Seizing the Global Moment: Greater Minneapolis Saint Paul Export Plan

Editor’s Note: At the Minnesota Governor’s International Trade Award Luncheon on March 22, 2012, Amy Liu and collaborators in the Minneapolis-Saint Paul area announced the region’s strategy for increasing exports. During the launch, Liu delivered the following presentation and remarks.

I want to applaud Governor Dayton, Katie Clark, and her team at the MN Trade Office, and all of their partners in the Greater Minneapolis-St Paul area —  Mayor Rybak, Mayor Coleman, Mayor Hovland, the ITASCA Project, Greater MSP, the University of Minnesota, and many others. These leaders have worked closely together, with great resolve and thoughtfulness, over the last nine months to develop this one-of-a-kind metro export plan.

This is an exciting day. With this new plan, this state and metro area are taking “co-leadership” to new heights with a regional export plan that will be an envy of many communities around the nation. 

And we at Brookings are pleased to have been partners and advisors to this region. We are no strangers to greater MSP, having worked with the ITASCA Project on the growing racial and economic disparities in the city and region and with a group of political and civic leaders on building and implementing a metropolitan business plan for economic growth. 

So, it was only natural for us to choose the Minneapolis-Saint Paul metro area as a partner in piloting one of the first metro export plans in the country.  Leaders here continue to impress us, and the state-metro partnership is exceptional. This reinforces why our nation must let state and regional leaders lead … and pave the way for American competitiveness.

But let me also be clear, this new export initiative reflects precisely where this region needs to go if it is to excel in the new global economic order.

Times have changed. The U.S. economy is undergoing a major economic restructuring, and regions like greater MSP must adapt to the new realities.

The Great Recession was not the same as its predecessors. The job loss this time was steeper, the impact deeper, and the recovery slower because this was a structural recession.

The core structural problem: Nearly all of the incremental job growth over the last two decades came from non-tradable sectors. This was the eye-popping stat issued by Nobel economist Michael Spence. In short, we stopped innovating and producing jobs in value-added industries that create wealth and make our American marketplace distinct from our competitors.

Instead, we were addicted to the wrong kind of growth, one fueled by local-serving jobs, such as in retail, real estate, local personal health care, and government. 

We had become a consumption-oriented society versus a production-oriented economy.

Yet, it is the tradable sector that drives our productivity. Tradable sector jobs pay better, produce more value, and help support the growth of 2-3 local serving jobs. 

The other big structural shift: Economic growth is increasingly taking place outside the U.S.

In 2010, the combined global GDP of the BIC nations surpassed that of the U.S. for the first time, making up one-fifth of the world economy. That shift is expected to accelerate in the coming years while the U.S. share of global GDP is forecasted to stay the same.

The rise of the BICs is also in part a reflection of the rise of global metros. Rapid industrialization has been matched by rapid urbanization.  More than half of the world’s population now lives in cities, and that share is expected to grow to 60 percent in 2030 and 70 percent by 2050.

With rapid urbanization and the emptying out of rural areas comes the rise of the global middle class which is driving the growth of consumption.  OECD predicts that, despite the recession, consumption is expected to rise from $21 trillion today to $31 trillion by 2020, mostly due to the growth in Asia and Latin America.

We view these trends as less a threat but a market opportunity.

Against this back drop, let me tell you what the data is telling us. The winners in the next economy will be those who strengthen global assets and tap new sources of aggregate demand.

The leaders in the next economy will innovate in manufacturing. While manufacturing has contracted as a share of the overall economy, it is becoming leaner and more advanced.  In fact, nearly 70 percent of the nation’s R&D dollars are spent by manufacturers. Due to global demand and innovation, manufacturing jobs are recovering faster than the economy as a whole, at 2.3 percent in the third quarter of last year compared to 1.4 percent nationally.

Leaders will also innovate in services.  In fact, services are the fastest growing segment of our export economy, and the U.S. has a trade surplus in services. So, our competitive advantages in such high value services as higher education, business consulting, architecture and planning, and environmental services is in great demand worldwide.

Within the services sector, expenditures of foreign students in U.S. colleges are growing by leaps and bounds. We now have more than 720,000 international students studying in the United States, led by those from China, India and Korea. That sector represents $21.2 billion in U.S. service exports.

Leaders in the next economy will also be at the vanguard of the clean revolution. 

In our study with Battelle, we found the U.S. has a strong base of 2.7 million clean economy jobs, which is nearly twice the size of the biosciences field and larger than fossil fuel related industries.  

Clean economy jobs are wide-ranging and not limited to solar PV and renewable energy. They also include workers who deliver energy efficient building and land use design, water-efficient products, electronic vehicle technology, smart grid, and organic agricultural products. 

The clean economy is not a fad. HSBC projects that the world energy efficiency and renewable industries will triple in size from $740 billion today annually to $2.2 trillion by 2020. 

Despite the cold water Solyndra put on public energy incentives, private sector financing remains hot. U.S. venture capital in clean tech ventures continues to climb, increasing from $74 m in 1995 to $3.8 billion in 2010 to $4.3 billion in 2011.

