Christian Ketels, Ph.D.

TENNESSEANS who want to advance the state's economy and its citizens' standard of living must not "become fixated on gridlock in Washington" and must realize that the fate of the state and each of its regions "is in our hands," economist Christian Ketels told Nashville business executives today.

Ketels, who is affiliated with the Harvard University-based Institute for Strategy and Competitiveness spoke this morning during a gathering convened at the Renaissance by the Cumberland Center and sponsored by First Tennessee. The Center, led by director Scott Massey, Ph.D., is a program of Cumberland University. Area university presidents participating in the Center are meeting today on related topics, Massey said.

Ketels' focus was on the importance of leveraging current or emerging "clusters" of industry and business, through broad collaboration among all stakeholders. (Ketels' detailed presentation slides are here. Related coverage of Tennessee Gov. Bill Haslam's initiatives.)

Now is not the time for reliance on ideology or "sentiment" in dealing with economic challenges, said Ketels, who added that amid the current national economic malaise he finds it often true that "the real culprit is lack of political leadership."

For the moment, he said, it often seems "ideology trumps pragmatism" in America, just when the United States needs to demonstrate more of the pragmatism and entrepreneurism long associated with Americans. Those traits, he said, are vital in innovation and in addressing the challenges and opportunities spawned by globalism. Global linkages and "local dynamism" are both essential to Nashville's future, he noted.

Going forward, the essential focus must be on economic competitiveness, defined as the degree of economic productivity demonstrated by an economy that mobilizes workers, companies and institutions to create new added value. Such efforts determine employment, wages and standard of living for the region in which a given cluster resides, he added.

Ketels explained that communities adopting cluster strategies must create and organize a tautly managed coalition, which will serve as a platform and network for the long-term effort.

Also pivotal is the adoption of a strategy built around a clear value proposition and an integrated program of work to convey to existing or potentially relocating companies that "there is something unique here which they can't find -- or, can't find in this combination -- somewhere else." He noted that Nashville and Tennessee have natural competitive advantages as they approach these challenges.

Using the healthcare sector as an example, he said anchor firms such as HCA and key sector institutions such as the Nashville Health Care Council play pivotal roles. More such assets must be illuminated and leveraged, he indicated. Nashville should reach out to peers throughout its economic region, including actors in Kentucky, Mississippi and other states, he added.

In a wide-ranging presentation comparing Tennessee's recent -- and in some key sectors, somewhat laggard economic performance -- Ketels stressed that state and local government should not engage in "picking winners"; and, viewed at the highest plane, all parties should mainly focus on creating conditions for improving the performance of all public- and private-sector actors.

Those themes largely echoed policy statements in the past year by Gov. Bill Haslam, ECD Commissioner Bill Hagerty, TTDC President Leslie Wisner Lynch, and others. Ketels met yesterday with some ECD staff, he said.

Focusing excessively on the immediate needs of narrow portions of the economy is "a recipe for disaster," he intoned. Caution must be employed in addressing, for example, the economic clusters recently defined by Tennessee Economic and Community Development. The success of a cluster focus depends on recognizing that it is the choices and behavior of all actors in the economic system, particularly businesses, that will be most determining, he said.

The ingredients for business and sector-wide success lie mainly within corporations and thus much hangs on the decisions those companies make, said Ketels. Such externalities as location, breadth and diversity of fields and industries within and along the economic cluster and overall environment for conducting business are highly determining and can be addressed, pragmatically, he explained.

At the same time, business executives and others who might offer to collaborate to address these issues must be watchful that enthusiasm and focus are not overwhelmed by undue fear of making common cause with competitors; by skepticism regarding the legitimacy and effectiveness of government; or, by narrow self-interest that would lead to viewing the competitiveness and innovative terrain as merely an arena for lobbying and other self-serving behavior, he noted.

Nashville data indicates that the Metro area is the most economically productive region in the state, but even the broader Nashville/mid-South region has lost more than 100,000 jobs in the past decade or so, Ketels said.

Nashville and other regions and the state generally must address the need to provide employers and other actors the tools they need to achieve productivity, including infrastructure, education and training and other leverageable assets, he said, adding that the needs of existing business, emerging growth industries and new startup-led sectors must be taken fully into account.

To achieve further progress, Tennesseans must recognize that the state's economy is "not where you want to be," as reflected in national and state econometric data that he finds "not very positive" for Tennessee, at this time. He acknowledged that most such data may not adequately reflect Nashville and Tennessee's concentration in healthcare services; but that, he said, does not mitigate the reality of Tennessee lagging in advanced technologies and other sectors. He stressed that the data do show the state has leverage in transportation and logistics and some other areas, but that it has in recent years lost subtantial employment in many sectors.

In a process he likened to "two-level chess," Ketels stressed that any state or community will face great odds against economic performance if it does not foster creation and growth of boundary-spanning firms that operate nationally and internationally within "traded clusters." Such companies play produce the greatest share of patentable intellectual property. (States must also cultivate more localized businesses that produce the preponderance of jobs, he said.)

Moreover, said Ketels, rather than focusing on a single narrow industry slice within a chosen economic cluster, communities must understand that their dominant cluster and the industry fields within it will be continually evolving. That reality, he said, makes it important to look for ways to cross-stitch the cluster, keeping in mind that some industries within various fields within the cluster will grow much larger over time, as other industries wane. VNC