| | Remarks of U.S. Assistant Secretary of Commerce for Economic Development EDA Denver Regional Forum Monday, June 10, 2002 | Back |
| | Thank you for the kind introduction. It is a pleasure to be in Kansas City today.We meet at a time of great national concern. The 9/11 attacks, trouble in the Middle East and South Asia, a weakened economy, and shrinking government revenues have shaken our confidence. To be sure, many Americans are uncertain about the future. But I believe, as I know all of you believe that development of regional economies is absolutely key to rebuilding confidence and prosperity for all our citizens. I hope all of you keep this in mind during your conference. Today and tomorrow, you will have the opportunity to discuss new ways and new strategies to spur growth and to create jobs... I'm looking forward to joining you in many of these sessions. Many of you I'm sure are wondering: where do we go from here, some 8 months after September 11? Will the U.S. economy bounce back? Will global trade remain an engine of growth and prosperity? What about public confidence? Will America regain its footing and sense of purpose? I believe things are starting to look up. There are encouraging signs that the economy is beginning to recover. A crucial ingredient in the economy's long-term vitality, productivity, turned in its best performance in almost two decades during the first quarter of the year as hard-pressed companies produced more with fewer workers. Productivity - the amount of output per hour of work - soared at an annual rate of 8.4 percent in the January-March quarter, after a strong 5.5 percent growth rate in the previous quarter. The latest figures show that last year's recession didn't derail healthy productivity gains seen in the late 1990s and bodes well for keeping the nation's economic recovery on solid footing. In another encouraging report for the recovery, orders to U.S. factories rose 1.2 percent in April, the biggest gain in six months. This figure reflects stronger demand for a wide variety of goods, including cars, household appliances and machinery. The impressive productivity gain came at a price. Businesses, responding to the lingering effects of last year's recession, cut back on their payrolls in the first quarter. That caused the total number of hours worked to fall at a rate of 2.1 percent. Output rose at 6.1 percent. Corporate profits showed continued improvement in the first quarter. The Commerce Department's latest figures for profits from current production rose 0.5% in the first quarter, following a 17.9% surge in the fourth quarter. These are all signs that the downturn that hit the economy after September 11 is slowly lifting, and should give skeptics some evidence that the economic recovery in the United States is in fact going to have staying power. Federal Chairman Allan Greenspan said Tuesday, "the American economy is on the upswing. However, he acknowledged in remarks to a gathering of central bankers from around the labeling the current period a "soft spot" in the recovery period. Also, caution remains the watchword in Washington concerning the recovery. As we all know, positive growth figures mean little to Americans out of work - who are trying to support their families and pay their mortgages. To that end, everyone in this room, including me, has our work cut out for us during the coming months. We must work together in new partnerships and pursue market driven development strategies to enhance employment opportunities and long-term prosperity. Americans expect and deserve no less. In Washington and in our regional offices, we are working to transform EDA into the premier standard bearer for domestic economic development. That means our goal is to generate more economic impact per dollar of input than any other federal agency involved in economic development. To accomplish this, EDA will embrace an economic development strategy based on enhancing regional competitiveness, fostering innovation, increasing productivity and developing industry clusters. Dick Thornburg, former U.S. Attorney General, former Governor of Pennsylvania and current chairman of the State Science and Technology Institute, recently provided an excellent historical context for our consideration regarding economic development strategies in the 21st century. Thornburg stated: "In the last two decades of the 20th century the U.S. economy was transformed in a way and at a speed that few could have anticipated. The 19th century's long-term transition from an agrarian based economy to a manufacturing based economy was replicated in an accelerated transition from a manufacturing based economy to a technology-based economy. While traditional agriculture and manufacturing will always be important economic sectors in our economy, today's new economic growth is being driven far more by technology and its influence on traditional economic sectors than ever could have been foreseen." "While this change is a product of national, indeed international forces at work, it manifests itself community by community. No master plan or industrial policy directed out of Washington, DC could effectively stimulate these new opportunities for economic growth and future-oriented jobs. Nor should it attempt to do so." Governor Thornburg concluded, "The challenge for today's state and local officials and policy makers is to fashion strategies for each state to ensure they are positioned not to just compete, but to thrive in the new economy." Nothing less than our national and global economic security are at stake. While we cannot predict what the next "hot" industry will be, we do know that innovation and the imbedding of technology in core industries and manufacturing processes will drive the next regional economic engines of growth. The competitiveness of U.S. companies and a high standard of living for American workers can only be maintained if the productivity of industry and the workforce is higher than our competitors. And that means anywhere in the world. In today's economy, innovation drives productivity, and productivity drives prosperity. Only if technological advances are implemented in the work place will productivity increase and be maintained. Only if the workforce is skilled enough will the new technologies be effectively used. Unfortunately, American businesses often face a workforce "skills gap" that limits their ability to implement new technologies. And unless the "skills gap" is closed, America's economy will be extremely vulnerable. To close the gap, we must do a better job of educating our children. That is why President Bush's "Leave No Child Behind Education Reform Bill", that passed with bipartisan support, is so important. We also need better than average education or training at the post-secondary level. Skills and education will be a dominant, if not decisive, factor in our ability to compete in the global economy. Just as the President said that "no child should be left behind" in getting a good education, no worker should be left behind in having the skills necessary to find a