Five shoes waiting to drop on Arizona's future

              ARIZONA







POLICY







CHOICES







Waiting to







Five Shoes



Drop



on A r i z o n a's Future







OCTOBER 2001







M O R R I S O N INSTITUTE FOR PUBLIC POLICY







?







School of Public Affairs







?







College of Public Programs ? Arizona State University







M



? ? ?







orrison Institute for Public Policy is pleased to present its fourth annual Arizona Policy Choices volume. The purpose of Ar i z o n a Policy Choices (APC) is to provide objective, in-depth analysis of and recommendations on critical public policy issues. Since the series' inception, Morrison Institute has developed the APC volumes by engaging university scholars, Arizona policy leaders and national experts in the policy issue under consideration. Previous issues of Arizona Policy Choices include: Balancing Acts: Tax Cuts and Public Policy in Arizona Growth in Arizona: The Machine in the Garden The New Economy: A Guide for Arizona







But APC is much more than a report. It is designed to stimulate debate, inform decision making and be a reference for the future. An integral part of the APC project is engagement of citizens and public policy leaders in discussions of the topic and the policy choices associated with it. APC has garnered respect in Arizona and across the country because the volumes have presented creative thinking on leading-edge topics. Morrison Institute continues that tradition this year with Five Shoes Waiting to Drop on Arizona's Future. The research, analysis and recommendations presented in the following pages offer a new approach to five issues of vital importance to Arizona. I invite you to study the issues here and to use this publication as a basis of discussion with others.







Rob Melnick, Ph.D., Director, Morrison Institute for Public Policy School of Public Affairs / College of Public Programs / Arizona State University







A P C Re s e a r c h Team



Ma r y Jo Waits, A P C Pro j e c t Director, As s o c i a te Director, Mo r r i s o n Institute for Public Policy Mark Muro Senior Research Analyst



Mor r is on Institute for Public Policy







Tina Valdecanas Senior Research Analyst



Mor r is on Institute for Public Policy







Christina Kinnear Graduate Assistant



Mor r is on Institute for Public Policy







With Assistance From:



Re b e c c a Gau, Pa t r i c k Hays, Ka r e n Leland, N i e l l e McCammon, R o b Melnick, C h e r y l e n e Schick and Alice Willey, M o r r i s o n Institute for Public Policy Wi l l i a m Fulton, S o l i m a r Research Gr o u p | Tom Rex, A S U Ce n t e r for Business Research | Karen Heard, C h a l k Design | Nancy Welch, T h e Insight Group







Cover Illustration by Brian Fairrington







This document is copyrighted ?2001 by the Arizona Board of Regents for and on behalf of Arizona State University and its Morrison Institute for Public Policy.







Okay, so... what's next?



Will the flaws in Arizona's outmoded tax system gradually render the state unable to pay for the public ser vices required for economic growth? Will the "next new thing" in technology mean Arizona will lose its competitive edge in microelectronic m a nu f a c t u r i n g ? Will poor educational opportunities for Arizona's Latino youths hold them back ? and hold the state's economy back as well? In fast-moving times like these, ever ybody wants to know: What's next? What's the next wave of social and economic change out there? As the NASDAQ sags and uncertainty grows, leaders especially want to know how to ride the next wave rather than be tipped upside down by it. And today, such nimbleness matters even more. Foresight is everything now. To paraphrase the editors of Fast Company magazine: The only sustainable form of leadership is "thought leadership," which perceives new dynamics quicker and makes smarter adjustments faster than the competition. In that spirit of anticipation, Morrison Institute for Public Policy presents Five Shoes Waiting to Drop on Arizona's Future ? its fourth Arizona Policy Choices report. Like its predecessors, Five Shoes is an attempt to help public policy makers deal with the present by anticipating the future. What do we mean by "shoes waiting to drop?" We mean the trends that are already well under way ? but that we can't quite see yet. We mean trends that could overwhelm us if we don't spot them now and aggressively use our knowledge to plot a positive course for the future. There are always plenty of shoes waiting to drop on our society. But the five we deal with here are the most fundamental ones ? those that could make or break Arizona's success in the future. They are: ? A Talent Shake Up ? Latino Education Dilemma ? A Fuzzy Economic Identity ? Lost Stewardship ? The Revenue Sieve All of these challenges require us to marshal the skills and the creativity of Arizona's most important resource, its diverse and energetic population. For in the end, Arizona's future depends on gathering the best efforts of all kinds of people and making sure they have the abilities and opportunities they need to create a prosperous, healthy society. To do that, we have to face the challenges head-on. Too often we say: "If only someone had warned us...we would have acted." Well, with these pages, five definite alarms endeavor to motivate constructive action before it is too late. So look out, Arizona! Shoes are waiting to drop. Let's not get stepped on.







Introduction







3







Waiting to







Five Shoes



Drop



Ta l e n t Shake Up



We think we're good at attracting brain p o w e r. B u t we're not as good as we think we are. And we may start losing it ? in both the public and private sectors ? if we don't work harder to land and keep tomorrow's footloose talent.



Ta l e n t e d Prospective Workers Have Reservations About Locating in Arizona Because of...



Poor Performing Public Schools



52%







o n Arizona's Future



E x e c u t i v e Summar y







What do we mean by "shoes waiting to drop?" We mean the trends that are already well under way ? but that we can't quite see yet. T h e s e trends could overwhelm us if w e don't spot them now and aggressively use our knowledge t o plot our course for the future.







L a t i n o Education Dilemma



L a t i n o youth are upwardly mobile already. But they need better education for Arizona to take full advantage of the possibilities this exploding population offers.



Latinos born in Arizona make up much of their immigrant parents' educational deficits.



U . S . - B o r n Mexican Americans Narrow the Education Gap



14 Average Years of Education 13 12 11 10 9 8 Immigrants Second Generation Third Generation



Third Generation Whites Average Education = 13.5 Years







Lack of Workforce Training Programs



27%







Image of Sprawling Communities



15%







Not Considered a "Cool" Place



14%







Lack of Cultural Diversity



14%







Not a Top-Tier Technology Hot Spot



10%







Lack of Environmental Amenities



2%







Brain power is everything for states in the new economy, and frequently it is provided by "yuppie baby boomers," well-educated y o u n g professionals and highly skilled i m m i g r a n t s . Un f o r t u n a t e l y, t h e baby boom is aging, and uncertainties surround Arizona's near-term ability to attract and re tain the best and brightest from that and other discriminating, hig hly mobile groups. Arizona risks losing out in the world-wide scramble for skilled workers to improve its standing in the knowledge economy.







S t i l l , o n l y half o f a l l Arizona Latinos obtain a high school diploma. This suggests the opportunity and challenge of educating t h e state's Latinos, w h o now represent roughly half of the under-18 population in Phoenix and Tucson. With effective education, the Latino young could become a potent new source of talent in the state. Without it their skills deficits will exacerbate Arizona's coming shortages of skilled labor. The bottom line: Arizona's future economic







The bottom line: Arizona must boost its quality of life to boost its ability to keep and attract the world's best talent. Page 6



4



A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







a n d social well-being depends heavily on erasing the educational deficits of the state's young Hispanic residents. P a g e 16







A Fuzzy Economic Identity



Arizona is growing high-tech jobs. But we haven't yet met the challenge of ensuring that we can excel in the new economy over the long term.



Name three things Arizona says it wants to b e great in. T h a t is hard to do because Arizona does not approach its economic future with a singleness of purpose. Many o f i t s leaders want to compete w i t h California, Texas and Colorado as centers o f t h e knowledge economy. B u t just as many others are content to keep on promoting Arizona as a perpetual construction machine or a retirement haven. This split personality is a stumbling block. Going forward, Arizona will lead ? or not ? depending on its desire and discipline to be distinctive and great in "new economy" ways. Arizona has ridden the "electronics wave" of the emerging new economy pretty well. But to catch the next wave, the state must overcome its narrow base of high-tech factories, its low-wage legacy and lack of intellectual facilities and talent working on "the next big thing ." In Arizona we "make" much more than we "think" and thinking is where future economic growth is likely to occur.



Arizonans Hope Arizona Will Be a Technology Leader in the Future



Technology



39%







L o s t Stewardship



Leadership has become a spectator spor t in Arizona.



Less than a quarter of Arizonans think state business and elected leaders care about Arizona's future.



Citizens' Perceptions of Arizona's Political Leaders



Political Leaders with a Narrow View



33%







T h e Revenue Sieve



Arizona's tax system is old and full of leaks.



Too many exemptions and too narrow a tax base hamper Arizona's ability to raise revenues efficiently. The proliferation of sales and income tax credits in the last decade is one case in point.



A Hodgepodge of Isolated Political D e c i s i o n s Throughout the 1990s Has Created a Revenue Sieve



Arizona Sales Tax Exemptions, 1950-2000



150







Weak Political Leaders



20%







Political Leaders Who Care Deeply About My Future



16%







Visionary Political Leaders



11%







Single-Issue Political Leaders



10%







N u m b e r of Exemptions







Citizens' Perceptions of Arizona's Business Leaders



Business Leaders with a Narrow View



28%







120







121







Business Leaders Who Care Deeply About My Future



22%







90







63



60







Visionary Business Leaders



16%







Single-Issue Business Leaders



11%







Weak Business Leaders



9%







30







22 1 1



1960







5



1970 1980 1990 2000







0 1950







Tourism



20%







Agriculture



13%







Manufacturing



8%







Real Estate



6%







Financial Services



5%







But They Think Arizona Will Be Known for Tourism and Real Estate



Tourism



38%







Real Estate



27%







Technology



19%







Manufacturing



6%







Agriculture



4%







Financial Services



2%







Whether Arizona evades the threats discussed in this report or overcomes them depends in large part on the extent to which Arizonans act as leaders. Many appear to be standing on the sidelines and waiting for others to make things happen. At the same time, tackling the future with a traditional leadership style ? focused only on single issues, set ideology, political survival and self interest ? won't help Arizona excel in the early part of the twenty-first century. For Arizona to succeed, its leaders must view themselves as stewards of Arizona as a p l a c e . I n the final analysis, a location remains only as precious and essential as its leaders and inhabitants believe it to be. So we have a clear leadership search: Who has enough intelligence, imagination, cooperation, and commitment to make the best use of the opportunities and challenges before the state and its regions? P a g e 34







Tax Year







Meanwhile, fundamental economic, techn o l o g i c a l and demographic trends are f u r t h e r eroding the effectiveness of a n outmoded tax system. Most notably, the state's continuing shift to a service economy, the rise of e-commerce and the simultaneous aging and Latinization of Ar izona all threaten to slow the growth of state and local tax collections even as service needs increase. T h e challenge is clear: E n s u r i n g the integrity of the system requires fundamental reform of a leak-filled structure that has grown too reliant on sales taxes. P a g e 42







P a g e 24







E x e c u t i v e Summary







5







A Talent Shake Up



We think we're good at attracting brain power. B u t we're not as good as we think we are. A n d we m a y start losing it ? in both the public a n d private sectors ? if w e don't work harder to land and keep tomorrow's footloose talent.



In today's "knowledge economy," what matters is the intellectual capacity of the workforce. Places succeed when they can mobilize their homegrown talent ? and attract new brain power ? to dream up the ideas, de v ise the processes, and execute the business plans that point the way to success. Since talent is mobile, however, a high-stakes competition has broken out among places to attract ? and keep ? three prominent demographic groups with the knowledge and skills required for a successful economy: aging baby boomers, young knowledge professionals and highly educated immigrants. Un f o r t u n a t e l y, A r i z o n a is not positioned well to attract and keep the know ledge workers it needs. Most of the state's immigrants tend toward lower skill levels. Meanwhile, Ar izona suffers from an image problem among the cutting-edge young knowledge workers who increasingly make regional economies go. These professionals tell researchers Arizona lacks the urban fabr ic, "coolness" and public schools they want. Finally, it's unclear whether, i n the twenty-first century, A r i z o n a can continue to attract the one welleducated group with which it has a track record: retirees. Baby boomers begin tur ning 55 this year, and there's no guarantee that they will embrace Arizona's t r a d i t i o n a l resort-style retirement communities as their predecessors have. Simply put: Ar izona does not yet have what it takes to win in the scramble for key talent. To fill the gaps, Ar izona must boost its quality of life. Since the best workers can choose where to live, Ar izona must move beyond its traditional "niches" by building distinctive world-class communities with world-class amenities. To do this, policy makers must understand precisely what the most discriminating talent groups really want, and then deliver it with an authentic Arizona twist ? whether it be vibrant new streetscapes and good schools or more options for continued employment later in life.



6



A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







TA B L E 1 Governments and Businesses Face Big Talent Shake Ups



Employer % Workers Under Age 35 % Workers Over Age 50







City of Phoenix Pima County Phoenix Union High School District State of Arizona Registered Nurses APS Raytheon Missile Systems



Source: Morrison Institute for Public Policy, 2001







25% 21% 23% 27% 14% 7% 18%







27% 33% 34% 34% 42% 24% 31%







FIGURE 1 E m p l o y e r s Say Talented Prospective Workers Have Reservations About Locating in Arizona Because of...



