Editor’s Note: Bruce Katz appeared before Nevada leaders to announce the findings from a new analysis assessing the state’s economic potential.
Thanks Steve for that introduction, and special thanks to the governor, the lieutenant governor, the legislature leadership, and the secretary of state for your leadership on economic development.
Let me begin by setting the context for this study and your work.
Since the beginning of the recession, Nevada has lost nearly 170,000 jobs.
As you know, that impact disproportionately hit the state’s largest sectors; construction and real estate, tourism and gaming, and retail trade—accounted for more than 83 percent of the jobs lost in the recession.
There is much to work to do. Fortunately AB 449, signed into law this summer by Governor Sandoval, and the “agenda” we release today, aims to reorganize and elevate the importance of economic development activities, and set forth a new vision of the state economy.
The goal is both to grow jobs in the near term and move towards an economy that is more innovative—to catalyze sustainable and productive growth, more balanced — to insulate against volatility … and more globally engaged—to take advantage of rising global demand, particularly in emerging nations.
Today I’ll make the following proposition:
First, Nevada has economic assets and industry strengths in the next economy. Nevada starts with a generally attractive business environment: low taxes and low costs, great quality of life, excellent airport infrastructure, easy access to West Coast population centers. Our report digs deep and shows the state’s starting strengths … and unique potential … in seven key industry sectors.
Second, those industries are concentrated within Nevada’s regions. 94 percent of the state’s economic activity transpires in your two major regional economies surrounding Reno and Las Vegas. But, as you will see, these regions have distinctive assets and attributes … and different growth possibilities in the driving industries. Respecting and reflecting regional differentiation are keys to productive and sustainable growth.
Finally, in order to realize your economic potential, we propose a three part playbook for Nevada: unify your fragmented economic development efforts and install an operating system for 21st century growth; regionalize your state efforts to support smart, tailored sector strategies in the regions where the economy comes to ground; and diversify your efforts, to set a platform for higher value growth through innovation, global engagement, and alignment of education and workforce training to new economic development.
As Mark will describe, this is an enormous task that can best be accomplished through smart staging and sequencing.
So let’s begin with the sector analysis, which shows that Nevada has economic assets and industry strengths in the next economy.
Over the course of five months, SRI and our team at Brookings have done an in-depth scan of Nevada’s industry clusters. This fine-grained, empirically grounded analysis, of seven major industries and 29 sub-sectors allows us to understand the unique industry mix across the state, and identify key opportunities for growth. This is a reality-based analysis, about building on existing strengths, rather than fantasizing about new industries which barely exist.
Let me give you just a quick overview of our profile:
First, we focused on the core traditional industries that have long been the pillar of the state economy: Tourism, Gaming and Entertainment, and Mining Materials and Manufacturing.
These sectors already have a substantial presence. Tourism, Gaming and Entertainment, for example, comprises more than a quarter of the state’s jobs.
The goal going forward is to not just to do more, but to do better , by pivoting existing strengths into higher-value and higher-growth activities.
Second, we focused on Health and Medical Services sector, a large but underperforming industry.
It is less than 6 percent of employment in the state, compared to more than 9 percent nationally. This is a tremendous opportunity for growth given general demand and the potential for specialization.
Third, we focused on a range of emerging sectors: Business IT Ecosystems, Clean Energy, Logistics and Operations, and Aerospace and Defense that already have a promising growth trajectory.
Key here is to focus on specific targeted possibilities for growth.
In Logistics and Operations, the subsectors of wholesale trade and logistics and warehousing projected to grow at 2 percent a year, faster than projected growth for the Nevada economy as a whole.
I urge everyone to examine carefully the background sectoral analyses that were prepared for this effort. They will provide a base for smart, tailored state and regional strategies for years to come.
That leads to my second point: Nevada’s economic strengths are concentrated in disparate, differentiated ways within the state’s regions.
Economies do not exist in the abstract; they come to ground in real places where there is a concentration and agglomeration of firms (large and small), advanced research institutions, community colleges, trade associations and business-friendly government.
This is particularly true in this state where population and economic activity is so intensely concentrated. The seven major industries and the 30 sub-sector opportunities are not evenly spread across the state’s three regions of Northern Nevada (centered around the Reno metropolitan area), Southern Nevada (centered around greater Las Vegas), and Rural Nevada. Nevada’s urban and rural regions contain distinctive mixes of the state’s top industry sectors.
Lets drill down a bit and let’s start with Northern Nevada and Clean Energy:
Nevada is already the epicenter of geothermal energy development for the country. The state has the second highest installed geothermal capacity (behind California) and is set to surpass California in installed geothermal capacity in the near future; most of these plants are based around the Reno area. We believe Northern Nevada has the opportunity to become the knowledge center for the global geothermal industry, and also to become a source for drilling equipment, expertise, design, and manufacture.
Similar potential for moving up the value chain exists in other sectors, as seen here for Mining, Materials and Manufacturing; Logistics and Operations; Aerospace and Defense, and IT and Business Services:
Northern Nevada, for example, has the highest concentration of manufacturing companies in Nevada, but the sector is currently small and fragmented. We believe the industry could grow by situating more neatly into global supply chains, expanding into higher-growth/higher-tech manufacturing opportunities (such as advanced composite materials), and building off of manufacturing linkages with other key industries in the state (including mining, energy, logistics/distribution, tourism/gaming, construction, and agricultural sectors).
