SENATE, No. 2377

Report of the Senate committee on Post Audit and Oversight (under the provisions of Section 63 of Chapter 3 of the General Laws, as most recently amended by Chapter 557 of the Acts of 1986) entitled "Getting in the Game: Increasing Massachusetts's Presence in a globalized world" (Senate, No. 2377).

The Commonwealth of Massachusetts

Seal of the Commonwealth

In the Year Two Thousand and Seven.


GETTING IN THE GAME:
INCREASING MASSACHUSETTS’S
PRESENCE IN A GLOBALIZED WORLD


A Report of the
Senate Committee on Post Audit and Oversight 
October 2007


Massachusetts Senate
The Honorable Therese Murray
Senate President

Senator Marc R. Pacheco, Chair
Senator Susan C. Fargo, Vice Chair
Senator Steven A. Baddour  
Senator Michael W. Morrissey
Senator Richard T. Moore
Senator Benjamin B. Downing
Senator Robert L. Hedlund


Senate Post Audit & Oversight Committee
Senator Marc R. Pacheco, Chairman
It shall be the duty of the Senate Committee on Post Audit and Oversight (established under Section 63 of Chapter 3 of the General Laws) to oversee the development and implementation of legislative auditing programs conducted by the Legislative Post Audit and Oversight Bureau with particular emphasis on performance auditing. The Committee shall have the power to summon witnesses, administer oaths, take testimony and compel the production of books, papers, documents and other evidence in connection with any authorized examination or review. If the Committee shall deem special studies or investigations to be necessary, they may direct their legislative auditors to undertake such studies or investigations.


Senate Post Audit and Oversight Bureau
Sridevi Reddy
Director

Russell Weinstein
Principal Author

The Committee would like to acknowledge the contributions from Senator Pacheco's office, including Mary Wasylyk, Chief of Staff; Natalia Pelayo, Communications Director; Jessica Nordstrom, Assistant Director; Ilda Marques, Executive Assistant; Kate Garrett, General Counsel; Ryan Colton, Director of District Affairs, and Charles Basler, Director of Constituent Services.

The Committee would also like to acknowledge the assistance of the Massachusetts Export Center; the U.S. Department of Commerce, U.S. Commercial Service; the Massachusetts Office of International Trade & Investment (MOITI); the Executive Office of Housing and Economic Development; Lawrence Summers, Charles W. Eliot University Professor, Harvard University, and Robert Mahoney, Executive Vice Chairman of Citizens Financial Group.


· Executive Summary ·

Globalization has dramatically altered the world economy.  If Massachusetts is to realize its potential in this changing global environment, it must adapt and respond.  While the Dukakis administration concentrated heavily on economic development and job creation in the 1980’s, the world became increasingly globalized in the 1990’s.  Responding to the changing global economy, in the early 1990’s the Weld-Cellucci administration implemented a strategic plan that prioritized international trade.  The subsequent Cellucci administration continued to recognize the importance of the international economy to the Commonwealth’s well-being.  However, the events of September 11, 2001 necessarily turned Massachusetts ’s attention to safety, security, and other highly pressing concerns of the time.  The first administration after September 11, 2001 that had the opportunity to revive the Commonwealth’s strategic international plan was Governor Romney; however, the Romney administration neglected this important piece of the policy agenda.  The number of trade missions declined, as did the state-allocated budget for governmental agencies addressing international trade.  While one competitor state allocated 23 million dollars to their state trade agency, Massachusetts allocated less than 2 million in fiscal year 2007. [1]  

 

The absence of a strategic global economic plan has been accompanied by a decline in various economic indicators in the Commonwealth.  Over the period from 2004 to 2006, the Commonwealth’s rank among the states, in terms of exports as a percentage of gross state product, fell from 14 to 20. [2]   While the total dollar value of the Commonwealth’s exports has increased in recent years, over the period from 1999 to 2006, the Commonwealth’s rank, in terms of the total dollar value of its exports, fell from nine to eleven.  In 2006, the difference between the total dollar value of exports of the 9th ranked state ( New Jersey ) and the 11th ranked state ( Massachusetts ) was approximately 3 billion dollars.   While the total value of chemical exports increased relative to other states, the total value of manufacturing exports declined relative to other states. [3]   The Commonwealth should not be satisfied by simply seeing the total dollar value of its exports increase every year.  Today’s global marketplace brings with it many new opportunities.  The fact that other states have surged in front of Massachusetts in terms of the total dollar value of their exports means that they are taking advantage of those opportunities more successfully than the Commonwealth.

 

Further, while many states were hurt by the recession in 2001, employment in various Massachusetts sectors fell by a greater amount than in states which exported more in terms of total dollar value.  Multiple sectors that have been traditionally robust in the Commonwealth, such as Financial Services and Higher Education, have also experienced a loss of competitiveness on the national and global levels.  While a decade ago there were 17 Fortune 500 companies with headquarters in Massachusetts , today only nine remain. [4]   The number of foreign students in Massachusetts declined by 2,000 in recent years, or approximately 7%; this percentage decline was the largest among the five most popular destinations for foreign students. [5]   This decrease represents an estimated 63 million dollars of lost tuition, fees, and living expenses from foreign students and their families.       

 

The Senate Committee on Post Audit and Oversight has examined multiple issues that are crucial for ensuring the Commonwealth’s ability to become a leader in the global economy.  The following report is a culmination of statistical research and historical analysis.  This research and analysis is coupled with recommendations for better prioritizing the Commonwealth’s international economic policy within the new administration’s economic development strategies. One key recommendation is the creation of a global competitiveness advisory board which would continue studying issues examined in the report and outline a strategic plan that can be implemented by state agencies.  The Committee further recommends increasing the number of governor-led trade missions that also include educational institutions, conducting reverse trade missions in which foreign leaders and businesses come to Massachusetts to meet with the Commonwealth’s leaders and businesses, evaluating strategic locations for foreign offices, increasing the budget for state trade agencies, examining the possibilities for creating a more defined relationship with the Department of Commerce’s US Commercial Service to assist in export promotion, and developing strategies for ensuring that various sectors of the Massachusetts economy remain competitive in a globalized age.  Without leadership and a commitment to strengthening the Commonwealth’s position in the global economy, Massachusetts will fail to realize its full potential and its economy will trail behind those of other leading competitor states.

The Senate Committee on Post Audit and Oversight presents the following findings and recommendations:

FINDING ONE:  Massachusetts has fallen behind in today’s global economy.

RECOMMENDATION:

  1. Create a Global Competitiveness Advisory Board to develop a plan for increasing the Commonwealth’s competitiveness.  

FINDING TWOInternational trade policy has been neglected and exports have declined relative to other states.

RECOMMENDATION:

  1. Develop a plan for increasing the Commonwealth’s exports by creating an export promotion committee within the Global Competitiveness Advisory Board. 
  2. Conduct an assessment of the Commonwealth’s current trade promotion structure to ensure that it maximizes effectiveness and efficiency.
  3. Increase the budgets of state trade agencies that assist in export promotion, such as the Massachusetts Export Center and the Massachusetts Office of International Trade and Investment (MOITI), to a level at which they are efficiently realizing their potential to increase exports.
  4. Increase the number of Governor-led trade missions to improve the Commonwealth’s “brand” on the global stage and to connect Massachusetts companies with foreign buyers.
  5. Increase the number of reverse trade missions, in which foreign businesses and political leaders are invited to Massachusetts to meet with the Commonwealth’s businesses and political leaders.
  6. Conduct an evaluation of the effectiveness of the Commonwealth’s foreign offices and consider other strategic locations for foreign offices.
  7. Consider establishing a stronger relationship with the US Commercial Service to assist Massachusetts companies exporting to countries without a foreign office.

FINDING THREE:  Jobs in the manufacturing sectors have sharply declined; durable goods manufacturing exports have fallen relative to other states.

RECOMMENDATION:

  1. Develop a plan for improving the competitiveness of the Commonwealth’s manufacturing sector by creating a manufacturing committee within the Global Competitiveness Advisory Board.  The plan should also target the manufacturing sectors in which the Commonwealth has the potential to be highly competitive.
  2. Strengthen and develop the “green” manufacturing industry to realize the potential of this sector in which Massachusetts should have a competitive advantage.
  3. Develop programs, through the collaboration of industry, academia, and the public sector, that provide students with the skills and knowledge they need to be competitive and innovative in the advanced, high-technology manufacturing sector, in which the Commonwealth should have a competitive advantage.

