Sunday, June 13th, 2010

Does Anyone Really Believe Human Capital Is Important?

A couple of recent articles I posted drew some curious reactions that I wanted to address head on. In response to Richard Herman’s piece on immigrants and Cleveland, people said:

I’m dubious that any reasonable “pitch” could be made to a desired immigrant population under the present status-quo. I think a strong case that a vibrant economy causes immigration – not the other way around…..Agree with [the above]. How do you “attract immigrants” exactly? Do these policies work in Detroit and Philly, or were these cities already immigrant magnets anyhow? How do we know that these policies make a difference?……It would seem to me that the best ways to attract immigrants and immigrant entrepreneurs are the same ways to attract American born people. Good paying jobs, good infrastructure, good schools, less crime and less red tape in creating and running a business…..the rhetoric behind getting immigrants to come to cities with negative job growth sounds similar to paying retailers or to build sports arenas for struggling downtowns.

And some comments on my talent disconnect piece included:

If “talent” was enough to turn around a local economy, I’d still be living in my hometown of New Haven, CT, which is filled with educated people. You need to recruit specific companies first…..If all a city does is recruit “talent” without finding constructive (and well-paying) uses for said talent–what’s the point?

I sense in these comments a couple of things. First is a fatalistic approach to talent. That is, talent comes or doesn’t come of its own accord, because general local conditions or the availability of jobs. Recruitment doesn’t affect things. The second is what I would characterize as a “jobs-centric” worldview. That is, people follow jobs, jobs don’t follow people. The implication of that is that human capital is a semi-irrelevant to economic development. Get the jobs and the people will follow.

Is Talent Recruitment Effective?

The first matter is one of whether it is possible to affect people’s decision on where to live by recruitment, that is, by marketing and selling your city to people. The arguments above suggest that what really attracts people is a good economy, quality public services, and efficient government.

Now I’m a free market kind of guy. I certainly don’t believe that government can conjure up economic growth or wave a magic wand and get people to show up. There is a competitive market out there and product quality, such as the factors above, are clearly very important.

But sticking with our free market analogy, let’s ask ourselves a question. How do profit motivated businesses approach the problem of getting people to buy their product? The logic of the skeptics suggests that the only thing that matters is the quality of the product, the price point, availability and similar matters. But clearly that’s not the case.

Can you imagine the VP of Marketing and the VP of Sales at a major corporation walking into the CEO’s office and having this conversation? “Mr. CEO, I know you asked us go out and flog our company’s product. But you know what? To tell you a secret, sales and marketing don’t work. It’s all about the product and the price. So we think you ought to just shut down our departments and put all those millions straight to the bottom line.”

In real life, as we know, corporations spend gigantic sums on sales and marketing. Clearly they wouldn’t do this if it didn’t work. That’s not to say that every dollar spent on these activities is effective. Clearly much of it isn’t. That’s not to say that product and price aren’t important. Clearly they are critical. But it is also critical to build awareness of your product in the marketplace, to effectively communicate its brand promise and value proposition, and to induce someone to make a buying decision.

If this is true for pretty much every for-profit enterprise, why wouldn’t the civic sector of a community – government, non-profits, and business organizations – want to apply the same tools and techniques to their city and region? Clearly, a huge number of cities in America have very low levels of awareness in the marketplace about what they are and what they have to offer. If anything, they’ve got a superficial brand awareness that is neutral to negative.

Clearly, cities and states do recognize the power of marketing and sales when it comes to traditional economic development – i.e., luring firms. All of them employ full time people who are out selling the community every day. They are taking site selection consultants on VIP tours. They are showing up at conferences. They are putting deals together. They are buying advertising. But what are these cities doing on the people side?

I would challenge any region to do a compare and contrast of the types of activities they undertake on the “firm” side of economic development and the “people” side. I think you’d find major activity gaps on the talent side of the equation, even if that’s not reflected in the total dollar spend.

Just like every business, every city needs to be aggressively getting its message about about what it has to offer as a place to live, not just as a place to do business. Cities should take advantage of every touchpoint with a non-resident to make sure that the message about the attractiveness of place is driven home at some level. It doesn’t have to be pushy, but it ought to happen.

Job-Centricity vs. People-Centricity

Whether people follow jobs or jobs follow people is one of those chicken and egg matters I don’t think anyone has fully figured out. But they do seem to move in tandem. Clearly, if people are pouring in and there are no jobs, you end up with a situation like Portland, which isn’t good.

On the other hand, it’s also clear that one of the first questions any business asks when deciding where to set up shop is whether there’s an appropriate labor force that meets their needs in the location in question. Yes, things like taxes, regulatory environments, the local business culture, proximity to customer and suppliers, transportation access, etc. all factor in. But labor force is huge.

