2006 Rural Partners Forum
Remarks by Mark Drabenstott
Thank you very much for that very kind introduction. It is great to be in this wonderful state of North Carolina. I have been here before but never to Raleigh. It is a real pleasure to be here in the state capital—do I call it the Tar Heel State? I think the Tar Heels are all on this side of the room. I see a little more blue on the other side.
As Alton indicated, I am a product of rural America. I grew up in the little town of Markle, Indiana, home of 902 happy people and four old grouches. That is what the sign says on the edge of town. There were four old grouches when I was a boy and apparently they are still living because that is what the sign still says. I was always the tallest kid in my class, believe it or not. From kindergarten through twelfth grade, I was the tallest kid in my class, and in Indiana that means that you have a destiny. In fact, when I was in first grade the teacher pulled me aside one fall day and gave me this big, round orange thing and said, “Mark we would like for you to take this home and when you wear it out, you let me know and we will give you another one.” Thus began my basketball playing in Indiana. I grew up sort of on the sound stage of the Hoosiers movie. I played basketball in gymnasiums just like that. In fact, it was extremely confusing to someone who grew as fast as I did to play in gymnasiums where they had two 10-second lines. You know, gyms that are too short are not regulation so they have two 10-second lines. For somebody like me I was always asking which 10-second line is this? We played in the Indiana State high school tournament my senior year. We were a small country school and we made it to the Sweet 16 and then we got beat up by one of the big, bad Fort Wayne schools that had 10 times as many students as we did. I thought my basketball playing days were over, and on a nice spring day this really dynamic guy came to visit me and he said, “Mark, I have been watching you.” He said that he would love for me to come play for him.
So I went down and visited Earlham College, home of the hustling Quakers. Yes, it is a concept that takes a little while to embrace, the hustling Quakers. I went down and visited the campus and it was not really the campus that sold me on this deal, it was a guy named Dell Harris. You may have heard that name before. Dell, unfortunately for me, left after my freshman year and went on to the NBA. He became head coach to the L.A. Lakers, and if you were watching the NBA finals this last year, he is now the assistant coach for the Dallas Mavericks, and I think he is probably the best dressed guy in the NBA. If you see this silver haired handsome gentlemen on the sideline with an impeccable suit, that is Dell Harris. Well, the guy who replaced Dell my sophomore season was an absolute, utter jerk. I will leave him nameless to protect the guilty.
Basketball was not fun for me at that point. The reason I am telling you this story is after my sophomore year, it was at that critical juncture in my life when I became an economist and the rest is history. I very much appreciated, Tom, your comments about the Chautauqua Institute. I am here to give you the antidote for that because globalization can be thought of as unrelenting bad news, but that need not be the case. If I learned anything in basketball, it is that competition can make you better and that really is what globalization is all about. It is about making us better. But I am also very much persuaded that we can only get better in our economic performance if we are willing to try new things. And put very simply: I am here to tell you that if we want to see prosperity in rural North Carolina – and who doesn’t – we simply cannot get there with 20th Century strategies. It is going to take 21st Century thinking for us to really prosper in a globalizing economy.
Sports are a great metaphor. I learned a lot playing basketball in Indiana, and I think the Olympics provide a really great and wonderful metaphor for us to think about economic growth, because globalization has essentially turned the economy into a global economic Olympics. But there is one huge difference. This Olympics doesn’t happen every four years; it happens 24/7. For rural regions, this Olympics has had really profound changes because most of rural America, most of rural North Carolina, is built on a commodity economic base. We think of agriculture, commodity agriculture, but we probably do not think as often about commodity manufacturing. Why did we move so many factories into rural America over the last 50 years? Cheap labor? Cheap land? Cheap taxes? How many places in the world have cheaper land, cheaper labor, and no taxes? Do you really want to be in that competition? Is that the Olympic medal you want to win? We have the cheapest labor in the world. Is that the race you want to win? I do not think so.
The other thing that globalization has done is it has really changed the field of play. We thought of the last half century as a time when every place in rural America tried to be the absolute low cost place to grow stuff or make stuff. Well, the edge has shifted. The field of play has shifted beneath our feet, and now the edge goes not to those who are the lowest cost, it goes to those who innovate. That is a core issue that we are going to have to talk about over this next day if we are serious about turning the unrelenting bad news into good news for rural North Carolina.
