovation, and global trading. Commonwealth (see map above). Economic development is typically a local and regional process. This Report recognizes that This “New Economy” is about consistent and fundamental successful strategies for the Pioneer Valley and the Southeast changes that have permanently altered the way in which prosperity region will likely require significantly different initiatives. These is created. Rapidly advancing technologies are transforming industries, profiles provide an overview of recent economic changes in each firms, and the very nature of work itself. In this environment, region and identify the opportunities and challenges they face. ideas and knowledge increasingly determine competitive advantage. Markets and competition are increasingly global in scope. Part III outlines policy options that are designed to promote a healthy debate around the economic future of the Commonwealth These new economic conditions present Massachusetts with a and its regions. new set of challenges. Continued progress will require well-targeted educational and infrastructure investments. While many parts of The New Dynamics of the Massachusetts the Commonwealth prospered during the 1990s, not all regions Knowledge-Based Economy and citizens have adapted successfully to these changing economic The Commonwealth’s shift from manufacturing to a knowl- conditions. Keeping the Massachusetts economy vibrant requires edge-based economy has involved a dramatic transformation. a more active role for State government in promoting economic Considering our difficult economic position in the early 1990s, the development. This Report proposes a strategic framework for the performance of the Massachusetts economy in the years since has economic development of the Commonwealth designed to meet been remarkable. However, significant challenges remain. the challenges of the “New Economy:” As described in Part I of this Report, four factors have driven Part I, summarized below, examines the new dynamics of the our prosperity in this evolving economy. Deficits in these areas Massachusetts economy and advocates the benefits of a shared have likewise limited our success: vision for economic development. It presents a strategic framework toward a new prosperity • Factor 1: An increasing reliance on knowledge workers The distinguishing characteristic of the Commonwealth’s Number of jobs exceeds labor force by 2000 new economy is the high educational attainment of our 3,400,000 workforce. Thirty-three percent of our workers have college degrees, a figure more than eight percentage points above 3,300,000 the national average. Our relative advantage in graduate 3,200,000 and professional degrees is even greater. This differential, 3,100,000 which emerged over the past twenty-five years, is closely 3,000,000 tied to the growth of our knowledge-based export sector. 2 2,900,000 During the 1990s, workers lacking a college degree exp- 2,800,000 erienced little income growth. In fact, after controlling 2,700,000 for inflation, many of our less well-educated workers actu- 2,600,000 ally saw their wages decline during the 1990s. Further, 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year according to a study by MassINC, fully one third of our Labor Force (Household Survey) Jobs (Employer Survey) workers still lack the skills needed to compute or commu- Source: US Department of Labor, Bureau of Labor Statistics nicate at a basic level. Providing workers with the skills required to succeed in the knowledge economy present a Travel and Tourism critical economic development challenge. Combines retail establishments and hotel and travel operators that serve business and leisure travelers. These • Factor 2: The critical importance of vibrant industry firms provide experiences enjoyed by increasing numbers clusters that rely on networked entrepreneurship to of visitors from outside the region innovate, increase productivity, and compete successfully The Massachusetts export sector — the firms that sell Firms in our four knowledge-based clusters continually access goods and services outside the State and bring income into resources through networked entrepreneurship. They use contacts and the Commonwealth — is increasingly composed of small or relationships to arrange technical transfers and partnerships with mid-sized firms organized into “industry clusters.” Small or universities and other enterprises; to develop investment relation- less hierarchical organizations are often best suited to capture ships with venture capitalists, institutional investors, and major the judgment, creativity, and innovative energy of knowledge corporations and; to fashion marketing agreements and other workers. Firms in the same industry cluster in a specific liaisons that are the key competitive tools in rapidly-shifting geographic area tend to take advantage of local pools of special- knowledge-based economies. ized workers, suppliers, financiers, marketers, and infrastructure resources that enhance their competitive position. Our A major challenge to their success is the growing strength of export sector can be grouped into six broad clusters, the the states that Massachusetts regularly competes with in academic first four of which rely primarily on knowledge workers: research and in winning federal R&D funds. In our Traditional Information Technology Manufacturing and Travel and Tourism clusters, organizing vehicles Computer and communications equipment, software, for networked entrepreneurship has been difficult and a major and services obstacle to their economic progress. Developing such vehicles is a Health Care major challenge going forward. Health services, medical equipment and devices, and biotechnology and pharmaceuticals • Factor 3: Accessing the great commercial opportunities Financial Services created by global trade Banking, insurance carriers, and securities and The expansion of international markets has created enormous exchange services opportunities for our knowledge-based clusters. Exports, overseas Knowledge Creation sales by affiliates, and international financings and technology A broad cluster that supports the creation of knowledge transfers have become fundamental components of economic based assets and includes higher education, printing and success. As the Internet becomes a more potent factor in reduc- publishing, and legal, engineering, management, and ing the importance of distance, global trading opportunities will R&D services emerge for many more firms. The challenge moving forward is Traditional Manufacturing to assure easy and affordable access to the Internet, to manage Paper, rubber and plastics, fabricated metals, apparel and the volatility generated by the international economy, and to textiles, industrial machinery (except those included under swiftly and effectively respond to the security threats raised by information technology), instruments (except infor- the enemies of globalization. mation technology or health care), and all other manu- facturing industries executive summary A Shared Vision for the Commonwealth Unemployment rates show steady declines… We propose a vision for economic development that targets a high quality of life for the citizens of the Commonwealth. 10% Achieving this vision is the objective of future economic develop- 9% ment efforts. Our proposed vision includes: 8% Traditional economic development goals 3 7% High and rising real incomes 6% Job growth 5% 4% A shared prosperity 3% Strong regional and community-based economies 2% Broad economic opportunity 1% A prosperity that is sustainable and that strengthens our 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 environmental and civic objectives Environmental sustainability Source: US Departmant of Labor Bureau of Labor Statistics MA US Healthy and safe citizens A strong civic culture …and real per capita income leads the national average The Commonwealth has done well over the past decade on some of these measures and not so well on others. At the beginning $40,000 of the 1990s, our economy was clearly in a precarious position. The $35,000 decade began with sharp declines in our leading minicomputer and $30,000 defense industries, the collapse of one of our largest banks, and a $25,000 prolonged credit crunch. $20,000 Our recovery since then has been quite strong (see figures, on left). $15,000 Per capita income has risen sharply and Massachusetts has enjoyed vig- $10,000 orous job growth and a sharp drop in unemployment. The $5,000 Commonwealth also made substantial gains in environmental man- $- Per Capita Personal Income (2000 Dollars) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001P agement. This prosperity, however, has not been shared throughout the Commonwealth or by all members of society (see figures, on right). p= preliminary data Year Source: US Bureau of Economic Analysis