Furthermore, U.S. clean economy products generated $54 billion in exports, two times more value per job than the typical US export.

This further reinforces that rapid urbanization worldwide has pushed up the global demand for energy-efficient, environmentally friendly goods and services.  In other words: The transition to a clean economy is fundamentally about markets.

Finally, the regions that prosper will be those that take advantage of global demand. The post-recession reality has made that more urgent. 

According to our recent Global MetroMonitor, 90 percent of the fastest growing markets among the 200 largest world cities were located outside of the US, western Europe, and earthquake-ravaged Japan.

In fact, there are more than 20 markets around the globe that did not experience this last recession or have already fully recovered — Shanghai, Shenzhen, Mumbai in Asia … Istanbul in Europe … Santiago and Buenos Aires in Latin America.

Bottomline: If we are to grow, our firms must tap emerging markets and global consumption as a source of growth here at home.

And here is the evidence: Those firms who embraced international sales drove our economic recovery.  Exports were responsible for 46 percent of US GDP growth between 2010 and 2011 … which is remarkable since exports make up only 13 percent of the GDP of the U.S. … compared to 30 percent in China, 29 percent in Canada, and higher levels in India, Japan, and the entire EU.

Finally, going global pays off for small and mid-sized firms. Those who exported saw their revenues grow, by 37 percent, through 2009, compared to just 7 percent among non-exporters.

As evidenced by today’s award winners, exporting just makes good business sense.

As you will hear shortly from Katie Clark, this state and region’s export plan acts on many of these opportunities.

Greater MSP is just one of four metro areas in the U.S. that will be spearheading a metro export plan in the coming months. 

Your leadership in this space will likely spawn copycatting among state, city and regional leaders who are eager to better orient their economies for export growth. Further, the federal trade-related agencies, like SBA, Ex-Im Bank, and the Commercial Service, many of whom are here today, are committed to better align their federal activities with metro ambitions.

Why do we even need an explicit metro export strategy?

Despite the decades of domestic and overseas services we provide firms who want to sell abroad, we are still a nation of underexporters. Just 1 percent of U.S. firms sell a product or service outside the U.S., which pales in comparison to our competitors. We need more companies engaging globally if we hope to grow jobs in the near and longer term.

Surveys and interviews with companies in greater MSP reinforce what’s true nationally — they are afraid to export. They are very comfortable sticking to just the US market and believe that is sufficient. Many are not aware of the benefits of global trade or the wide array of state and federal programs available to help them break into world markets. Meanwhile, for those who are enlightened, there are a dizzying number of export services and providers, and firms are simply left on their own to navigate this maze which can be a frustrating and inefficient experience.

Thus a metro export initiative can be pro-active in steering companies to export success and laying the foundation for global engagement, supplementing and furthering state and federal export activities.

First, regional leaders know their economies best and thus they have direct relationships with the producers of our nation’s tradable goods and services. They are well-positioned to proactively reach out to target companies, help them become export-ready, and help more companies integrate international sales into their long-term business plan. These are all critical if our nation is to expand the base of quality exporters. 

Second, regional leaders in these metro areas can bring together the fragmented set of export services and programs around a unified goal and strategy for boosting exports.This provides firms with a more coordinated system of services so they have confidence that exporting is the right investment for them.

Finally, exports are just one piece of a broader game plan for economic growth and greater global engagement. With this strategy, you have a strong vehicle for aligning your clusters and manufacturing strategies, freight and transportation modernization, land use planning, and immigrant outreach in ways that build a more globally fluent economy.

In short, this export strategy puts our limited public and private sector dollars to maximum use.

Let me close with why this region is well-positioned to succeed in boosting exports and grow jobs in the Minneapolis-Saint Paul economy.

First, you launch this initiative when the national economy and your economy is on the mend. The region’s unemployment rate has been steadily dropping since earlier this year to a welcome 5.5 percent, so firms are less cautious and more optimistic about expansion plans.

Greater MSP is a strong exporter, ranking 14th among all U.S. metros in the size of your export activity. 

That export activity supported more than 63,000 direct jobs in the region, ranking the region 18th in this regard. Exports also supported another 54,000 indirect jobs in the supply chain.

The region attracts more than 6,000 international students to your higher ed institutions, a good foundation for fueling your service economy.

The region has a sizeable clean economy, generating nearly 38,000 jobs, ranking it 11th among US metros. Your strengths in conservation, energy-saving building materials, and organic food and farming can be valuable globally.

So, this region has the assets to achieve a goal of doubling exports over the next five. The key is to be intentional in making sure that more firms, more industries, more workers are benefiting from the fruits of global trade.

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In closing, I want to urge all of you to support and be part of this important initiative.  As Mayor Rybak often envisions, this region needs to rediscover and rebuild Minneapolis-Saint Paul’s “silk road” to global markets.  You must because that silk road will also lead to greater prosperity for all Minnesotans.