Poor performing public schools Lack of workforce training programs Image of sprawling communities Not considered a "cool" place Lack of cultural diversity Not a top-tier technology hot spot Lack of environmental amenities



0% S o u r c e : Morrison Institute for Public Policy, 2001







52% 27% 15% 14% 14% 10% 2%



10% 20% 30% 40% 50% 60%







The future of m o s t c i t i e s depends on their being desirable p l a c e s for consumers to live. A s consumers b e c o m e richer and f i r m s become mobile, l o c a t i o n choices are b a s e d as much on their advantages for w o r k e r s as on their a d v a n t a g e s for firms.



Edward Glaeser Harvard University







FIGURE 2 Know ledge Workers* and Amenities Tend to Correlate



HIGH







San Jose Atlanta Oakland Raleigh-Durham Austin D e t ro i t Orlando St. Louis Portland Houston Indianapolis Pittsburgh Kansas City San Diego







Knowledge Workers per 1,000,000 Population







Washington D.C. San Francisco Boston Dallas







R e g i o n s in the upper right quadrant possess both knowledge workers and amenities. Regions in the lower left quadrant lack both.







Denver Minneapolis-St. Paul







Tampa-St. Petersburg







Seattle







Philadelphia







B a l t i m o re Cleveland



HIGH







* Computer service workers have been used as a proxy for all knowledge workers. Amenities include arts and culture and more youth-oriented amenities. S o u r c e : Competing in the Age of Talent, 2000







PHOENIX



LOW LOW







Miami-Ft. Lauderdale



Amenities







A Talent Shake Up







7







I







ncreasingly Arizona's success will depend on how it reaches out to the best and the brightest in three demographic groups:







Baby Boomers: Will They Work or Play, Come or Stay Away?



The baby boom generation begins to turn 55 this year. Since one in four Arizonans is a boomer, the 55 milestone presages a potential "brain drain" in Arizona workplaces. As the best-educated, best-off generation in American history, baby boomers anchor Arizona's workforce and provide the bulk of its talent. Especially critical are the besteducated professional boomers. They may no longer be as youthful as they were when their status prompted the term "yuppies," but they are still the most valuable workers. Regions and communities that retain and attract the mobile, "demographically advantaged" segments of the baby boom will tap into a large pool of workers, entrepreneurs and civic participants. Regions that lack them, conversely, could struggle.







FIGURE 3 I n 20 Years, Young Workers Will Be Few in Comparison to Older Employees and Retirees



150%







? Yuppie baby boomers, who, at the peak of their productivity, may be anticipating a n "active retirement" w i t h perhaps a d i f f e re n t career, a new business or a return to school







? Young knowledge workers, who, in their 20s and 30s, want to do cutting-edge work in exciting places ? H i g h l y skilled immigrants, w h o are choosing places with inclusive commun i t i e s , f a s t - g r o w i n g economies and numerous options These constituencies loom large because talent matters so much now. In this knowledge economy, regions prosper by dint of their intellectual capabilities ? their people. The places that can claim the hearts and minds of the people who dream up fresh ideas and devise new processes will prevail over those that cannot or do not. As Harvard economist Edward Glaeser writes: "Skilled communities rise ? unskilled communities fall." Talent, however, is increasingly mobile, so a high-stakes scramble for it is in full swing. Well-educated, creative people ? whether they are foreign-born, 50-something or 20something ? move around a lot. Such people's activities are rooted in a global economic system characterized by rapid migrations of capital and people; their cosmopolitan sensibilities and many employment options make them peripatetic pickers and choosers among locations. Of course, all of Arizona's talent is valuable i n today's environment. S t i l l , a t t r a c t i n g a d d i t i o n a l brains and hands is crucial because Arizona's homegrown talent pool is not deep or broad enough for new economy success. Morrison Institute's recent statewide sur vey of Arizona employers confirmed the importance and challenge of attracting talent. More than half (52%) of the firms who recruit workers out of state rated poor schools, as well as other perceived quality of life deficits, as "major barriers" to attracting qualit y employees.



8







Percent Growth, 2001-2025







127%







100%







57%



50%







43%







33% 36%







0% 5-24 25-44 45-54 60+ All







Age Groups



S o u r c e : Arizona Department of Economic Security







Arizona and the Baby Boom Generation



Two trends raise questions about Arizona's standing with the baby boom generation: 1. In-state boomers' aging and retirement could create shortages of skilled workers. The inevitable aging of the state's resident boomers prompts concern because more and more of Arizona's most experienced workers are hitting retirement age. Between now and 2030 the proportion and real size of the over-60 population will grow from 17 percent of the population (about 900,000 people) to 27 percent (about 2.7 million) a c c o r d i n g to Arizona Department of Economic Security projections. Predictions abound about baby boomers' preferences for the future, but no one really knows whether boomers will continue the current trend toward earlier retirement or stay in the workforce longer. What is certain is that those who are aged 39 to 55 today account for about 1.5 million of Arizona's 2.7 million working-age residents, or 56 percent of them. Seniority alone implies that this half of the state's workforce comprises the core of managers, supervisors and lead workers. But now, these critical producers are entering the traditional downshifting years. In just 10 years, 500,000 Arizonans w ill turn 60. In the next 20 years Arizona







b u s i n e s s e s and organizations will face replacing hundreds of thousands of employees at the top of their games from the smaller "baby bust" that followed the boom. Already, Arizona employers are watching their workforces grow older as they struggle with the worker scarcities created by the 1990s economic boom. In health care, the a v e r a g e age of t h e registered nurses now hovers at 48. In education, a third of Phoenix Union High School District employees are 50 or older. Among governments, 65 percent of Pima County's employees, 70 percent of the city of Phoenix's and 61 percent of state w o r k e r s are over 40. B i g private-sector employers are not much younger. Half of Raytheon Missile Systems' employees are 45 o r older. At APS boomers make up 70 percent of the workforce; half the workers there are 45. Staffing will only get harder. For a while "late wave" boomers will move up to fill more senior positions. In 20 years, though, the challenge will toughen. Then, the smaller size of the younger cohorts now early in their work lives hints at a shortage of exper ienced workers. Ar izona's population is projected to increase by 57 percent by 2025, but the pool from which the state draws its t o p employees, t h o s e aged 45 to 54, w i l l increase a comparatively modest 36 percent







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







(see Figure 3). Thus, a substantially bigger Arizona economy could include proportionally fewer veteran workers to run it. 2 . T h e changing tastes of o u t - o f - s t a te "empt y nesters" and high-end retirees could leave Arizona out of the game of attracting them. The second issue that raises concerns about Arizona's ability to attract and retain the most desirable cohorts of aging boomers involves the increasing sophistication of those groups. The reality is that the most desirable boomers may choose to go elsewhere just when Arizona needs them most. Arizona has profited from the wealth and spending of the 15,000 to 20,000 retirees it attracts from other states each year. To be sure, accommodating these migrants has demanded a lot of Arizona. But their arrival has brought an influx of financially secure, active and educated new citizens to the state. Only Florida has welcomed more of this "advantaged" segment than has Arizona. Yet now the process of attracting talented







retirees and well-heeled migrants may be changing. Migrants represent a new talent source for states, for one thing. At the same time, "yuppie" seniors appear to be different from their predecessors. Better-educated and increasingly affluent (see Figure 4), aging boomers are also healthier, choosier and less group-oriented in comparison to previous generations. Amenities, aesthetics and the environment count for a lot with them, since economic security is not an issue. Boomers are sophisticated consumers of "place" and appear ill disposed to spend their twenty "new" years of added lifespan according to old patterns. Given that, fewer boomers may settle for Arizona's traditional menu of retirement options (see Table 3). Some retirees, even now, are being turned off by the congestion, pollution and loss of open space affecting Arizona's retirement communities. Others might avoid metro Phoenix's worsening "heat island," which has increased summer nighttime low temperatures by 10 degrees F i n the last 30 years. O t h e r boomers may s p u r n senior-only settings altogether. D e m o g r a p h e r s William Frey and Ross







DeVol of the Milken Institute foresee diminished demand for mass-market, age-segregated retirement communities like Sun City. Frey and DeVol, along with other experts, suspect some empty nesters will be looking for more centrally located multi-age developments in high-amenity communities, perhaps so they can easily continue working. In all this, local amenities and quality of life will be critical selection factors. Restaurants and theaters, architectural and landscape aesthetics and efficient transportation are key draws for these discerning consumers. A final draw will be opportunities for selfi m p rove m e n t and engagement. Q u i n te s s e n t i a l l y the "education generation" a n d fond of work, boomers seem certain to seek places that facilitate lifelong learning and ongoing employment. Regions that cater to these passions will garner vital new stores of human capital.







Arizona Lags in Young Talent for a New Economy



Highly educated young professional, technical and creative workers are also critical. Unfortunately, Arizona now has fewer of the







FIGURE 4 B o o m e r s are More Educated and Professional Than Their Parents and Have Had Different Life Experiences



Less than High School College Graduate Selected Attributes at Age 35-44 Persons in Poverty Women in Labor Force Men with Professional/Managerial Jobs Women with Professional/Managerial Jobs Married Couple Household Female-head Household Non Family Household Divorced or Separated Never Married Women Who Have Not Had Children Women with Three or More Children



0% 20% 7% 11% 7% 18% 12% 30% 55% 40% 60% 80% 100% 14% 10% 19% 17% 17% 19% 64% 89% 29% 29% 83% 9% 6% 77% 50% 14% 38% 27% 13%







P e rc e n t a g e



Early Baby Boomers Born: 1946-1955, Retire: 2011-2019 S o u r c e s : Milken Institute, U.S. Census Bureau Boomer Parents Born: 1926-1935, Retire: 1991-2000







A Talent Shake Up







9







prized, young knowledge workers than it should have, and the state lags behind on the assets, amenities and reputation that might a t t r a c t them. T h e problem is twofold: Ar izona ranks only moderately well on measures of current workforce skill, and it f a r e s poorly on the sort of f a c t o r s that young knowledge workers say affect their location decisions. In terms of present talent levels, Arizona cannot claim to have the critical mass of knowledge workers that numerous comment a t o r s deem critical to economic success. Granted, the state scores rather well on several measures of human competency. For example, Arizona ranked 12th among the 50 states on the Progressive Policy Institute's most recent measure of overall workforce education. This ranking, howe ver, stems from the educational achievement of adults ( 2 5 - 6 5 years old), m a ny of w h o m have moved to Arizona, rather than from young homegrown talent ages 20-24.







TA B L E 2 Ar izona's Ranking Among the 50 States Dropped from 20th in 1991 to 37th in 2000 for Residents with a Bachelor's Degree



Est imated Percent of Populat ion Over 25 Years of Age Attaining a Bachelor's Degree or More By State: 1991 & 2000



2000 Rank 1991 Rank P e rc e n t Change Rank Estimated Percent of Population with Bachelor's Degree or More (2000) Estimated Percent of Population with Bachelor's Degree or More (1991) P e rc e n t Change







State







44 18 37 50 13 3 4 19 1 28 29 13 40 15 45 38 16 49 46 35 5 2 31 12 47 33 19 23 48 8 6 24 11 39 29 42 43 19 32 22 33 26 41 27 17 10 7 9 51 36 25







46 12 20 50 13 2 4 33 1 32 27 6 39 14 48 43 10 47 36 31 11 3 44 21 49 34 28 19 41 7 8 24 16 38 21 36 30 15 39 18 42 35 45 25 2 4 17 9 51 28 26







6 43 49 15 30 46 24 2 19 18 38 47 28 34 1 10 41 26 44 27 9 25 4 11 7 20 14 40 49 30 22 33 16 21 45 37 48 41 13 35 8 12 3 35 17 51 5 32 23 39 29







Alabama Alaska ARIZONA Arkansas Califor nia Colorado Connecticut D e l a w a re District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma O re g o n Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont V irginia Washington West Virginia Wisconsin Wyoming U . S . Average







20.2 26.0 22.5 16.6 27.5 33.4 33.3 25.6 41.1 23.4 23.2 27.5 21.1 27.0 19.9 22.2 26.9 17.2 19.5 22.8 31.5 34.9 23.1 28.0 18.6 22.9 25.6 25.1 18.3 30.0 31.1 24.5 28.2 22.0 23.2 20.7 20.3 25.6 23.0 25.4 22.9 23.6 20.9 23.5 26.8 28.3 30.2 29.5 14.1 22.7 24.0 25.1







15.4 24.5 22.5 13.7 24.2 32.2 28.4 19.3 34.4 19.5 20.9 27.0 18.4 24.0 14.7 17.6 25.0 14.8 18.6 19.7 24.9 29.8 17.5 22.3 14.5 19.2 20.5 22.7 18.3 26.4 26.2 21.6 23.4 18.5 22.3 18.6 20.2 23.8 18.4 22.8 17.9 18.8 15.8 21.1 22.3 28.4 23.0 26.0 11.9 20.5 21.0 21.4







31.2 6.1 0.0 21.2 13.6 3.7 17.3 32.6 19.5 20.0 11.0 1.9 14.7 12.5 35.4 26.1 7.6 16.2 4.8 15.7 26.5 17.1 32.0 25.6 28.3 19.3 24.9 10.6 0.0 13.6 18.7 13.4 20.5 18.9 4.0 11.3 0.5 7.6 25.0 11.4 27.9 25.5 32.3 11.4 20.2 -0.4 31.3 13.5 18.5 10.7 14.3 17.3







Indicators of Talent Problems



As Table 2 shows, Arizona ranks 37th among the 50 states on the percentage of the population with a bachelor's degree. Just 22.5 percent of Arizona's over-25 population boasted a bachelor's degree or more in 2000 ? an average education level. More disturbing, however, is the fact that Arizona's standing deteriorated from 20th among the states in 1991 to 37th in 2000. Nor does a tighter focus on high tech improve the picture. Civilian scientists and engineers make up just .35 percent of the state's workforce, compared to a national incidence of .43 percent, according to the P r o g r e s s i v e Policy Institute. S i m i l a r l y, Arizona's per capita employment in hightech, knowledge-intensive industrial sectors ranks slightly below the national average. Arizona has 50 workers per 1,000 residents working in knowledge-intensive sectors, compared to 207 in top-ranked Washington, D.C. and 64 in Colorado. But those numbers refer to who is here now. What may matter more to Arizona (or to any of the state's regions) is the ability to add to the present talent base by attracting w e l l - e d u c a t e d 20-somethings and 30somethings from other parts of the country.



