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Economic development in South Dakota.


South Dakota has led or been in the leading group of states over the past ten years in a number of undesirable categories such as: largest percentage of college graduates leaving the state, lowest percentage of industrial research and development, lowest per capita incomes, lowest faculty salaries, highest infant mortality, lowest federal research and development, lowest starting salaries for college graduates, and lowest manufacturing wages. No doubt there are many statistics on the positive side, but such negative statistics indicate an economy which, if not seriously in trouble, has some fundamental and serious flaws. The most serious and fundamental may be sense of complacency.

Stating that the economy has flaws is another method of stating that the economy is less competitive than other economies in the same market. The American market has undergone three distinct demarcations since the inception of the country. The first was a market based upon agricultural products and land as its chief currency. For the most part, this market was small, isolated, and fragmented. Cash crops that existed were mostly produced on plantations by slave or indentured labor, and by a relatively few large farms. Manufactured goods were scarce; those available were imported and expensive. This in part resulted from the British mercantile system which was aimed at having the colonies produce agricultural products sold at low prices, while purchasing manufactured goods at high prices from the mother country. The mercantile system restricted manufacturing enterprise through such measures as the Stamp Act. This system, a primary cause of the revolution, was at odds with economic freedom-the fundamental reason many, if not most, of the colonists emigrated to the new land. Some might observe that this relationship still exists between rural and urban areas today.

The Pilgrims/Puritans, among others, came to this land seeking economic as well as religious freedom. In England, such groups constituted the Reformist movement, in part generated by the Lutheran movement on the continent. As part of this Reformist movement they were at odds with the state church, abrogated to the monarch, and the state, by Henry VIII. Therefore, they came under both religious and economic persecution, and were restricted from owning property (land), entering the army, clergy, or civil service, and most importantly entering into the traditional school system (which was run by the state church). These prohibitions essentially prevented them from taking part in the agricultural sector, based upon land. This was no small handicap when one estimates that this sector constituted over 90% of the GNP of its day. There was, however, one avenue left open and it coincided with the Renaissance sweeping Europe: business and manufacturing. Since the Reformists were prohibited from the traditional schools they set up their own. These schools concentrated upon business or trade (comparable to the vocational schools of today), teaching accounting, science, mathematics, and business development This school system created a competitive advantage for the student in the business world, as the traditional schools were still teaching Greek, Latin, and philosophy. Consequently, the Reformists were very successful in business and manufacturing, which in turn subjected them to more persecution. Many Reformists left with their capital for the new land seeking, perhaps more than religious freedom, economic freedom and a free market. They came with their ideas and capital to create the foundations of a new economy and country based upon industrial technology and raw materials, the next major demarcation.

When the colonies proved successful, the Crown tried to rein them in and profit from them through a policy of mercantilism and a system of slave labor plantations based upon Crown land grants to individuals dedicated to the state religion and the state - individuals whose basic beliefs and values were at odds with the Reformist settlers and free labor. These plantations fell in neatly to the British scheme for the exportation of cheap agricultural products. Plantation owners later developed into the group known as the Tories, which sided with the Crown during the revolution. The Tories, who were generally educated in the state school system, now known as the "public school," integrated their ideas on education into the existing school system, which was based on the Reformist's system. Their ideas, generally known as the "academic" stream, combined with the "vocational" stream to form what we know now as our current school system. The Tories and the Reformists eventually came to a final conflict known now as the Civil War, which established the supremacy of business and industrial technology, and at the same time closed the frontier, the source of free or cheap land. The needs of industrial technology and mass generic markets eventually led to the standardization of products. One of those products standardized was the educational system, which sought to produce standardized, interchangeable people emphasizing rote memory and obedience. Individual thinking, which had been the foundation of the country, was no longer a premium value. States that could create large factories and generic low-cost labor forces did well. The market progressed from primarily small and regional markets to large national markets based upon standardized, generic, mass-manufactured goods.

We have now entered a third demarcation, a new era. We have entered an era based upon information, electronics, niche/specialty global (but not mass) markets, and competitive advantage based upon knowledge and business skills. The primary reason the Reformists obtained a competitive advantage in England, and later the world, was because their educational system was targeted at the specific needs of the day. They took what might be called today strategic planning, or comprehensive systems approach. Many of the various parts of South Dakota's economic development system are out of synchronization with the needs of today, and tomorrow. States that do well today are geared to the new realities. While factories close and some regions decline, states that have concentrated on the new skill-intensive industries have done well. The following exhibit illustrates the general trend in U.S. sector employment from 1860 to 1990.

While the free market system rests upon a minimum of government interference to flourish (as postulated by Jefferson), government (as suggested by Hamilton) has an obligation to provide the basic framework necessary to the growth and enrichment of the private sector. The key to providing such a framework starts with indicative strategic planning, as differentiated from directive corporate planning. Strategic indicative planning has often (and with some reason) been quoted as the primary reason for Japan's fast economic growth. Such planning essentially comes down to consensus planning - what do we want to do and how can we help each other get there. It evolves from a natural development of consensus and networks among the concerned stakeholders. In Japan, the principal government agency involved is the Ministry for International Trade and Industry (MITI). MITI acts as a conduit for ideas and discussion among major players in each industrial sector, evolving a general strategic plan for the development of each sector. The state government could play a similar role for industry in the state.

Successful strategic planning quite naturally evolves from a realistic understanding of the present and future environment. The clear present environment is that most GNP growth and jobs have been and will be taking place in the information and service sectors as tailored markets increase in value and size. As mass generic markets decline in value and size, GNP and jobs in basic manufacturing and agriculture will continue to decline. The answer to these trends by many parents in our state has been to have their children secure a place at a university, preferably out-of-state, so that they may find a well-paying job and career in one of the major cities outside of the state upon graduation. This emigration of "the best and brightest" cannot have anything but negative long-range consequences for any state. A targeted/strategic educational plan must be developed to create the opportunities that will retain this primary South Dakota resource.