FINDING FOUR:  The Commonwealth is losing ground as a leading destination for foreign students.

RECOMMENDATION:

  1. Develop a plan for attracting international students to the Commonwealth’s colleges and universities by creating a higher education committee within the Global Competitiveness Advisory Board. 
  2. Conduct governor-led trade missions that include officials from institutions of higher education in the Commonwealth.
  3. Develop academic programs that help students (both domestic and international) acquire the skills and knowledge they need to be competitive and innovative in the global economy.

FINDING FIVE:  The traditionally robust financial services sector is falling behind other states and countries.

RECOMMENDATION:

  1. Develop a plan for increasing the competitiveness of the Commonwealth’s financial services sector by creating a financial services committee within the Global Competitiveness Advisory Board.
  2. Develop programs, through the collaboration of industry and institutions of higher education, which help students acquire the skills and knowledge they need to be competitive and innovative in the financial services sector.

· Introduction ·

Improved technology, travel, and communication have dramatically altered the modern economy.  Massachusetts businesses are now competing against businesses on multiple continents; Massachusetts colleges and universities find themselves in a world with an increasing number of well-funded, high-quality universities and research institutions.  However, this age of increased competition also has the potential to bring many benefits to the Commonwealth of Massachusetts .  A globalized world, one in which the distance between continents is quickly erased, offers the opportunity for Massachusetts to build new partnerships.   For businesses in Massachusetts , globalization must result in an expansion of the markets to which they export their goods.  Increasing competitiveness within various sectors of the Commonwealth’s economy and increasing the Commonwealth’s export capability will ultimately increase jobs and stimulate economic growth in today’s globalized age.   

 

If Massachusetts is to reap the benefits presented by the globalized economy, then it must design a strategic plan for its small and medium-sized businesses.  This need has been recognized by a wide range of organizations and constituents in the Commonwealth.  Specifically, the presence of Massachusetts businesses in foreign markets has recently received attention.  In November 2006, Global Massachusetts 2015, a leadership initiative, wrote a letter to Governor Patrick urging the Commonwealth to develop an economic strategy specifically related to India and China .  The letter encouraged the Governor to forge partnerships and attract business from these two countries. [6]   Regarding the study conducted by Global Massachusetts 2015, Jack Wilson, the President of the University of Massachusetts said, “Massachusetts isn’t doing enough in positioning itself in the two fastest-growing economies in the world…We need to get out in front of them and to tell their businesses that, when you come to the United States, Massachusetts is the right place to come.” [7]   However, Lawrence Summers, former US Secretary of the Treasury, President of Harvard University and current Professor of Economics at Harvard, argued that there is a tendency to romanticize the Pacific, stating that Boston is the closest city in the United States to Europe and the farthest from the Pacific.  Summers recommended that Massachusetts should work to make itself a gateway to Europe , stating that it should utilize its unique connections to Europe to increase transatlantic partnerships. [8]   While there is discussion on which markets Massachusetts should build stronger connections with, there is widespread agreement that Massachusetts must increase its presence in foreign markets.  By increasing exports, strengthening foreign direct investment, and creating partnerships with other countries, Massachusetts can maximize its global potential.  The weakened dollar relative to other currencies, including the Euro, makes the opportunities for increasing exports and foreign direct investment even more promising.  

 

In addition to enhancing export promotion for small-and medium-sized businesses, Massachusetts must develop new strategies for various sectors of the Commonwealth’s economy that are suffering from a lack of competitiveness.  Two such sectors are financial services and higher education.  A recent report by Mass Insight and the Greater Boston Chamber of Commerce found that the financial services sector is becoming less competitive in the national and global economy. [9] Further, a report by Mass Insight and Collegia found that Massachusetts has witnessed a decrease in the number of foreign students attending its institutions of higher education. [10]

  

The report below examines certain issues that are causing Massachusetts to lose momentum in the global playing field.  The report further emphasizes the need to develop an integrated plan that will help Massachusetts to remain competitive in the modern economy. Integrating Massachusetts into the international marketplace of goods and ideas and remaining competitive in that marketplace must be a significant piece of the policy agenda. The Senate Committee on Post Audit and Oversight recommends the creation of a Global Competitiveness Advisory Board to further study the issues presented below.  The Board will help the Commonwealth to achieve the immediate need of prioritizing global competitiveness within the overall economic strategy

· Creating a Global Competitiveness Advisory Board ·

The Committee recommends the creation of a Global Competitiveness Advisory Board, similar to the International Trade Advisory Board formed by Governor Weld in 1993.  This board should consist of government policymakers, businesspeople, and representatives of academic institutions.  It is important that the Global Competitiveness Advisory Board not only consists of government officials, but also has representation from businesses and academia; these representatives will have unique insight on how to increase the competitiveness of their own organizations in the global economy.  The main objective of the Board should be to design a strategic plan for how Massachusetts will achieve its potential in the international economy.  Effectively increasing the Commonwealth’s competitiveness in the globalized market cannot be done on an ad-hoc basis, making such a plan necessary. This plan would aim to increase the Commonwealth’s competitiveness in a variety of sectors, including manufacturing, the “green” economy, higher education, financial services, and the life sciences.

 

Multiple government and community groups have also called for the development of a strategic plan to increase the Commonwealth’s competitiveness in the international arena. [11] In 1994, the Senate Post Audit and Oversight Committee wrote a policy brief which reviewed the Commonwealth’s economic development policies.  The report included a recommendation that an economic performance evaluation should be written in the first year of every governor’s administration, similar to the report written under the Weld-Cellucci Administration, “Choosing to Compete:  A Statewide Economic Strategy for Job Creation and Economic Growth”.  The policy brief from 1994 calls for this plan to be updated each year and to be included as a part of the governor’s budget submission. [12] The Commonwealth would benefit from the new gubernatorial administration following the recommendation of that report and creating economic strategies that prioritize increasing competitiveness in the global economy.

 

Furthermore, a report by the Mass Insight Corporation and Collegia which cited the decline in foreign students in the Commonwealth recommended that Massachusetts develop a strategy for attracting foreign students, specifically from China , India , and Asia . [13]   A recent report by the Greater Boston Chamber of Commerce and the Mass Insight Corporation cited the lack of competitiveness of the Commonwealth’s financial services sector; the report recommended the development of a strategy designed by public, private, and academic sectors to increase the competitiveness of the industry in the global marketplace. [14]

 

The 2006 INDEX of the Massachusetts Innovation Economy stated that, “ Massachusetts is at risk of being ill-equipped to ride building economic waves and realize their benefits.  This confluence of anemic cluster growth, population loss, and a workforce stretched by declining numbers in key age cohorts endangers the Massachusetts Innovation Economy and prosperity in the state more broadly.” [15] Among the competitiveness issues cited by the report were the conversion of research and development to new technologies, products, and businesses and also the availability of capital and high quality investment opportunities in the Commonwealth. [16]

 

The call for a strategic plan by multiple groups emphasizes the importance of creating a Global Competitiveness Advisory Board aimed at increasing the competitiveness of the Commonwealth in a globalized era.

· A Neglect of International Trade Policy Accompanied by a Lack of Competitiveness of Massachusetts Exports ·

A Strategic Plan Created and then Neglected

Examining previous administrations’ approaches to international trade policy is crucial to understanding the present need for an international strategic plan.  The Commonwealth’s position in the international economy cannot be sustained without a clear agenda and strategy like those proposed under the Weld-Cellucci administration. The Weld-Cellucci administration and the subsequent Cellucci administration prioritized international trade in their policy agendas.  The work of Governors Weld and Cellucci to better integrate the Commonwealth into the global economy was recognized on a national level, most prominently through Governor Weld’s nomination to serve as Ambassador to Mexico and Governor Cellucci’s appointment to serve as Ambassador to Canada. 

 

Early in his administration, Governor Weld formed an International Trade Advisory Board which consisted of representation from state and federal government, small and large businesses, and public and private academic institutions.  The objective of the board was “to recommend specific, and achievable ways in which the State can exploit its competitive advantages and significantly expand the international sector of the Massachusetts economy.” [17]   The Board was organized into four task forces focusing on Education, Export Promotion, Trade Missions, and Reverse Investment.  Each area of focus remains an indispensable element in the Commonwealth’s continued expansion and participation in the global economic community. [18]    In May 1993, the Board compiled a detailed report on the Commonwealth’s role in the global economy. [19] The report outlined a strategy for enhancing the competitiveness of the Massachusetts economy in the global marketplace.  In addition to the board, the Weld-Cellucci administration created the Massachusetts Export Center , conducted trade missions, and implemented other policies to support international trade in the Commonwealth.  Much of the strategic planning came from the recommendations of the International Trade Advisory Board.

