Developing a globally competitive economy: Challenges and opportunities

As Arizona strives to find and maintain a place in the global economy, it faces many of the same challenges as the nation. In a speech at the W. P. Carey School's Economic Club of Phoenix, Bank of America CEO Kenneth Lewis said that to be competitive, Arizona and America must focus on business and community development. To do so, he said, we need to bring together community leaders from business, academia, and government.

Bank of America CEO Kenneth Lewis recently explained two conclusions he's come to about the Grand Canyon State. First, he said, is that Arizona is a land of optimists. "Despite being mostly desert, mountains, and canyons, Arizona has the highest ratio of boat owners per capita in the U.S.," Lewis said. "I like people who dare to dream."

Second, Lewis said that Arizona is a land of ambition. The ambition that he sees in Phoenix founder Jack Swilling, who chose the Valley because he admired the water canals the Native Americans had built and saw an opportunity to build on their achievement, Lewis also sees in Arizonans today. But, Lewis said, Arizona — like the rest of the United States — faces challenges.

Speaking at the W. P. Carey School's Economic Club of Phoenix, Lewis said "The challenge for Arizona is to create a dynamic, knowledge-based economy that will compete, lead, and win in the 21st century global economy." That, he added, will require business development, community development, and leadership development.

Business development

While an optimist, Lewis says that he's also a realist. The fact is that America faces challenges in the global economy, with businesses constantly coming under new competitive pressures. "And it's not going to get easier," Lewis said. A number of recent trends give him pause, Lewis said: This year, the U.S. fell from 1st to 6th in the World Economic Forum's global competitiveness index — a measure of a nation's ability to generate sustained economic growth.

International companies seeking to open new research and development labs now prefer China to the U.S. by a margin of 60 percent to 40 percent, according to a 2005 survey. In 2005, China passed the U.S. as the world's leading exporter of technology goods. Once a leader in terms of the percent of GDP invested in R&D, the U.S. is now behind Japan, South Korea, Israel, Sweden, and Finland. The 2005 federal budget cut research funding in 21 of 25 federally funded areas.

Enrollment in IT programs in American colleges decreased by 50 percent between 2001 and 2005, at the same time that India graduated 500,000 computer programmers each year. China produces 220,000 engineers each year, to the United States' 60,000. AT NASA, scientists over the age of 60 outnumber scientists under the age of 30 by 3:1. But those trends don't make Lewis want to give up.

At the same time that Lewis sees cause for realistic action, he sees cause for optimism, too. He believes that the U.S. can succeed in the global economy for two reasons. First, the U.S. still occupies a dominant position in the world's economy. "Everywhere I go in the world, investors, business people, and the government leaders all share one common perspective: that America continues to be far and away the most powerful economic force in the global market — not only the largest economy, but also the most flexible, dynamic, and innovative," Lewis said.

Second, America's education and R&D infrastructures are still the best in the world, despite the fact that our efforts to expand on our current capabilities have waned while other countries' efforts have increased. The realistic action that will keep America competitive in the global economy, Lewis said, is business and industrial development spearheaded by community leaders from business, academia, and government.

According to Lewis, Arizona's pursuit of bioscience is a great example of that kind of business development. Lewis cites Phoenix's attraction and location of TGen; the new biosciences park in Tucson anchored by the Critical Path Institute; new taxes for Arizona's three universities to establish bioscience institutes; and the creation of Science Foundation Arizona as examples of how Arizona has succeeded in developing the infrastructure for bioscience industry here.

But Arizona's success in creating that bedrock doesn't mean that the state won't face challenges. First, Lewis said, Arizona is not the only state chasing the bioscience industry. "In addition to the obvious candidates like California and Massachusetts, I also know of efforts in North Carolina, Tennessee, Missouri — and I'm sure there are many others as well. "Second, attendance at Arizona's town hall meeting on bioscience last year was low. "Professionals in the field came out, but the lay audience was thin," Lewis said.

Finally, Arizona will be challenged by venture capital activity that's low relative to other states working on similar initiatives. Lewis mentioned a recent spike in venture capital activity due to one large investment, but suggested that new industries will benefit from more consistent growth in venture capital activity.