While such an education strategy is key it must take place within the context of an industrial strategy, otherwise all that will be taking place is a subsidy of anumber of other states' growth rates. Education strategy must be geared to take place within the defined needs of the present and future state, as indicated by its strategic plan. While this planning should be indicative, its scope should be sufficiently flexible to take advantage of new problems and new opportunities, and it should not be undertaken by the state government alone. There are many opportunities to develop such cooperative strategy, such as the computer software market. IBM estimates computer software will account for as much as 80% of computer industry revenue by the turn of the century.(1) An additional advantage is that the industry has low costs of entry once the basic skills are established.

It is an apparent and cost effective opportunity to develop software skill competence in all school children at an early age. Apparent because the opportunities and profit potential in software development are rapidly expanding and, cost effective because, to some degree, the federal government and computer companies will support it. For example, Intel can and has recently designed a super computer on a chip; there is almost no software that uses its capacity. However, knowing how to write a program is not adequate to creating a software company, nor is knowing how to set up and run a company, or obtaining necessary financing sufficient. Each of these three variables must come together in the right sequence. There are many other economic development opportunities, but they will not come into existence without close industry and government cooperation.

To initiate this cooperation and strategic planning process I would like to propose that an ongoing forum be established with the first step being the organization of two annual conferences sponsored by the state and industry: one each fall on economic development, and one each spring on finance. Held at the Graduate School of Business, University of South Dakota, each conference would seek to invite participants from around the country and the world. Out of each conference could come a number of working groups which would work on important issues to be reported at the next conference. At each conference could be an exhibit hall to promote South Dakota and its businesses. These conferences would provide participants the opportunity to learn more about South Dakota's economic development programs. Small business assistance centers located at the University of South Dakota School of Business include: Small Business Development Center (SBDC) which assists South Dakota companies with a variety of opportunities involving many aspects of business; Procurement Technical Assistance Center (PTAC) which helps South Dakota companies sell their products and services to the Federal Government and keeps them informed of the many federal contracts available for bidding; and the Native American Economic Development Program which provides assistance both in the initial stages of starting a business as well as on a long-term basis. An additional mechanism to assist locally would be the establishment of an entrepreneurship center which would give adult education courses throughout the state as well as function as an advice/information center; coupled with this should also be the establishment of a graduate program in entrepreneurship at USD. The program and center should be primarily aimed at high technology and advanced manufacturing.

At the financial conference, in which major financial stakeholders would play a role, it would be of great importance to have participants in the growing venture capital business to review and invest in South Dakota businesses. Venture capital has experienced a phenomenal growth in the last decade, and total venture capital funds in the United States are now estimated to exceed forty billion dollars.(2) However, most such funds are targeted at what is termed "later-stage funding." Seed funding/capital is the entry fee or the pipeline to these large pools of capital. This is one source of funding that deserves to be examined in depth in a state such as ours where such mechanisms are only in the beginning stages of development. Venture capital and related seed funding are increasingly available from larger corporations.

At both the financial and economic conferences, methods of bringing good business education to the schools at the earliest ages should be discussed. It is only by becoming business literate that each individual can contribute fully to the economic development of the state and obtain what should be considered a right - the ability to understand and participate in a free market economy. The greatest need for economic development and business literacy is apparent on the Indian reservations, which account for a significant portion of the state's land mass and a population which requires a special understanding, interest and strategic approach. Funds for such development are available from various foundations, the federal government and the state. Many officials in both state and federal agencies have often stated that there is a pressing need to address this issue. Funds can and will be available if a viable plan is developed. An annual strategy conference should also be developed for this necessary economic development. Since many of the problems faced on reservations throughout the country are similar, there many be an opportunity for South Dakota to host an annual national conference on these issues, as well as to initiate meaningful steps to improve the conditions.

Related to such strategic planning, the state should also develop an ongoing Science and Technology (S&T) perspective and strategy as to how the state might take advantage of new developments in science and technology such as the three billion dollar human genome project, mostly funded by the Federal government, or the planned S&T centers, which will be financed by the federal government at $5,000,000 each.(3) There are now several centers or potential centers of research and development spread through out the state and mechanisms should be developed to encourage their interaction and synergy, such as a computer network, so that new research and development opportunities may be undertaken by the state in competition with almost any research establishment throughout the country. Such developments and the current perspective could also be presented by the state at the economic development conference. An annual report on research and development in South Dakota should also be issued as a means to inform those within the state, to attract investors from outside the state, and to serve as a guide to further development. The viability of an interlinking, interactive and synergistic research and development base will maximize the state's capability to seize and lead the way to new industrial and employment opportunities.

These series of conferences, centers, working groups, and a revamped, targeted educational system will develop an interactive and dynamic strategic planning system for the state which will draw capital and people into the state, retain college graduates, point the state in the direction of new and expanding opportunities, and establish the necessary economic base for the next century.

(1). IBM Public Information Office. (2). Pratt, Ventura Capital Journal. (3). National Science Foundation.

H. Alan Raymond, Ph.D., is Associate Professor of Business Policy and Strategy at The University of South Dakota School of Business in Vermillion, South Dakota and author of Management in the Third Wave, published by Scott Foresman.
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Author:Raymond, H. Alan
Publication:South Dakota Business Review
Date:Mar 1, 1990
Previous Article:Small business: a study of technology.
Next Article:Trend of business: the U.S. and South Dakota economies.

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