In an earlier blog post, Follow-the-Leader: Why Isn't Arizona First in Solar Technology? I wrote about the importance of Arizona being a technology leader - and the opportunity we have in green energy, particularly solar energy. I've written about competitiveness a lot since, and I've usually focused on the fact that if Arizonans wants to maintain, and improve, our standard of living, we've got to find an edge - and it's not in real estate.
Economists differentiate between businesses that produce for in-country (or in-state) consumption and businesses that produce for export (out of the country or out of the state). It's certainly not as simple as this, but theoretically, businesses that produce for local consumption don't actually generate wealth (though they are, of course, critical). They receive income from consumers for the goods and services they produce, but then that income is paid as wages to the workers who produce the goods and services (who are, incidentally, also the consumers) - it's a closed loop.
Now imagine that Arizona businesses can sell outside of the state, so they produce more goods and services than are demanded for local consumption. Now the businesses can earn more in income than they pay in wages, and that creates wealth. That's good for the local economy at all levels: wealth-creating businesses hire more workers and pay them more (in Phoenix's largest exporting industry, computer and electronic products, the average annual wage is $85,395). Wealth-creating export-oriented businesses also send more money to state and local governments in the form of taxes.
Yet a report released yesterday by the Brookings Institution, Export Nation: How U.S. Metros Lead National Export Growth and Boost Competitiveness, suggests that Phoenix is behind other metro areas in maintaining and developing export-oriented businesses. Out of the country's 100 largest metropolitan areas, Phoenix ranked 15th with $18.63 billion in total exports in 2008 - not bad. Yet in measuring exports as a share of gross product, Phoenix ranked in the middle 20 metro areas. Exports account for 10.4 percent of Arizona's economy; in Wichita, Portland, and San Jose, that share is 28, 21, and 20 percent, respectively.
And while Phoenix added more jobs than many states in the 2003-2008 period, the state's growth in exports was relatively weak - just 3.5 percent a year (in other words, those added jobs didn't translate to export growth). At the same time, four of the country's metro areas - Wichita, Portland, Houston, and New Orleans - doubled their exports.
The numbers in the Brookings report refer to goods and services that are exported out of the U.S. But we also export to other states, and the same reasons that exports to other countries are so beneficial apply to exports to other states, as well. Arizonans can only consume so much - whether it's solar energy or solar panels, lettuce, or high-tech electronics. So to truly create wealth, Arizona businesses must produce goods and services for export - that could be the tourism industry bringing tourists to the state (which is counted as a service export), it could be APS selling power to users in other California, or it could be Avnet selling electronics to China.
I should reiterate that local consumption-based businesses are critical to our economy - they employ the greatest percentage of Arizonans, and they provide residents with much-needed goods and services. But because they only serve Arizona's population, their role has its limits. To grow, Arizona must also attract businesses that produce goods and services to be consumed in other states and countries.
Yet we compete with other states and countries for those businesses, and the data suggest that we're not competing as well as we should be. Many economists look at a country's or state's exports as a bellwether for overall economic health; our relative lack of competitiveness compared to other metro areas should be a call to action. We've got to focus on attracting, retaining, and developing wealth-producing, export-oriented businesses.
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