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Sunday, April 19th, 2009

The Giant Sucking Sound

Nearly all rich and powerful people are not notably talented, educated, charming, or good-looking. They became rich and powerful by wanting to be rich and powerful.” – Paul Arden

But God has chosen the foolish things of the world to confound the wise; and God has chosen the weak things of the world to confound the things which are mighty.” -I Corinthians 1:27

This is the latest installment in what has become a trilogy of sorts on talent and migration. (See also “Out-Migration Devastates Michigan” and “The Outsiders“).

When I posited that a critical mass of non-natives is a near prerequisite for civic change, someone noted that the Midwest needed to import more talented people because it was no secret what was really need to change things. In his words, “It takes brains.”

I’m sympathetic to this in a sense. In the 21st century economy, attracting top, educated talent is of paramount importance. But I wanted to post a rebuttal as well, because this is not the whole story. In fact, in the long run, it might be of lesser importance than other, more important things that often fail to attract notice. This idea of “attracting the best and brightest” is such a well-established meme that it is seldom subjected to any critique. It’s time to change that. Especially as it is the basis of so much urban policy.

I have a colleague in Hamburg, Germany who attributed his country’s relative economic stagnation over the last couple of decades to the fact that “we’re the children of the people who stayed.” That is, faced with a choice about what to do in the face of dire poverty and endless wars in the 19th century, Germans had two choices: stay or leave, usually by emigrating to the United States.

Today’s Germany is the inheritance of those who stayed. My friend argues, very persuasively, that this robbed Germany of its entrepreneurial energy. Those who were risk takers, those who were motivated to better themselves, those who weren’t afraid to take a chance to get the opportunity for a better future for themselves and their family, left Germany. Those who wanted to play it safe, who preferred the devil they knew, who were in fear of the great unknown, they stayed behind.

Today Germany remains, despite its robust Mittelstand, a place curiously lacking in entrepreneurial energy. I was told that in Germany, to go bankrupt is a moral stigma that ruins you for life in that society. That there are coal mines kept open by subsidies that are higher than the average wage of the workers who are employed there. It would be cheaper simply to pay them their salary for the rest of their life to do nothing than to keep the mine open. Yet these workers insist that they have a right to “earn” a living by mining – and that their children be allowed to become miners too as a sort of hereditary avocation.

The contrast with America could not be more stark. How many coal miners in Kentucky hope that their sons end up in that mine? Maybe, as a last resort. As I noted about visiting foreign countries, you are sometimes made aware of values and beliefs you were never even aware of holding. The idea that one generation should have it better than the next, that children should surpass their parents in income and social status, I guess I always just thought of as being as natural as the air we breathe. But it seems far from the case.

My paternal great-great-etc grandfather came to the United States from Bavaria early in the 19th century. (I still occasionally get emails from people in Munich with the same last name as me, “Renn”). He was fleeing conscription. My maternal grandfather was the only member of his immediately family born in United States. The rest of them were from Sicily. He was 6’2″ but his brothers were very short because they had been so malnourished as children and didn’t get enough protein. I’m sure most American families can tell similar stories.

If talent matters so much, how is it that a nation made up largely of Europe’s rejects ended up becoming the most powerful economy on earth? While we were able to pick up some great talent in the mid-20th century because of Hitler and WWII, we were not notably the place to be for the European upper crust, whether that be aristocrats or intellectuals.

Maybe education and talent aren’t the most important thing in the long run. Maybe the “talent” that matters is a willingness to take risk, to change, and the desire to better one’s condition. I won’t suggest this is the only thing that matters, but it strikes me as important. To be sure, Europe’s more rigid class structure did not give full scope to intellectual capacities for people from the lower classes, so we no doubt got some geniuses we could put to good use that they were underutilizing. But interestingly, that still seems to be the case today in much of the world.

Also, consider: people who are successful in the now are those who are best adapted to today’s world. But the world isn’t ending in a few weeks, it stretches out into the future. Who will be best adapted to tomorrow? In a world of rapid and increasing change, over-optimization for today’s conditions is an economic death sentence. Rather, we’ve got to be able to change ourselves and adapt to the future. Thus, the willingness to change and to take risk will take on ever greater importance to keep up.

