Monday, June 26, 2006

Time for a reality check: The problem is us

I spoke to Leadership Charleston last week on behalf of New Carolina. This class of young professionals is among the best and brightest young leaders that Charleston has to offer. I started my presentation observing that the problem with moving Charleston forward, indeed moving the state forward, was in that room.

Dr. Michael Porter made some insightful observations about South Carolina when he spoke to the Moore School Economic Conference in December 2003. He said:
It is often believed that average SC wages are low because of:

A few large, low wage industries;
But, the data indicate wages are relatively low across almost all of South Carolina’s industries;

The relatively large rural population;
But, the data show that lower wages in South Carolina metros explain far more of the gap between South Carolina and the US;

Lower per capita income in the relatively large African-American community;
But, data indicate that per capita income in South Carolina is relatively low across all demographic groups

What accounts for South Carolina’s lower average wages?
Competitiveness. Average wages are lower because of lower value created per worker per year in South Carolina.
Ed Sellers, Chairman of New Carolina, South Carolina's Council on Competitiveness, spoke to the Greater Greenville Chamber of Commerce Annual Meeting in January 2006. He made the observation that:
There are more people in poverty in Greenville than there in eight poor counties in the I-95 corridor. We can not solve the problem of poverty in South Carolina without addressing poverty everywhere.
Andrew J. Coulson wrote a report, "Achievement in Context, How South Carolina Students Fare Against their National and International Competition," and found the following:
College-bound students in SC are last on the SAT and 2nd to last on the ACT. The state’s graduation is worst in US to third worst, depending on how it is computed.

SC blacks score 15 points below blacks nationwide on the SAT. SC whites score 27 points behind whites nationally.

SC students from lower-middle-income families score 20 points behind US peers. Students from wealthiest families score 39 points behind their economic peers

The better educated a South Carolina student’s parents happen to be, the further that student scores behind students in other states whose parents are similarly educated.
If you are reading this, it is likely that you are relatively educated and affluent, like the young professionals in Leadership Charleston. We're not going to make progress until we accept the reality that the problem is us. On the whole we are not as productive as peers across the country, poverty is in our backyard not just across the state, and the best schools in the state that our children attend are not as good a those in communities we are competing with.

17 comments:

Anonymous said...

Wages are low in South Carolina because we the people of South Carolina have historically wanted it that way . South Carolina voted fifty-odd years ago to become a "Right-to-Work" state to attract businesses that wanted a non-union situation. This effectively served to keep wages down across all sectors of the economy. Those who were dissatisfied with low wages left the state.

South Carolina's low wages did attract manufacturers whose primary interest was low wages and who did not require, or want, an educated workforce. When it became cheaper to move production out of South Carolina, those manufacturers also left the state.

The performance of South Carolina schools also relates to the same situation. Workers in both agriculture and manufacturing historically did not need advanced education to do their jobs. Education was treated on the line of "I didn't need to finish high school to work at the mill, why should my children, or anyone else's?" Even though the mills have largely closed, a lot of that attitude seems to remain. Hence Sough Carolina's loss of many good teachers to neighboring states.

Swamp Fox said...

I agree that our industrial recruitment and education strategies could have been stronger to provide us a better platform to be competitive in the future.

But do you really think per capita income is low because we don't have many labor unions? Are industries that have high union participation, like automotive and steel, the most vibrant parts of the economy or are they sucking wind? General Motors and their vendors, like Delco, are trying desperately to get out from under their union strangleholds so they can return to being globally competitive.

The key to industries being competitive is enhanced innovation and productivity that increases the valued added provided to customers. Increasing value added per employee drives up per capita income.

Artificially inflating wages either through government fiat, like the minimum wage, or though private means, like union contracts, ultimately damages competitiveness and thus do not provide sustainable increases in per capita income long term.

Anonymous said...

I work in an industry that provides constant exposure to SC's best and brightest as well as the "average" South Carolinian. It is not education or income that has created this situation, it is attitude! We have not instilled, discipline, the joy of creating or the love of learning in our children for several generations. Their "idols" are those who make the most $ for the least effort. Until things change in our homes, they will not change in our economy.