 

After the departure of Governors Weld and Cellucci, international trade policy went through various changes.  These changes have been concurrent with a decline in multiple economic indicators. In addition, the events of September 11, 2001 significantly impacted foreign trade policy.  After September 11, 2001 , the Massachusetts Port Authority (Massport) closed its international marketing department to necessarily refocus its efforts and budget on security. [20]   By the end of 2001, the Massachusetts Export Center was the only state-funded international trade resource available to help businesses, despite the fact that the Export Center had also experienced budget and staffing cuts. In 2002, The Massachusetts Office of International Trade and Investment (MOITI) reorganized and began focusing on Foreign Direct Investment promotion and international trade shows. [21]

           

            These changes had a dramatic effect on the budgets of Massachusetts trade agencies.  In 1999, the total funding of the Massachusetts Export Center was $587,082, while in 2007 that had dropped to $467,580 and in 2008 is projected to be $524,370 (see Figure 1). [22] Massport had been providing the Massachusetts Export Center with an average $177,600 in the eight years before it ceased funding the center in 2001.  In 2001, the Massport contribution of $138,600 represented more than 23% of the total funds available to the Massachusetts Export Center. [23] This dramatic loss in funding was never fully restored by the state.  Furthermore, the funding cuts that occurred post- September 11, 2001 had a severe effect on Massachusetts overseas trade offices, as the majority of these offices were being funded by Massport through its Boston-based trade development department. [24]   When Massport was involved in the operation of foreign offices, the Commonwealth had significantly more offices abroad than the four it has today. [25]   The Commonwealth’s foreign offices are currently located in Brazil , China , Germany and Mexico (see Figure 3). [26]   Of the ten states that surpassed Massachusetts in the total value of their exports, six states had more overseas trade offices than Massachusetts . [27]   On average, these six states have approximately 11 overseas offices, compared to the four that Massachusetts currently has. [28] [29]

Figure 1

Figure 1: MA Export Center: Total Funding

The loss of multiple foreign offices is captured by the experiences of leaders who have participated in trade missions in recent years. For example, a 1995 trade mission to Taiwan , conducted by the Commonwealth, visited the Massport office located there.  Twelve years later, the Taipei Economic and Cultural Office in Boston led a mission to Taiwan which included members of the Massachusetts General Court.  Upon arriving in Taiwan , the mission was told that the Commonwealth no longer had an office there to promote trade and economic partnerships; yet, 15 other states do have an office in Taiwan . [30]   The closing of Massachusetts foreign offices in recent years has left the Commonwealth without representation in potentially strategic markets where other states do have representation. 

           

            The budget for MOITI in fiscal year 2006 was $960,000 and in 2007 was $1,745,000. The proposed budget for MOITI in fiscal year 2008 is $1,460,000. [31] [32] [33]   The fiscal year 2008 budget further called for opening two more foreign offices, creating a foreign direct investment foundation, conducting two trade missions, and hiring a trade mission coordinator.  Comparing MOITI’s budget to that of other states’ trade agencies helps convey the Commonwealth’s commitment to international trade and exporting.  In 2006, twenty-one states had export promotion budgets greater than MOITI’s, while twelve states had export promotion budgets less than MOITI’s.  Of the ten states which were ranked above Massachusetts in terms of the total value of exports in 2006, five had export promotion budgets greater than MOITI’s, two had budgets less than MOITI’s, and three did not provide the data. [34]   On average, these states had a budget of approximately 5.5 million dollars in 2006, substantially larger than the $960,000 budget of MOITI in 2006 (see Figure 2). [35]   The data for other states’ budgets cannot be perfectly compared to Massachusetts as in some states the export promotion offices work only on export promotion.  MOITI is involved in both export promotion, foreign direct investment, and protocol.  However, MOITI is not the only state agency engaged in export promotion.  Export promotion is the objective of the Massachusetts Export Center as well.  Thus, comparing only MOITI’s budget, and not the Massachusetts Export Center ’s budget, to other states’ agencies may not be sufficient.  

Figure 2

Figure 2: Budgets for State Trade Agencies in 2006

Comparing MOITI with specific trade agencies in competitor states, such as Pennsylvania and Illinois , exemplifies their stronger commitment to international trade.  MOITI has a staff of seven (plus one vacant position) in Massachusetts , four international offices, and has conducted eight trade shows in 2007. [36]   The trade missions that were an important component of trade policy in the past decade are no longer being organized in Massachusetts .  In fact, there have not been any state organized trade missions in the Commonwealth since 2000. [37]   In comparison, the export promotion office in Illinois has a staff of 17, nine international offices, and 17 international trade missions planned for the next year. [38]   Pennsylvania’s export promotion office has a staff of 23, 16 international offices, its fiscal year 2007 budget is 23 million dollars, and it has 23 trade missions scheduled for fiscal year 2008 (see Figures 2 and 3). [39] [40]   Pennsylvania surpasses Massachusetts in terms of the total dollar value of exports at precisely the same time, 2004-2007, that Pennsylvania implements various initiatives that promote and highly prioritize international trade (See Figure 4).  It would be difficult to argue that these two are not related.  

Figure 3

Map of Location of Overseas Trade Offices:Massachusetts
   
 

Location of Overseas Trade Offices:

 

Massachusetts : 2007

 

Source:  SIDO [41]


Map of Location of Overseas Trade Offices: Pennsylvania

 

Location of Overseas Trade Offices:

 

Pennsylvania : 2007

 

Source:  SIDO [42]

 

 

 

 

 

Location of Overseas Trade Offices: 

Massachusetts vs. States with Higher Export Ranking

Source:  SIDO [43]

Massachusetts vs. States with Higher Export Ranking Map

 

Figure 4

Figure 4: Total Dollar Value of Exports

Enthusiasm and interest in international trade has tapered and waned in the past decade.  The events of September 11, 2001 necessarily resulted in a higher priority given to safety, security, and other highly pressing concerns of the time.  The first governor with the opportunity to revive the Commonwealth’s policies aimed at remaining competitive in the international economy was Governor Romney, and he neglected this important piece of the policy agenda.  Evidence of this neglect is the significant decrease in trade missions, decreased budgets for state trade agencies, and multiple reorganizations of trade offices and policies.  As a result, Massachusetts is left without a clear plan to ensure its competitive place in the global economy.  This neglect of international trade by Massachusetts policymakers has been accompanied by a decline in Massachusetts exports relative to other states (see below). It is clear today that Massachusetts businesses, and the Commonwealth as a whole, would benefit from the development of a strategic plan for increasing the competitiveness of Massachusetts in a globalized economy.  Although Massachusetts did in fact “choose to compete” [44] in the global economy, the question now is whether Massachusetts will continue to compete.

Lack of Competitiveness of Massachusetts Exports

The state of the Massachusetts economy signals the importance of increasing the competitiveness of the Commonwealth in the global economy.  A report by The Greater Boston Chamber of Commerce and Mass Insight stated, “The past five years have generally been challenging for the Massachusetts economy.  The 2000-2001 downturn hurt the Commonwealth disproportionately and though Massachusetts has recovered in some respects, weaker long-term fundamentals remain an issue.” [45]

 

Evidence of reduced competitiveness can be seen in an examination of Massachusetts exports.  While the total dollar value of Massachusetts exports has increased in recent years, over the period from 1999 to 2006, the total dollar value of Massachusetts exports has fallen relative to other states (see Figure 5).  In 1999, Massachusetts ’s rank, in terms of the total dollar value of exports, was nine in the nation, while in 2006 it had fallen to eleven.  In 2006, the difference between the total dollar value of exports of the 9th ranked state ( New Jersey ) and the 11th ranked state ( Massachusetts ) was approximately 3 billion dollars.   Furthermore, Massachusetts ranked 43 out of 53 (the data also includes Washington , DC , Puerto Rico , and the US Virgin Islands) in terms of the percentage change in total exports from 1999-2006.  Over this period, the dollar value of exports grew 43.1% (see Figure 6).  After considering exports of specific sectors of the economy, the decreased competitiveness is most notable in the durable goods sector.  The rank of Massachusetts in terms of the total value of exports of durable goods fell from nine to eleven.  Over the period from 1999-2006, exports of durable goods grew only 17.3%; this percentage change ranked 50 out of 53.  There has been a significant increase in the export of chemicals in Massachusetts relative to other states.  While in 1999 the rank of Massachusetts in terms of the total value of its chemical exports was 15, by 2006 it had jumped to six.  Exports of chemicals grew 282.4% in this period, ranking third in the country. [46] These statistics convey that while the chemical sector is experiencing significant growth, the durable goods manufacturing sector is not.