10







Sources: State Science & Technology Institute, www.census.gov







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Experts associate economic success with clusters of these frequently unattached young workers with the latest and greatest skills. At the same time, these valuable workers move far more frequently than less-educated individuals, and they often pick locations as much as, or more than, they choose jobs. Such mobility and adventurousness imply that these young itinerants could be recruited. Arizona, however, faces problems on this front.







TA B L E 3 Advantaged Boomers Define the Good Life



Ages 39 ? 55







Defining Experiences Common Ideas Outlook Ethic Habitat







The Sixties and Watergate Achievement, quality, individuality, meaning Youthful, cosmopolitan Striving, seeking, adventuring Outlying planned communities, plus



In-town established neighborhoods In-fill developments in areas of interest Small-scale, highly urban developments







Residence







Customized diversity



Single-family luxury homes on the fringe "Convenient" suburban Townhouses, condos (implies density)







New economy observers Richard Florida, Terr y Nichols Clark and Doug Henton have documented the preferences of these vanguard workers (see Table 4). Henton says the young itinerants gravitate to "vital centers" that provide opportunities to get together, vibrant street scenes and quick access to urban greenspace. Clark believes they flock to cities that are "entertainment machines" full of such things as parks, bohemian arts scenes, and dense neighborhoods filled with exotic cuisine and nightclubs. Richard Florida tallies interest in diversity; subways or light rail; places to see "visibly active young people;" and casual gathering places. Morrison Institute's recent survey of metropolitan Phoenix residents revealed similar currents. Respondents under age 30 were more likely than older ones to support promoting the state for its "great quality of life," its "smart people" and its arts scene. Such views highlight what appeals to the young here and elsewhere.







Amenities







Sun, dry climate, proximity to ocean



Good schools if kids still at home Performing arts Open space/natural environment Efficient transportation







Lifestyle R e c re a t i o n Later Years







Enlightened consumption Entertainment options Walking, hiking, biking, working out "Now I can do what I really want."



S e l f - i m p ro v e m e n t Different work and volunteer experiences "Back to school at 60 ? start a business at 70" Computer rooms, health spas, classrooms







Sources: Rocking the Ages: The Yankelovich Report on Generational Marketing; Meyers Real Estate Information Inc.; Age Power; "The Consumer City;" "The City as Entertainment Machine"







TA B L E 4 Young Knowledge Workers Redefine the Good Life



Ages 20s and 30s







Defining Ideas Outlooks Ethics Habitats







Pluralism, tolerance, the Web Precocious, entrepreneurial Adaptability, pragmatic Urban centers University areas Cyber-districts Revitalizing neighborhoods "Industrial" loft spaces Eccentric urban apartments Convenient condos Rehabbed housing Compact density Meeting places Light rail or subways V ibrant night life Environmental quality Exotic consumption



Alter native entertainment Independent theater and film







Arizona May Not Have What Young Workers Want



Yet other research suggests that Arizona does not yet offer what many of the nation's smart young workers say they want. The institute's employer survey showed that a third to a half of Arizona companies that recruit workers from out of state thought that recruits did not perceive Arizona as a "cool," vibrant place for young professionals. Fourteen percent of companies thought this a major barrier to attracting the types of workers they want and need. Richard Florida has cross-referenced various cities' densities of knowledge workers with their amenity rankings in Money Magazine



Residences







Amenities







Lifestyle







R e c re a t i o n







Roller-blading, mountain biking







Sources: Rocking the Ages: The Yankelovich Report on Generational Marketing; "Competing in the Age of Talent;" "Linking the New Economy to the Livable Community;" "The City as Entertainment Machine"







A Talent Shake Up







11







and POV Magazine. While not focused solely on those under 30, the analysis captures the sort of distinctions younger cohorts make so sharply. In general high technology success correlates with high amenity value in this analysis. Without exception Phoenix ranks low on measures of "overall environmental quality," "overall amenities,""arts and culture" and "coolness". The upshot: The region's low amenity ratings represent a critical human resources problem. Arizona does not yet have what it takes to win in the scramble for young professionals ? a scramble that is growing urgent.







there is foreign-born; and almost one-third of Silicon Valley's scientists and engineers hail from foreign countries. Even more strikingly, roughly a quarter of new Silicon Valley businesses started since 1980 have been started by someone who was born in China or India. The figure increased to more than 30 percent between 1995 and 1999. Such immigrant-driven entrepreneurship highlights a potential boon from Arizona's growing diversity, but also underscores continuing deficits. Census 2000 shows Arizona's Hispanic population surged 88 percent since 1990, and that its Asian population grew by 67 percent. Nevertheless, Arizona's mix of people and skills remains less than optimal. Latino education levels are comparatively low while fewer than 100,000 Asians (2% of the population) reside in the state. For now, at least, California still dominates the contest for high-skill immigrants among Western states.







moved with dispatch it could still help itself in the talent race. In this regard, the state's recent population growth across all age and racial groups points to general strengths in attr acting each of the future's three desirable groups. In general terms, Arizona is growing quickly and that brings talent. According to Census 2000, Arizona added 1.5 million new residents in the last decade, more than all but four states. Likew ise, five of the nation's fifteen fastest growing cities with populations more than 100,000 are in Arizona. By contrast, other states and their cities are increasing slowly, or shrinking. T hat places Arizona emphatically among the states that are gaining raw human capital. Indeed, Arizona offers several of the attributes that Edward Glaeser's analyses for the B ro o k i n g s Institution associate with fast growth (though it lacks high percentages of highly educated residents). Most notably, A r i z o n a lies in the warm, d r y West; i t s economy provides easy access to services and work; and it attracts many immigrants. These are important strengths in the search for human capital. But as Arizona looks to the next phase of the scramble for talent stubborn uncertainties intrude. Arizona clearly lacks the compact, walkable, heavily "amenitized" urban centers that increasingly appeal to highly educated residents. Arizona also faces a serious environmental hurdle in selling itself to choosy migrants as the heat island effect makes notoriously hot Phoenix hotter. Yet even here, Arizona possesses important edges in the talent battles. Arizona's Sun Belt setting and proximity to California, for example, remain powerful assets. Meanwhile, most of the state's deficits can be fixed relatively easily. Policy makers retain substantial power to boost the state's appeal to desirable groups by creating more vibrant, peoplefriendly urban scenes. Leaders can address the state's education lags, and work to keep its older populations engaged. Should they do so, decision makers may well find that Arizona's current demography is not destiny.







Immigrants: Potential Sources of Skills and Strength



Arizona, finally, is fortunate to be a gateway state for new residents from other countries. N u m e r o u s studies associate economic strength with the readiness to "harness diversity," welcome newcomers and turn their energy and ideas into innovations and wealth. One expert goes so far as to correlate high-tech industry with the percentage of a region's population that is foreign born. T h e issue for Arizona, t h o u g h , i s that while foreign-born residents bring benefits, t h e state's newcomers come with a wide array of educational experiences. Arizona's current immigrant population tilts to the l o w end of t h e education spectrum. Specifically, the vast majority of Ar izona's foreign-born immigrants arrive from Mexico, where they commonly receive no more than nine years of education. Approximately four p e r c e n t of Me x i c a n newcomers possess a d v a n ce d university degrees. By contrast, large flows of Asian and Indian immigrants, with far higher rates of college attendance and with approximately 20 percent having advanced degrees, give a potent talent edge to California.







And So the Shoe Could Drop



The implication is clear. If it is unable to prevail in the race to woo footloose talent as the boomers retire, Ar izona could see its recent new economy progress stall. Put it this way: Ar izona's second-tier ability to augment its workforce with skilled immigrants, experienced boomers and young c r e a t i v e types throws into question the quantity and quality of its talent base. In t e r m s of q u a n t i t y, t h e purely numerical difficult y of replacing the state's retiring b o o m e r s from among the ranks of t h e smaller baby bust alone foretells problems. Absent the recruitment of new talent from elsewhere, shor tages of skilled labor seem likely. But the quality of the state's workforce also hangs in the balance, since every community's prospects turn in part on luring the wo r l d 's best-educated, m o s t creative and m o b i l e people. B y that formula, D e nv e r, Seattle, and Portland will continue to rise and g reater Phoenix and Tucson could falter.







The Immigrant Advantage



Wit ness the human capital advantage enjoyed by Silicon Valley, thanks to its highly educated, hig hly entrepreneurial immigrants. Nearly a quarter of the population



12







Cause for Optimism



But those are the fears. For all this Arizona seems well enough positioned that if it







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Policies to Win in the Scramble for Talent



Turning the scramble for talent into a human re s o u rce bonanza depends on providing attractive places for all people to call home. To succeed at this, Arizona must: Put ambitious, Arizona-style quality of life upg r ades near the center of state and regional economic development efforts. Policy makers should notice that several themes run through the expressed preferences of the three major talent cohorts. Cities seem to draw all of the groups. Good schools attract knowledge workers with y o u n g families just as much as they do u p w a r d l y mobile Latino career people. Interest in people-friendly streetscapes, inclusiveness and gathering places seems to cut across the categories. Opportunities for l i f e l o n g learning and retraining will also appeal widely to all three constituencies of strivers. Research also suggests the convergence of boomers' and young professionals' preferences on other quality-of-place agendas, thoug h data is thin on immigrants. Both groups are full of "doers" who appreciate n u m e ro u s venues for active recreation throug hout the city and region, including bike paths, nature preserves and mountainbike trails. Similarly, culture and the environment appear to be critical. Env ironmental, open space and smart growth initiatives impress both well-educated groups, as do performing arts venues. Conveniently, such a g e n d a s popular with highly-educated potential Arizonans enjoy broad popular support within the state as well (see Figure 5). With these trends in mind, ver y different choices for economic policy emerge. A decade ago, cities and states studied what







music, also fostered rich connections between its youth culture and its technology sector. C h i c a g o, w h i c h recently took Boeing's headquarters from Seattle, a p p e a r s to be co n ce n t r a t i n g on lifestyle also. C h i c a g o's main industry today, according to University of Chicago economist Terry Clark, is entertainment, defined as including tourism, conventions, restaurants, hotels, and related amenities. Conscious of this new role for the city, Mayor Richard Daley has focused on enhancing the many aspects of a distinctive urban lifestyle from architecture to schools and parks. For example, he proudly claims to have planted more trees than any other mayor in history, around one million, as par t of a commitment to the environment a n d city aesthetics. H e also asked the Leg islature for authority to take over the C h i c a g o Public Schools and the Parks District. Both moves were part of Daley's agenda "to do all those things which make a city a livable and pleasant place." D a l e y is one of s e v e r a l big-city mayors who in the past decade focused on public amenities, including education, as central to urban economic development. O t h e r s include Richard Riordan in Los Angeles, Rudolph Guiliani in New York, Ed Rendell in Philadelphia and Stephen Goldsmith in Indianapolis. Prepare for the talent crunch. A r i z o n a policy makers need to develop a n u a n c e d understanding of t h e age and migration trends that are rapidly altering the size and character of labor markets, and begin improving Arizona's public and private institutions' standing in the talent competition. Businesses and agencies concerned with the economy, for example, should look closely at the labor supply implications of the boomers' aging. They may find organizations face greater staffing challenges than t h e y thought. G o v e r n m e n t s should be even more urgent about replenishing a dwindling talent pool. Pa u l Light of t h e



A Talent Shake Up







FIGURE 5 T h e Relationship Between Amenities and Knowledge Workers



0.6







C o r re l a t i o n







0.4 0.2 0 -0.2 -0.4 -0.6 High School Some College Bachelor Graduate Degree Degree







Education Attained



Diversity Culture Recreation







S o u r c e : Collaborative Economics, 2001







individual companies wanted and competed for them with "private goods," or customized tax breaks and other incentives to lower costs. Now with a knowledge and service-centered economy, the new choice is to compete for talent groups with "public goods" ? amenit i e s such as clean air, i n te re s t i n g public spaces and good schools. Understanding the desires for amenities is, of course, far more complex than deciding on tax breaks. Nevertheless, Seattle, Portland, Austin and Chicago and other cities are engaged in amenity strategies that appear to be paying off. Seattle, Portland and Austin have become centers for the development of information technology in part because of their lifestyle amenities. Both cities have set the pace in implementing smart growth strategies, and in their recent dramatic growth. Both have aggressively included cultural initiatives in t h e i r public agendas. S e a t t l e , h o m e to Microsoft, has been a site of cultural as well as technological innovations, especially in y o u t h culture. Au s t i n , w i t h its country







13







Brookings Institution warns that government's problem in competing for talent is twofold. "First, its hiring system for recruiting talent, top to bottom, falls short at almost ever y task it undertakes. It is slow in hiring, useless in firing...out of touch with actual performance rewards, penurious in training...Second, government appears less and less able to provide the kind of work that today's labor market expects. There is no question, for example, that young Americans are more highly attached to work than previous generations or that the most talented among them can demand more from their employers." Light also writes that "if governments do not want to be the employer of last resort, they must become the recruiters of first approach. They can derive little comfort from having hundreds of names on their application lists if those names come from the bottom quarter of classes or are drawn to government for the security." Ease the coming skills crunch by keeping boomers engaged through initiatives to promote "productive aging," "rehir ing" and retraining. A final way to increase Arizona's talent stock is to ensure that fewer of its mainstay workers disengage from productivity. Arizona should therefore make itself a national leader in d e v e l o p i n g a new vision of "p r o d u c t i v e a g i n g " a i m e d at engaging older citizens in meaningful work, lifelong learning and volunteerism. In the workplace, Arizona businesses and governments must become far more adept at a t t r a c t i n g , r e t r a i n i n g and retaining topf l i g h t older workers. I n s t e a d of n u d g i n g older workers toward retirement, employers should be retooling their workplaces to provide the flexible schedules, phased retirements and skill updates that will help keep aging boomers in the workforce.