Any discussion of Southern Nevada must start with Tourism, Gaming and Entertainment: Las Vegas is of course at the epicenter of Nevada’s Tourism, Gaming and Entertainment sectors as well as an established global hub for the gaming industry, and this is a logical target for the region to support both job creation and diversification aims. Recommended focuses in areas such as online gaming, becoming an intellectual capital of global gaming, film/media, niche tourism (especially culinary tourism), and retirees/second homes can support the longer-term diversification of the region’s existing industry into new higher-value activities and higher-skill jobs.
But there are other niche possibilities in IT and Business Services, Health and Medical Services, Clean Energy, and Logistics and Operations.
To drill down quickly on IT and Business Services: Las Vegas already has an established and growing base of business services activities, and is also home to world-class (but little known) technology assets – most notably the Switch SuperNAP (possibly the most advanced and well-connected data center in the world), as well as the headquarters of Zappos.com. Opportunities exist to build on these assets by continuing to expand back office and call center activities while simultaneously pursing longer-term IT-based activities that could include e-commerce headquarters, cloud/high-performance computing, and cyber security. By expanding and marketing existing IT assets, over time Las Vegas could position itself as the country’s “cloud city” with a sophisticated ecosystem of firms conducting high-end data- and technology-intensive activities.
We apply the same analysis to Rural Nevada … which already has one of the highest concentrations of mining activity in the country, but has little related downstream processing and manufacturing activity from the high-value minerals that are extracted. The region can seek to expand upstream activities in the mining value chain (e.g., exploration and mine-site services) in order to reap greater benefits from its existing mining activities. Another key opportunity in this industry is to expand the extraction and upstream/downstream supply chain for medium-value minerals (such as lithium, boron, and vanadium), as these materials are abundant in Nevada and could have development linkages with the Clean Energy industry.
Similar opportunities to move up the value chain exist in Tourism, Gaming, and Entertainment and Clean Energy.
One thing to note about our analysis: clean energy shows up as a foundational asset of all three regions, although the starting point and short term opportunities are quite distinct—geothermal in the North, solar and wind farms in the Rural areas; and manufacturing and production in the South.
That leads to final point: how to leverage your strengths and assets.
We see a three-part play: the state must unify the state’s economic development efforts; regionalize to support smart sector strategies across the state; and diversify, to set a platform for growth through innovation and global engagement.
The need to modernize the state’s economic development system flows not only from the urgency of the present economic challenges but also from the weakness of the system currently available for addressing them.
Going back decades the state has lacked an overarching strategy for growth and economic diversification. A general absence of quality information—and basic performance management—has allowed the combined state-local system to drift
Drift, meanwhile, has led to fragmentation, since at least in the two largest regions funding has typically been allocated to regional development authorities (RDAs) through automatic transfers rather than on the basis of performance criteria.
The high degree of local autonomy and the proliferation of disparate visions and approaches have undermined efforts to construct and brand cohesive regional identities
And the lack of critical foundational investments in university knowledge enterprises in economic development has meant that the platform for diversifying the economy has been weak and fractured.
The report we’re unveiling today addresses each of these challenges head-on:
First, the state should:
Unify a drifting and fragmented state economic development community by setting an overarching strategy; mobilize multiple partners while holding them accountable for success; and making sure the necessary information and data-sharing is available to all players.
Second, the state should:
Regionalize its economic development activities and unleash the potential of “bottom up” initiative in the state’s metropolitan and rural communities. As you saw, Nevada’s urban and rural regions contain distinctive mixes of the state’s top industry sectors; these need to be empowered, supported, and channeled.
And third, the state must begin to:
Diversify the economy for the long haul by greatly strengthening its innovation, global engagement, and workforce training capacity — prerequisites for the sort of lasting enhancement and diversification of the Nevada economy.
In total, we have identified a range of strategies across these goals and ultimately 37 policy recommendations—supported by best practices in the U.S. and abroad.
There’s a lot here, and we’ll be able to get into this in more detail during our panel discussion, but let me just walk through some of the key strategies and specific policies:
Let’s start with the first part of this three-part play: unifying at the state scale to install a modern operating system for economic development.
The initial step toward constructing a state-of-the-art economic development enterprise in Nevada is already mandated by AB449: produce a credible and balanced state economic development strategy, to innovate and diversify. We believe the strategy should identify the state’s best opportunities for growth given its real-world strengths and weaknesses and it should do this with reference to the state’s documented industry opportunities and the particular target opportunities within them. We are encouraged by Gov. Sandoval’s appointments to the Board on Economic Development that include members from a majority of the recommended industries in this report.
This new direction must be communicated consistently and constantly—both within the state, to get everyone on the same page, and externally to highlight the state’s new focus on supporting and growing strategic growth sectors.