 

Figure 5:  Rank of Dollar Value of Exports from Massachusetts

 

Total Exports

Durable Goods

Non-Durable Goods (Including Chemicals)

Chemicals

1999

9

9

19

15

2000

9

9

19

15

2001

10

9

19

16

2002

11

9

16

14

2003

9

9

13

8

2004

9

9

11

5

2005

10

10

12

6

2006

11

11

12

6

                     Source:  TradeStats Express (http://tse.export.gov)
                     Note:  The rank is out of 53, as the data includes the US Virgin Islands, Puerto Rico, and Washington, DC.

Figure 6:  Rank of Percent Change in Exports from Massachusetts during the period 1999-2006.

 

Total Exports

Durable Goods

Non-Durable Goods (Including Chemicals)

Chemicals

Rank

43  (43.10%)

50  (17.30%)

5  (149.6%)

3  (282.4%)

 Source:  TradeStats Express (http://tse.export.gov)

 Note:  Percent change is in parentheses after the rank.  The rank is out of 53, as the data includes the US

 Virgin Islands , Puerto Rico , and Washington , DC .

 

The Associated Industries of Massachusetts (A.I.M.) recently reported that its Business Confidence Index had fallen 1.4 points in August to 56.2.  This decline in the index resulted in a Business Confidence level slightly below that from a year ago, 57.1.  Raymond G. Torto, co-chair of A.I.M.’s Board of Economic Advisors and principal of CBRE Torto Wheaton attributes this to the manufacturing sector.  He stated, “The manufacturing sector accounted for the overall decline in confidence among Massachusetts employers, with particular concern over current conditions for their respective operations and prospective national business conditions.” [47]

 

In addition to looking at a state’s national rank in terms of the total value of its exports, the degree to which a state is exporting can also be measured by the total value of a state’s exports divided by the Gross State Product (GSP).  This measure assists in the comparison of big and small economies. As was shown above, the rank of Massachusetts in terms of the total value of its exports, declined over time.  A similar downward trend can be seen when looking at the total value of exports per GSP. The Commonwealth’s rank fell from 14th place in 1999 to 20th place in 2006 (see Figure 7). [48]   This statistic further conveys that export activity in Massachusetts has declined relative to other states in recent years.   

 

Figure 7:  Rank of Exports as a Percent of GDP, during the period 1999-2006

 

1999

2000

2001

2002

2003

2004

2005

2006

MA Rank

14

14

17

17

15

14

17

20

Source:  Gross State Product data from the US Department of Commerce:  Bureau of Economic Analysis; total value of exports data from TradeStats Express.  The rank is out of 51, as the District of Columbia is included in the data.

The Commonwealth should not be satisfied by simply seeing the total dollar value of its exports increase every year.  Today’s global marketplace brings with it many new opportunities.  The fact that other states have surged in front of Massachusetts in terms of the total dollar value of their exports means that they are taking advantage of those opportunities better than the Commonwealth is.

A Decline in Exports Accompanied by a Decline in Employment

Over the period from 1999-2006, the period in which Massachusetts experienced a loss of competitiveness in exports, the Commonwealth also experienced a decline in employment.  As the nation underwent an economic recession during this period as well, the loss of these jobs cannot fully be attributed to decreased exports.  However, increasing exports would certainly be one way in which the state could increase jobs in the coming years.  Over the period from 1994 to 2001, manufacturing jobs in Massachusetts remained relatively stable, though declining slightly. [49]   However, in 2001, jobs in manufacturing declined significantly (see Figure 8). [50]   Over the period from 1990 to 2007, approximately 186,900 manufacturing jobs have been lost in the Commonwealth. [51]   Durable goods manufacturing jobs remained steady from 1997 through 2001, and declined substantially in 2001 (see Figure 9). [52]   Manufacturing jobs for non-durable goods have been in steady decline since 1997 (see Figure 10). [53]   The total number of non-farm jobs has increased overall in the period from 1990 through 2007. [54] 42 However, there was a decline in 1990 and 2001 (see Figure 11).  This indicates that the manufacturing sector has underperformed the economy as a whole. [55] Since 2001, the total number of non-farm jobs has increased, but not yet reached the pre-2001 levels. [56]   Again, this conveys that export growth could help employment to reach its pre-recession levels. 

Figure 8

Figure 8: Manufacturing Jobs in Massachusetts

 

Figure 9

Figure 9: Durable Goods Manufacturing Jobs in MA

Figure 10

Figure 10: Non-Durable Goods Manufacturing Jobs in MA

 

Figure 11

Figure 11: Total Number of Non-Farm Jobs in MA

While there was a nationwide recession in 2001, the Commonwealth’s employment has not reached 2001 levels in the last five years despite national gains. [57] Growth in the Commonwealth’s employment and output has not yet reached national levels. [58]   In particular, as a result of the 2001 economic downturn, states with larger export activity experienced smaller declines in various employment sectors than did Massachusetts . Again, exporting is not necessarily the reason that some states were affected less than others.  Massachusetts , the 11th largest exporter, experienced a decrease in total non-farm employment of approximately 2.5% from 2001 to 2007 and a decline in manufacturing employment of approximately 24.81% during that same period. [59]   Of the ten states that had a total dollar value of exports greater than Massachusetts in 2006, all experienced smaller declines or even increases in total employment and manufacturing employment over that time period, with the exception of Michigan. [60]   This very basic analysis suggests that larger exporters experienced smaller declines in employment following the 2001 recession than did Massachusetts .  Though there are many factors that may have caused larger exporters to experience smaller declines in employment during the recession, one reason may have been export activity.  Furthermore, on an intuitive level, if the Commonwealth’s businesses can increase the number of markets to which they sell their goods, then they will increase production, which will require a larger workforce.  Thus, increasing exports should intuitively lead to increased jobs.  The Massachusetts Technology Collaborative’s “2006 INDEX of the Massachusetts Innovation Economy” also states that increasing foreign exports could help the Commonwealth’s industries that are not performing well. [61]

 

· Making Massachusetts a More Competitive Player in International Trade ·

 

Utilizing the Commonwealth’s Unique Relationships to Increase Economic and Business Partnerships

 

The Commonwealth has a unique connection to Europe given its geographic proximity relative to other states and the large European immigrant communities that have settled here.  This connection has manifested itself in a variety of ways in recent years.  For example, within the past few months a number of legislators and state officials have met with foreign leaders from a variety of countries including Portugal , the United Kingdom , and Bulgaria .  In addition, state leaders have recently met with officials from countries that have strong connections to Europe , including Russia and Cape Verde .  These relationships already exist and should be developed further as they have the potential to create strategic partnerships which could increase business with foreign markets.  Research suggests that the home-country information which immigrants have, such as market information, the language, people’s preferences, and business contacts, serve to increase bilateral trade between the immigrants’ new home countries and their original home countries. [62]   Efforts could be taken to organize business groups with strong ties to other countries.  These groups could help develop dynamic relationships between the Commonwealth’s business communities and the business communities in foreign countries.   An example of such a group is the newly formed Cape Verdean American Business Organization (CABO) which strives to create links with Cape Verde-based businesses and to create investment opportunities for American businesses. [63]  

  In addition, Massachusetts has one of the largest Portuguese immigrant populations in the country and it is the only state where Portuguese is more prevalent than Spanish. [64]  Because of its large Portuguese-speaking community, Massachusetts has a very unique position relative to its relationship with Portugal and other Portuguese-speaking countries.  Developing this relationship presents the potential of numerous economic advantages for Massachusetts on the global level. There are already Portuguese companies seizing on opportunities to collaborate with Massachusetts .  For example, Millennium bcp Bank, an international bank based in Portugal , has recently opened branches in Massachusetts . [65]   The bank also has branches in New York , New Jersey , Angola , and Mozambique .  Because Portugal has many strong connections to Africa , developing the Commonwealth’s relationship with Portugal could help Massachusetts expand into African economies.  Portugal can also be seen as a gateway to Europe as the President of the European Commission, Jose Manuel Barroso, is the former prime minister of Portugal . By utilizing and developing its existing cultural and political relationship with Portugal , Massachusetts has the opportunity to expand its presence in the European and African economies.      