In like fashion, Arizona must become an education mecca where "lifelong learning" e x t e n d s richly into the later years. T h i s too will unleash local talent and attract migrating boomers. More and more older Arizonans may also want to give back to society in the next two decades. Their energies could flood Arizona neighborhoods, schools, parks and community organizations with desperately needed human resources. In light of that, Arizona institutions must find ways to capitalize on boomers' availability. Organizations with traditional needs for help must determine what will interest a new brand of volunteer, whether a voucher for a free class or flexible scheduling. Meanwhile, new avenues for c i v i c engagement should be opened. Neighborhood groups might emulate Big Brothers/Big Sisters branches around the countr y, which are now recruiting older mentors. Corporations could develop phased retirement options that give employees the opportunity to try out options for a new career. And Arizona governments might help unlock boomer energy. Florida and South Carolina, for example, have facilitated the relicensing of retired physicians to encourage their service in free clinics for the uninsured. On a grander scale, Arizona might adapt author Marc Freedman's proposal for a national "Third Age Bill" d e s i g n e d to guide millions of ag ing Americans into new roles strengthening communities through volunteerism. Such creative approaches to a g i n g would set Arizona apart as a destination for highly educated older workers. In the end, Arizona leaders need to think far more strategically than they have about what prized groups want in a place and then work to provide it. In the knowledge economy, what the talented desire must be served.







14







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







A r i z o n a n s Want the State to be Known as...



Best Quality of Life Best Educated Population Best Place to Retire Highly Ethnically Diverse Population Best Managed State Best Place to Start a Business No Answer 5% 2%



Percentage of Respondents Who Favor Various Reputations for Arizona S o u r c e : Morrison Institute for Public Policy, 2001







35% 28% 14% 9% 8%







Shoe One: The Education Bomb







15







Latino Education Dilemma



Latino youth are upwardly mobile already. B u t they need better education for Arizona to take full advantage of t h e possibilities this exploding population offers.



Arizona's fast-growing, layered Latino1 population offers the state tremendous promise ? and a challenge. Even more than the aging of the baby boomers, the fast growth of Arizona's Latino population is altering the state dramatically. Immigration and natural increase have added 600,000 young Latino residents to the state's population in the last decade. Half of the population under 18 in both Phoenix and Tucson is now Latino. Within 20 years, Latinos will make up half of the homegrown entry-level labor pool in the state's two most important labor market areas. At a time when many states are suffering labor shortages because of modest population growth, this is a great opportunity to build a foundation for future prosperity in the state. Not only are Latinos growing in population, they are also upwardly mobile ? when they get a good education. Most people don't notice it, but Latinos born in Arizona already make up much of their parents' economic and educational deficits in a single generation. Unfor tunately, Ar izona and its Latinos may not be able to seize their opp or tunity. Far too many of Arizona's Latinos drop out of high school or fail to obtain the sound basic education needed for more advanced study. As a result, educational deficits are holding back many Latinos ? and the state as well ? as the economy rushes forward. To be sure, construction and low-end service jobs continue to absorb tens of thousands of immigrants with little formal education. But over the long-term many of Arizona's Latino citizens remain ill prepared to prosper in an intellectually demanding knowledge economy. And that means the state's higher-end jobs could go begging. The educational uplift of Ar izona's huge Latino population, therefore, must move to the center of the state's agenda. Arizona's future prosperity depends heavily on making high quality early education ubiquitous in Latino neighborhoods, launching an urgent urban schools initiative and improving the "pipeline" that moves Latino students from high school into higher education, particularly in technical fields.



1







The words Latino and Hispanic are used synonymously in this publication.







16







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







MAP 1 Fast-Grow ing Hispanic Populations Give Arizona and the Sun Belt Demographic Advantages







FIGURE 1 A r i z o n a is Becoming Far More Hispanic*...Fast



1990 Population Breakdown by Race and Ethnicity (Total 3,665,228)







White 72% Hispanic 19%







Asian Black Hispanic Multiethnic Native American White



A s i a n 1% B l a c k 3% A m e r i c a n Indian 5%







2000 Population Breakdown by Race and Ethnicity (Total 5,130,632)







How to Read This Map: Nationwide, Blacks account for 12.6% of the total population. In areas shaded grey they account for more than 12.6% of that region's population. Similarly, Hispanics comprise 12.5% of the country's total. In areas shaded red they make up more than 12.5% of the region. Asians account for 5% of all Americans. In areas shaded g re e n their numbers exceed the national average. Native Americans make up 5% of the country's total. Sections shaded brown have a Native American population greater than that. In areas shaded blue there are concentrations of two or more minority groups. Finally, white sections may have minority representation, but no one ethnic group exceeds its national percentage. Source: Steve Doig, Arizona State University. Based on map by William H. Frey for American Demographics, June 2001. Used by Permission.







White 64% Hispanic 25%







B l a c k 3% A s i a n 2% A m e r i c a n Indian 5%







FIGURE 2 To o Few Latino Students Meet Arizona's Standards of Academic Achievement



AIMS 2000 ? GRADE 5 100% 80% 60% 40% 20% 0% Hispanics Whites READING Hispanics WRITING Whites Hispanics M AT H Whites







T h e Young are Even More Often Hispanic



1990 Population Breakdown Under 18 Years by Race and Ethnicity (Totall 874,777) ( To t a 978,783)







White 60% Hispanic 27%







B l a c k 4% A s i a n 1% A m e r i c a n Indian 8%







B y 10th Grade, Latino Students Have Fallen Even Further Behind Their Peers



A I M S 2000 ? GRADE 10 100% 80% 60% 40% 20% 0% Hispanics Whites READING Falls Far Below the Standard Hispanics WRITING Meets the Standard Whites Hispanics M AT H Exceeds the Standard Whites







2000 Population Breakdown Under 18 Years by Race and Ethnicity (Total 1,366,947)







White 50% Hispanic 36%







M u l t i r a c i a l 2%







B l a c k 3% A s i a n 2% A m e r i c a n Indian 7%







Approaches the Standard







* Totals may add up to more than 100% because Census 2000 permitted individuals to report more than one race. Source: Census 2000







S o u r c e : Arizona Department of Education







Latino Education Dilemma







17







H







i s p a n i c s n o w re p r e s e n t 2 5 percent of all Arizonans and 36 percent of those under 18 years of age. Large-scale migration ? superimposed on a sizable native Hispanic population ? i s creating a significantly more Latino state. Other minority groups' p opulations have also grown significantly in recent years. The focus here is on Latinos because of their large share of the population, but the concerns, ideas and recommendations that follow apply equally well to, and are equally important for, any group concerned w ith economic status and success in the new economy. "Latinization," meanwhile, is affecting all of Arizona, although its impacts are felt more keenly in some places than in others. To be sure, the broad trends are dramatic. Between 1990 and 2000, Arizona's Hispanic population grew 88 percent, triple the figure for w h i t e growth. Ye t the statewide picture obscures local variations in recent Latino growth and the fact that Hispanics are clustering in the state's most urban areas (see Map 2). The city of Phoenix, for example, absorbed more than 40 percent of the state's Latino growth. Latinos now make up 39 percent of Phoenix's population, with much of the growth concentrated in central and south Phoenix neighborhoods. Another trend is Latinos' youthfulness. In 2 0 0 0 , n e a r l y 40 percent of t h e state's Latino youth consisted of those who were under age 18 at decade's end. In Phoenix and Tucson Latino children accounted for m o r e than 85% of t h e 10-year growth of t h e under-18 population. H i s p a n i c s now account for half of the K-12 population in the two cities. Such youthfulness has implications for Arizona's schools and workforce. Within 10 years in the state's biggest cities, the number of Latino high school graduates will equal the number of white graduates. Within 20 years Hispanics will make up approximately half of the homegrown, entr y-level labor pool in the state's largest economies. Today's young Latinos will be entering their prime w o r k i n g years just when experienced







employees will be needed to help replace the baby boomers.







The Education Fault Line



To o many Latinos, howe ver, fail to acquire t h e education, t r a i n i n g and mentoring needed to succeed in a skills-based economy. Barely half of Arizona Hispanics, for example, obtain a high school education. In part, this reflects that half of Mexican Hispanics a r e foreign-born, a n d that the typical Mexican immigrant has completed less than







n i n e years of e d u c a t i o n , a figure that depresses aggregate statistics and obscures t h e greater achievements of U. S . - b o r n Mexican Americans. The deficit also stems from an annual high school dropout rate for Hispanic students that, at over 15 percent, d o u b l e s the figure for white students, a c c o r d i n g to the Arizona Department of Education. Either way, just 52 percent of Hispanics in the West possess a high school education. That compares with an 85 percent diploma rate for whites.







MAP 2 Ar izona's Latino Population Clusters in the South (and in Cities)







Mohave







Coconino







FLAGSTAFF







Navajo







Apache







Yavapai







La Paz







HOENIX







Gila







Greenlee



YUMA







Yuma







Pinal







Graham







TUCSON







Pima Cochise Santa Cruz







Percent of Population that is Latino in Arizona by Census Tract, 2000 35% or More 16% to 34% 9% to 15% 8% or Less Capital City Major Cities



0 0 50







Data Source: US Census Bureau, PL 94-171, 2000 Map created by IT Research Support Lab ? GIS Services Summer 2001







Kilometers 50 Miles







P







18







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Nor is the achievement of t h e Hispanic students who stay in school adequate. ? In 1998 just eight percent of Arizona Hispanic fourth-grade students were "proficient" readers, according to the Na t i o n a l Assessment of E d u c a t i o n Progress (NAEP). ? I n 1996 Hispanics' e i g h t h - g r a d e science and math NAEP scores lagged the white national average by 36 and 30 points respectively. ? In 2000 88 percent of Hispanic 10th graders fell "far below the standard" f o r math proficiency set by the A r i z o n a Instrument to Measure Standards (AIMS). ? In 2000 just six Arizona Latinos took the advanced placement (AP) comp u t e r science examination, a n d Latinos remain underrepresented in all AP courses. Hispanic participation in higher education is also a concern. Eight percent of Hispanics over 25 in the West have completed four years of college, compared to 31 percent of w h i t e s , a c c o r d i n g to the U.S. C e n s u s Bureau. In Arizona, Latinos earned 1,835 bachelor's degrees from state universities in 2000, just 12 percent of those awarded, though Latinos represented 25 percent of the state's population. Such figures are one reason just over 20 percent of Arizona r e s i d e n t s 25 years and older possess a bachelor's degree ? a figure significantly b e l o w the 25.2 percent regional average. Among Hispanics who do graduate, moreover, few have chosen science, technolog y a n d engineering (STE) fields. I n those a r e a s , A r i z o n a Latinos are significantly u n d e r re p re s e n te d , o b t a i n i n g 221, o r nine p e r c e n t , o f t h e state's STE bachelor's degrees in 2000. Just four Arizona Hispanics received Ph.D.s in science or engineering in that year. S u c h outcomes challenge the state with s e r i o u s skill deficits just when success r e q u i r e s more intellectual resources. Given this reality, Arizona and a substantial







E d u c a t i o n is good for state revenue: In Arizona, 3 1 % of w h i t e 25 to 65-year-olds hold a bachelor's d e g r e e , c o m p a r e d to 12% for all other races. T h i s year, i f a l l ethnic groups in Arizona had the same e d u c a t i o n a l attainment and earnings as whites, t o t a l personal income in the state would be $5.9 billion higher, a n d the state would realize an estimated $2.1 billion in additional tax revenues.



