State needs to upgrade how it attracts industry, professor says

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Michael Porter, professor at Harvard Business School, said South Carolina has traditionally recruited industry with a low-wage, low-tax environment.

But that approach will no longer work in the new global economy because Third World nations such as China will always win, he said.

Porter issued the warning while presenting the initial findings of a study that he and his consulting company, The Monitor Group, prepared at the behest of the state departments of Commerce and Parks, Recreation and Tourism.

Private groups, including the Palmetto Institute and the South Carolina Chamber of Commerce, also helped commission the study, which examined how the state should revise its economic development strategy.

Among those on hand for his presentation were Gov. Mark Sanford, Commerce Secretary Bob Faith and Wall Street financier Darla Moore.

While South Carolina's traditional approach has its advantages, it has left the state lagging in many areas, including wages nearly 20 percent below the national average, Porter said.

As a remedy, he argued, South Carolina should concentrate on producing goods and services of greater value and more efficiently.

To do that, the state should develop industry "clusters" — concentrations of companies in the same industry, including the infrastructure and supporting services the industry needs — instead of merely recruiting isolated factories from various industries.

"When you're part of a cluster, you can simply operate much more productively," Porter said.

He identified growing clusters in the state as automotive, chemicals, forest products and biopharmaceutical manufacturing.

Porter recommended that the state:

• Continue efforts to become a research and development hub for the Southeast's automotive industry. He called the automotive research park that Clemson University is developing in Greenville "the future of South Carolina."

• Leverage expertise and technology at the Savannah River Site and the Navy's weapons facility in Charleston to create high-tech development.

• Target better-paying customers for the tourism industry.

Porter also held out hope for the state's long-declining textile industry, saying it should aim to supply industries that will stay U.S.-based for years to come, such as the automotive and construction industries.

His report also urged textile makers to focus on innovation and high-end fabrics with short production runs for demanding U.S. customers.

Also Monday, the Moore School of Business at the University of South Carolina presented its annual economic outlook.

USC research economist Don Schunk predicted the improving economy will mean more jobs, but said the manufacturing sector so important to the Upstate will recover more slowly.

Schunk predicted 1.8 percent job growth during 2004, for a total of 31,300 new jobs statewide.

The largest gains will be in health services, construction, local government, leisure and hospitality and professional and business services, he said.