I am going to talk about three things today. First, I am going to talk about if this is a global economic Olympics, what is the score? One thing they taught me early was when you are running up and down the court, make sure you look at the score board. That is important. How competitive is rural North Carolina? That is an awfully important question to ask at the outset. Second, if we are serious about tackling the competition that comes from globalization, what does it take to win gold? When I was playing basketball in Indiana, we used to practice twice a day. I learned early if you are going to practice twice a day, it doesn’t make sense to practice that hard to try to lose. I am not interested in bronze. I am really not interested in silver. I am interested in gold. And last, what can you do to help, and there is a lot that you can do to help?
I have been very impressed by the work of the North Carolina Rural Center. I am impressed at how they can engage such a broad base of leaders from across this great state. I have to tell you as we think about what rural North Carolina can do to win gold in the global economic Olympics, that a lot of the answers are right here in this room. But we will not take gold with 20th Century strategies. I can tell you that. Our willingness as leaders to embrace change, to become ‘change nimble’ is crucial if we really want to be serious about winning the gold.
Let’s begin. How is North Carolina doing? What does the scoreboard say? You know, economists really have not wrestled to the ground how we measure competitiveness. We know how to measure jobs, we know how to measure income, we know how to measure growth in different sectors of the economy. Competitiveness is a relatively recent issue and so you are going to find some disagreement among economists about exactly how we measure competitiveness. Here is a simple-minded notion: is your region gaining in its share of overall economic output? Is it holding its own, or is it losing share? Are you gaining ground, holding your own, or losing ground? That is kind of a simple-minded notion of competitiveness. Now when you look at what is happening, there are some bright spots. There are bright spots all across the nation. There are bright spots in North Carolina, but there is a lot of work to do, and in general what we are going to see in just a moment is that a lot of the economic growth in our nation over the past decade has been happening in places just like the one we are sitting in, the Research Triangle.
Major metropolitan areas are hot spots, but when you move away into the mountains and the hillsides of the Piedmont, things look a little different. Here is the best competitiveness measure I can give you for the state as a whole. You are all familiar with gross domestic product; GDP, which is the broadest economic yardstick that we use in measuring economic growth for the U.S. economy. It measures all of the goods and services that we produce in the United States. We can take that GDP data and disaggregate it down to the state level. We cannot go below the level of the state, so North Carolina is as low as it goes when we take apart GDP. We cannot take it down to your county, unfortunately.
Well, if we look at the last 25 years, the news looks pretty good for North Carolina. In fact, you can see that North Carolina’s share of the national economy has grown by almost seven-tenths of one percent. That is 33 percent of the share you had 25 years ago. Your share has grown by a third over that time period. That is pretty impressive performance and it certainly speaks to the power of the investments this state has made in research technology, higher education, your ability to leverage your location, climate and all of those things. Now, I put a few other states in here on this chart that I have been in recently where the news isn’t so good. Look at Iowa, where I got my higher education degrees. Iowa’s share started at 1.3 percent and it has fallen to under 1 percent. They have lost nearly a third of their share of the pie in that period. Remember Iowa because there is a chart coming up in a few minutes where I am going to point out Iowa. File that one away because it is a useful benchmark in some of the things that we are going to be talking about. Kansas has edged down. Nebraska has edged down a little bit. Missouri has gone down. Illinois has lost one full percentage point. Look at Illinois. It has gone from 5.6 percent to 4.5 percent.
I was in Chicago last week. Business leaders across the state understand that number and they are asking ‘how do we compete in a global economy?’ So for the state as a whole it is a fairly encouraging story, but the story does not end there. One of the things that we have done recently is to ask how much of our nation’s economic growth has been accounted for by the top 10 percent. We have about 3,100 counties in the United States. How much of the total growth has 310 of those counties accounted for? Well, it is absolutely striking. Three-fourths of every new dollar of income has happened in 310 counties. Pick out a dollar bill and slice up the right quarter of it and say that is what is left for all 2,800 counties that are not part of that top 10 percent. Seventy-four percent of all of the new jobs have happened in those 310 hot spots and 76 percent of all the new people have moved to those hot spots. People are smart. They know where the action is. So 74 percent, three-quarter of all of our nation’s growth is happening in the top 10 percent. The more interesting question is: where are these places? Well, they are scattered around the country, but they are mostly metropolitan areas. You will notice that the metropolitan areas of North Carolina have definitely been numbered among those 310 places. Places like the Research Triangle have been playing in the top 10 percent. That is good news.