 

Ensuring State Trade Agencies Achieve Their Potential to Promote Exports and Attract Foreign Direct Investment

 

Export assistance is one of the most important functions a state can support in order to help increase exports.  The Massachusetts Export Center , which is part of the Massachusetts Small Business Development Center (MSBDC), provides export development services to businesses in Massachusetts through its multiple state offices.  These services are aimed at helping businesses to increase their presence in global markets and thus increase economic growth in the Commonwealth.  The Massachusetts Export Center was formed in 1994, in response to recommendations from the International Trade Advisory Board report to Governor Weld.  While many Massachusetts businesses have unique products that are marketable around the world, the prospect of exporting can be very daunting for a small business.  Helping the Massachusetts Export Center to assist more small businesses in a substantive way is an important step for increasing the presence of the Commonwealth in the international marketplace.  From October 1, 2006 through March 30, 2007 , the Massachusetts Export Center assisted 417 companies and individuals in the Commonwealth.  The Center has organized 13 export seminars throughout Massachusetts which were attended by 470 people.  As a result of the Massachusetts Export Center ’s assistance in 2006, 2400 jobs have been created or retained in the Commonwealth and the center’s clients reported 120 million dollars in export sales. Further, between 2005 and 2006, export sales of the center’s clients increased by 27%; this was three times the average increase of 9% in export sales experienced by all of the Commonwealth’s businesses during the same period (see Figure 12). [66]  

Figure 12

Annual Export Sales growth Chart
                   Source:  Massachusetts Export Center [67] [68] [69]

Currently, MOITI is involved in export promotion through its foreign offices in Mexico , Germany , Brazil , and China .  The office is also responsible for foreign direct investment and protocol, which includes meetings with foreign dignitaries.  MOITI additionally provides Massachusetts companies with discounted participation in industry-specific trade shows.  The Massachusetts Export Center works very closely with MOITI by referring businesses that they have worked with to MOITI’s foreign offices.  MOITI foreign offices then help them to identify potential partners in the foreign market.  In fiscal year 2007, 680 jobs were created and $1,864,257 in new payroll taxes were collected as a result of MOITI’s assistance in export promotion and foreign direct investment. [70]  

 

With increased funding, these state agencies will be able to reach out to many more businesses; the ultimate effect of this increased funding will be increased exports from the Commonwealth.  As noted above, the funding lost from Massport in 2001 was never fully restored to the Massachusetts Export Center .  Thus, increasing the Massachusetts Export Center ’s funding at least to its pre-2001 levels is an important step in increasing the Commonwealth’s competitiveness.  It is important to ensure that the Massachusetts Export Center and MOITI have the budgets they need to operate at the most efficient and effective level they can.  This sentiment was also expressed in the Massachusetts Technology Collaborative’s “2006 INDEX of the Massachusetts Innovation Economy” which cites marketing and export assistance for small companies as key to helping the Commonwealth to compete. [71]  

 

Creating a stronger relationship with the Commercial Service of the United States Department of Commerce is an important option to consider as well.  The Commercial Service assists American companies in exporting their goods.  Their services, provided for a fee, include arranging appointments in foreign countries and providing detailed market research.  The Commercial Service maintains offices all over the world to help American companies enter foreign markets.  Currently, the Massachusetts Export Center refers many of their clients to The Commercial Service when they require on-the-ground research and more advanced services. [72]   However, Massachusetts businesses must pay in order to receive assistance from the Commercial Service.  This leads some businesses to limit the extent to which they export.  In order to promote international trade, some states have established a formal relationship with the Commercial Service. [73]   For example, the state of Connecticut provides Connecticut companies with grants that are to be used specifically for the services of the Department of Commerce. [74]   The state of California uses the Department of Commerce to arrange their trade missions. [75]   As the Commercial Service already has all of the resources abroad to assist businesses and states increase their exports, utilizing their services provides a very cost-effective way to increase the Commonwealth’s competitiveness. 

 

This report makes various recommendations for improving the state’s trade agencies.  However, conducting an assessment of the Commonwealth’s current trade promotion structure in order to determine whether it maximizes effectiveness and efficiency would benefit Massachusetts ’s trade efforts significantly. 

 

Additionally, the Commonwealth’s leaders should collaborate with Senator John Kerry, Chairman of the US Senate Committee on Small Business and Entrepreneurship, along with the other members of the Massachusetts Congressional delegation, to develop a plan that helps small businesses to increase their competitiveness in the global economy.

 

Operating Foreign Offices in Strategic Locations

 

Opening up more foreign offices representing the Commonwealth of Massachusetts is another option that the administration should consider.  The benefit of having a foreign office is that the office would only serve Massachusetts businesses and interests, whereas the Commercial Service assists businesses from every state. There are many fixed costs of opening a foreign office, such as the property and the salaries of the employees in that office.  Thus, when opening a foreign office it is important to ensure that the office is in a location which offers many potential benefits to the Commonwealth.  For example, it would be advantageous if the country had markets that Massachusetts businesses could export to, and also if the country had the potential to be an investor in Massachusetts .  Countries where export promotion and foreign direct investment (FDI) promotion intersect would be important to consider as a potential location for a foreign office.  One country which possibly fits these characteristics is India . This option should be more thoroughly explored by the Commonwealth in order to assess its potential impact.

 

Similarly, it is important for the Global Competitiveness Advisory Board to evaluate whether the current foreign offices are fulfilling their objectives.  From October 1, 2006 to June 8, 2007 , the Massachusetts Export Center referred 23 companies to MOITI foreign offices (some companies were referred to more than one foreign office):  13 businesses to the MOITI office in China , 7 businesses to the MOITI office in Brazil , 5 to the MOITI office in Mexico , and 2 to the MOITI office in Germany . [76]   A possible strategy to consider is to open foreign offices where there is the greatest interest in increasing exports and FDI, to hire a consultant or share an office with another state in places of secondary interest, and to provide grants to use the Commercial Service in other places of interest.

 

Conducting Trade Missions to Promote Exports and Improve the Commonwealth’s “Brand”

 

Another important policy idea that could increase the competitiveness of exports is to consider increasing the number of governor-led trade missions.  According to a Senior Commercial Officer with the United States Commercial Service, “Trade missions led by a governor can be a very cost-effective way of developing business in new markets.” [77]   The officer states that business delegations from other countries “led by VIPs, are regular visitors to the same countries we are targeting…If our states fail to have a consistent presence, our competitors will have these markets to themselves.” [78]

 

There are many benefits from leading international trade missions.  These missions have the ability to increase export growth, attract foreign companies to invest in Massachusetts , improve contacts with foreign companies currently investing in the Commonwealth, and fuel interest in Massachusetts tourism. [79]   Executive Vice Chairman of Citizens Financial Group, Robert Mahoney, said that if trade missions are conducted, then matching Massachusetts sellers with foreign buyers must be the priority of those missions.  While trade missions are effective, Mahoney argues another option worthy of further consideration is to conduct reverse trade missions, in which foreign buyers come to Massachusetts to meet with a targeted set of Massachusetts sellers.  Mahoney also noted that governor-led trade missions are especially important in China , where it is difficult to separate politics and business. [80]  

 

Furthermore, trade missions have the potential to improve the brand of Massachusetts on the global stage.  In his book, Brand New Justice:  The Upside of Global Branding, Simon Anholt writes that countries, cities, and regions “behave, in many ways, just like brands.  They are perceived-rightly or wrongly-in certain ways by large groups of people at home and abroad…These perceptions can have a significant impact on the way that overseas consumers view their products, and the way they behave towards those countries in sport, politics, trade, and cultural matters; it will affect their propensity to visit, relocate, or invest there.” [81]   The current process of globalization requires states to strengthen their brand and in so doing increase tourism, exports, and foreign direct investment.  This will allow a state to thrive in a highly competitive environment.  Having governor-led trade missions to foreign countries would undoubtedly increase awareness of the Commonwealth and enhance its global image.  Governor Weld conducted numerous trade missions around the world. [82] However, the lack of trade missions in recent years has not helped Massachusetts create a strong “brand”, especially compared to states that make trade missions a priority.  Furthermore, in this post-9/11 world it is even more important that the Commonwealth conduct trade missions; in doing so, the Commonwealth will send a diplomatic message that Massachusetts is a global center interested in integrating itself into the international economy.