In two absolutely must-read essays called “The Unnaturalness of Human Nature” and “The Role of Undesirables” (available in his masterpiece “The Ordeal of Change“), Eric Hoffer discusses this in his normal penetrating style as he talks about the particular importance of the “unfit” in paving the way to tomorow.

“The inept and unfit also display a high degree of venturesomeness in welcoming and promoting innovations in all fields. It is not usually the successful who advocate drastic social reforms, plunge into new undertakings in business and industry, go out to tame the wilderness, etc. People who make good usually stay where they are and go on doing more and better what they know how to do well. The plunge into the new is often an escape from an untenable situation and a maneuver to mask one’s ineptness. To adopt the role of the pioneer and avant-garde is to place oneself in a situation where ineptness and awkwardness are acceptable and even unavoidable, for experience and know-how count for little in tackling the new, and we expect the wholly new to be ill-shapen and ugly.”

It isn’t just about attracting the talented – usually meaning the educated and already successful – of today. It’s about attracting the talented of tomorrow – and those are people we often don’t even know are talented yet. Innovation depends on the outcast.

So many places seem to be missing the boat. Canada would be a great example. They are trying to make it easy to immigrate there if you are an educated person with money. They want to exclude others who might prove a “burden” on society. But this fails to take a life-cycle view of talent. It’s like have children. Children in the modern economy are a deadweight loss economically for about the first 18-22 years since they produce almost nothing. But without children, where will we be when today’s workers retire? (Again, look at Germany to find out). It’s similar for other aspects of talent. We need to be replenishing the soil with new risk takers and entpreneurs, not actually self-selecting for the risk averse and depleting the nutrients needed for tomorrow.

In an era of rapid change, playing it safe is actually the riskier course. Putting all your chips on the now, and not spreading some money around the table on speculative bets that may never pay off is a recipe for ruin.

Which would you rather have, a handful of Ph.D.’s with big reputations or a few thousand Mexican peasants who literally risked their lives sneaking across the desert to get into this country?

Ross Perot famously talked about a “giant sucking sound” from jobs headed south of the border. He was completely backwards. The real giant sucking sound is America hoovering up all of the risk takers, entrepreneurs and most motivated citizens of Mexico. We’re sending them a few jobs. They’re sending us their true “best and brightest”. We’re sending them some factories, they’re sending us their future. They sold us their birthright for a few manufacturing plants.

So I say it takes more than brains – a lot more. As a said in my article, “The Hustler as a Key Component of Urban Success“, what really matters is that a city is a place where people of all stripes decide they will plant their flag and seek their fortune – not come to spend it after they already earned it someplace else. If your city isn’t attractive to hustlers, poor immigrants, ne’er-do-wells of various kinds, entrepreneurs, avant-garde creatives, etc., if people aren’t voting with their feet to move there to better their lives, this is telling you something very powerful about the future. In a very real way, the long term future of a city depends as much on attracting the supposedly least talented as it does the most.

19 Comments
Topics: Demographic Analysis, Economic Development, Public Policy, Talent Attraction

19 Responses to “The Giant Sucking Sound”

  1. Alon Levy says:

    Before unification, West Germany had faster economic growth than the US – the 40 or so years after WW2 are called the German economic miracle. In the early 1980s, when the US was still in stagflation, American pessimists predicted the West German and Japanese economies would eventually surpass the American one; American entrepreneurs read books about how to act more like the Germans and Japanese, who were the model of success. Germany’s stagnation only really started after unification, when West Germany inherited 20 million people’s worth of a second world country. By 2005, this stagnation was mostly over, and German economic growth increased almost to American levels, based not on a housing bubble but on manufactured exports.

    Conversely, let us look at the settler countries of the Americas – the US, Canada, and Argentina. All attracted the enterprising huddled masses of Europe in the 19th and early 20th centuries, and grew rapidly as a result; the expression “as rich an Argentine” was common in Europe around 1900. Chile, Uruguay, and southern Brazil also attracted large numbers of Southern European immigrants. To this day, the plurality ethnic group in Sao Paulo is Italian, not Portuguese.