Swamp Fox said...

Attitude is important, but isn't making "the most $ for the least effort" what we all want to do? Why work harder than you have to for the money you make?

Anonymous said...

John, you're absolutely right, we have no one to blame but ourselves.

I also think it's a crazy idea to invoke this "union" type behavior to artificially set wages high when we should be really be focused on attracting/creating high-paying knowledge based jobs in SC.

The unintended long run consequence of attracting manufacturing and construction jobs over 30 years ago is catching up with us. It's obvious to everyone that we need more high-paying businesses to start or relocate to SC.

So, if we are truly the ones to blame, like you say we are AND we want to make a difference in SC, then we need to start by firing all the good ole boys/gals on the New Carolina Council that are the CEOs of all those low paying companies in SC.

It's absolutely stupid and hypocritical for you to say that we are the ones to blame and yet we (citizens of SC) appoint a bunch of lawyers, manufacturing, and construction CEOs to this board.

I think YOU should do something about this, like encourage younger and more hungry high tech companies to sit on that board. If it actually does anything. If not, don't waste their time.

Swamp Fox said...

Among the people on the New Carolina Executive Committee are:

Chair, M. Edward Sellers - Chairman and Chief Executive Officer - Blue Cross Blue Shield of South Carolina - the largest employer of programmers in SC

Don Herriott - Head of Global Chemical Manufacturing - Roche Carolina, Inc.

Steve Swanson - President and Chief Executive Officer - Automated Trading Desk

Darla Moore - Partner, Rainwater, Inc.

Mack I. Whittle, Jr. - Founding President and Chief Executive Officer - The South Financial Group

Think those folks know something about the innovation economy?

But let's take your premise that we throw those folks out and replace them all with leaders of "younger and more hungry high tech companies."

What specifically do you think they would do that New Carolina is not doing now? Even better yet, what are YOU personally willing to do that New Carolina can help you accomplish? If you're willing to be more than Anonymous, I'll do what I can to help.

Anonymous said...

John, you're cherry-picking people from the list.

You fail to mention the countless lawyers and real estate types that smack of cronyism.

You along with a very short list of people have any insight and day-to-day interaction with high tech growth in the state. And I find that distressing. Where are the Trelys, CSC, Scansource, SCRA, USC Incubator, Charleston Digital Corridor and Benefitfocus folks?

You're the one on the bully pulpit, and you can make some meaningful difference in the areas that the council focuses on. My point is that I'd rather have 20 John Warners than 20 lawyers from Nelson Mullins.

We don't expect New Carolina to solve all the problems for SC, but at least put innovative companies/people on the board to send a signal to the rest of the country/world that we're serious about attracting high paying jobs to the state.

Steve said...

(I'm not Anonymous, by the way, but I have been reading the exchange.) Businesses obviously want to stay in business, and one way to do that is to keep costs down. The largest cost most businesses have is wages. Ergo, depressing wages keeps businesses going, even when their business model, or the industry itself, or other reasons, may lead outside observers to the conclusion that the business should go under.

When even depressed wages are no longer competitive, companies will invest millions or billions to build new factories overseas or across the border because they will get tax or other incentives that will enable them to recoup that investment relatively quickly due to the lower wages they'll subsequently have to pay. Thus, even in a low-wage state like SC, you have industries that can't compete.

Don't knock the union movement, though: the 40-hour week, overtime pay, vacations, health insurance, and other innovations that robber barons resisted for years are part of the landscape because of unions. Those things are disappearing because of the pressure to compete, not against foreign companies, but against the prospect of domestic companies moving to other countries for manufacturing.

Don't knock the minimum wage, either. Though no one can reasonably argue that the minimum wage is serious, the current lack of any real government safety net requires at least something reasonable. A living wage would not be a bad idea for starters.

