Challenges and Opportunities for Local Communities
in a Global Economy
James R. Barth
Lowder Eminent Scholar in Finance, Auburn University
Senior Finance Fellow, Milken Institute
Fellow, Wharton Financial Institutions Center
Staying Ahead of the Game: Innovations for Increasing County Revenue
43rd Annual Alabama County Government Institute
Auburn, Alabama
June 6-7, 2013
The World’s Top 10 Economies
Percent of World GDP
1820
China (28.7%)
India (16.0%)
France (5.4%)
England (5.2%)
Prussia (4.9%)
Japan (3.1%)
Austria (1.9%)
Spain (1.9%)
U.S. (1.8%)
Russia (1.7%)
Today
U.S. (21.6%)
China (10.1%)
Japan (8.4%)
Germany (5.1%)
France (4.0%)
Brazil (3.5%)
U.K. (3.5%)
Italy (3.1%)
Russia (2.7%)
India (2.6%)
2050
China (18.5%)
U.S. (16.5%)
India (12.0%)
Brazil (4.8%)
Indonesia (3.5%)
Japan (3.1%)
Mexico (3.0%)
Russia (2.7%)
Germany (2.4%)
U.K. (2.2%)
Per Capita GDP: Europe and United States
1820
1870
1913
1950
2011
Europe
$1,232
$1,974
$3,473
$4,594
$34,848
United States
$1,257
$2,445
$5,301
$9,561
$48,442
Per Capita GDP by State, 2012
Per capita GDP
Rank
Connecticut
$58,908
1
Massachusetts
$54,687
2
New Jersey
$53,628
3
New York
$52,095
4
Maryland
$51,971
5
Alabama
$35,625
46
Note: 2011 per capita GDP is $5,445 for China and $1,509 for India.
Total Employment of U.S. MNCs and Affiliates of Foreign MNCs
Thousands
Alabama
New York
Texas
California
800
700
600
500
400
300
200
100
0
2007
2008
2009
2010
Percent of Population Employed by U.S. MNCs and Affiliates of Foreign MNCs
Alabama
New York
Texas
California
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2007
2008
2009
2010
Public Debt in Advanced Economies Approached Another Record High
Gross Public Debt As Percent of GDP
Percent of GDP
140
120
1944: 117.8%
2011: 104.8%
100
80
60
40
20
0
1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
U.S. Debt and Deficits
Historical Perspective
U.S. federal deficits and debt - 1790 to 2010
% GDP
140
Federal public debt
120
Great Depression
(1929-late 1930s)
World War I
Spanish
(1914-1918)
American War U.S. federal income
(1898-1899)
tax introduced
(1913)
Civil War
Federal surplus/deficit
100
80
60
40
Korean War
(1950-1953)
Vietnam War
(1961-1975)
Great
Recession
(2007-2009)
(1861-1865)
War of 1812
20
World War II
(1939-1945)
Mexican American
War
(1847-1848)
0
-20
-40
1790
1810
1830
1850
1870
1890
1910
1930
1950
1970
1990
2010
Government Policies Need to Adapt
When Social Security was created in 1935, it was the definition of a solvent system – life expectancy at the
time was 62 years old and the retirement age was 65. Most Americans died before they could retire!
Impacts of Sequestration on Alabama
Education and Jobs
Teachers and Schools
Alabama
Decrease in
Jobs at Decrease in
Decrease in
Decrease in funding
funding for risk among number of
number of
for education for
primary and teachers
students schools receiving
children with
secondary ed and aides
served
funding
disabilities
,
$11.0 million
150
21000
40
$9.0 million
Work-study jobs
Decreased
Decreased
number of low
number of
income students work study
State
receiving aid
students
Alabama
940
280
Decreased in staff
for education for
children with
disabilities
110
Head Start
Job-search assistance
Decrease in number of children
State
with access to early education
,
Alabama
1100
Job search
Decrease in
funding
number of people
State
losses
getting help
Alabama $472,000
16,600
Impacts of Sequestration on Alabama
Military and Law Enforcement
Military readiness
Civilian job Gross pay Army funding Air Force Navy funding
State
furloughs reduction
cuts
funding cuts
cuts
Alabama $27,000
$176.9
$91.0 million $8.0 million
N/A
million
Funds for law enforcement and
public safety
Amount lost from justice
State
assistance grants
$ 230,000
Alabama
Impacts of Sequestration on Alabama
Public Health
Child care
State
Alabama
Decrease in number of children
with access to care
500
State
Alabama
Vaccines for children
State
Alabama
Vaccines funding cuts
$144,000
Decreased number of
children receiving vaccines
2,110
Public health
Loss of funds for Decrease in grants Decreased admissions Department of Decrease in
public health threat to prevent and treat
to substance abuse
public health number of
response
substance abuse
programs
losses
HIV tests
$1.2 million
,
$457,000
1600
$165,000
4,100
Impacts of Sequestration on Alabama
Public Health
STOP Violence Against Women Program
Stop Violence Against Women
State
Program funding cuts
Alabama
$102,000
Funding for clean air and water
Decrease in
State
environmental funding
$ 2.0 million
Alabama
Decrease in grants for fish
and wildlife protection
$ 1.0 million
Decrease in victims
served
400
Nutrition assistance for seniors
Decrease in funds
State providing meals for seniors
Alabama
$865,000
Alabama Personal Income Per Capita
By County
50,000
Top 5
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Note: As of March, 2013
Bottom 5
Alabama Unemployment Rate
By County
18%
16%
Top 5
14%
12%
10%
8%
Bottom 5
6%
4%
2%
0%
Note: As of March, 2013
Alabama Population
Top 5 Counties vs. Rest of State
Total Population: 4,802,740
Rest of State,
2,961,153
Shelby, 197,936
Jefferson, 658,931
Montgomery,
232,032
Madison, 340,111
Note: As of March, 2013
Mobile, 412,577
Alabama Total Employment
Top 5 Counties vs. Rest of State
Total Employment: 2,010,669
Rest of State,
1,194,353
Montgomery,
96,661
Jefferson, 285,709
Shelby, 99,563
Note: As of March, 2013.
Madison, 160,831
Mobile, 173,552
Alabama Total Unemployment
Top 5 Counties vs. Rest of State
Total Unemployment: 148,300
Rest of State,
90,174
Tuscaloosa,
5,674
Jefferson, 19,485
Montgomery ,
7,612
Madison, 10,192
Note: As of March, 2013
Mobile, 15,163
Alabama Unemployment Rate and Number Unemployed
Alabama Average Hourly Wage
Alabama Local Government Total Revenue
2002 vs. 2012
2002
US$ 13.9 Billion
2012P
US$ 21 Billion
Alabama Local Government Spending
2002 vs. 2012
2002
US$ 14.6 Billion
2012P
US$ 21.2 Billion
Challenging Local Fiscal Conditions
Alabama
*: Projected
Extreme Longevity
Areas of The World Where People Live Longer
Sardinia, Italy
Loma Linda, California, U.S.A.
Large number of people over 100 years!
 Physical activity
 Strong social networks
Okinawa, Japan
 Diet rich in antioxidant fruits and vegetables,
healthy grains and proteins
U.S. Aging Population is Growing Fast
Millions
70
50-64
65-84
60
85+
63
61
60
63
50
48
40
30
20
42
33
33
37
23
10
0
31
28
1980
4
3
2
1990
2000
6
2012
9
7
2020 *
2030 *
* Projected.
State and Local Pension Funded Ratios
Slightly Lower
Funded ratios of state and local pension plans (%)
100
91
90
90
85
88
87
86
88
84
79
80
76
75
2010
2011
70
60
50
40
2001
2002
2003
2004
2005
2006
2007
2008
2009
34 States Had Pensions Funded Under 80 Percent, 2010
A Widening Gap in Cities
Pension Funding: Top and Bottom Cities
Worst-funded cities
Best-funded cities
Milwaukee, WI
113
Washington, DC
104
San Francisco, CA
52
Portland, OR
50
97
Wichita, KS
94
Charlotte, NC
94
Birmingham, AL*
Chicago, IL
Omaha, NE
43
Providence, RI
42
Charleston, WV
81
Funded ratio (%)
Notes: Study is based on 61 key U.S. cities and fiscal year 2009 data.
*Birmingham, AL is 20th out of 61 at 81% funded ratio.
24
Funded ratio (%)
Alabama Has Lagged National Recovery So Far
Alabama Is Supported by Reviving Motor Vehicle Industry
Alabama’s Recovery Lags National Rate Due To Housing Drags
Alabama Is Expected To Speed Up and Grow At a Moderate Pace
Job Losses Exceeded National Trends, And Hiring Recovery Is Slower
Recession Took a Bigger Toll on Alabama’s Economy
Employment Expanded More Than National Average, But Is Stagnant
Human Capital in United States
2012
Total: $76.3 trillion
Financial assets
25%
Human and
social capital
75%
Source: Derived from Kevin Murphy and Federal Reserve, Flow of Funds Q1 2012.
Going to College Still a Smart Move
Americans’ Lifetime Earnings by Highest Educational Attainment, 2011
Lifetime earnings
Highest educational attainment
(US$ millions)
Less than high school
1.0
High school graduate
1.4
Some college
1.6
Associate's degree
1.8
Bachelor's degree
2.4
Master's degree
2.8
Doctoral degree
3.5
Professional degree
4.2
Bachelor’s degree holders
can earn 77% more than
those with a high school
diploma
Educational Achievement
More than 25% college graduates
Less than 25% college graduates
Three Ways to Build Human Capital