    The 20th century riches to rags story of Latin America has a lot to do with its rigid class structure and authoritarian governments, but it was most pronounced in the Buenos Aires area, not in the haciendas. Argentina’s decline began when the entrenched urban poverty led to populism, creating Juan Peron; this led to economic policies that just killed economic growth. Conversely, pre-WW1 Germany was very rigid and authoritarian as well, and yet it grew quickly.

  2. Jim Russell says:

    Long distance migration, particularly across international borders, is an excellent indicator of an entrepreneurial disposition. And what makes a great city is the number of people who move there, not the people who stay.

    But I have a few comments on the “best and brightest” meme. In terms of domestic migration, the aim is to increase the concentration of the college educated. If you will, brain density positively correlates with per capita income. Regarding international migration, targeting the smartest foreign born is simply more politically palatable. An easier sell.

    The United States typically targets family reunification as opposed to strategic economic immigration. Various economic immigration schemes have, for the most part, failed.

    In my estimation, anyone who can successfully negotiate an international border is a winner for the regional economy. As for domestic migrants, the more “foreign” to the destination, that much the better. Distance is a useful surrogate for making this determination.

  3. The Urbanophile says:

    Alon, I don’t think anyone would say that personal attributes such as risk preference or desire for economic betterment are the only factor in success. There are many and clearly socio-political structures are a big part of it.

    Jim, nice insights and I agree. In fact, I thought about incorporating some notion that we ought to think about keeping the difficulty of immigration at a high enough threshold to ensure we keep in place a selection bias in favor of those who are determined, risk takers, very motivated, etc.

  4. Jim Russell says:

    “… keep in place a selection bias in favor of those who are determined, risk takers, very motivated, etc.”

    Reminds me of domestic in-migration to Rust Belt cities.

  5. Alon Levy says:

    I’m mostly saying that your description of Germany is incorrect, rather than saying risk-taking doesn’t matter. Germany is innovative and entrepreneurial, just not in the same way as the US.

    On another note: the largest American cities have always had both massive immigration and massive emigration. The East Coast cities got many immigrants from Europe, but at the same time exported people to the frontier – first the Midwest, then California, and now Texas. Each of the region that they exported people to developed its own cities, which similarly got immigrants from Europe and older parts of the US but ran negative net migration with further frontiers. Eventually these new cities became mature enough that international migrants moved in directly, without passing through the East Coast first. This was the dynamic in late 19th century Chicago and San Francisco, in 20th century Los Angeles, and arguably in 21st century Atlanta.

  6. John says:

    “Give me your tired, your poor,
    Your huddled masses yearning to breathe free,
    The wretched refuse of your teeming shore,
    Send these, the homeless, tempest-tost to me,
    I lift my lamp beside the golden door!”

  7. Noel says:

    "The Giant Sucking Sound" generated conversation in our city and I would like to receive your feedback to the question; here is is:

    During the last decade, especially the last two years, many studies have looked at Madison's rate of in-migration and out-migration and the analysis finds a pattern of poorly-educated adults moving into the Madison MSA and many well-educated adults (many recent UW graduates) moving to Chicago and Minneapolis.

    As you might predict, there are two basic arguments:
    1. Folks are moving to Madison because unemployment is low, the quality of life is good (public schools, parks, and low crime rates), and future opportunities are better here than where they came from.
    2. Madison and Dane Co's benefits are higher than the cities where they left and over time the individuals and families who have moved to the area are contributing to unseen (for Madison and Dane Co) rates of poverty and percentage of free & reduced lunch in schools, and thus benefits need to be reduced.

    Reactions? Thank you, in advance, for your ideas.

    Noel Radomski

  8. The Urbanophile says:

    Noel, thank for posting and a few thoughts.

    Firstly, Madison is a medium-sized city with a huge state university. Of course it is going to lose most of those new college grads to elsewhere. It is simply not realistic to expect that any significant percentage of UWisc’s grads are going to stay in town.

    Secondly, regarding “poorly educated adults” moving in. If any of those “adults” are 18 year old freshman, no problem. And even if not, still no problem.