Here is the same map for job growth, and you see a very similar distribution across the state and across the country. Now, you notice on this chart I have placed eight red dots on this map and there are several up and down the eastern seaboard. Those eight red dots represent the eight counties out of the 310 that are non-metropolitan. Let me repeat that. Only eight out of 310 of the top 10 percent are rural places. Now think about that. What does that tell us? It tells us that if you are rural, you are swimming upstream. It also tells us that in a globalizing economy where we are competing against Beijing, Shanghai and other places, having critical mass really matters and if you do not have critical mass, you have to figure out a way to get it.
You know what? Those county lines are a real problem because so much of our economic thinking stops at the county line. I know because I grew up playing basketball in Indiana. When I was growing up, do you know what they told me? After virtually every basketball practice, they said that the folks in Huntington County paid the refs and they stole the championship in 1966. Now in different parts of North Carolina, I suspect the story either has football or basketball associated with it, but the same stories are told everywhere. Notice this map, only eight out of 310 of the nation’s fastest growing counties are non-metropolitan. We have an issue to deal with in rural America.
Now here is a map of North Carolina. I have taken apart the county level data for North Carolina and in this case I have looked only at how the share of jobs in the entire state has changed over the last 10 years by county. To be fair to the entire state, I have used red and blue. Now the places that are in the darkest blue here represent those that have had the biggest gain in their share of total jobs in North Carolina. You will see places like Raleigh and the Research Triangle very much represented in that part of the state. The places that are in the darkest red are those that have had the biggest losses in their share of state employment over the last 10 years. There is a pretty wide spectrum here and for a 10-year period some of those gains and losses are really quite significant. You will notice the scale; there are some counties that have gained more than one full percentage point in terms of their portion of total employment in the state of North Carolina in just 10 years. That is pretty impressive growth. Meanwhile, some counties have lost almost one-half of one percent of their share. That is a pretty serious loss. There is clearly a very significant dynamic going on within North Carolina.
The map for income is very similar although it looks to be a little more concentrated here in the Research Triangle area. So just to sum up the scoreboard, the scores are very uneven, whether you are looking within North Carolina or whether you look beyond. One of the things I take away from this data is that it really takes critical mass if you want to play in the global economic Olympics. For rural America it presents a huge dilemma because by definition we are small and remote in rural America. Secondly, the field of play has shifted. It is no surprise that the Research Triangle has been one of the nation’s leading hot spots. It is a place that innovates and the field of play has shifted from it being a low cost producer to being one made up of people who know how to innovate.
Agglomeration is a word that economists use to describe critical mass. Essentially what the economy is telling us is that when you get a lot of people, a lot of firms, a lot of leaders, a lot of technology all together in one place, it is easy for that knowledge to be shared. We call those ‘knowledge spillovers’ and they happen almost by osmosis in places like the Research Triangle.
When we get to rural areas, people are further apart. There are fewer of them and it is much harder for that kind of synergy to happen and thus, how we work across jurisdictional lines that were laid down with horse and buggy technology becomes very, very important. Step two: if that is the score and if there is a lot of work to be done in rural places especially, how do we take the goal? How do we think seriously about competing in this rapidly changing global economy? This, I believe, is your challenge. It is the challenge for every region on the planet. It is the challenge for every region that Alton visited in China. Everybody has the same challenge – the vigorous pursuit of a competitive advantage is rapidly changing global markets. Put another way, if the global economic Olympics has literally hundreds, if not thousands, of events, then which are the handful, the one or two or three in which your region has the best shot at goal? That is a very tough question, and it is a question that only you can answer because only you know what your region does best.
Economic regions now matter far more than political ones. Now this is a difficult concept for people in the state legislatures and in Congress. This is a difficult concept, and by the grace of God I am not a politician. But when we think about regions there is a lot that has to go in to how we think about them. We need business alliances because it takes muscle now to reach the global market place. We need community collaborations because if we want to capitalize some of these new opportunities, it takes more than one county worth of capital to do them. We need somehow, some way to align public and private investment. One of the ways in which globalization has changed the world for our elected officials is that one size no longer fits all. What will work in western North Carolina I can guarantee you will not work in eastern North Carolina, and you have got to be prepared to go to Raleigh and say ‘we do not need what you just signed on to do for eastern North Carolina. We need something else. We will forego that, but here is what we really need.’ In this new environment where economic regions matter more than political ones, governance is critical.