With its own economic development strategy in place, the state should help regions structure strong regional partnerships to promote aligned collaborative execution. The new economic development mantra that has emerged post recession is “collaborate to compete,” particularly given the size and scale of metros and nations that US regions are competing against. We recommend a series of ways in which collaboration could be catalyzed and rewarded.
The state also needs to organize itself to execute on the mechanics of sector- and cluster-based economic development. We believe the economic development office should hire a set of dedicated “industry champions”—one for each of the state’s target industries—to spearhead state and local efforts to address the needs and opportunities of the state’s target clusters.
Single-mindedly focused, these sector champions would be responsible for aiding and abetting region-based cluster initiatives and working out the state dimension of their execution. Their task, in short, would be to do whatever it takes to facilitate growth in Nevada’s strategic industries.
The state will need to make direct investments in growing its target industries. The Catalyst Fund, aimed generally at job creation, with a presumptive use for “deal closings” in firm- relocation competitions—has been capitalized at $10 million and stands ready for deployment. This fund should allow the state to engage in faster, more direct, and flexible dealings with companies considering Nevada locations. Ideally such a fund will help it win important business. We believe the funds impact will be magnified if it is reserved for attraction of firms and expansions relevant to the state’s target industries and clusters.
To link state leadership and regional execution, finally, and to make it all smart, the state needs to maximize its use of information and data. After all, quality information—whether in the form of rich data flows, indicator systems, best practices, or benchmarking—represents the most fundamental way states can generate a common point of reference for stakeholders, identify challenges, and develop and evaluate action steps.
Second, the state must regionalize to support smart sector strategy in Nevada’s regions.
This could entail several kinds of efforts, both bottom up and top down.
Nevada’s regions should be encouraged as a starting proposition to develop in the next nine months their own parallel regional plans for sector-based development and economic diversification, aided by state support. In some cases, regions may decide to go beyond basic planning and engage in more intensive, inclusive and comprehensive efforts around business planning, export planning and innovation districts that are now being modeled in metros around the country. This includes metropolitan business plans in Greater Seattle and Northeast Ohio, metropolitan export plans in Los Angeles and Minneapolis-St. Paul, and innovation districts in San Francisco and Boston. Nevada’s regions should be encouraged to embrace these models.
At the same time, on a more targeted basis, the new sector champions should work closely with their regional colleagues to identify the full universe of relevant funding, resources, and programs offered by the state that impact regions and sectors and could be leveraged to support bottom-up sector and cluster initiatives: state R&D and tech transfer initiatives, export promotion efforts, venture-related financing regulations, tax policy, or education and workforce policy. Critically, the Catalyst Fund should be deployed strategically to build out regional clusters by filling gaps in supply chains or securing expertise that augments existing knowledge bases in key sectors.
Third, the state must focus on diversifying its economy to set a platform for higher-value growth.
This will require an intensive focus on building the capacity for innovation and commercialization.
In the past decade, innovation—or the development and introduction into the market of new products, services, and business models—has become even more of an imperative for the success of firms, industries, regions, and nations.
More and more, innovative regions and states are characterized by close collaborative linkages between scientists and researchers, entrepreneurs, economic development leaders, governments, venture capitalists, and firms
One critical tool is to make strategic investments in “impact scholars” to boost research output and new discoveries. Research universities and institutes form the nucleus of a state’s innovation capacity and top-flight researchers anchor top research universities. Such top scholars are the linchpins of how universities draw R&D funding from federal and private sources, attract and train top talent, and produce discoveries with potential for commercialization in the regional economy.
Global engagement also matters because Nevada firms sell their goods and services in an increasingly globalized market. Global engagement helps build a platform for growth through innovation because exporting in particular makes companies more competitive by forcing them to continuously innovate. Selling to foreign consumers boosts production at home and allows companies to hire more workers. Inward FDI, too, brings with it technologies and knowledge that can spillover into the regional economy. Exporting firms and foreign-owned plants alike pay higher wages.
As it happens, Nevada stands in a decent position to take its global engagement to the next level.
Finally, the state must align higher education and workforce development to strategic economic opportunities.
One critical way of doing this is to expand research universities’ role in workforce development. To take just one compelling example, the University of North Carolina (UNC) system’s UNC Tomorrow planning process stands out as an especially instructive model for Nevada with its 20-year strategic plan to make the UNC system more responsive to the emerging and future economic needs of a growing state. Closer home, the establishment of the National Geothermal Academy at UNR—as the first of its kind university training program for the geothermal industry—reflects the critical role that Nevada’s research universities have begun to play in educating and training the next generation of workers for the state’s key industry sectors.
What’s key here is a deepening of university-industry partnerships. To begin with, Nevada’s higher education institutions should intentionally engage business leaders to articulate upcoming skills needs in high-demand occupations; participate in the design of curricula and requirements for certification; and, more broadly, to help develop education pathways that are matched to career pathways.
Let me end where I began. The recession has been a wake-up call to the country and the state. Our pre-recession economy, this state’s pre-recession economy, was overly characterized by consumption and debt and innovating in the wrong things. Post recession, there is an enormous opportunity to grow jobs in the near term and retool for the long haul.
Our rallying cry: Unify, Regionalize, Diversify.