Issue Brief Cuyahoga County: Collaborating to...

Center for Regional Economic Issues Case Western Reserve University

Issue Brief

© Weatherhead School of Management. Case Western Reserve University. 2004

Cuyahoga County: Collaborating to Compete

Preliminary report Prepared by the

Center for Regional Economic Issuesfor Leadership Cleveland

July 15, 2004



Cuyahoga County: Collaborating to Compete

The Center for Regional Economic Issues at Case prepared this Issue Brief for Leadership Cleveland’s Civic Summit on Thursday July 15, 2004.

The information contained in this Issue Brief is preliminary and subject to revision.

For comments, contact Ed Morrison at [email protected]

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Section Page


Defining “Regionalism”

The challenge of globalization

The costs of governing in Cuyahoga County

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4© Weatherhead School of Management. Case Western Reserve University. 2004





The main points on the term “Regionalism”

• The term “regionalism” is so broad that it is largely useless.

• A number of simultaneous policy discussions are taking place throughout the region.

• Within Cuyahoga County, a discussion is underway on how to streamline governance within the county.

• Among area foundations, a discussion is underway on how to invest in regional economic development through The Fund for Our Economic Future.

• Team NEO is launching the first truly regional economic development strategy.

• The economic region of Northeast Ohio represents 22 counties in Ohio and 1 in Pennsylvania. This region includes 4.7 million people and is big enough to compete on a global scale.



Regionalism is an imprecise term that has created confusion.

Definition 1: Governance in Cuyahoga County

The core issue: How can we govern ourselves more effectively?

The Plain Dealer uses this definition in its series on “A Region Divided”



Definition 2: A region covered by foundations involved in the Fund for Our Economic Future

Core Issue: How do we get regional economic development “to scale”?

The foundation’s definition of the region is determined by the foundations that have agreed to participate.



Definition 3: A region covered by Team NEO

Core Issue: How do we market Northeast Ohio to outside investors?

Team NEO’s definition of the region is determined by the investors in Team NEO.



Definition 4: A region defined by economic factors

Core Issue: How do we develop globally competitive strategies?

Economic factors support the definition of the region as 22 counties in Northeast Ohio and 1 county in Northwest Pennsylvania.

This region encompasses the definitions of major metro areas used by the Bureau of Economic Analysis

This region includes 4.7 million people which is bigger than many states, including Kentucky, Colorado, and South Carolina. The size of the Northeast Ohio economy is comparable to Finland or Israel.



The main points on globalization

• The Northeast Ohio economy has undergone two major waves of globalization. The first wave focused on collapsing costs for conducting international trade transactions.

• These collapsing cost curves created new low cost production locations to global companies. The costs pressures from this first wave continue today, especially as logistics improve to support low cost production bases in China, India, Vietnam, Malaysia and other countries.

• The second wave of globalization started in 1994 with the commercial development of the Internet.

• Both waves place enormous pressures on Northeast Ohio companies to improve productivity by reducing costs and creating new revenues through collaboration-driven innovation.

• The same trends, operating in the public sector, are giving rise to more innovative approaches to delivering government services.



Globalization -- the integration of global markets -- is driving the push toward regionalism

1930 1940 1950 1960 1970 1980 1990 20000

20

40

60

80

100

120

Cost index 1930=100

Sea Freight

Air Transport

Telephone

Satellite

Source: World Bank

The collapse of costs for global trade started soon after World War II. Improved telecommunications and the introduction of containers in ocean freight dramatically altered the costs structures of companies engaged in international trade.

The passage of the 1974 Trade Act began a relentless lowering of trade barriers...a trend that continues today.

Beginning in the mid-1970’s, the character of the economy in Ohio began changing dramatically. Global cost pressures created enormous pressures on our industrial companies.



The cost driven explosion of global trade created the first wave of globalization. The Internet created the second wave.

The second wave of globalization started in 1994 with the invention of the Netscape web browser. This technology opened the door to the Internet for general use.

The Internet has become our first mass interactive medium.

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

Internet host count, in millions

The acceleration of global trade meant that by the mid-1970’s relatively high wage, low skill jobs began to disappear from the U.S.

1820 1870 1910 1930 1950 1970 20000%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Merchandise exports as percent of world GDP

Source: Nicholas Crafts and Anthony Venables, London School of Economics,

Globalization in History: a Geographical Perspective (October 11, 2001)

Source: ISC

High wage, relatively low skill jobs begin to disappear



The growth of the Internet has profound implications for collaboration and competition.

Organizations are moving away from hierarchies and toward networks.

Within these networks, participants co-create value. So, for example, managing customer and vendor relationships has become a strategic thrust for many businesses.

The steady growth of the customer relationship management (CRM) market reflects this trend. The growth of network-based market relationships will accelerate as e-commerce business volume increases.

The growth of e-commerce, in turn, opens the door to more e-government applications.



The push toward globalization is leading regions to begin collaborating in ways they had never before considered.

States like South Carolina are shifting strategies to focus on regional collaborations.

South Carolina is moving from a strategy based on recruiting branch plants (based on a low cost value proposition) to a strategy based on clusters, productivity growth and innovation.

These regional partnerships extend far beyond regional marketing that Team NEO is pursuing.



The main points on the costs of governing in Cuyahoga County

• Generally speaking, Southern states are more competitive than Northern states in the delivery of government services.

• Ohio has been adding higher levels of local public employment, despite relatively slow populations growth.

• Cuyahoga County has far higher levels of public employment than comparable counties.

• When compared to all U.S. counties, Cuyahoga County is relatively large, but the county does not realize any significant “economies of scale” from this size. To the contrary, Cuyahoga County is significantly less productive than other comparable counties.