I want to draw the distinction between governance and government. Government is about taxing people to pay for public services and, depending upon whether you are a Tar Heel or a Wolfpack, you hope that the taxes fall on the other guys while you get all of the public services, right? Governance is about how public, private, non-profit, higher education officials, how all of those people think and act as a region. One of the very interesting questions I think going forward is who plays King Arthur? Who supplies the roundtable? Who provides the sustaining dialogue within a region to keep conversation going with the end result of producing a strategy for that region?
You may be familiar with the region called NEO. It stands for Northeast Ohio. A half-dozen philanthropies put $31 million on the table a few years ago and said that they would like to re-invent what is an incredible region, but one that is really struggling in a global economy. They coined the phrase “to region” as a verb. It is a wonderful choice of phrase and this is a region that understands that it will rise and fall in the global economic Olympics as a region, and here are philanthropies who are saying, ‘we will play King Arthur.’ They will not let the dialogue end until they have a regional strategy. How many regions does North Carolina have? North Carolina is many regions that just happen to be wrapped together by a piece of geography that was laid down in the 1700s.
You know the answer; I don’t. But I will tell you that there are two guiding principles that increasingly are evident when regions are defined. These are findings that come not from North Carolina, not from the United States, but they come from global analysts who have been thinking about this for the last decade or so. First, the best regions form from the bottom up, not from the top down. With all due respect to your elected officials in Raleigh and your wonderful public servants in Washington, there is not enough wisdom in either place to determine where the regions are in North Carolina. Second is the principle of critical mass. We have already talked about this. I won’t belabor the point. But for most of rural North Carolina your region is bigger than your county alone. It is probably bigger than 10 counties alone and in many cases, it means that you will have to partner with people who live in South Carolina or Virginia or Tennessee. This is a very difficult concept.
Here is how I envision your challenge playing out in the new global economic Olympics. There are four key steps. Number one is that you have to understand your assets. What do you have going for you that is distinct? What is it that sets your region apart? Second, what are the markets that you can reach? The markets that eastern North Carolina can reach are probably different than the ones that western North Carolina can reach. It is a function of your geography, your topography, your culture, your entrepreneurs, your history, your logistics. You exploit your assets to seize those markets with two principle drivers. I believe the principle drivers for the 21st Century are innovation and entrepreneurs. Entrepreneurs are the engines that will burn that fuel and will take those ideas to market. All of these steps get put together in a very critical step that I call a competitiveness strategy. This is the Bobby Knight aspect of the process, or if we want to be more kind, the Roy Williams part of the process. You know my friends in Kansas have still not gotten over his coming back to North Carolina. Somebody has to be the coach though; somebody has to put all of this together into a coherent strategy. Now if you have your governance right, if you have regional governance, this will naturally occur. Now the result of all of these four steps is what we all want, and that is prosperity in rural North Carolina.
Let me just very quickly talk about these four steps. You have to understand your economic assets. I believe that a cornerstone step for regional development in the 21st Century is the proper mapping of your economic assets and in particular the mapping of your unexploited economic assets. In doing this you have to employ vision and not simply look through the rear view mirror.
I was in western Tennessee last fall at a summit with 250 people from the western third of Tennessee. I gave a presentation a little bit like this one. Whenever I go to talk with groups, I pay particular attention to listening to the buzz in the hallway and over coffee and over barbecue at lunch. In western Tennessee they are very proud of the fact that one-third of their work force is now employed in manufacturing. That is an impressive statistic. A lot of those jobs have come about in the last 15 or 20 years as the auto industry has moved to the mid-South. The other statistic I wasn’t impressed with though, when I was listening to their discussion of the region, is how many of their high school graduates in that one-third portion of their workforce now working in manufacturing go on to get any sort of college, vocational, or post secondary education? The answer is only 10 percent. Do you see a disconnect in western Tennessee? Do you see a bulls-eye on their globalization suit? I do.