 

Promoting Industries with the Potential of being Globally Competitive

 

As shown above, chemical exports from the Commonwealth have increased substantially.  Chemical exports include pharmaceutical and medicine manufacturing. [83] These sectors are part of what has been defined as the Massachusetts supercluster.” [84]   The Massachusetts supercluster consists of various industries and academic sectors that are associated with the life sciences.  The increase in chemical exports can thus be seen as directly related to the emergence of the supercluster.  In addition to experiencing significant increases in exports, the top 25 publicly traded life sciences companies based in Massachusetts almost doubled their revenue between 2002 and 2006. [85] Further, between 2001 and 2005 the number of life sciences patents per capita attained by Massachusetts institutions was more than triple the US average. [86]  

 

Investing in the life sciences is important not only for economic reasons, but because the Commonwealth has the ability to play a crucial role in the treatment of disease and sickness around the world.  Governor Patrick’s recent pledge to spend one billion dollars on the life sciences industry will be monumental in facilitating further growth of this important sector.  However, it must be recognized that the manufacturing sectors of the economy also have the potential to be innovative leaders in the international marketplace.  The necessary focus on the life sciences should not lead to a neglect of other industries; doing so will ultimately limit the diversity and robustness of the Commonwealth’s economy.  Moody’s Economy.com, a subsidiary of Moody’s Corporation, presents evidence that this lack of economic diversity already exists in the Commonwealth, citing that Boston was the least economically diverse of the country’s largest 25 metro areas. [87]

 

There are a number of sectors that have the potential to be highly competitive in the global economy; promoting and developing these sectors would not only strengthen the Commonwealth’s position in the global economy, but also increase the diversity of the Commonwealth’s economy.  The above examination of the employment and export statistics conveyed that the manufacturing sector has suffered in Massachusetts .  However, the “green” manufacturing sector represents a sub-sector of manufacturing that has much potential in the Commonwealth.  The decision of Evergreen Solar, Inc., a company which manufactures solar power products, to open a new facility in Massachusetts is indicative of the potential of the “green” economy in Massachusetts .  The new facility is expected to double the number of Evergreen employees in Massachusetts to 600. [88] A recent report by the Massachusetts Technology Collaborative found that jobs in the “clean energy” sector are predicted to grow by 20% over the next year; this is three times greater than the next fastest-growing sector in the Commonwealth grew over the last year. [89] There are currently 14,400 Massachusetts jobs in the clean energy sector. [90]   Making the Commonwealth a center for energy technology has been declared an important commitment of Governor Patrick. [91] The green manufacturing industry should continue to be promoted on both the national and international level. As green technology gains momentum around the world, the Commonwealth must work to become an international center for energy technology, exporting its products around the world.       

 

 

· Lack of Competitiveness in Traditionally Robust Sectors·

 

Higher Education in a Globalized World

 

Massachusetts Colleges and Universities Losing Ground as Leading Destinations for International Students

 

The United States has been facing new challenges in attracting foreign students to its institutions of higher education.  As other countries expand their educational capabilities and develop strategic plans focused on recruiting international students, the marketplace for higher education is becoming more and more competitive. [92]   Such factors, coupled with the cost of education in the United States and the visa restrictions implemented post 9/11, have plausibly affected the United States’s ability to attract international students. [93]   Foreign students are vital to American colleges and universities because of the innovation they can help to generate and the global relationships they can help to establish; thus, a reduced number of international students at American colleges and universities threatens the country’s dominance in higher education.  At the national level, these concerns regarding the decrease of international student enrollment are being raised and discussed.  In January of 2007, the United States Government Accountability Office convened a forum to “bring together leaders from government, universities, research institutions, higher education organizations, and industry to discuss the impact of emerging trends in higher education on U.S. global competitiveness and to examine how the United States can best ensure that it continues to attract people with needed skills and to build bridges with other nations.” [94]   At the state level, Massachusetts , with its rich academic history and renowned reputation as an educational center, must stand out as a leader in addressing how to overcome these barriers to attracting talented international students.

 

Although Massachusetts has been a leader in attracting foreign students to its colleges and universities, it has witnessed a decrease in the number of foreign students attending its institutions of higher education. As a recent report by Mass Insight and Collegia states, over the period from 2002/2003 through 2005/2006 international students in Massachusetts declined by approximately 7%.  In 2002/2003 there were 30,039 international students in the Commonwealth, while in 2005/2006 that number had declined to just over 28,000.  The percentage decline in Massachusetts was the largest decline among the five most popular destinations for foreign students. [95]   In the 2005/2006 academic year the net contribution of foreign students and their families to the Commonwealth’s economy was approximately $868,984,000 in tuition, fees, and living expenses. [96]   As there were an estimated 28,009 foreign students in the Commonwealth’s universities that year, the average contribution of each student and his/her family was $31,025.17.  Thus, the decline in the number of foreign students between 2002/2003 and 2005/2006 can be equated to a loss of approximately $62,981,095 from foreign students and their families.  As some universities are more expensive than others, this calculation represents an estimate of the loss of money from foreign students and their families.  If the decline in foreign students occurred to a larger degree at more expensive universities, then the amount of money lost from foreign students would be greater than this estimate.  If the decline in foreign students occurred to a larger degree at less expensive universities, then the amount of money lost from foreign students would be less than this estimate.  While this loss represents an economic impact, the complete impact resulting from the decline of foreign students in the Commonwealth consists of more than the amount paid in tuition and living expenses.  The principal benefits of attracting foreign students to Massachusetts ’s colleges and universities are that they help to advance the pace of innovation and to build positive and meaningful relationships between Massachusetts and countries around the world.  These benefits are much harder to quantify. 

 

Lawrence Summers, former President of Harvard University and currently a Professor of Economics at Harvard, stated that Massachusetts universities (along with universities across the country) have been experiencing difficulties attracting foreign students in recent years.  He attributes this to America ’s negative image in foreign countries due to the war in Iraq . [97]  

 

Making Massachusetts a Top Destination for International Students

 

Massachusetts has the ability to seize extraordinary opportunities in the area of higher education because of the important history and academic excellence of its institutions.  This report calls for one committee of the Global Competitiveness Advisory Board to be devoted to ensuring that Massachusetts colleges and universities are realizing their potential in helping the Commonwealth, as well as the nation as a whole, to be competitive and innovative in a highly competitive global economy. 

 

Massachusetts needs to reach out to foreign students more aggressively and market itself to foreign countries as a leading center for higher education. Professor Summers argued that Massachusetts universities must improve their “branding” around the world in order to once again be a principal destination for foreign students.  A report by Mass Insight and Collegia recommended that “ Massachusetts should develop a collaborative, talent-based China/India/Asia economic strategy” and that “both Massachusetts and the nation should develop coordinated strategies to attract and retain the best and brightest international students from around the world.” [98] One of the key recommendations of that report was to increase trade missions that include university and college leaders. [99]   Such trade missions would significantly strengthen the “brand” of the institutions of higher education in Massachusetts .

 

Developing programs at the university level that will help students acquire the skills and knowledge that are highly demanded in their home country and in the global economy will be instrumental in attracting students to Massachusetts universities.  The Commonwealth’s universities must devote serious attention to designing such strategies before other states are able to successfully attract a greater share of foreign students.  One of the keys to the Commonwealth’s success in attracting foreign students is finding these niche foreign markets and forming partnerships before other states begin to do so.  Professor Summers suggested that Massachusetts universities determine which graduate programs will attract foreign students, hypothesizing that programs that are between academic and vocational in nature will likely be the most attractive to international students. [100] The report by Mass Insight and the Greater Boston Chamber of Commerce on the financial services sector similarly suggests that the public and private sector should “create formal industry linkages with leading Boston universities to build a financial services-specific research center” which would recruit high-quality students from around the Commonwealth, the nation, and the globe. [101] The report further suggests the importance of uniting “academic institution and industry efforts to…increase the public and private higher education system’s financial services focus.” [102]

           

This report further recommends that the new administration look closely at developing and emerging markets and their need for highly educated workforces to expand their economies.  For example, in a recent Ernst & Young report entitled “Doing Business in Bulgaria ” the newly EU admitted nation of Bulgaria is cited as a country which “has enjoyed a period of sustained economic growth and political stability.” [103]   The report further recognizes Bulgaria ’s highly educated workforce with strong backgrounds in engineering, medicine, economics, and sciences. [104]   However, the findings in the report also mention that there is a lack of professionals with management skills.  These factors which clearly indicate the need for management training, also presents the opportunity to form a partnership between this emerging market and the Commonwealth’s rigorously developed higher education sector.  The Commonwealth’s universities must ensure that their academic programs include those that provide students with the skills and knowledge they need to be competitive and innovative in the global economy. 