Part of the problem with competitiveness councils and the like is that they focus almost exclusively on the welfare (and I use that term deliberately, and in both senses) of the industry, not the welfare (in the sense of well-being) of the labor force. When an educated labor force is mentioned at all, it's almost always in the context of making industry more competitive. I've never heard anyone in industry, at least in this state, talk about the value of education for its own sake, the importance of critical thinking, the value of the liberal arts, etc. It's all focused on training for economic competitiveness. (Note that I'm not saying no one's ever said that, just that I've never heard it.)

I don't think it's a zero-sum proposition to say that we need quality education for its own sake, because education for its own sake will lead to higher productivity, increased entrepreneurship, and better living conditions all around.

Swamp Fox said...

Anonymous

I appreciate the complement of wanting 20 John Warners, but for lots of people that's a very scary thought :)

Let's look at some of the attorneys and real estate people on the New Carolina Board that you seem to have such heart burn about.

All of the people below get it, have loads of experience with knowledge based institutions, and have demonstrated a passion for the state. The council is fortunate to have them on board.

Before you accuse me of cherry picking again, I just ran out of time to Google the rest. You can check them out if you want to.

Brent O. E. Clinkscale, Attorney,
Womble Carlyle Sandridge and Rice, PLLC, (Greenville, SC) - Chair, Greenville Area Development Corporation; Executive Committee, South Carolina Chamber of Commerce; Executive Committee, Duke University Alumni Association; Life Member, Duke University Law School Board of Visitors; General Counsel, Member Board of Directors, the Thurgood Marshall Scholarship Fund; Chair, Greenville Hospital System Foundation

Paula Harper Bethea, Director, External Relations, McNair Law Firm, P.A. (Blufton, SC) - Chair Emeritus of the United Way of America's Board of Governors; Chair, South Carolina Chamber of Commerce; Chair, Columbia College; Chair, Board of the Partnership for South Carolina’s Children; Chair, Cardiovascular Research Institute at MUSC; Board, Health Sciences Foundation at the Medical University of South Carolina; Board, Presbyterian College.

Robert E. Hughes, Chief Executive Officer, Hughes Development Corporation, (Greenville, SC) - Business Advisory Board Trelys Fund; Chair, Greater Greenville Chamber of Commerce; Board, Furman University; Board, South Carolina Governor's School for the Arts & Humanities Foundation; State Chairman, Young Presidents' Organization.

Robert W. Pearce, Jr., Attorney, Nelson, Mullins, Riley and Scarborough (Charleston, SC) - Member, Research Centers of Excellence Review Board for the State of South Carolina; General Counsel, Charleston Metro Chamber of Commerce; Board, Trident Technical College Foundation; Chairman, ThinkTEC

Swamp Fox said...

Anonymous

In addition to pretty good people, look what New Carolina has done and is doing, from addressing public education to promoting industry clusters to bringing in a world expert in entrepreneurship.

What should New Carolina be doing that their not doing?

Swamp Fox said...

Steve

First, thanks for reading the blog and for the conversation.

Most people on the New Carolina board are highly educated, and my guess is that almost all would agree with you that there is an intrinsic value to education itself in becoming an enlightened person. But every organization needs a clear and focused mission, and New Carolina's is very straight forward: to increase per capita income in South Carolina. If an activity contributes to that goal, then New Carolina will consider it. If not, then it is not that the activity is not worthy for someone, it's just not appropriate for New Carolina.

Your logic is flawed that, "The largest cost most businesses have is wages. Ergo, depressing wages keeps businesses going." Companies are rewarded for increasing the value added to their customers. If workers become more innovative and productive, then the value added per employee will increase. Companies competing for their services will bid up their wages. If the valued added per employee increases faster than the cost of the employee, then we have dynamic where both employee wages and corporate profits are rising. That's the dynamic that New Carolina hopes to create that both increases per capita income and improves the competitiveness of industry in the state.

The key to making that happen is creating industry clusters of highly specialized firms. By increasing the innovation and productivity in a narrow area, each firm in a cluster increases its own value added, and thus makes the cluster as a whole more competitive. The key to individual workers becoming innovative and productive is education, both in general and work place specific.