Measur ing Up 2000: The State-by-State Report Card for Higher Education



por tion of its citizens face the future from a position of disadvantage. labor shortage that could have slowed growth. In addition, Hispanics guarantee the state an ample labor pool for decades just when many other regions lack young workers. Mexican Amer icans, more over, offer special assets, including a slightly higher rate of participation in the labor force than the rest of the p o p u l a t i o n (67 percent to 66 percent). In short, these new and future workers ? mostly from immigrant families ? bring a welcome energ y that adds to the state's dynamism. T h e y often come from families that have taken risks for better jobs and futures. At the same time, the upward mobility of many Hispanics shows that their lack of preparation can be overcome. Many Latinos, especially the U.S.-born, are making substantial progress in education and work. U.S.-born Latinos ? including the sons and daughters of recent immigrants to Arizona ? close much of the education gap. Secondgeneration Mexican Americans, for example, manage an average of 12 grades of education. That means they erase 70 percent of their parents' lag behind third generation whites' roughly 14 years of schooling (see Figure 3). Similarly, the numbers of Mexican Americans in professional and managerial occupations jump from four percent and six percent, respective ly, for immigrant men and women, to 13 percent and 17 percent for second-generation Latinos. Such progress underscores the potential for upgrading skills rapidly.



L a t i n o Education Dilemma







Low Wages and Few Opportunities



The consequences of the state's failure to make appropriate educational investments in its minority communities are visible already. Too frequently, Arizona's often foreign-born Hispanics remain stuck in low-paying, lowskil l jobs. Cur rent Population Survey data from 1999 confirm that Mexican American men are nearly twice as likely to be employed as laborers, machine operators or low-skill fabricators as are non-Hispanic whites (31 p e rce n t versus 17 percent respectively). Conversely, just eight percent of Mexican American men worked in professional or managerial positions compared to 32 percent of non-Hispanic white males. As a result, Latino income levels in Arizona significantly trail those of non-Hispanic white workers. In 1999 Mexican Americans earned hourly wages that were 40 percent lower than those of non-Hispanic white men. Recent immigrants earned 52 percent less.







The Latino Promise: Benefits of Being a State of Immigrants



There is another side to the story though. Latinos and other minority groups represent a tremendous opportunity for Arizona that other states do not have. Hispanics supplied Arizona's need for entry-level labor during the recent hot growth years, easing a







19







FIGURE 3 U.S.-Bor n Mexican Americans Na r r o w the Education Gap



Average Years of Education



14 13 12 11 10 9 8 Immigrants Second Generation Third Generation Third Generation Whites Average Education = 13.5 Years







Ultimately, then, the prospects are mixed. Arizona's Latinos are making vital contributions to the state's economy and offer the state a tremendous human resource for the future, if the state can make good on its promises of equal opportunity and appropriate assistance. Already Hispanic strengths are undeniable, and, with effective educations, many immigrants' children will emerge as upwardly mobile, educated workers to help replace the retiring boomers. At the same time, though, no one can deny that turning the state's Latinos into a topflight workforce represents a stern challenge ? because the numbers are large and Arizona's history includes some perceptions and actions of which no one can be proud.







present remain overwhelmingly white and largely male. Yet after 2010 the white male segment of the STE workforce will shrink in absolute as well as relative size, as retirements begin and the white share of the nation's population declines from 74 percent in 1995 to 52 percent. That suggests white males are not likely to provide the high-tech workers n e e d e d here or elsewhere. Me a nw h i l e , e s t i m a t e s by the National Science and Technology Council project a nine percent d e c l i n e nationwide between 1995 and 2050 in the percentage of 22-year-olds ear ning STE bachelor's degrees qualifying them to enter the technology workforce. A s s o c i a t e d in part with low Hispanic attainment of these degrees, this projected decline in the rate of production of technology workers confronts Arizona with two scenarios. If Arizona's tech companies lose out in the scramble for talent, they will be forced to scale back or relocate to places with more skilled workers. Conversely, if such firms succeed at attracting out-of-state talent to fill jobs unfilled by Hispanics and others, Ar izona's largest ethnic group may be excluded from the state's best jobs.







S o u r c e s : Tomas Rivera Policy Institute, U.S. Census Bureau Current Population Survey, 1999







Latino economic progress has been impressive a l s o. B y 1998, 4 1 percent of U. S . - b o r n Mexican-headed households were "middleclass," defined as an annual income above $40,000. More broadly, Latinos who attained comparable schooling to whites achieved comparable or superior economic outcomes. The incomes of college-educated, U.S.-born Mexican American men rose 42 percent between 1979 and 1998, for example, when collegiate white men's earnings rose just 14 percent. During the same period, secondgeneration, college-educated Mexican American w o m e n's hourly wages exceeded those earned by white women. H i s p a n i c s are, m e a n w h i l e , a s s e m b l i n g s i g n i f i c a n t economic clout in Arizona. Nationally, just under half of immigrant Mexican Americans own their homes. B y t h e second generation almost 60 percent d o. I n Arizona, H i s p a n i c s now control about 12 percent of the state's total buying power, a $13 billion share. Similarly, in 1997 nearly nine percent of all Arizona businesses were Hispanic owned and generated more than $4.2 billion in sales. Such figures almost cer tainly underestimate Latino business activity in the state, since the figures predate the more detailed data by Census 2000.



20







And So the Shoe Could Drop



Unaddressed, the unmet education needs of Ar izona's Latino population could c r a m p their prospects and undercut the state's ability to prosper in an increasingly demanding economy. Currently, Arizona companies can hire skilled workers from a talent pool enriched by the in-migration of relatively well-educated workers from other states and leave others to fill unskilled jobs. But the retirement of the baby boomers combined with Latino deficits points toward difficulties. At the entry level, slower growth rates may create more competition for lowskill jobs, displacing Latinos. At the higher end, shortages of Latinos ready to move up will make it that much harder for companies to staff high-skill positions. The bottom line: Latinos' low education levels could leave the state with too many low-end laborers and too few skilled ones. Skills deficits could stunt Arizona companies' growth, and relegate many Latinos and their families to a life of low pay and little prospect of advancement. T h e high-tech sector is a case in point. Technology workers here and elsewhere at







A r i z o n a invests almost nothing in f i n a n c i a l aid for low-income students a n d families.



Measur ing Up 2000: The State-by-State Report Card for Higher Education







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Policies to Keep the Shoe from Dropping



What should Arizona do to capitalize on its Latino and other talent? E d u c a te , e d u c a te , e d u c a te ! Arizona's future, a n d the well-being of i t s largest minority group, hinges largely on t h e quality of t h e K-12 education Latino youngsters receive and on increasing the number of Latinos who participate in higher education. Yet recent court rulings, as well as test scores and past experiences, indicate t h e state has failed to face that fact. T h i s summer, for example, a federal court set a 2002 deadline for action after the Legislature failed to address a January 2000 ruling that t h e state was discr i m i n a t i n g ag a i n s t students with limited English skills by scrimping on dollars for language instruction. Such delays cannot continue. Arizona leaders need to place the educational interests o f L a t i n o young people at the top of t h e state's agenda. 1 . M a ke high-quality early childhood Doing so, moreover, will require reinventing the education system that currently fails many Latinos. Today, most Arizona school distr icts still operate on an industrial-era model designed for a homogeneous clientele. Uniform funding formulas, standard curricula and rigid approaches continue to prevail. Yet such rigidity can only be a formula for failure given the state's growing diversity. Wh a t is needed is a far more dynamic responsiveness to the needs of the Hispanic s c h o o l population and other specific groups. Hig h standards for all students must be complemented by the freedom to customize educational activities to address Arizona has long needed to commit to early childhood education, and it would especially benefit Latino and other minority students. Numerous studies show that every year of d e l a y e d entry into American education significantly reduces an immigrant child's subsequent achievement. Therefore, a top priority for unleashing Latino talent is to improve Latino children's access to quality preschool programs. Universal Head Start, f o r example, m a ke s sense, w h i ch is why G e o r g i a , O k l a h o m a , N e w Yor k and Connecticut are moving in that direction. programs universal and implement them first in Latino neighborhoods. Four interventions appear important for Latino students. various local needs, clienteles and learning styles such as those found in big-city Latino neighborhoods. Extra resources, likewise, s h o u l d go to areas of g r e a t e s t need. Exper imentation to find what works and suppor t to implement the best practices must replace rigid notions about how to teach. Banning bilingual education, for example, ser ves no purpose because it eliminates a viable teaching option. In addition, L a t i n o students with substantial needs should benefit from extra funds for creative curricula, "safety net" programs and family assistance. Char ter schools and tools of choice (such as vouchers) hold promise for Latino students because of the inadequate performance of traditional schools and the willingness of alternative schools to find the techniques that will best serve the students.







So does complementing Head Start or fullday kindergarten in Latino neighborhoods with tutoring and English literacy programs. Helping schools to provide classrooms for preschool and full-day kindergarten also will be a vital step. One way to do that is to adjust the state funding formula for school space to reflect preschool and full-day kindergarten students' need for classrooms. Currently a kindergartner only counts as half a student in the funding of school space, and preschoolers, including those in Head Start, do not count at all. This discourages schools from offering or housing these vital early programs. Another way to improve the prospects for y o u n g Latino students and others is to provide intense, individualized attention at the onset of grade school. Here, the Reading Recovery program suggests a model. Reading Recover y, which now serves more than a million first-graders nationally, uses a shortterm intervention of one-to-one tutoring d e s i g n e d exclusively for low-achieving first-graders. Individual students receive a half-hour lesson each school day for 12 to 20 weeks from a specially trained Reading Recover y teacher. As soon as students can read within the average range of their class, t h e i r lessons are discontinued, a n d new students begin. A n d it seems to work: Numerous evaluations conclude that 82 percent of students who complete the full series of lessons can read and write within the average range of performance of their c l a s s . F o l l o w - u p studies indicate most Reading Recovery students also do well on standardized tests and maintain their gains in later years. Although Reading Recovery costs about $4,000 a student, a 1997 report to the Massachusetts Superintendent's Task Force on Special Education showed that $3 invested in Reading Recovery saved $5 in other costs.



L a t i n o Education Dilemma







21







2. Recognize that one-size-fits-all funding and curricula formulas are not doing the job. Launch an urban schools initiative to ensure that every Latino student obtains the K-12 education he or she needs to succeed in the new economy. Upgrading the skills of Arizona's Hispanics depends on imparting a sound academic foundation, particularly in math and science, to every Hispanic youth. To that end the state, cities and businesses should mount aggressive inner-city education initiatives to invest extra effort in raising achievement levels in the struggling K-12 schools of the state's urban cores. The neediest kids live in central cities, and urban schools with many Latino students face exceptional challenges. For these schools, one-size-fits-all funding and curriculum formulas are not sufficient, (see Map 3) given the poverty and limited English proficiency with which their immigrant students often contend. Accordingly, Arizonans should move to focus more money and innovation on places where the needs are greatest, whether it be through existing school districts, charter schools, voucher initiatives or new structures. A s to the directions of s u c h reform, t h e National Science Foundation's Urban Systemic Initiative (USI) program offers some guidance for Arizona. As noted in the new report Academic Excellence for all Urban Students, impressive achievement gains in science and math among inner-city students are emerging from a combination of a rigorous curriculum with careful assessment, professional development for teachers and investments in such activ ities as tutorial programs, Saturday Academies, algebra study labs and summer enrichment programs in science and technology. Graduation rates have increased in USI schools, despite tougher requirements. USI, in which a number of Phoenix schools participate, may well offer a model for helping all Arizona students to learn and achieve more.



22







MAP 3 any Latino Students in the State's Urban Cores Face Exceptional Challenges ? Central Phoenix Provides a Dramatic Example



Cave Creek



Maricopa County, Arizona







Carefree Rio Verde







Map Area







New River







Surprise Sun City Peoria Fountain Hills







El Mirage







Youngtown







Glendale Paradise Valley Salt River Indian Community







Litchfield Park







Phoenix



Buckeye Tolleson Avondale Goodyear







Scottsdale







Mesa Tempe Apache Junction







Percent of Population that is Latino in Metropolitan Phoenix by Census Tract, 2000 50.0% or More 25.0% to 49.9% 5.0% to 24.9% 4.9% or Less Interstate Hwys State Hwys US Hwys



0 0 5 Kilometers 5 Miles







Data Source: G dal US Census Bureau,uaPLupe 94-171, 2000 Map created by IT Research Support Lab ? GIS Services Summer 2001



Gila River Indian Community







Gilbert







Chandler







M







Queen Creek







Maricopa County, Arizona







Map Area



DEER VALLEY USD (71)







CAVE CREEK USD (68)







MARICOPA (41)







PARADISE VALLEY USD (71) MARICOPA (41) FOUNTAIN HILLS USD (75) WASHINGTON ESD (51)







DYSART USD (51)







PEORIA USD (61) SCOTTSDALE USD (77)







GLENDALE ESD (33) LITCHFIELD ESD (67) PENDERGAST ESD (48) ALHAMBRA ESD (64)







MADISON ESD (71)







CARTWRIGHT ESD (42)







OSBORN ESD (40)







AVONDALE ESD (49) LIBERTY ESD (41) LITTLETON ESD (28)







TOLLESON ESD (39) UNION ESD (16)







ISAAC ESD (34)







CREIGHTON ESD (41)







FOWLER ESD (30) RIVERSIDE MURPHY ESD (30) ESD (26)







PHOENIX ESD (43)







BALSZ ESD (42) MESA USD (65)







WILSON ESD (70) TEMPE ESD (48)







LAVEEN ESD (23)