And so when I was listening to the buzz in the hallway, do you know what I heard? Here’s what I heard. “Did you hear that Crawford County got certified as a super site for an auto assembly plant? I couldn’t believe it. Our county has got a whole lot more going for it than Crawford. We’re a much better place for an auto assembly plant than Crawford County.” When I would engage them in conversation I would say, “You have a wonderful regional health care delivery system in Jackson. Have you thought about the potential for faith-based elder care in your region as an economic engine?” “Oh, no. Crawford County just got certified as a super site for an auto assembly plant.” I asked them, I said, “You have wonderful topography and a great heritage. You’re the home of Elvis. Have you thought about using your heritage and your culture as an economic engine in the future?” “Oh, no. Crawford County just got certified as a super site for an auto assembly plant.”
Do you see my point? We have got to think about our assets with vision and not the rear view mirror in mind. Now my very dear friends in western Tennessee are going to learn that principal, I believe, but it could be a painful lesson because they are absolutely convinced that their future lies in the auto industry. Now they may hang on to those plants for a while, but I dare say some of Alton’s friends in China have other ideas in mind.
Secondly, you’re going to have to grow more entrepreneurs. I am very much persuaded that entrepreneurship is the principle engine for regional economic progress in the 21st Century. These are the athletes on your squad. And you need lots of them and you especially need high growth entrepreneurs. You know, growing up in Markle, Indiana, I had a special appreciation for the people who ran the Chatterbox Café. It was a wonderful place and it was an incredible texture in the fabric of growing up in Markle. But the Chatterbox Café never added many workers. What we really need in rural America, we need the Chatterbox Cafes but we need the high growth businesses, the ones who go through all of the growth phases of a successful enterprise. We’re done some research over the last year or two that really, I think, highlights how crucial entrepreneurship is to growing regional economies.
I’m going to show you three maps, three charts. Here’s one for the world. And every red dot that you see on this represents a country in the developed world. And across the horizontal axis we’ve tried to create an apple-for-apple measure of entrepreneurial activity. Across the vertical axis we have your very well-known measure of growth, GDP growth. Now notice that there is a correlation here. It slopes up and to the right, which means more entrepreneurial activity, faster growth. But by compound interest there is a kicker: the more entrepreneurs you grow, the faster your economy grows. Now I want to point out just a few points on this chart. Notice the red dot furthest left on this scatter plot? What is that country? Japan! They make great cars, they have wonderful cameras, but they are not an entrepreneurial society. And as a result they have some of the slowest growth in the developed world, about 2 percent. Their per capita incomes have not grown in the last 15 years in Japan. Now there’s another group of countries right next to them. You see the circle with the red dots inside? Those are all European countries. Europe has some tremendous economic assets but they have a regulatory burden that boggles the mind! Do you remember earlier this year, there were millions of French people out on the streets demonstrating. Why were they out on the streets demonstrating? They passed a law permitting French businesses to hire teenagers. What a concept! The U.S. is kind of in the middle of this pack. We have a wonderful entrepreneurial heritage but we could do better. Here’s the same correlation for all 50 states. Now you’re wondering, of course, where’s North Carolina? Well, right there it is. North Carolina is kind of in the middle third of the distribution. You’re doing a lot better than many other states but you could do better. And I suspect were we able to take apart North Carolina by county we would see tremendous entrepreneurial activity right where we are, but much less in many other parts of the state.
Now I told you to file away Iowa earlier. Where is Iowa on this map? They are all the way to the left! Who are their neighbors on this scatter plot? Places like North Dakota, South Dakota, Mississippi. These are farm states, folks. Is there any correlation here? Now I owe my career to Iowa. Iowa State has been very, very good to me. But look at Iowa on this map! What happens if you tell farmers, “If you keep growing what you grew last year, we’ll send you a check!” What will they do? Farmers are rational! Have we paid a price in rural America for seven decades of farm commodity policy? You betcha! And this chart shows it.