Plato observed this phenomena when he wrote about why cities form in The Republic, and Adam Smith observed it when he wrote about the pin factory in The Wealth of Nations. So there is nothing new about, nor any real doubt about, the benefits of industry clusters. Michael Porter has merely put modern vocabulary and econometrics to an old idea.

I'm not in the unions are evil camp. Unions came into existence for some good reasons. They made important contributions in work place safety, ending child labor, etc. Most times in South Carolina, union votes are taken and lost by the unions, because there is a concerted effort by companies in South Carolina to avoid the work place conditions that lead to unionization. Employees are free to choose, and they don't choose to unionize most of the time here. The threat that they might has contributed to real progress in the workplace.

And unions do increase the wages and benefits of their members. But by reducing the flexibility that companies have to respond to changing market conditions, unions sometimes damage the companies they are associated with, which harms their members in the long run. Ask GM and the tens of thousands of workers that are in the process of being let go.

The minimum wage does increase compensation for some people, but by creating a barrier to hiring, it also increases unemployment for others. Almost no one tracks the jobs that don't get created. Would the teens that can't find a job this summer be better served if they could work for less than they minimum wage? Many of them probably think so.

Lee said...

Since the lowest jobs at fast food pay more than minimum wage, the artifical minimum has become irrelevant, and that is good. Let it wither away, because it keeps young people from getting those first jobs.

Next, we have to get rid of the illegal alien workers who are destroying the first job opportunities for Americans of all socio-economic sectors. It would do a lot of middle class boys good to work dirty jobs and appreciate the skill of tradesmen.

We also have to get rid of so much legal immigrant labor, much of which is illegal in the form of falsified papers. Why should any American study computer engineering when 286,000 experienced programmers have been laid off by Microsoft, Intel, HP and others, and replaced by lower paid rotating immigrants? There are no direct cost savings in the inferior product of these people, but the overall suppression of wages saves billions for industry.

South Carolina has especially bad tax laws, which make it unattractive for high-skilled and well-paid engineers to locate here. We have lost over 100,000 of them since 1976. Without keeping them in state, we have little chance of attracting their client companies from other states.

Lynn jones said...

In TN, there is no state income tax (in SC it's 6.6%!!!).

In TN there is no property tax on automobiles. There is a annual $52 "Wheel Tax" but that is MUCH better than the property tax.

In TN, sales tax runs between 9% and 10%. Thanks to local sales taxes, several couties/cities in SC are up to 7% and higher. Not much of a variance there.

And property taxes on real estate in T.R. are increasing this year.

So...why is it possible for TN manage it's budget with only property taxes on real estate (not autos) and sales tax when SC, with ALL of it's taxes (property, income and sales), struggles each year?

You want to increase $$ in both low and medium income households? Put money directly into their pockets, by not only by raising wages, but also by decreasing their taxes.

I've heard reports that legislators are contemplating doing away with property taxes on real estate. This won't benefit low income households, because they can't afford houses.

Instead, my opinion, cancel the property taxes on autos...every wage bracket pays those.

Or keep the property tax and lower the state income tax %. Relocating back to SC has cost my family 6.6% of it's disposable income.

Once again, all of these are my opinions. Wages are extremely important, but keep in mind that roughly 15-20%(maybe even higher?) of any wage increase is immediately allocated to the goverment (state and federal). That makes that $1 an hour have a little less impact.

SC can't be fixed overnight, but it's worth the effort. Keep up the good work.

Anonymous said...

Raising the minimum wage is not a wise choice, ever.

In fact the first American winner of the Nobel Prize for economics argued that increasing the minimum wage causes higher unemployment, higher teen drop-out rates, and that it ultimately hurts the poor. Minimum wage increases and other protectionist job policies don’t work, look at France.

As for Lee's comments, I couldn't disagree more. I appreciate the fact that he (or she) brings up an unpopular subject, but it's crazy to think that we should encourage middle-class boys to work dirty jobs, when they have the best education in the world…..to waste it on low paying tradesmen jobs is backwards thinking.