Percent Rank* of Stanford 9 Test Scores, 4th Grade Math, in Metropolitan Phoenix by Unified (USD) and Elementary (ESD) School District, 2000 Low: 32 or Less * Percent Rank refers to Low/Medium: 33 to 43 the percentage of students nationwide scoring lower Medium/High: 44 to 65 than the average score of High: 66 or More MARICOPA No Data (41)







ROOSEVELT ESD (27)







KYRENE ESD (77)







GILBERT USD (70) HIGLEY USD Williams AFB (50) (closed) QUEEN CREEK USD (60)







Data Source: Arizona Department of Education Map created by IT Research Support Lab ? GIS Services Summer 2001 Gila River ACommunity Indian rizona State University



CHANDLER USD (65)







3. Improve the "pipeline" that moves Latino s t u d e n t s from high school into higher education, par ticularly in technical fields. Arizona also must improve the rates at which Latino students enter universities or community colleges, and the technical fields







that are, and will be, so much in demand. Fortunately, numerous programs in Arizona and throughout the country offer models for helping minority students. Many of these efforts engage elementary students in thinking about and planning for college. O t h e r programs build awareness of t h e







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Fort McDow ell Indian Com munity







C Sun ity West







rewards and prerequisites of t e c h n i c a l careers among middle-school students, parents and guidance counselors. Others foster achievement in math and science in middle or high school through mentors, exposure to collegiate role models and support for par ticipation in AP courses. Some of the good ideas include: Development Fees for Literacy Many cities and regions are aware that their problem is not a lack a workers, but too few who can fill the jobs the economy is creating. In urban areas, it has become good politics to provide "skills training" for immigrant groups even if the skills are prett y basic. For example, Boston Mayor Thomas Menino created an interesting way to pay for literacy programs. Development fees are being used to fund the city's literacy a n d Eng l i s h proficiency prog r a m . I n B o s t o n at least, i m m i g r a t i o n is being v i e w e d as a workforce issue instead of a s o c i a l service issue. Nur turing Connections Other programs seek to boost students' progress in higher education by providing webs of support. The Meyerhoff Scholarship Program at the University of Mar yland/ Baltimore County, for example, complements f u l l science scholarships with summer "bridge" programs, group study, tutoring, mentoring and a close-knit community. In the Meyerhoff program individual achievement becomes a group accomplishment. A similar approach is now underway in Arizona, under the auspices of the newly formed Metro Phoenix ENLACE, or Engaging Latino Communities for Education. With a $1.5 million grant from the W.K. Kellogg Foundation and Houston Endowment Inc., Arizona State University expects to increase the number of Hispanics earning bachelor's degrees by 50 percent over the next four years by creating a strong support system for Latino youth. ENLACE will support







achievement in higher education through college preparation and advising, mentoring, cross-age tutoring, parent and community outreach and linkages to high schools. But Arizona also needs to consider bolder i n i t i a t i v e s . Tw o examples illustrate the possibilities: Guaranteed College Financial Aid Washington state is removing the financial barriers that often impede minority and low-income students' progress beyond high school. In the last decade Washington has tripled to more than 50,000 the number of n e e d y students to whom it prov i d e s G u a r a n t e e d Education Tuition (GET) g r ants for the state's public colleges and universities. Now, Washington is developing a program to reserve a GET "account" and tuition credits for every Washington kindergar ten student. Additional credits w ill be deposited for students who pass four th and seventh-grade assessment tests. Likew ise, the accounts create a means for employers to contribute to employees' college sav ings, and encourage children to achieve in school. California has another approach. Its "Cal Grant" program of need-based financial aid is expected to double over the next six y e a r s to $1.2 billion per year. C a l Grants i s an entitlement program. Ever y student who meets income criteria and graduates with a 3.0 grade point average is eligible for full tuition and fee payments at the state's public colleges and universities and up to $9,708 to attend a private institution. Rewards for More Graduates Stanford University economist Paul Romer o f f e r s another approach. H e wants the federal government to offer $1 billion in rewards, at perhaps $10,000 per person, to institutions that increase their output of u n d e r g r a d u a t e science majors. He also would offer 100,000 promising high school students $20,000-a-year fellowships contingent on their going on to graduate study in







science. The numbers and targets of this approach would need adjustment for use at the state level. Still, Romer's idea has merit. It would create incentives to nudge both universities and students toward the desired o u tco m e s . Ta r g e te d toward minority stud e n t s and BAs in technical disciplines, a Romer incentive in Arizona would fill the skills pipeline. Send a Signal of Welcome Another gesture might be to emulate an announcement made by the University System of Georgia regarding "undocumented" students. Last September, Georgia's university leaders declared that "there is no impediment to the admission of any academically qualified student who attends or graduates from a high school in Georgia." Their purpose was to underscore that higher education has become a right for everyone and a necessity for the state to remain "viable and prosperous." Though officials anticipate minimal demand initially, the clarification has helped to dispel any doubt that young Latinos can, and should, go to college. 4. Press for a federal education initiative for border states. Finally, Arizona's congressional delegation needs to take the lead in obtaining federal money to help defray the extra education costs associated with Arizona's (and other states') status as gateways for Latino immigration. Earlier this year Arizona Senator Jon Kyl introduced a bill in Congress asking for $200 million a year over the next four years to reimburse states for medical services prov ided to undocumented immigrants across the U.S. border region, on the theory t h a t localities are bearing the costs of a federal immigration policy. Why not treat e x t r a education costs in the same way? Education is just as important, and sizable, a cost to society as health care. With that in mind, Arizona's delegation should become Congress' top advocates for a cause whose time has come.



L a t i n o Education Dilemma







23







A Fuzzy Economic Identity



Arizona is growing high-tech jobs. B u t we haven't yet met the challenge of e n s u r i n g that we can excel in the new economy over the long term.



Our state's prosperity isn't based on sustainable high-tech job growth yet. Arizona has made progress in getting and keeping technology jobs. But the state's "economic miracle" is really based on other trends that may not be healthy for Arizona in the long run. Arizona has for years posted stunning numbers in both population growth and job growth. But have we created the diversified high-tech infrastructure required for long-term success? You can keep increasing overall job growth by opening new retail stores, construction companies and high-technology manufacturing plants ? as Arizona has done ? but if you aren't also increasing job grow th in advanced technology and advanced services, you won't really have a knowledge economy. The state isn't strong in fast-growth technology sectors ? and it has an image that may not fit the times. Currently, the state's technological realm is focused on just a handful of electronic and aerospace sectors. Economic expert Michael Crow of Columbia University recently warned that Arizona is not even among the top 30 locations making investments in the kinds of science-based high-tech sectors likely to produce rapid job growth in the future ? sectors like biotechnology, nanotechnology and artificial intelligence. Crow advises that the Greater Phoenix region alone will not be able to build a diverse economy without at least $500-600 million (in 2001 dollars) per year in fundamental science expenditures, at least half of which must be on biological endeavors. Furthermore, Arizona businesses report difficulty in selling Arizona to prospective employees because of its image. Arizona has a reputation for growth on the cheap ? for being a place of poor schools, poorly planned communities and second-tier tech investment. That's a huge disadvantage in a world where economic success is determined more than ever before by a place's image. Arizona must create a strong, clear economic identity. The state must define a clear set of goals that matches the high-potential opportunities of the future ? one that depends not just on the traditional Arizona advantages of weather, scener y, and so forth, but also emphasizes investment in cutting-edge sectors and the development of a strong and educated labor force.



24



A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







FIGURE 1 How Does Arizona Measure Up in New Economy Science and Technology Assets?



A r i z o n a is Barely Second Tier



Quintile 5th 4th 3rd 2nd 1st 5th







C o l o r a d o is O n e State That i s Excelling



Quintile 4th 3rd 2nd 1st







M i c h i g a n Shows Advances are Rapid in the Rust Belt



Quintile 5th 4th 3rd 2nd 1st







Funding In-flows R&D Expenditures/$1,000 of GSP Industry R&D $/$1,000 of GSP Federal R&D $/$1,000 of GSP University R&D $/$1,000 of GSP Federal Obligations for R&D/$1,000 of GSP Funding-Fed Lab Campuses/$1,000 of GSP SBIR Awards/10,000 Businesses SBIR Award $/$1,000 of GSP STTR Awards/10,000 Businesses STTR Award $/$1,000 of GSP Human Resources NAEP Science Test Scores % of Population Completing High School % Associate's Degrees Granted /Pop 18-24 % Bachelor's Degrees Granted /Pop 18-24 % S&E Bachelor's Granted /Bach's Granted % Grad Student (S&E)/Pop 18-24 % of Workforce with Recent Bachelor's Degree (S&E) % of Workforce with Recent Master's Degree (S&E) % of Workforce with Recent PhD (S&E) Capital Investment & Business Assistance Venture Capital Invested/$1,000 of GSP SBIC Funds Disbursed/$1,000 of GSP IPO Funds Raised/$1,000 of GSP Business Incubators/10,000 Businesses Patent Attorneys/10,000 Businesses Technology Intensity of Business Base % Establishments in Tech Intensive SICs % Employment in Tech Intensive SICs % Payroll in Tech Intensive SICs % Business Births in Tech Intensive SICs Net Tech Intensive Formations/10,000 Estab. Outcome Measures Patents Issued /10,000 Businesses Inc 500 Companies/10,000 Businesses FAST Companies/10,000 Businesses Average Annual Earnings/Job % Population Above Federal Poverty Level Per Capita Personal Income Labor Force Participation Rate % of Workforce Employed



N o t e : Long bars denote a high ranking and short bars a low ranking. See Sources and Notes for definitions of terms. Sources: The Dynamics of Technology-Based Economic Development, State Science and Technology Indicators, Office of Technology Policy, Technology Administration, U.S. Department of Commerce, June 2000







A Fuzzy Economic Identity







25







A







s we enter the twenty-first century, Arizona has a solid foothold in the new economy ? but the state is not w e l l positioned to take advantage of t h e "n e x t wave." Me a nw h i l e , A r i z o n a's deep, broad and longstanding economic sectors ? tourism, golf, construction and retirement ? are based on the state's traditional "old economy" assets such as climate and low costs. Taken together, these realities set Arizona up for "blue collar" status in the new economy. The trajectory must be altered. For Arizona to have a more prosperous future, the state must move beyond its lowwage, retirement-driven legacy and focus intensely on the new opportunities emerging i n a rapidly evolving economy. In other words, it is time for Arizona to move from be ing fortunate to being smart.







The popular view ? held by analysts across the ideological spectrum ? is that even though it is not first-tier, Arizona is a solid location for hig h-tech companies. The Milken Institute ranks Arizona among second-tier high-tech states on both employment and output. Using a wider array of measures, the Progressive Policy Institute ranks Arizona 10th among the states in the new economy. But these high rankings hide two big problems. First, Ar izona's high-tech strength rests on a nar row base. The state has developed techn o l o g y clusters in only four of 1 4 sectors: electronic components, aircraft, space vehicles and navigational equipment. Furthermore, as Figure 2 shows, Arizona does not have a competitive strength in software, plastics or bioscience ? three areas in which







Arizona has focused its strategy in the past 10 years. To excel in the twenty-first century Ar izona needs to move its clusters further into the figure's upper right-hand quadrant. Second, Ar izona's technology growth is based m o s t l y on manufacturing. I n Arizona, w e "make," much more than we "think" and thinking is where future economic growth is likely to occur. Intel, Raytheon and Motorola all have a strong manufacturing presence in the state and that is good. But the research and development activities of these firms t y pically are located outside Arizona and even beyond the Southwest according to the Milken Institute. We may keep the factories, but we don't have the facilities and workers that will decide what "the next big thing" is.







The Challenge of the Thinking Economy



As Seth Godin of Fast Company magazine writes, "The first 100 years of our country's histor y were about who could build the biggest, most efficient farm. The second 100 years were about the race to build efficient factories. The third 100 years are about ideas." To succeed in the long run, Arizona must participate in the process of generating ideas and finding better ways of doing things, r ather than simply executing economic tasks that are dreamed up by knowledge workers elsewhere. In the words of Columbia University's Michael Crow, Arizona must become a "knowledge producer" rather than a "knowledge importer."







FIGURE 2 Ke y Arizona Industry Clusters* by Employment Size, Concentration and Growth, 1989-1999



2.5



Employment Concentration in AZ Relative to the Nation (National Concentration 1.0) H i g h - Te c h 103,227







2.0







1.5



To u r i s m 189,131







1.0



E n v i ro n m e n t a l Te c h n o l o g y 13,425 F o o d & Fiber 52,261 Bioscience 9,392 S o f t w a re 30,023







.5







Plastics 11,760







0%







2%







4%







6%







8%







10%







12%







Average Annual Growth Rate, 1989 to 1999







State Growth Rate 4.1%







A well-rounded portfolio of growing, concentrated industry clusters is a good indicator of competitive advantage. Figure 2 shows the concentration of employment in seven exportor iented clusters in Arizona. An employment concentration above 1.1 means that the state's share of jobs is higher than the national average and indicates a potential competitive strength for the state. In 1999 High Tech (electronics and aerospace manufacturing) was 2.3 times more concentrated in Arizona than in the nation with Tourism 1.4 times more concentrated. With concentrations of less than 1, bioscience, software, plastics and optics (not shown) are not yet areas of strength. To excel, cluster growth and concentration figures must move into the upper right-hand quadrant.