 

Once higher education institutions have developed programs that provide students with important skills and knowledge, Massachusetts must work to retain those highly skilled individuals in the Commonwealth.  The Massachusetts Technology Collaborative found that the Commonwealth lost 2% of workers, equivalent to approximately 22,000 people, between the ages of 22 and 34 over the period from 2003 to 2005. [105]   This was the fourth highest percent decline among all of the 10 leading technology states. [106]   Massachusetts lost three percent of workers 25 to 34 years old over this same period. [107]   One possible reason for the loss of this important sector of the workforce is the high cost of housing.  Of all of the leading technology states, Massachusetts has the lowest share of affordable housing. [108]   

 

                Additionally, the Commonwealth’s leaders should collaborate with Senator Edward Kennedy, Chairman of the US Senate Committee on Health, Education, Labor, and Pensions, along with the other members of the Massachusetts Congressional delegation, to develop a strategy to attract more foreign students to Massachusetts ’s colleges and universities. 

 

Lack of Competitiveness in the Financial Services Sector

 

The report by the Greater Boston Chamber of Commerce and Mass Insight, “Securing Massachusetts’ Leadership Position in Financial Services”, found that the Commonwealth needs to increase the competitiveness of the financial services sector.  The report stated that “local, regional, and global forces threaten to relegate Massachusetts to second-tier status in financial services” and “ Massachusetts ’s position as a global leader is far from certain.” [109]   The report found that “only nine Fortune 500 companies are based in Massachusetts today, compared to 17 a decade ago.” [110]   The report also calls for strategic action by a multitude of actors to address the Commonwealth’s presence in the global economy,

 

“Globalization of markets is gaining momentum, as the world’s financial stock and its population of skilled workers grow much more rapidly in Asia than in the U.S.   In this challenging context, focused, concerted action by leading financial services companies, the public sector, and academia will be necessary to secure a permanent role for Massachusetts as a globally recognized, top-tier financial services hub.” [111]

 

The report by Mass Insight and the Greater Boston Chamber of Commerce argues that if the actions suggested by the report are taken, then there is the potential for adding approximately 15,000 jobs by 2010; this is the rate at which the financial services sector is growing in other states where the sector is robust.  Current projections predict the addition of only 3,000 jobs by that year if the recommended actions are not taken. [112]

           

Massachusetts Congressman Barney Frank, Chairman of the United States House Committee on Financial Services, should be seen as an important resource who is able to provide vital insight to the Commonwealth’s leaders on the competitiveness of this industry in Massachusetts .     

· Conclusion ·

In order for Massachusetts to improve its current status and continue “competing” in the global marketplace, innovative strategies must be developed.  Massachusetts must use its resources in various fields and look to branding itself as a leader in foreign markets.  The lack of a strategic plan for increasing the Commonwealth’s presence in the global economy combined with reduced funding for state trade agencies has been accompanied by a decline in the Commonwealth’s rank as an exporter, decreased competitiveness of the financial services industry, decreased employment, and a decrease in the growth of international students in Massachusetts .  Globalization has presented Massachusetts with increased competition from around the world, but a global marketplace also presents Massachusetts with the opportunity to create new partnerships.  The diversity of the globalized world will help the Commonwealth’s businesses and universities to expand their client-base, to create, to innovate, and to thrive. 

 

Ensuring that Massachusetts reaps the potential benefits of this modern economy will require a well-defined strategic plan.  The Commonwealth needs to mobilize various constituencies to construct this plan aimed at enabling Massachusetts to realize its potential in the global marketplace.  This report has outlined a number of options to consider, such as the creation of a Global Competitiveness Advisory Board, increased funding for state trade agencies, defining a relationship with the US Commercial Service, opening foreign offices, organizing trade missions that include educational institutions, targeting industries in which the Commonwealth should have a competitive advantage, and developing educational programs that provide students with the skills and knowledge they need to be competitive and innovative in the global economy.  The principal purpose of this report, however, is to ensure that increasing the Commonwealth’s competitiveness in a globalized economy is an integral part of the policy agenda.  The report by Mass Insight and The Greater Boston Chamber of Commerce correctly states, “ Massachusetts has reinvented itself before; with the right joint effort, it can do so again.” [113]   Enhancing the Commonwealth’s competitiveness cannot be done without the combined efforts of both the public and private sectors and guidance and leadership from the new administration.  The Commonwealth can no longer afford to stand on the sidelines; it is time to get back in the game.


[1] Pennsylvania ’s state trade agency had a budget of 23 million dollars in Fiscal Year 2007; MOITI had a budget of $1,745,000 in Fiscal Year 2007.  See page 10 for references.

[2] Gross State Product data from the US Department of Commerce:  Bureau of Economic Analysis; total value of exports data from TradeStats Express.  The rank is out of 51, as the District of Columbia is included in the data.

[3] TradeStats Express.  “State Export Data:  State-by-State Exports to a Selected Market.”  Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration, U.S. Department of Commerce.   http://tse.export.gov/SEDMapWorld.aspx?UniqueURL=nhkmc245zgcfkc55rwbooq45-2007-7-16-10-43-27.  2007.

[4] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 1.

[5] Mass Insight Corporation and Collegia, “Making Massachusetts a World Class Talent Destination.” July 2007, page 2

[6] Wilson, Jack M. and Robert A. Brown.  Letter to Governor Deval Patrick.  Mass Insight Corporation.  February 15, 2007 .

[7] Weisman, Robert.  “Group Urges Patrick on Asia ties:  Executives seek a strategic plan.”  The Boston Globe.  November 17, 2006 .

[8] Summers, Lawrence .  Interview with the Authors.  August 20, 2007 .

[9] Greater Boston Chamber of Commerce and Mass Insight Corporation.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 1.

[10]  Mass Insight Corporation and Collegia, “Making Massachusetts a World Class Talent Destination.” July 2007, page 2.

[11] Id.

[12] Senate Post Audit and Oversight Committee.  “Policy Review of the Commonwealth’s Economic Development Efforts.”  February, 1994, page 5.

[13] Mass Insight Corporation and Collegia, “Making Massachusetts a World Class Talent Destination.” July 2007, page 4.

[14] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 2.

[15] Massachusetts Technology Collaborative:  John Adams Innovation Institute.  “2006 INDEX of the Massachusetts Innovation Economy.”  2006, p. 9.

[16] Massachusetts Technology Collaborative:  John Adams Innovation Institute.  “2006 INDEX of the Massachusetts Innovation Economy.”  2006, p. 10.

[17] International Trade Advisory Board.  Report to Governor William F. Weld.  1993, page 4.

[18] Id.

[19] Id.

[20]   Warsh, David. “Pound Foolish.”  The Boston Globe November 20, 2001 .

[21] Murphy, Paula.  Interview with the Authors.  September 10, 2007 .

[22] Massachusetts Export Center .  “Organizational and Financial Structure.”  http://www.mass.gov/export/structure.htm.  2007.

[23] Id.

[24] Massachusetts Export Center .  Massachusetts Overseas Trade Office Sites.”   February 2007.

[25] Because of the instability in Massport and MOITI in the past decade, official documentation of the previous locations of the Commonwealth’s foreign offices is unavailable.  However, based on the recollection of Paula Murphy, Director of the Massachusetts Export Center , the Commonwealth had foreign offices in Ireland , Israel , Korea , Poland , Singapore , and the United Kingdom which were all shut down in 2001.  These offices were in addition to those in Brazil , China , Mexico , and Germany which were temporarily shut down in 2001 and were later reopened.  At other times over the course of the 1990’s, the Commonwealth had offices in Italy , Japan , and Taiwan .  Reference:  Massachusetts Export Center .  Massachusetts Overseas Trade Office Sites.”   February 2007.

[26] Massachusetts Export Center .  Massachusetts Overseas Trade Office Sites.”   February 2007.

[27] SIDO  (State International Development Organizations) “Survey 2006: Emerging Trends in State International Business Development” p.  15-20.

[28] Id.

[29] The states which have more overseas trade offices than Massachusetts include, New York , Washington , Illinois , Florida , Ohio and Pennsylvania .