Secondly, the idea of getting rid of legal immigrant labor is completely stupid too. If Lee had any clue about how college education works, he/she would know that getting a computer science degree or any degree teaches you how to think and adapt. So, yes everyone should be encouraged to get a computer science degree and try to earn a high paying salary. We then wouldn’t have to bring immigrants in to fill all these open positions, because it’s not about paying them less, it’s about getting talent at the right time…and we have shortage that’s b/c American boys/girls are too cool for computer science degrees. You mention all these job losses and you haven’t mentioned the millions that were created over this time too.

Furthermore, the concept of reducing costs of products either through materials, productivity, or lower wages is a good thing in the long run. If not, we’d all still be paying $400 for a DVD player….today they cost $100, so what are you doing with that extra $300? You’re spending it on other useful things; just like big companies that are making big profits…it’s going back into the economy.

I agree that SC has awkward tax laws, hopefully we can fix that quickly. But we also need a concerted proactive message to the rest of the world that SC is a great place for knowledge-based jobs and that’s my biggest concern with committees like New Carolina where the members are a snapshot of yesterday’s SC and not the face of the future.

Lee said...

There is no shortage of software developers. There are as many unemployed American software developers as there are immigrant temp workers. That is not a coincidence.

Enrollment in computer science had dropped 60% in the last 5 years because American students are not dumb. They see politicians making a concious effort to drive wages down to 30% below 1996 levels for highly skilled software engineers. There is no future in a job targeted for destruction.

I design automated factories and new processes for a wide variety of industries. There is not much labor content in most higher end manufacturing, except for assembly of custom machinery for nanotechnology, pharmaceuticals, etc. Even a head of lettuce only has 4 cents savings at the retail level due to using illegal alien labor.

Young Americans should be working blue collar factory, construction and landscaping jobs before they go to college, in order to learn a lot of lessons. It certainly helps an engineer who aspires to build skyscrapers, if he has been on a job site long enough to see one go up, and what is involved.

A lot of textile mills in America are the most efficient in the world, but shut down not by the free market, but being written off by ignorant academics, press, and politicians, and our own tax dollars subsidizing state factories overseas.

kamran said...

I think we have missed the larger issue, that of productivity (which is actually profitabilty). Higher incomes do not happen in a response to government intervention (minimum wages) or feel good happy talk. Employers can only pay higher wages for more productive (read as profitable) employees. The productivity increases we have typically seen here have been through working harder or more hours, but a better way would be through innovating more profitable products by adding more value to the end user, as the end user defines it.

Bobby Pearce said...

A very healthy discussion going on here--sometimes you wonder if the norm of silence is apathy, lack of understanding or worse. I'm very glad to see that so many care.

I guess I'll respond to the comment about the "20 lawyers from Nelson Mullins" on the New Carolina board. I'll also respond to the comment about being part of the "snapshot of yesterday's SC and not the face of the future."

First, thank goodness for the open mindedness of the partners of the major law firms here in SC. They allow, no, strongly support, the volunteer efforts of their partners. These volunteer efforts by individuals who normally bill by the hour are hopefully appreciated by most.

Second, remember, law firms are knowledge-based businesses which are competing with similar businesses from across the country and the world. There are many, many very smart business people who are lawyers here, and I would suggest that we want and need the smartest folks involved that we can get.

But no more defending lawyers.

We need many more smart, self-motivated people involved in the hands-on efforts to make SC more competitive. Unfortunately, most want to focus on their own businesses and making those businesses even more successful and profitable. It takes a very special kind of person to want to volunteer to help others, especially when the help may not succeed or become apparent for 5-10 or more years.

So, while it's easy to criticize those leading the way as being a "snapshot", it's not like offers of help from others have been turned down. We have a vacuum of leadership; that is, we have some great folks but often the quantity of these leaders isn't enough to force a seismic shift.

I believe we are at a turning point in SC's history. We are on the verge of being relegated to 3rd-world status within our own country. If folks sit back in silence, or worse sit back and criticize rather than becoming involved, we haven't a prayer.

We've made much progress over the last few years but much, much is left to do. Get involved and get others involved for the long haul and maybe great things will happen.
I look forward to seeing the "face of the future" and not just hearing from anonymous critics.