• The productivity of the public sector is important, because it plays a tightly connected role with the region’s competitive position. We can visualize these connections in cycles of “prosperity” and “decline”.

• Civic leaders in Cuyahoga County face a choice of which cycle we will enter.



NC

TN

GA

SC

TX

KY

Southern States

MI

OH

PA

IN

IL

WI

Northern States

0 2,000 4,000 6,000 8,000 10,000

Population per governmental unit

1,785

1,825

1,996

2,452

3,141

3,584

2,844

4,555

5,859

5,912

6,233

8,667

Source: US Statistical Abstract

GA

SC

TX

TN

KY

NC

Southern States

OH

PA

IL

MI

IN

WI

Northern States

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Local government administration employment per 1,000 population

2.2

2.4

2.5

2.6

2.7

3.1

1.4

1.6

2.0

2.1

2.1

2.4


From a competitiveness viewpoint the key question is this: How much public overhead is required to support a given level of population (or income)?

Southern states have generally less fragmentation than Northern states. Each local governmental unit tends to serve a larger population base.

The cost consequences show up in, for example, the number of local government administration staff per 1,000 population.

Southern states generally employ fewer local government administrators per 1,000 population.



US

KY

SC

NC

TN

TX

GA

Southern States

OH

IN

WI

IL

MI

PA

Northern States

-2 -1 0 1 2 3 4 5 6 7Change in local employment per 1,000 residents, 1990-2001

From 1990 to 2001, local government employment per capita in Ohio has grown significantly. On average, Ohio has added nearly 6 employees per 1,000 population.

J

J

JJ J

J

J

J

J

J

J

J

J

0%

5%

10%

15%

20%

25%

30%

-2 -1 0 1 2 3 4 5 6 7

Population growth in percent 1990-2001

Growth in number of local employees per 1,000 residents

PA

MI

ILWI IN

OH

GA

TX

TN

NC

SC

KY

US

Ohio is adding local government employment per capita, despite the relatively slow growth in the state’s population.





Service Occupations

Blue collar occupations

Admininstrative support

Executive/managerial

Professional/technical

White collar occupations

Total state and local

$0 $10 $20 $30 $40

Hourly compensation and benefits, 2002

$31.89

$35.43

$41.45

$39.81

$20.72

$25.30

$24.26

The cost consequences of relatively low productivity in the public sector is relatively high. Jobs is the public sector generally pay well.


Other

Solid waste

Corrections

Housing

Hospitals

Fire

Parks

Interest

Sewer

Highways

Police

Public welfare

Health

Administration

Education

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400Local government expenditures per capita, 2000

$1,312$1,237

$215$105

$169$153

$168$142

$167$128

$160$47

$115$74

$97$84

$92$56

$89$60

$86$320

$75$68

$40$31

$34$68

$213$221

Ohio per capita

NC Per capita

If, for example, we compare local government expenditures between Ohio and North Carolina, we find that Ohio is paying a far higher cost per capita in local administration than North Carolina.

Source: US Census



1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 20000

50

100

150

200

250

300

350

400

Population growth index (1900=100)

Cuyahoga County

Ohio

US

Now we turn our attention to Cuyahoga County.

As a consequence of the globalization pressures we outlined earlier, coupled with suburban sprawl, Cuyahoga County’s population has declined.



J

JJ

J

JJ

J J

0

10

20

30

40

50

60

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000

Local government employment per 1,000 residents, 2000

County population, 2000

Lucas (Toledo)

Hamilton (Columbus) Franklin (Cincinnati)

Cuyahoga (Cleveland)

Allegheny (Pittsburgh)

Wake (Raleigh)

Jefferson (Louisville)

Marion (Indianaoplis)

Cuyahoga County suffers from the same problem as Ohio: a relatively inefficient public sector.

Cuyahoga County is a relatively large county, but generally speaking, the costs of local employment are far higher than in comparable counties.

Note that public employment in each county includes employment by the county and subunits of the county.



Source: REIS Database, analyzed by REI

If we compare Cuyahoga County to all counties nationwide, we see that Cuyahoga County does not generate any of the efficiencies in public employment one would expect with a larger county.

As the size of a county increases, per capita public employment generally decreases to reflect efficiencies.

Log Population

Log Per Capita Public Employment



Generally speaking, Cuyahoga County is paying a higher proportion of its per capita income to support local government employment, compared to counties of comparable size.

Source: REIS Database, analyzed by REI

Log Per Capita Income Spent on Public Payroll

Log Population



MIAMI / DADE COUNTY

COLUMBUS / COLUMBUS

CHICAGO / DUPAGE COUNTY

CHICAGO / COOK COUNTY

ATLANTA / FULTON COUNTY

PITTSBURGH / ALLEGHENY COUNTY

CINCINNATI / HAMILTON COUNTY

SAN FRANCISCO / S. F. COUNTY

INDIANAPOLIS / MARION COUNTY

CLEVELAND / EASTERN SUBURB

PITTSBURGH / PITTSBURGH

NEW YORK CITY / NEW YORK CITY

CLEVELAND / SHAKER HEIGHTS

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000

$6,425

$6,336

$5,738

$5,564

$5,375

$5,162

$5,142

$4,888

$4,608

$4,590

$4,394

$4,243

$4,204

In part as a consequence of relatively low productivity, Cuyahoga County taxes are relatively high.

Tax burden for a family of four at $50,000

Source: Greater Cleveland Partnership, preliminary estimates



The productivity of the public sector matters. Prosperous economies are able to support higher levels of public services and investment through a “prosperity cycle” of growth and investment



In downward economies, the opposite happens. Public investments erode and taxes tend to increase.

As taxes rise and public service deteriorates, the climate for private investment worsens.



Cuyahoga County’s civic leadership now faces a choice of whether to innovate or fall farther behind.

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