Now we can debate whether farm commodity programs are good or bad for the people who receive it. My point is, for the Iowa economy there is a price to be paid. And how we get out of our commodity boxes in rural America is just a huge, huge challenge going forward. Now I can’t tell you where your county is on this chart. But what I can tell you is the same relationship applies. Those counties in the United States that are more entrepreneurial have faster growth. You want to have fast economic activity in your county? Grow more entrepreneurs. It’s a fairly simple conclusion. It may be a simple conclusion but it’s not easy to do. My dear friend Brian Dabson at the University of Missouri suggests that in the 21st Century this is our set of priorities: we ought to have a broad base of support for our entrepreneurs, some for our existing businesses and a little sliver at the top, just like sugar in the food pyramid, for recruiting. We continue, in most parts of America, to be big game hunters. And the general presumption is, “If we only had $10,000 more dollars we could get Honda!” Sometimes I hear people come up to me and they say, “Mark, you will be pleased to know that we have created a regional partnership in our part of the world.” And when you explore a little further what you find is they’ve all put their checks in the same hat and they are now trolling together. My friends, my view is that this is an era whose time is passing. And the benefits to recruiting businesses are going down as the costs are going up. Because how many places have cheaper labor, cheaper land and cheaper taxes than you do?
If we’re serious about entrepreneurship it also means that we’re going to have to give some fresh attention to equity capital. We have a wonderful banking system in the United States and there are a number of legislative initiatives that we can look back on and say, “Thank you. That was great public policy!” What we do not have is a very well developed system of equity capital funds. Now here in the Research Triangle I suspect there is plenty of equity capital to be had. If we get 150 miles west of here I suspect it may be a slightly different story. How are we going to recycle the wealth that is in the dirt? In much of rural America the wealth is in real estate. How are we going to recycle that into new businesses?
Third, we’re going to have to fuel more innovation. And innovation is really what gives your athletes an edge in the global economic Olympics. I think there are two parts to this. One part is all about research. We stand in a place that is celebrated for its research. And it is a reason why this region of the Research Triangle has been so successful in the global economy. It was an incredible stroke of genius to do what they’ve done here in Research Triangle. But the questions that regions everywhere must ask, outside of the Research Triangle, of all the things that are in the pipeline at the University of North Carolina and at North Carolina State, of all the things that are in that pipeline of discovery and innovation, is which strand will most advantage western North Carolina? And which other strand will most advantage the Piedmont? There is power in asking that question and it is not being asked nearly often enough. In most cases the research discovery that happens on publicly funded universities evaporates into the ether.
Let me tell you about the one that got away. I’m am avid fisherman. I love to tell fishing stories. This isn’t a fishing story but it is about the big one that got away. I suspect that everyone in this room has used the Netscape browser. Every line of code that lies behind the Netscape browser was developed on the campus of the University of Illinois, Champaign-Urbana. Every penny of wealth created by the company Netscape was created in California. It is the big one that got away.
The other part about innovation, I think, is about the people in this room and those who are not present. It’s about innovation capacity. Are we creating a cadre of leaders in both the public and private sectors in rural America that are change-nimble, that embrace change and say, “Competitiveness is good for us. Let’s create the new rather than defending the old.” That task of training leaders is one that is not fully joined in most parts of our nation.
And lastly, we have the Bobby Knight aspect. Who puts all of this together into a grand strategy, into what I call a competitiveness strategy for the region? If you have the governance right this will happen automatically.
Well, in closing, just a few suggestions to start you thinking about what rural North Carolina’s key assets might be and what some competitive advantages from those key assets we might imagine. What might be some advantage assets in North Carolina? Agricultural and life science prowess, no question of that in a state like North Carolina. World-class universities and healthcare. A very good friend of our family has a brain tumor. He comes to Duke University once a month. That’s a tremendous asset in a society in which healthcare is so very, very important. The Research Triangle is an enormous asset. Scenic amenities, from the ocean to the mountains, a terrific combination of scenic amenities that truly matter to a creative class. Heritage craft and design. I think these can be powerful drivers in regional economic activity. A high value four season climate. You know, North Carolina, from everything I’ve been able to learn, probably has kind of the best of all worlds in terms of its climate. That can be a terrific asset, especially if coupled with some of the other of these assets. And lastly, your central location. You are within a day’s drive of a huge slice of the U.S. population.
As you think about these assets I would suggest that, just to keep it simple, there are three ways that competitive advantage can be earned. One is to do what you’re doing now but do it better. I call this the ‘stay and fight’ strategy. We used to grow tobacco, we grow tobacco now and we’re going to keep growing tobacco. This would be a stay and fight strategy. Second, you could move up the value ladder. You can say, “We have a heritage in manufacturing and agriculture, but let’s think about moving into higher value segments.” And last, instead of doing what you’re doing now but do it better, you can do better things. And this is the one that is the highest reward but the highest risk. It’s the pioneer discovery strategy. Do what you’re doing now but do it better. If this is your strategy, and this is your default strategy if you do nothing else. If you never have any other new strategy, this is your strategy. If that is the case, then you have to gain scale, you have to stay on the leading edge of technology and you’ve got to drive your costs through the floor. But there’s a consequence. The consequence is consolidation. You’re going to end up with fewer farms, bigger farms, fewer auto plants, bigger auto plants. Hog farming and furniture manufacturing, I would submit, are examples of this kind of stay and fight strategy. Move up the value ladder.