N o t e : Numbers below the cluster name indicate total employment. * The Optics Cluster is not included because of incomparable data. S o u r c e : Collaborative Economics







Kn ow l e d g e production is important not o n l y in dreaming up new products and processes but also in upgrading products that already exist. It's true that a growing chunk of production in the modern economy comes in the form of intangibles based on the exploitation of ideas rather than material things. But at the same time, manufactured goods, from Mercedes to Nike, have "knowledge" embedded in them. Thus, the twenty-first century economy will favor areas that are "knowledge producers," places flush with research and development activities, the creation of new intellectual products and services and the most recent technologies. Those areas strong in knowle d g e production will be the white-collar, front-office parts of the new economy. Areas







26







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







dependent on knowledge imports ? manufacturing and processing centers, like Arizona is today ? will be stuck with the blue-collar, back-office parts of the new economy. Given its lack of a high-tech base as recently as 50 years ago, Arizona has ridden the "electronics wave" of the emerging new economy pretty well. But to catch the next wave, the state must overcome its narrow high-tech base and its paucity of assets in science-based technology. O n e only has to listen to the stem cell research debate today to surmise that science w ill be the undisputed primary driver of economic and cultural change in the twentyfirst century. Harvard University scholar Juan Enriquez drives this point home in his new b o o k , A s the Future Catches You: How Genomics and Other Forces are Changing Your L i f e , Wo r k , H e a l t h and Wealth. I n a Fast C o m p a ny m a g a z i n e interview Enriquez discussed his outlook. He explains the next Cisco Systems, t h e next Microsoft, i s going t o be a life-sciences company. It could be a company today that calls itself a computer company. IBM's largest project is Blue Gene. S u n Microsystem's largest project is deciphering protein. Compaq Computer's driver is the alpha chips used for sequencing the human genome. So it may be a computer company, but it may be a cosmetics company like Procter & Gamble. Just as information







technolog y isn't a business category or an industry ? but a crosscut that changes every business and every industry ? genomics is a crosscut. One review of Enriquez's book concludes: Whe n the history of our time is written, the digital revolution will not be the lead story. The lead story w ill be the genomics revolution ? a crosscut that really changes everything. And virtually no one knows anything about it. When asked to advise ASU's Greater Phoenix 2 1 0 0 project, Mi ch a e l Crow suggests it is reasonable to think that the next 100 years w i l l include the following five general t re n d s . Un d e r s t a n d i n g these is critical to positioning Arizona for the future. ? Movement away from a silicon-based electronics economy ? Increased rates of technical advance and revolutionary breakthroughs on the smallest of scales (even molecular manipulation) ? The nanotechnology ? the science of the extremely small ? wave of technology integration and societal transformation (artificial cells, artificial enzymes) ? Convergence of diverse fields of study and development, such as information technology and biotechnology ? Genetically modified everything The other critical thing to understand, say







Crow and Enriquez, is that if you want to compete in such areas as bioinformatics you need to compete for really smart people. You need really smart people who understand how to manipulate nanomolecules. Those really smart people want to live someplace where they're safe, where there a re really smart people around, w h e re there's financing and where there's a future. Future Shock and The Third Wave authors, Alvin and Heidi Toffler, share Crow's and Enriquez's views. The Tofflers wrote in the Wall Street Journal on May 29, 2001: It is now clear that the entire digital re volution is only the first phase of an even larger, longer process. If you t h i n k the revolution is over, g e t ready to be shocked again as information technology fully converges w ith and is, in turn, remade by, the biological revolution. In the first phase, information technolog y revolutionizes biology. In the next phase, biolog y will revolutioni z e information technology. An d that will totally, once again, re volutionize economies. Together these represent a turning point not just in economies, but in human history. The upheaval in the stock market is extremely painful. But we will look back on it as a minor spike in the early history of the new economy of the 21st century.







FIGURE 3 T h e Challenge of a Low-Wage Legacy in Arizona



$50,000







Av e r a g e Annual Wages in 10 Industry Sectors



Av e r a g e Annual Wage



$40,000 $38,847 $30,000 $26,768 $20,000 $18,784 $10,000 $18,498 $10,814 U . S . Average Salary = $29,245 $28,528 $25,386 $31,968 $35,439







$49,071







0 Retail Trade 14% Health Care, Accommodation Administrative Construction Social & Food Services Support & Real Estate Assistance 11% 10% 10% 11% Manufacturing not "High-Tech" 7% Professional, Scientific, Technical Services 6% Finance & Insurance 5% Wholesale Trade 5% High-Tech Manufacturing 5%







L a r g e s t Employment Sectors and Percent of Total Employment in Arizona S o u r c e : Center for Business Research, Arizona State University







A Fuzzy Economic Identity







27







Given the move to science-based technology, an economy like Arizona's, whose technological realm is focused on manufacturing in just a handful of electronic and aerospace sectors, is in line for tremendous "pain and gain cycles," warns Crow.







The Challenge of a Low-Wage Legacy



Arizona always looks like an economic success because the state racks up impressive job growth numbers. Once again, however, t h i s seemingly positive trend obscures a deeper, more worrisome concern: Most of these new jobs don't pay well because most of the new jobs aren't about thinking. They're about building and entertaining (see Figure 3). What are the areas in which Arizona has a strong concentration of jobs? They're all in the backside of the economy: administrative support, construction services, travel and reser vation services, telephone call centers, and collection agencies. Where are the jobs of the future? According to the Arizona Department of Economic Security, they're mostly at the lower end.







According to the state forecasts for 2008, h a l f o f t h e state's workforce will be employed in either tourism or retail at an average wage of about $12 per hour, or less than $25,000 per year. Of the 25 fastestgrowing job types in the state, most require no higher education and pay, on average, less than $11 per hour. (One of the fastestgrowing occupations in this group is telemarketers at 9 percent growth from 1998 to 2008.) Only one of the 25 requires more than a bachelor's degree (general managers and top executives), while two occupations require a bachelor's degree (elementary school teachers and paraprofessional and technical workers). So it is not surprising that Arizona ranks b e l o w average in residents working in knowledge-intensive industries ? those that are dependent on workers with at least a college degree. Consider that Arizona has 50 workers in knowledge-intensive sectors per 1,000 residents compared to 207 in top-ranked Washington, D.C. and 64 in Colorado (see Table 1). The state ranks 21st among the 50 states and the District of Columbia. Four New England states are among the top 10 and the







Virginia/D.C./Maryland region is among the top 11. Three Western states are also among the top 10. California, sixth overall, is among the top 10 in high-tech manufacturing, information, and professional, scientific and technical services. Among the Western states, Utah and Oregon also have a higher overall per capita figure than Arizona. Utah is in the top 10 in information and education. Arizona ranks in the top 10 only in high-tech manufacturing.







The Challenge of a Split Personality



A r i zo n a does not approach its economic future with a singleness of purpose. Many of its leaders want to compete with California, Texas or Colorado as centers of the knowledge economy. But just as many leaders are quite content to keep on promoting Arizona merely as the perpetual construction machine or a retirement haven. (See Figure 4.) This split personality plays itself out in many ways. As a state, Arizona cannot quite make up its mind whether to be urban or rural, nostalgic or cutting edge. On the one hand, there's the "Old West" image, Grand Canyon, Sonoran desert, sunsets, and orange trees; on the other hand, there's the "built world" of







TA B L E 1 Below Average Numbers of Ar izonans Work in Knowledge-Intensive Sectors* of the Economy



Per capita Employment (number of workers per 1,000 residents) Washington, D.C. has 207 workers in knowledge sectors for every 1,000 residents, while second-ranked Massachusetts has 94. With 50 per 1,000 residents, Arizona is not only not in the top ten, the state is below the national average. Top 10 States, Arizona, and United States



Rank and Total per Capita Technology Manufacturing Information PST** Education Services Health Services







1. Washington, D.C. 207 2. Massachusetts 3. Connecticut 4. New Hampshire 5. Washington 6. California 7. Vermont 8. Virginia 9. Colorado 10. Minnesota ARIZONA U n i t e d States 94 72 72 66 65 65 65 64 63 50 52







1. New Hampshire 2. Washington 3. Connecticut 4. Vermont 5. Massachusetts 6. Kansas 7. South Dakota 8. California 9. Minnesota 10. Arizona ARIZONA United States







23 23 19 19 18 18 18 15 14 14 14 8







1. Washington, D.C. 2. Colorado 3. Massachusetts 4. Nebraska 5. Virginia 6. New Jersey 7. Georgia 8. Utah 9. California 10. Missouri ARIZONA United States







14 11 11 10 10 9 8 8 8 7 5 6







1. Washington, D.C.124 2. Virginia 3. Maryland 4. Massachusetts 5. New Jersey 6. Colorado 7. California 8. New York 9. Illinois 10. Connecticut ARIZONA United States 36 33 32 28 27 27 26 25 23 19 22







1. Washington, D.C.57 2. Massachusetts 18 3. Vermont 4. Rhode Island 13 12







1. Minnesota 2. Massachusetts 3. Connecticut 4. New Hampshire 5. Rhode Island 6. Wisconsin 7. Washington 8. Florida 9. Vermont 10. Pennsylvania ARIZONA United States







16 15 15 14 14 14 14 14 14 14 11 12







5. New Hampshire 11 6. Pennsylvania 7. New York 8. Connecticut 9. Utah 10. Iowa ARIZONA United States 10 9 9 8 7 .8 5







* Five sectors were analyzed because they are dependent on workers with at least a college degree. These included professional, scientific, and technical services (PST), most ambulatory health services, portions of the manufacturing sector, the information sector that depends on professional, technical talent, and parts of educational services (private sector higher education and computer training). ** PST ? Professional, Scientific and Technical Services Source: U.S. Department of Commerce, Bureau of the Census, 1998 County Business Patterns and Census 2000







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A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







FIGURE 4 A r i z o n a n s Hope Arizona Will Be a Technology Leader in the Future



Technology Tourism A g r i c u l t u re Manufacturing No Answer Real Estate Financial Services 13% 8% 8% 6% 5% 20% 39%







B u t They Think Arizona Will Be Known for Tourism and Real Estate



Tourism Real Estate Technology Manufacturing A g r i c u l t u re No Answer Financial Services 6% 4% 4% 2% 19% 27% 38%







Responses in Percentages S o u r c e : Morrison Institute for Public Policy, 2001







Responses in Percentages







Lake Powell, America West Arena, red-tile roofs, world-class resorts, and Sun City. Residents recognize that population growth prov ides the market base for culture and sophisticated consumption, symphony, art galleries, restaurants, but don't want a state that forgets its setting and history. This contradictory sense of self is expressed in the ways the cities in Phoenix metropolitan area represent themselves to the world. Several cities, like Scottsdale and Glendale, play to the past ("The West's Most Western Tow n" and "Arizona's Antique Capital," respectively), while Tempe, Chandler and o t h e r s play to the future ("High-Tech O a s i s " ) . T h e biggest city, P h o e n i x has chosen an identity tied to neither of these, but one that projects efficient government ( " T h e Best Run City in the World"). Maricopa County appears to be following Phoenix's lead. Does it matter that Arizona ? and its largest region ? are lacking a strong, distinct identity? Yes, it does. Economic analyst Joel Kotkin, author of The New Geography: How the Digital Revolution is Reshaping the American Landscape, argues that the defining question of the twenty-first century is likely to be: "Who wants to live where?" He points out that "today, people and businesses can search the entire country to find the places most desirable to them. Freed from old ties to raw materials or pools of cheap labor, the







Information Age businesses that drive the economy, and their employees, can be anywhere they want." In this context, Arizona's image is more important then ever. In addition, a more strategic approach to the state's "economic identity" forces Arizona's leaders to answer two fundamental questions that are easy to overlook: 1. What is our most important asset? 2. Where do we want to go? Answer these questions by creating an economic identity, says Harvard Business School's Michael Porter, and you can begin to think about how to make tradeoffs. You can decide which opportunities are good for your future and which are not.







live off of its luck for a long time. When the Sun Belt boom began, Austin was a small but sophisticated town that had the good fortune to be located in a desirable state and to house both the state capital and a state university. Instead of simply riding that wave, the city established a "strategic principle" more than 20 years ago. Local leaders adopted the mantra "Austin is poised for greatness." But they did more than that. They decided Austin would be great in two areas: information technologies and quality of life. From then on, the city leveraged its music scene and its independent film community, and it launched strategies to preserve open space and control growth. The city leveraged its university resources and the attraction of MCC and Sematech ? t w o major research and development partnerships formed in the 1980s ? to become a top-tier technology center. The three-year average annual growth rate in per capita income for Austin is 9.6 percent, just slightly below San Jose's 10 percent. Of the 50 largest metropolitan areas in the nation, Austin was ranked recently as the second-best place for the knowledge economy. This overall ranking was earned by being one of the top three in technology and professional jobs, patents, science and engineering degrees, online population and access to venture capital.