    Again, we have to take a life-cycle view. There are many investments we make that are cash flow negative for a long time before they pay off. So it is with human capital. Also, I might suggest you read Jane Jacobs where she talks about how cities don’t attract the middle class, they create the middle class. The magic of cities is that they convert poor people into middle class people. Think of that to some extent as almost the city’s “product”. It takes in raw materials in the form of lower income, poorly educated people and exports some of them a generation or two later in the form of middle the middle class suburbanites. This is incredibly value added. And this process, creating the environment through which people can improve themselves, is where a lot of the economic life force of a city comes from.

    There’s possibly an argument to be made that a city can get too educated and too rich. If that happens, will the fires go out? I think it is notable that places liken NYC, Chicago, SF, and LA all retain large areas with poor people. Could too many upscale people cause what Jacobs called the “self destruction of diversity”? Maybe.

    As for the two views on attraction, I don’t know that there is any way to really objectively determine what ultimately “causes” in-migration. This is a topic that is complex, and because it is a proxy for other political battles, there is more heat than light. I will say, Europe has attracted a lot of poor immigrants recently that they have had trouble integrating. Beyond the obvious tougher cultural challenge in Europe vs. America, some have attributed this to overly generous welfare payments.

    My personal view? We ought to have a safety net that provides for the essentials, but it shouldn’t be so attractive to discourage work. Also, I don’t believe that, in most cases, this is the driver of in-migration. In some marginal instances, yes. But I don’t think we should let the exceptions drive public policy. I’ve been to Madison. It’s an attractive town with lots of reasons to love it with a great cost of living and quality of life. It is easy to see why people move there. Just look around.

  9. Adam Kuebler says:

    I am a young entrepreneur myself. A mentor’s story is similar to what you have to say. He has two brothers and sisters, each with a genius IQ, went to big schools, got nice well paying jobs. He has an average IQ and was homeless and alone at the age of 14. He is now living better than most of us could ever dream. Why? He had nothing to loose and thrust himself into the world. Those of us who are entrepreneurially minded aren’t exceptional people, we just have visions of a better tomorrow and aren’t afraid to take risks to make it there. It is entrepreneurs who recruit the best and brightest to your city. While cities should position themselves well for the best and the brightest, the people they really want are people who will make the city a better place, not just be a statistic.

    As for me, I hope to move to Indy sometime within the next decade because I feel there is so much opportunity in Indianapolis.

  10. thundermutt says:

    Jim Russell: how many college degrees does Bill Gates have?

    Seattle didn’t attract people with degrees; it attracted Bill Gates. But he didn’t make Seattle a tech-growth haven; the “Microsoft miracle” did.

    That’s the hole in the whole “attract talent” argument: for educated people, career growth doesn’t come with cities, it comes with companies and stock options in a growth environment.

    Both types of people are necessary for urban growth. First the entrepreneur establishes his/her great idea. But the company doesn’t grow beyond the “sleeping in the office” stage without educated and stable career people to move it forward.

  11. Jim Russell says:

    thundermutt:

    Cool cities don’t attract talent. Traditionally, opportunities are the carrots of migration. I don’t buy the suggested causality arrow that Richard Florida is selling. But there are two items demanding a change in urban policy:

    1) Greater concentrations of talent spur job creation and attract business. Of course, it’s difficult to increase the numbers of the skilled workforce without a Microsoft (and Amazon) anchoring the labor market.

    2) The economic geography of workforce development policy is woefully outdated and demographics suggest that talent is only to get more scarce. Regions will be in fierce competition with each other for highly-skilled labor.

    Just because Bill Gates doesn’t have a college degree doesn’t mean he doesn’t count as talent. No doubt, some migrants are more important than others. Silicon Valley talent is more than 50% foreign-born. But there is a small list of superstars who really created the gravity that drew everyone to the Bay Area.

    As a rule, schemes to influence migration don’t work. But there are some interesting exceptions such as China’s aggressive export of talent to Europe and the United States. Pittsburgh is another curious case. Talent concentration is increasing along with per capita income, but the city/region is still shrinking.