What does that mean for Arizona's future? The state, Lewis said, "has had great success in getting traction on a large, complex, and expensive initiative to secure Arizona's economic future. But to compete against other states and countries around the world, Arizona must zero in on the state's core differentiating advantages and market those advantages aggressively."

In addition to publicizing the bioscience initiative throughout the community to build up an awareness and common understanding, Lewis said that the state must also pull together the right partners to create viable projects that will attract investors' interest.

Community development

"Community development is a very different exercise in the 21st century than it was in the 20th century," Lewis said. "A number of factors are changing the way we think about the development of our cities and communities, including land use planning, energy conservation, and the rise of communications technology."

But, Lewis said, there is still one constant. "We still have to build strong, safe, healthy neighborhoods in which people want to live, work, play, and raise families." Phoenix, it seems, is doing a decent job at that. Lewis cited the 2006 City of Phoenix Community Attitude Survey, pointing out that nearly 90 percent of residents are satisfied or very satisfied with living in Phoenix.

One exception, Lewis said, is Phoenix residents' satisfaction with the availability of affordable housing. "Two years ago, 48 percent of residents called the availability of affordable housing out as a major issue," Lewis said. "This year, that number rose to 71 percent."

That should be cause for worry, Lewis said, because "communities grow and thrive most efficiently when all residents have a sense of community, security, and opportunity that enables them to pour their energy into productive work." Phoenix is doing a great job developing an urban core that will draw professionals and affluent retirees, but must also do more to create safe, affordable, and convenient communities for low and moderate income residents.

Bank of America, Lewis said, will help develop those kinds of communities. Two years ago, the company pledged $750 billion over ten years to develop historically underserved neighborhoods around the U.S. — including promoting homeownership, developing community services, and spurring small business creation.

Leadership development

The real leadership challenge for growing regions like the Valley of the Sun, Lewis said, is the development of a culture of leadership that enables leaders from across economic sectors to work together. "You wouldn't think that would be so hard," Lewis said. But the challenge lies in the fact that rapid regional growth — the kind that Arizona is experiencing — makes community leadership more difficult as economic growth transcends political boundaries.

The challenge, as Lewis sees it, is not unlike the challenge that Bank of America has faced — and overcome. "Thirty years ago, we had 10,000 associates in one state and a few core products. Today, we have 200,000 associates all over the world working in scores of different businesses." The company found, as it grew, that greater size and complexity required different leadership skills.

First, Lewis said, the company learned that it should centralize and automate for investors but decentralize and integrate for clients. "The point for Arizona is: don't try to lead everything at the regional level," Lewis said. "Some initiatives, like bioscience, need to be coordinated across the state. Others, like neighborhood development, do not."

Second, Lewis said, the company leverages diversity — across markets, revenue streams, geographies, and people — to mitigate risk.

Third, the company has built a culture of operational excellence. The first financial services firm to institute Six Sigma, Bank of America has as a result greatly improved its efficiency, accuracy, cycle times, and customer satisfaction. Similarly, when community leadership initiatives are well executed, Lewis said, the results are almost always good.

Finally, the company has learned the importance of adaptability. "Over the years we learned that serving customers in Arizona or North Carolina is not exactly the same as it is in Florida or Massachusetts," Lewis said. Even as the company has sought to run a consistent franchise, Lewis said, it has also focused on the importance of adapting to the needs of local communities — a lesson community leaders would do well to understand.

"The larger your reach, the more adaptable your development models will have to be," Lewis said. In the end, Lewis believes that Arizona's strength lies in seeing challenges as opportunities — just like founder Jack Swilling did when he decided to found a city in the middle of a desert valley.

Bottom line

• In order to create a competitive knowledge-based economy, Arizona will have to focus on business development, community development, and leadership development.
• To become globally competitive in business, Arizona must aggressively market its core differentiating advantages.
• Arizona must focus on developing communities that offer affordable housing for all residents.
• Arizona must develop a culture of leadership that transcends economic sectors as well as political boundaries.