Increase education and practical skills

Import people with skills

Improve health and quality of life so that
people are more productive
Return on Human Capital Investment
Preschool Programs
Return
“The rate of return to a dollar
investment made while a person
is young is higher than the rate of
return to the same dollar made at
a later age.”
Nobel Prize Economist
James Heckman
School
Opportunity Cost of Funds
Job Training
Age
“Big gaps in educational attainment
are present by age 5. Some children
are bathed in an atmosphere that
promotes human capital development,
and, increasingly, more are not.”
“By 5, it is possible to predict with
depressing accuracy, who will
complete high school and who won’t.”
James Heckman
Nobel Prize in
Economics
Building a Better Tomorrow
Requires Structuring Our Fragmented Information Today
We need to strengthen the sector’s information infrastructure to enable a system in which information can be shared and
used dynamically. Specifically, we need to build on current initiatives regarding data classifications (to create consistent
definitions), technical standards (to facilitate data exchange), reporting protocols (to specify what data is reported when),
knowledge platforms (to allow data to be productively captured), and governance (to ensure intellectual property rights and
privacy concerns are managed, to build consensus, and to drive compliance).
STATE, COUNTIES & CITIES
STATE, COUNTIES & CITIES
This Will Help Information Flow Freely
Structuring and organizing data will make information more accessible and useable, increasing the supply and use of
information, just as it has in other markets.
Alabama Real Per Capita Personal Income Rank 1929-2012
Rank