[30] American State Officers Association.  “ASOA Members.”  http://www.asoa-taiwan.org/2003members_english.htm.  October, 2007.   

[31] Massachusetts Office of International Trade and Investment.  “FY 1999-FY2007 Appropriation History.”  2007. 

[32] Id.

[33] Id.

[34] SIDO (State International Development Organizations).  “Competing in the Global Market Place:  A Comparison of State Export Promotion Budgets with Global Trends.”  2007.

[35] SIDO  (State International Development Organizations) “Survey 2006: Emerging Trends in State International Business Development.” 2006, p. 7 -8.

[36] Massachusetts Office of International Trade and Investment.  “MOITI Quick Facts.”  2007.

[37] Zurmuhlen, Dorothy.  Correspondence with the Authors.  August, 2007.

[38] Bleyleben, Christa.  Memo to Authors.  August, 2007, page 1

[39] Staff, Budget reference:  Id. at 2; reference for trade offices:  SIDO  (State International Development Organizations) “Survey 2006: Emerging Trends in State International Business Development.”  2006, p. 18-19.

[40] Trade mission reference:  Pennsylvania Office of International Business; Pennsylvania Department of Economic and Community Development.  2007.

[41] State International Development Organizations.  “SIDO Survey 2006:  Emerging Trends in State International Business Development.”  2006, p. 17.

[42] State International Development Organizations.  “SIDO Survey 2006:  Emerging Trends in State International Business Development.”  2006, p. 18-19.

[43] Id. at 15-20.

[44] Executive Office of Economic Affairs and the University of Massachusetts .  "Choosing to Compete: A Statewide Strategy for Job Creation and Economic Growth."  Boston :

Commonwealth of Massachusetts , Executive Office of Economic Affairs.  1993.

[45] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 7.

[46] TradeStats Express.  “State Export Data:  State-by-State Exports to a Selected Market.”  Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration, U.S. Department of Commerce.   http://tse.export.gov/SEDMapWorld.aspx?UniqueURL=nhkmc245zgcfkc55rwbooq45-2007-7-16-10-43-27.  2007.

[47] Associated Industries of Massachusetts ,.  A.I.M.’s Business Confidence Index Off in August.”  September 4, 2007 .

[48] US Department of Commerce:  Bureau of Economic Analysis.  “Gross Domestic Product by State.”  http://www.bea.gov/regional/gsp/.  2007.

[49] US Department of Labor.  “Current Employment Statistics.”  http://data.bls.gov/cgi-bin/dsrv?sm.  2007.

[50] Id.

[51] Id.

[52] Id.

[53] Id.

[54] Id.

42 The United States Bureau of Labor Statistics defines non-farm employment as including all jobs with the exception of agricultural employment.  However, forestry and logging is included in non-farm employment.  Further, non-farm employment includes civilian government employment, but not military employment.

[55] Id.

[56] Id.

[57] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 8.

[58] Id.

[59]  US Department of Labor.  “Current Employment Statistics.”  http://data.bls.gov/cgi-bin/dsrv?sm.  2007.

[60]  US Department of Labor.  “Current Employment Statistics.”  http://data.bls.gov/cgi-bin/dsrv?sm.  2007.

[61] Massachusetts Technology Collaborative:  John Adams Innovation Institute.  “2006 INDEX of the Massachusetts Innovation Economy.”  2006, p. 31.

[62] Gould, David M.  “Immigrant Links to the Home Country:  Empirical Implications for US Bilateral Trade Flows.”  The Review of Economics and Statistics.  Vol. 76 (2), May 1994, p. 302.

[63] Cape Verdean American Business Organization.  http://www.cabocv.com/info.html.  2007.

[64] University of Massachusetts Dartmouth .  “President of Portuguese Republic to Visit UMass Dartmouth.” June 20, 2007 .

[65] Id.

[66] Massachusetts Export Center .  Massachusetts Export Center Activity Report-October 1, 2006 to March 30, 2007 .”  2007, page 1.

[67] Massachusetts Export Center .  “2004 Impact”.  2004.

[68] Massachusetts Export Center .  “2005 Impact”.  2005.

[69] Massachusetts Export Center .  “2006 Impact”.  2006.

[70] Massachusetts Office of International Trade and Investment.  “MOITI Quick Facts.”  2007.

[71] Massachusetts Technology Collaborative:  John Adams Innovation Institute.  “2006 INDEX of the Massachusetts Innovation Economy.”  2006, p. 31.

[72] Zur Muhlen-Tomaszewska, Dorothy.  Interview with Authors.  July 18, 2007 .

[73] Id.

[74] Haggett Longobardi; Connecticut Business and Industry Association; State of Connecticut Department of Economic and Community Development.  “2007 Survey of International Trade.”  2007, p. 20.

[75] Zur Muhlen-Tomaszewska, Dorothy.  Interview with Authors.  July 18, 2007 .

[76] Massachusetts Export Center .  “Support to MOITI and Economic Stimulus Project Activity:  October 1, 2006 to June 8, 2007 ”.  2007, page 1-8.

[77] Barry, Douglas.  “Putting States and their Businesses on the World Map:  Details on Proposed Changes.”  Export America .  Vol. 2  (December, 2000):  15.   

[78] Id.

[79] International Trade Advisory Board.  Report to Governor William F. Weld.  1993.

[80] Mahoney, Robert.  Interview with the Authors.  August 15, 2007 .

[81] Anholt, Simon. Brand New Justice: The Upside of Global Branding.  Oxford ; Boston :  Butterworth- Heinemann.  2003. Page 109.

[82] International Trade Advisory Board.  Report to Governor William F. Weld.  1993.

[83] Executive Office of Labor and Workforce Development.  “Employment and Wages (ES-202)”.  http://lmi2.detma.org/lmi/lmi_es_a.asp.  2007.

[84] PricewaterhouseCoopers , Massachusetts Technology Collaborative, New England Technology Institute.  “Super Cluster:  Ideas, perspectives, and updates from the Massachusetts life sciences industry.”  Executive Summary, April, 2007.

[85] Id. at 10.

[86] Id.

[87] Keane, Tom.  “A Billion-Dollar Blunder.”  The Boston Globe Magazine.  July 29, 2007 .

[88] Evergreen Solar, Inc.  “Evergreen Solar to Build Major New Manufacturing Facility in Massachusetts .”  April 17, 2007 .

[89] Massachusetts Technology Collaborative:  Renewable Energy Trust.  Massachusetts Clean Energy Industry Census.”  August,2007, p. 1.

[90] Id.

[91] Howe, Peter J.  “ ‘Clean energy’ industry shows fast job growth.”   The Boston Globe.   August 9, 2007 .

[92] United States Government Accountability Office. “Higher Education:  Challenges in Attracting International Students to the United Sates and Implications for Global Competitiveness.”  June 2007, Executive Summary.

[93] Id.

[94] GAO, Highlights of a GAO Forum: Global Competitiveness:  Implications for the Nation's Higher Education System, GAO-07-135SP.  January 2007.  http://www.gao.gov/htext/d07135sp.html

[95]   Mass Insight Corporation and Collegia, “Making Massachusetts a World Class Talent Destination.” July 2007, page 2; IIE Network. “International Students in US States and Regions, Selected Years 1959/60 -2005/06”  Open Doors 2006:  Report on International Educational Exchange.  http://opendoors.iienetwork.org/?p=89210.  2006. 

[96] NAFSA:  Association of International Educators.  “The Economic Benefits of International Education to the United States for the 2005-2006 Academic Year:  A Statistical Analysis.”  2007.

[97] Summers, Lawrence .  Interview with the Authors.  August 20, 2007 .

[98] Mass Insight Corporation and Collegia, “Making Massachusetts a World Class Talent Destination.” July 2007, page 4.

[99] Id. at 4.

[100] Summers, Lawrence .  Interview with the Authors.  August 20, 2007 .

[101] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 3.

[102] Id. at 23.

[103] Ernst & Young.  “Doing Business in Bulgaria .”  2007, page 4.

[104] Id.

[105] Massachusetts Technology Collaborative:  John Adams Innovation Institute.  “2006 INDEX of the Massachusetts Innovation Economy.”  2006, page 25.

[106] Id.

[107] Id.

[108] Id.

[109] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 1.

[110] Id.

[111] Id. at 2.

[112] Id.

[113] Greater Boston Chamber of Commerce and Mass Insight.  “Securing Massachusetts ’s Leadership Position in Financial Services.”  March, 2007, page 4.