good job in the 21st Century workplace. Having the best skilled workforce is as crucial to our economic growth and the kind of society we will have, as technology itself. The President has said that a better educated workforce means America is more productive and that means more jobs and higher paychecks. This Administration is committed to developing closer linkages between workforce development and economic development. Our economic development strategy at DOC/EDA is based on enhancing regional competitiveness and the development of industry clusters. This strategy is founded on the pioneering research of Professor Michael Porter of the Harvard Business School, a name familiar to all of you. We embrace this regional economic development strategy, not because it is a Republican model but because it is based on extensive research and understanding of how regions can build long-term economic success and because it is market driven. At the end of the day the true test for economic development is not ideological purity but results in the form of enhanced long-term regional prosperity. Over the past three decades federal agencies have invested hundreds of billions of dollars to help states and communities create jobs and economic opportunity. According to a 1996 study by the National Academy of Public Administration annual federal government support for economic development totaled over six billion dollars per year, including out lays, tax subsidies and the cost of loans and loan guarantees. No doubt that number is larger today. Given the war on terrorism and the priorities that national security and homeland security will have on the federal budget I believe the time has come for a reassessment of the federal role and its investment of resources. We must ask: What is the appropriate role of the federal government in promoting economic development? A number of think tanks, including the National Academy of Public Administration, have looked at this question over the years, some of the research has been sponsored in part by the DOC/EDA. President Bush has said, "The role of government is to create conditions in which jobs are created, in which people can find work." There continues to be a significant federal role in economic development activities. However, the country needs a smarter federal effort, both in the sense of what is expected of it and in the sense of how it is designed and managed. Expectations profoundly influence how we conduct economic development efforts and when expectations are unfilled they lead to disappointment, disillusionment and erosion of credibility. One policy goal is to increase the productivity and wealth of the American economy. After more than a decade of generally successful business efforts to compete effectively in a global economy, it is still important that public policies encourage and strengthen American firms to become more productive and profitable. A second policy goal is to ensure that all communities share in economic opportunity. Even after a decade of dramatic expansion of the national economy, some communities still have chronically high unemployment and low incomes. It is important for government to do what it can to enable all Americans to participate more fully in the American dream and national prosperity. Indeed, the success of the next stage of welfare reform will increase the demands placed on economic development, especially in distressed communities. The premise of the Workforce Investment Act and the Welfare to Work program is that states and local communities design and lead efforts to train people on welfare to get jobs. The success of welfare reform will depend on several factors, one of which is whether jobs are available in places accessible to former welfare recipients. The difficulty lies not in the goals of federal government activities, but in our expectations of what can actually be achieved. We need to acknowledge the federal investment in economic development can have only a marginal direct impact on national productivity and economic opportunity. Its impact is dwarfed by other federal policies and programs that focus on national economic conditions and on providing the legal and regulatory parameters within which private sector activities take place. The federal government also has many policies and programs in transportation, technology and other fields that impact state and local economies, but are not primarily directed to economic goals. Expenditures for these programs are far larger than the federal effort in economic development. A second reason why federal economic development programs have a limited impact is that market forces, rather than the decisions of government officials, are the primary force driving both the overall rate of economic growth and our 10.4 trillion dollar economy and also the geographic location of economic activities. Economic development programs cannot counteract these powerful forces but they can work in tandem with them. Economic development programs can help private businesses build links with public institutions, like schools, universities, community colleges and research institutions. They can assure that public infrastructure is available and that public services are provided to attract economic growth. They can help emerging businesses navigate complex regulatory systems. When the market place bypasses certain geographic areas or when regional economies are experiencing structural economic change, economic development programs can help build a more favorable business climate to attract private capital investment by encouraging new partnerships and new institutions to respond to these market opportunities. Over time these economic development activities can help to influence both the rate and location of economic change. But federal agencies cannot undertake these activities on their own, especially in a highly diverse and decentralized economy. Without a sustained concerted effort by states and communities themselves, federal efforts will have little or no impact. Communities can attain real economic improvement, even if they are currently experiencing economic distress. First they must mobilize a broad based and well-conceived effort to increase economic opportunity. Second this effort must generally be consistent with market forces and take advantage of the opportunities that markets create. Finally this effort must be sustained over many years - perhaps even decades. Helping such communities get started and contributing to their momentum are realistic goals for the federal government. To increase overall wealth and to help communities improve economic conditions, the federal effort must be designed and managed more efficiently. Economic development programs must help states and localities learn through better information, enable them to leverage all available resources, and link scattered initiatives to serve local needs. First the federal government has unique capabilities to help states and regions learn how to go about the business of economic development most effectively. The federal