You may decide to shift to those higher margin segments in agriculture and manufacturing. If that’s the case, evolution is the key and turbulence is the effect. Some companies will make it, some won’t. Branded food products, I would submit, are an example of this. In most parts of U.S. agriculture, we grow crops by the square mile and make it up on volume. There are terrific opportunities in the new food industry to create regionally branded foods that confer much higher profit margins and satisfy a much more finicky consumer in the process. Advanced manufacturing is another example of this strategy. And last, you can do better things. You can invest in bold new economic engines that exploit one or more unexploited assets. The Research Triangle is the textbook example of this, it’s the textbook example.
Another example is pharmaceutical crops. I believe that in my lifetime we will see pharmaceutical crops growing pharmaceutical inputs in fields instead of factories. We will see that move to scale somewhere, some place, some time in rural America. Advanced computing is another example of doing better things. There’s a wonderful example, if you want to learn more about how regions do this, in the case of Alberta. Alberta is booming because of oil prices and they have huge tar sand deposits. But very quietly, 15 years ago they began investing a portion of their wealth in a brand new, ground floor medical technology business. Public investment, private investment. And they now have medical technology moving into the U.S. commercial marketplace. It was all developed because someone up there said, “We’re going to do better things.”
Last, if you can’t figure out anything else to do—this is what I call my wild card strategy—become a world-class place for entrepreneurs. A noted economist once said, “Entrepreneurship is the process by which regions discover what they do best.” And if you can do nothing else, make your region a world-class home for entrepreneurs. Now if you want to do that you’re going to have to take some steps. Number one, it’s about education. Great debate: Are entrepreneurs born or are they made? Well, the Kauffman Foundation – arguably the philanthropy that’s invested more time and dollars into this than anybody else – believes that you can grow them but you’ve got to reach them early in their childhood development. This puts a whole new face on K-12 education. Second, you’re going to have to have world-class entrepreneurial support systems. Entrepreneurs need a lot of hand-holding. And the best research on this suggests that if you want to hold those hands the best way to do it is to be systematic and regional in scope. There are great pilot programs now going into place around the country testing this idea. And you’re going to have to have equity funds. Because equity capital is the mother’s milk of entrepreneurs.
What can regions do to win gold? I think you have to help regions to form. They have to form from the bottom up and you’ve got to have critical mass. And then you’ve got to know what your distinct assets are. You have to make your place a world-class place for entrepreneurs, you have to spur innovation, recognizing that globalization has shifted the earth beneath your feet, from being a low cost producer to those who innovate. And last, somebody has got to play Roy Williams, somebody has got to put all this together into a world class into a world-class plan.
Let me conclude with just a couple of quick comments about my new career. I was at the Federal Reserve for 25 years, had a great run. But I’m excited to say that I’ve embarked on a new chapter in my career. We have created a Center for Regional Competitiveness, which kind of culminates all the things I’ve been working on over the last seven years, at the University of Missouri as part of the Rural Policy Research Institute. We’re going to basically be doing three things. Number one, we’re going to try to develop what I call a competitiveness dashboard. How we put together the dials and indicators that give a region a good sense of where they stand in the global marketplace.
Second, we’re going to focus on providing tools that will help regions form as a region, creating the good governance that results in a strategy, and this will kind of be my new holy grail. How do we develop a tool that helps a region figure out, “What’s my new competitive advantage?” The answer to that is not always obvious. And we’re going to work very hard at creating an analytical tool that may help regions do that.
And last, the thing that I’m going to really be excited about because it’s going to put me in touch with researchers that I probably wouldn’t otherwise brush shoulders with, is that is we’re going to try to connect what I call an innovation bridge. Can we imagine a way of connecting the incredible discovery and innovation that happens on a university campus with the region that will benefit most from that particular strand? And how we make those connections is going to be, I think, a really fascinating part of what we do.
Thank you!
