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
Center for Regional Economic Issues Case Western Reserve University
© Weatherhead School of Management. Case Western Reserve University. 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
© Weatherhead School of Management. Case Western Reserve University. 2004
Defining “Regionalism”
The challenge of globalization
The costs of governing in Cuyahoga County
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Defining “Regionalism”
The challenge of globalization
The costs of governing in Cuyahoga County
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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.
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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”
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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.
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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.
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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.
Center for Regional Economic Issues Case Western Reserve University
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Defining “Regionalism”
The challenge of globalization
The costs of governing in Cuyahoga County
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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.
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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.
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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
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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
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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.
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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.
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Defining “Regionalism”
The challenge of globalization
The costs of governing in Cuyahoga County
Center for Regional Economic Issues Case Western Reserve University
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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.
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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
Source: US Statistical Abstract
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.
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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.
Source: US Statistical Abstract
Source: US Statistical Abstract
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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.
Source: US Statistical Abstract
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
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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.
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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.
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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
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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
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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
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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
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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.
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Cuyahoga County’s civic leadership now faces a choice of whether to innovate or fall farther behind.
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