role should focus on demonstration projects, evaluations, disseminating new ideas and providing more useful economic information to states and communities. Second the government can leverage its resources far more effectively by offering incentives that will off set the inherent limitations of local development efforts. Federal leverage can encourage states and communities to adopt a longer-term perspective, instead of seeking quick fixes. Federal leverage can also help regions overcome the fundamental fragmentation so they can take collaborative action at the regional level. In addition it can encourage states and localities to address the problems of distressed neighborhoods more vigorously. Third, the federal government can make it far easier to link scattered federal programs and their own resources into coherent development efforts. EDA understands the distinct, respective roles of the public and private sectors in economic development. It is private sector capital investment that creates wealth and minimizes poverty through job creation. Such private sector capital investment not only creates jobs, it enhances local tax bases. The economic reality of the 21st century economy is that higher levels of private capital investment drives the creation of higher-skill, higher-wage jobs. Therefore, our mission at EDA is to help foster a positive business environment among America's distressed communities - both rural and urban - to attract private capital investment to produce goods and services and increase productivity thereby providing higher-skill, higher-wage job opportunities. It is in those regions or communities experiencing chronic economic distress or structural economic change caused by trade patterns, industry decline, a shift from resource based economies, or closure of government facilities where EDA finds its niche among government agencies facilitating and accelerating economic development. In many of these areas, existing market conditions will not justify sufficient rate of return for the private sector absent a public sector participation to enhance the business environment. Earlier, I mentioned former Pennsylvania Governor Dick Thornburg's thoughts on the direction of the 21st century economy. Thornburg, speaking about the impact the new economy will have on economic development said, "The challenge for today's state and local officials and policy makers is to fashion strategies for each state to ensure they are positioned not to just compete, but to thrive in the new economy." Fortunately they can draw on what we already know about promoting sustained regional economic growth and prosperity. EDA funded research done by ICF International in 1998 which has identified four basic rules for economic development in the 21st century (and forgive me, because I know to some of you in the audience, these rules are hardly a new idea, yet I strongly believe that their reinforcement is critical): Rule number one: Think regionally to compete globally. Competing in the global market requires the resources of all businesses, academic institutions, and communities within a region. That is today's reality. More and more, certain regions tend to have specialized knowledge and capacity that is of a scale and form that distinguishes them from other areas. Industry no longer cares about political boundaries - except when they're a barrier to business. What they do care about is competitive advantages. And that's where EDA and all of us in economic development come into play. We must cooperate regionally, think regionally to avoid fragmentation of resources and build a strong economic platform for growth. So thinking regional should be the key point of departure for defining economic development needs and goals. Rule number two: industry clusters drive regional performance. Industrial clusters are groupings of industries, suppliers and supporting institutions within a region that export to national and global markets. They are a set of industries that have a lot in common in terms of technology, worker skills, finance, and logistical inputs. As a result, they tend to congregate near one another, sharing innovative practices and economies of scale. Industrial clusters are very important to a region because while they typically account for only 25% of the employment base, their economic multipliers account for much of the balance of the region's employment. This makes them the driving force of economic development. Rule number three: Economic input-advantage fuels cluster competition. The rise in competitive clusters is due to the ability of regions to provide them with distinctive sources of economic input advantage - for examples adequate financing, available infrastructure, advanced communications, and most importantly, a skilled workforce. In other words, clusters won't come to, or expand in, regions that fail to provide at least one input advantage - whether for design, production, or distribution. Finally, rule number four: Collaboration achieves economic advantage. If industrial clusters are the center of action in the global economy, how do they become, and how do they remain, competitive? By collaborating. Citizen leaders, both public and private, must agree on a long-term development strategy that creates a competitive climate. They need to agree on the investments in regional assets ... education ... research ... physical infrastructure ... and quality of life over time. With such a strategy in place, you will attract private investment and employment. And you will build a "platform for economic growth." In the next generation economy that regions are seeking to build, the hallmark of vitality will be the agility of institutions and their leaders to recognize and to collaborate in the improvement of existing - or creation of new sources of economic input advantages. Communities that fail to realize this, that fail to come up with a long-term development strategy will either decline, or they will stagnate. Our job at EDA ... working with you and the nation's governors, is to capitalize on this market-based strategy to seize the economic development opportunities of tomorrow. I believe our regional approach to development will work. It's based on solid research and reflects the global market place. As you know, need, or economic distress, qualifies a community for consideration for EDA investment assistance. However, as the need for assistance vastly outstrips resources, EDA has established clear funding priorities and investment policy guidelines to enable investment decisions that will generate lasting long-term economic growth. In this wartime economy, only those investments that markedly drive regional growth, and generate significant economic impact will be funded. Let me end by saying I see this as an interesting journey...with many opportunities for people to embrace the future. I look forward to taking this journey with the National Governor's Association as we work to build long-term economic opportunity for all Americans. THANK YOU. |
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