    In that light, the vote with your feet meme deserves its own critique.

  12. Alon Levy says:

    Thundermutt: Seattle was already considered cool when Microsoft started. It was smaller, like Austin today, but it wasn’t economically backward. For career people individual companies matter, but so does being able to move between them. At a time when programmers rarely stay at one company for five years, cities should have multiple companies if they want to attract that kind of workforce.

  13. Bonnie says:

    I think it is also true that success breeds success. Once that first risk-taker has becomes a success others see opportunities they may not have been aware of before.

    I agree that it is difficult to see where the next opportunity is going to arise. That makes targeting an in-migration strategy difficult. So how do we highlight the entrepreneur without highlighting the specific industry?

  14. thundermutt says:

    Jim Russell: I misread your first post. You were explaining others’ advocacy of attracting college grads as part of the “best and brightest” approach…not necessarily advocating that it is a route to economic growth. I apologize.

  15. Anonymous says:

    “Cool cities don’t attract talent.”

    No? Then why don’t more companies locate in North Dakota or Mississippi? Location and labor costs are much lower than places like SanFran or NYC or Indianapolis.

  16. Alon Levy says:

    Then why don’t more companies locate in North Dakota or Mississippi?The ones that care about labor costs, like Wal-Mart, do. The ones that need to be in the vicinity of clients or other companies in the industry don’t.

    Regions have increasing returns to scale in most economic activities, leading to clustering. Before WW2, all US industry was clustered in the rectangle bounded by Boston, Milwaukee, St. Louis, and Baltimore. Any new factory outside that zone was unlikely to succeed, as it was located away from most of its customer base and away from the densest parts of the rail network.

    Now the clustering is spikier and less regional, but it’s still there. If you want to start a management consulting firm, you’d better headquarter it in a city with a lot of big business to sell your product to. You might also want to locate it near other management consulting firms in order to steal their workers more easily. The same is true for biotech firms, law firms, and software shops.

  17. Anonymous says:

    “The ones that care about labor costs, like Wal-Mart, do.”

    That misses my point. If the claim that “cool cities” aren’t required to attract talented people is true, what keeps companies from relocating to a North Dakota or a Mississippi where cost of living and business costs are generally going to be lower? Not every company needs a presence in an urban area. Yet few of them move to places like Mississippi. Why?

  18. Alon Levy says:

    Because the companies with the highest added value do require big cities. Companies need to be close to their suppliers, their customers, their labor pool, etc. If they’re not, then they have to attract educated workers from elsewhere, and that means they can’t pay them local wages. If you’re trying to convince someone to move from Minneapolis to your startup in Fargo, you’d better pay him Minneapolis salaries – otherwise, he has no reason to relocate just for you (the real pay is higher, but who says your startup will succeeed?).

    And in industries that are based on a lot of meetings between players in different companies, you absolutely have to cluster. I don’t know if software is such an industry, but publishing is, and indeed, pretty much all literary agencies and publishers are based in New York, and pretty much all the rest are based in California.

  19. pattern254 says:

    I agree with Alon Levy that your comments on Germany seem a bit off, because after WWII Germany grew at an incredible rate, including the foundation of lots of innovative businesses and development of a lot of businesses built on innovative intellectual property. Germany’s growth to the 4the 4th largest economy in the world doesn’t seem to stem from a lack of innovative citizens; the economic system is significantly different than in the U.S. but still seems to have allowed innovation to thrive.
    Your reference to Canada seems to imply that they are keeping out the innovative by focusing on allowing in affluent, educated migrants? The focus in on individuals with certain levels of education (who would probably tend to be more entrepreneurial/innovative) and those with a certain amount of funds they are willing to invest in a business in Canada, with also spurs innovation/economic growth. Canada has had significant success attracting immigrants who instantly contribute to the economy based on that model.
    The U.S. has similar resident visas available, but on a much smaller scale. Since the 1950s, U.S. immigration policy gives strong priority to family members of American Citizens and permanent residents; I would argue that the extended family of an American Citizen chosen just due to the family tie is much less likely to contribute something in terms of innovation than someone selected because they have a certain education or willingness to invest.

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