I can speak to this from personal experience. When working as an IT director I was part of mobilizing an offshore delivery center in Latin America. We ended up choosing Buenos Aires as our location, but only after a seriously long look about whether we could recruit the technical skills we needed there at scale. It’s a huge city but that didn’t mean there were enough people with the right skills. BA worked out great – I was particularly impressed with the caliber of people and the work ethic there, and the time zone can’t be beat. But there is a limit to how large you can scale BA. There’s a reason why huge numbers of tech companies have set up shop in India despite its terrible time zone, horrible infrastructure, and significant wage inflation. It’s because that’s where you can find the hundreds of thousands of skilled people these companies need.

Some other commenters on my posts suggested that what cities really needed to do is focus on specific niches or segments. I agree. I think it is pretty hard to differentiate yourself in generic supersectors like high tech, life sciences, or green industry. Everybody and their brother is chasing these. Instead, you need to look at what the specific segments are where you believe you can create competitive advantage and what Warren Buffett would call a “wide moat” business.

But that’s not limited to business. The same is true of talent. Chasing a generic “creative class” is no more going to pay off than generic high tech. The question is what specific types of people can you attract to your city.

And of course the industries and the people need to match. American cities need to have the right labor force for their target industries, and the right target industries for their labor force. I model it like this:

You’ve got competitively advantaged industry segments and human capital segments. Some of it is legacy, i.e., what you have today. For example, existing residents and natives are likely to have a high degree of rootedness. But you can also look at what newcomers you can attract, because having some level of outsiders is a good thing. Your sweet spot for both is where they overlap. The areas where they don’t overlap is the potential opportunity area for civic change or improvement that might broaden the sweet spot.

In short, yes, jobs matter. But talent also matters. And as we transition to a more knowledge oriented economy, including higher skilled, more technical manufacturing, having the right human capital in your community is only going to become more important. It’s time to start believing it for real.

PS: I should note education is also hyper-critical, so don’t think it is all about raiding other people’s talent pools. That’s a topic for future posts, however.

Topics: Economic Development, Talent Attraction

52 Responses to “Does Anyone Really Believe Human Capital Is Important?”

  1. Pete from Baltimore says:

    MR John Morris
    I think that we arent disagreeing as much as perhaps talking past each other.

    I do think that i see what you are saying about apartments. But i would have to respectfully disagree.I cant speak for other mid size cities but Baltimore has many parks.I live about 50 feet from Patterson Park myself. Its no Central Park ,but what is? Patterson Park is about 150 acres. and there are other urban parks in Baltimore like the 750 acre Druid Hill Park. And since Baltimore is not huge like Chicago one can easily catch a bus to Patapsco State Park in the suburbs which has over 200 miles of trails

    As far as apartments go some people like them and othrers dont. The rowhouses that you saw in Baltimore are small. But this allowed them to be affordable .This is why we have a historicaly high rate of home ownership in Baltimore.

    I understand that Pittsburgh is even cheaper. But i think that you would agree that the $45,000 that i paid for my 12 ft by 38 ft two story rowhouse is a pretty good deal for an East Coast city.

    As for living ones life in a twenty block area . One of the funniest and saddest things about Baltimore is how many people dont go more than 3 blocks from thier house [and our blocks are small]. I have to admit that i went a year once without going 6 blocks from home.

    I could be wrong . But you seem to be saying that American cities arent dense enough. And that we should have more apartments and less houses. You also seem to be implying that not enough people use public transit because of low density.

    But the reasons for low density in many American cities is that people have moved out to the suburbs and left the houses vacant and boarded up. They generaly dont go to the suburbs to live in an apartment.

    My own opinion is that most americans want to live in a house and that there is nothing wrong with that.

    As for public transit i have found that its used very much in Baltimore to the point where the system is almost completly overloaded. I cant speak for other cities. But the problem with Baltimore is that we have way too many people taking buses.A very large percentage of the population cant afford a car.

    Many urbanists ignore this factor. they instead focus on getting upper middle class people to ride public transit .Just because they dont does not mean that buses are empty.

    One thing that i have noticed about many urbanists is that they envision every city in the context of NYC. Thats why i like this blog since MR Renn tends to avoid that.And when they talk about NYC they are always talking about Mannhatten.

    Mannhatten is a fairly rich area. And the needs and wants and desires of someone there is often different than the wants,needs and desires of someone in someplace like Cleveland.

    That was my basic point. I am not a proffessional writer so if my wording confused the matter then i offer my apologies.

    Best regards to you MR Morris and hopefully one day i will get to go see Pittsburgh [ i think thats your home city?]

    Ive ridden my Bicycle from Baltimore to the Lincoln Highway and all of the way to Mckeesport and then i had to turn around and ride back on the Allegheny bike trail. So i missed Pittsburgh by about 15 miles. Ive heard that its a great city.

  2. Alon Levy says:

    CDC Guy: Indy is a special case. But compare Cleveland, Detroit, Columbus, and St. Louis to Houston, Dallas, and Atlanta…

    Pete: some people in Baltimore use public transit. Most don’t. The MSA’s transit mode share is 6.4%, which is okay by US standards but embarrassing by any other standards.

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