A Fuzzy Economic Identity







The Challenge of Mov ing from Being Fortunate to Being Smart



In a lot of ways, Arizona is successful today because it has been lucky. Air conditioning, the shift toward the Sun Belt, the whole t r e n d of r e t i r e m e n t communities, e v e n Mo t o r o l a's decision to build a plant in Phoenix some 50 years ago: All these breakthroughs came about in large part through luck. But Arizona can't rely forever on being fortunate. It's time to be smart. Maybe the best example for Arizona to learn from is Austin, another high-profile Sun Belt location that could have attempted to







29







But the same index rates Austin merely 12th on export performance, which is actually much higher than it would be without the p re s e n ce of a few large exporters. Mayo r Kirk Watson and a visionary group of local b u s i n e s s , a c a d e m i c and city leaders are determined to make Greater Austin a worldclass international region. The y recognize that the knowledge economy is a global economy where strategic advantage and oppor tunities are often overseas. Lacking g lobal experience, indigenous high-tech companies are more apt to react to global pressures than to be strategically aggressive. To move forward, Arizona must focus on strategic goals. Now is the time to start thinking about the next Arizona economy and how we will prepare ourselves and our communities for what lies ahead. We need a dialogue about what comes next and how Arizona can create a future that works for ever yone. The state's leaders must answer the question: What are three things that Arizona ? or its largest region ? is striving to be great in?







Policies to Keep the Shoe from Dropping



Economic Identity: It matters and Greater Phoenix needs one that fits the times. Metropolitan regions are overtaking states as the drivers of economic growth. Arizona is no exception. Metropolitan Phoenix currently accounts for 70 percent of the state's total personal income and is responsible for over 70 percent of new job growth. As goes Phoenix, so goes Arizona. The time has come to decide on the Phoenix region's economic identity and goals. For Arizonans, it's hard to imagine Phoenix being "outclassed" in economic growth or quality of life. After all, its costs are still low and the sun still shines. Unfor tunately, those two factors don't produce the standing they once did. Milken Institute economist Ross DeVol suggests Phoenix represents the classic case o f a `middle-t i e r ' t e c h re g i o n . Companies locate production and c u s t o m e r support facilities to take advantage of low costs and relatively cheap labor, but few place their top scientist and engineers there. Recent quality of life rankings by the Milken Institute and others show Greater Phoenix in the middle of 315 metropolitan areas with a ranking of 169, far below Denver and Salt Lake City. Still worse, Arizona businesses, e s p e c i a l l y high tech, r e p o r t that existing a n d prospective employees are becoming disenchanted with Greater Phoenix. The region "must look to make something more of itself if it wishes to be something other than an also-ran in the digital age," warns Joel Kotkin. Warnings from Kotkin, DeVol and other highly regarded researchers present the question: What does the Phoenix region want to be known for? What economic identity and lifestyle goals is it s t r i v i n g to achieve? Morrison Institute asked the region's residents those questions in a representative survey. In June 2001 Morrison Institute surveyed metropolitan Phoenix residents to understand more about what matters to them and what image they would like the region to project to the rest of the world. Residents rated 12 potential images for the Phoenix area and then chose the one they liked most. Metropolitan residents are most likely to feel the Phoenix area should promote itself as a region characterized by its great quality of life and unique environment. Fewer than half felt that it was desirable to promote metropolitan Phoenix as a real estate boom town or an area of fast growth. Valley residents were asked to pick one image they would most like for the Phoenix region on a scale of "0" to "10" with "10" meaning the Phoenix region should actively promote the image, and "0" meaning it should not promote the image at all. The average scores for each image from most favored to least favored are presented below. 1. Great quality of life . . . . . . . . . . 8.3 2. Sonoran Desert, mountain preserves and open spaces . . . . 8.1 3. Smart people and education opportunities . . . . . . 8.0 4. Technology leadership . . . . . . . 7.7 5. Art and cultural entertainment . 7.6 6. Diverse ethnic and cultural heritages . . . . . . . . . . . 7.5 7. Western heritage . . . . . . . . . . . 7.2 8. Low taxes . . . . . . . . . . . . . . . . . 7.0 9. Professional sports . . . . . . . . . . 6.8 10. Real estate booms . . . . . . . . . . . 6.0 11. Fast growth . . . . . . . . . . . . . . . . 5.4 12. Conser vative politics . . . . . . . . 5.5 Women tend to favor the desert environment and tolerance images, whereas men favor great quality of life and technology leadership. Support for promoting the region as a desert environment with open spaces and a great quality of life, or for technology leadership are favored more among those with higher incomes.







The Challenge of Global Geography



Whatever choice is made, the race to get there will be different from what it was 20 years ago or even five years ago. Nothing can be left to chance. As urban commentator William Fulton says, "when it comes to the new economy, no metropolitan area is without assets ? and precious few have a monopoly on success." In addition, "global" is the new context and new scale. As in business, this new geography presents places with unparalleled opportunities and an endless supply of competitors. High-tech hubs now dot the globe, ser ving as outposts for big-brand co r p o r a t i o n s , g e n e r a to r s of h o m e g row n companies and incubators for emerging i n d u s t r i e s like e-commerce, m o b i l e communications and biotechnology. In its July 2000 issue, Wired magazine showcased more international locales than U.S. regions on its list of the top 46 "locations that matter most in the new digital geography." The message is clear: All economic hot spots are now competing in a global race.



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A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







FIGURE 5 Re s i d e n t s Want Technology Savvy + Desert Lifestyle to Equal Greater Phoenix



Te c h n o l o g y is the Desired Economic Identity for the Phoenix Region



Technology Savvy Resort & Tourism Talent & Education Real Estate & Construction Inter national Business The Four Cs Don't Know 8% 8% 7% 3% 18% 24% 32%







D e s e r t and Casual Living Best Capture the Image of the Phoenix Region's Lifestyle



Casual Living Desert & Outdoors Low Costs, Low Taxes Arts & Culture Retirement Paradise Wester n Heritage Professional Sports Choices



Responses in Percentages







28% 26% 16% 10% 9% 7% 4%







S o u r c e : Morrison Institute for Public Policy, 2001







Going further, the Morrison Institute survey asked residents to distinguish between an economic identity and a lifestyle identity for the region (see Figure 5). For an economic identity, a third of valley residents want the r e g i o n to be viewed as technology savvy. Another one in five prefers the talent and education image. Taken together, a majority of residents appear to favor a "knowledge-based" or new economy image for metropolitan Phoenix. One in four residents prefers the more traditional resort and tourism image. S u r v e y respondents were split on their outlooks on lifestyles. Approximately one q u a r t e r of r e s p o n d e n t s selected a causal lifest yle image, and another one in four selected the desert environment and outdoors as the primary lifestyle image for the re g i o n . T h e re was little interest in the i m a g e s of p r o f e s s i o n a l sports, w e s t e r n heritage, or a retirement paradise. With this concrete data as a starting point, the challenge now is to establish and maintain an image that distinguishes the Phoenix region ? and thus Arizona ? as a winner in the economic race of today, not yesterday. Economic Identity is Only the First Step. Strateg y is the Next and Harder One. An economic identity will only transform an area if it is supported by wise decisions and







initiatives by business and government. Assuming the state and its major regions establish a strategic principle something like ? "the site of technology's future" ? the focus and tools required to get there are different from those of the past. No w economic, e d u c a t i o n , t e c h n o l o g y, a m e n i t y and community development str ateg ies must go together. The battle for leading edge industries, knowledge assets, talented people and quality communities is one and the same. For example: ? World-class educational institutions build strong talent pools and provide community amenities ? Communities with respected education and research institutes and distinct c u l t u r a l identities attract leadingedge industries ? Natural and cultural amenities draw talented people These dynamics describe, of course, many of the factors driving high-tech and technology s e r v i c e s location decisions. B u t just as important, these factors describe the places where today's breakthrough technologies a n d cutting edge organizations are born. They form a "virtuous circle." But the idea of a virtuous circle is ushering in yet another change. It's no longer enough







for states like Arizona to have top engineering schools, venture capital pools, job training programs and urban growth plans. States have to put the pieces together to create advantages from the parts' interaction. Advantage depends on capturing the synergies from the interaction of the critical parts. Assets alone do not guarantee a place at the winner's table. The key is to connect them to create regional advantage. Many areas can accumulate an array of technology, education, and lifestyle assets. Map 1 shows the metro Phoenix assets. But it is much harder to create a place where the highest brain power resides, ideas flow freely among public and private institutions and businesses and people easily find the support they need to develop desirable companies. Setting this dynamic in motion and sustaining it requires genuine collaboration and significant investment. A short-term vision and yesterday's fragmented strategies won't do it. Arizona will lead ? or not ? depending on its desire and discipline to: ? Build the technology and knowledge assets that will advance technology and launch high-value new ventures ? Develop and grab talent in every way possible ? Build desirable places to live and work



A Fuzzy Economic Identity







31







S t a r t publicizing the right image and spend as much on promoting knowledge images as tourism. Fortunately, Arizona is building its universities, R&D base and intellectual capital. In November 2000 state voters approved an increase in the state's sales tax to boost education funding by nearly $460 million a year for 20 years. The three state universities receive approximately 12 percent of the dollars annually for research and for infusing new knowledge into the economy. Arizona's universities have worked together to identify areas where they have foundations on which to build. Some of the areas are complementary, while others are unique to an institution.







Together, however, these university specialties begin to map where the state has the potential to lead in the future. Arizona's universities a re laying the groundwork to distinguish themselves nationally in the areas of bioscience and biotechnology and information s c i e n c e and technology. I n addition, t h e u n i v e r s i t i e s are developing initiatives in manufacturing, environmental engineering, environmental science, water sustainability and optics. Un f o r t u n a t e l y, h a r d l y anyone outside of Arizona knows about Proposition 301 and its potential to shape the state's future. Yet this major accomplishment could start to change the old perception of miserly Arizona when it







comes to education and university research. The university portion of 301 totals $1.1 billion over 20 years, a figure on par with what the national press is touting as monumental investments. But Arizona cannot think its work is done. This is just one-tenth o f t h e annual amount that Columbia University's Michael Crow suggests is necessary just for the Phoenix area. Moreover, even a cursory look at state initiatives shows that every other state ? and many countries such as Israel and Ireland ? are mastering the new rules of economic development. Many places have set their sights high and are taking risks to get there. The question is which ones will have the discipline to remain focused over the long haul. Will one of them be Arizona?







AP 1 Ar izona is Starting to Build a Critical Mass of Know ledge Assets in its Largest Region. The Question is: Does Arizona Have the Desire and Discipline to Turn Its Assets into Something Nobody Else Has?



Maricopa County, Arizona







ew River







Cave Creek







Carefree







Map Area



Rio Verde







Sun City West Surprise Sun City Peoria El Mirage







N







Fountain Hills







Youngtown







Glendale Paradise Valley alt River Indian Community







Litchfield Park







Scottsdale







Knowledge Resources in Buckeye Metropolitan Phoenix,Tolleson 1999 8 Community Colleges ale Avond UnivGoosdiyteies er ar Patents Companies Issuing Patents Incubators Research & Development Federal Research Units IPOs







Phoenix



Mesa Tempe







S



Data Source: Greater Phoenix Economic Council Knowledge Assets Mapping Project, 2000



Guadalupe Gilbert Chandler







Apache Junction







Map created by IT Research Support Lab ? GIS Services Summer 2001







M



32







0 0







5







Kilometers 5 Miles







Queen Creek







A r i z o n a Policy Choices 2001: Five Shoes Waiting to Drop on Arizona's Future







Fort McDow ell Indian Com munity







Of c o u r s e strategy is hard ? it's about making tough c h o i c e s . I t 's about deliberately choosing to be different. I f y o u want to make a difference as a leader, y o u' v e g o t to make time for strategy. T h e essence of s t r a t e g y i s choice and trade-offs and fit. O n l y strategy can create sustainable advantage. Gr e a t leaders are able to enforce the trade-offs. A l e a d e r also has to make sure that everyone understands t h e strategy. T h e y go out and they repeat, " T h i s is what w e stand for, t h i s is what we stand for." S o everyone u n d e r s t a n d s it. S t r a t e g y becomes a cause. T h a t 's b e c a u s e strategy is about being different.



Wisdom about strategic positioning from one of the world's most known business-school professors, Har vard University's Michael E. Por ter. Althoug h Porter is talking to businesses, his advice is equally solid for states and communities in the 21st century. Har vard Business Review, March 2001







Lost Stewardship



Leadership has become a spectator sport in Arizona.



Ev e r y flourishing place has people who act as its stewards. T h e y are committed to and actively work for the long-term economic and social success of their locale ? advocating for it, nur tur ing it, wanting to solve its problems and improve it. But, most Arizonans, according to a statewide survey, think the state lacks such leadership today. What lies behind this view? Many citizens identify the states elected officials with narrow agendas. Other observers complain that CEOs are sitting on the sideline and that government-by-ballot measure has increased because business and elected officials remain passive. Given the facts of corporate life today ? national and international perspectives, merger mania, executive churning ? finding and supporting stewards among business leaders is harder than ever. Meanwhile, many entrepreneurs appear to lack a civic involvement ethic, while political leaders seem to focus on re-election or narrow ideological issues. "Stewards of place" seem like they are harder to find in Arizona than they are elsewhere. In part, that is due to the state's rapid growth and dramatic changes. Fewer people in Arizona than in some other states have deep roots here. In part, too, it's because Arizona is not a first-tier corporate center. But is that why many seemingly simple challenges are not met in Arizona? Not entirely. The facts of leadership may not be quite what they seem. The situation's not perfect, but the CEO numbers and turnover are not the only problems. No matter h ow you count them, Ar i zo n a has enough potential leaders to run a small nation. Unfortunately, too many of them are sitting on the sidelines. At the same time, however, a substantial number of