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Thursday, July 15th, 2010

The Specter of Autarky

Autarky, not to be confused with autocracy, refers to a policy of economic self-sufficiency. Generally, this is considered a bad idea. Instead, nations and people benefit when they specialize in areas where they have comparative advantage and engage in trade with others to satisfy the rest of their needs.

While some have described the policies of China and others as autarkic mercantilism, generally autarky is out of favor in macroeconomics except for certain matters such as those related to national security, like defense technology or minimum food security.

But at the “meso-economic” level, autarky is making a comeback bigtime. This is the form of the increasing preference for “local” products. This is richly illustrated in a recent New York Times piece in which we hear about people coming to blows over, of all things, a pig from Iowa:

For Mr. Bechard, it came down to this: never should a pig from Kansas or Iowa have even been entered in the contest; it only made it worse that the Iowa pig won. After all, there are Red Wattle heritage pigs raised right here in Oregon. The chefs who competed work in Oregon, and most promote locally produced food.

“I get there and I get the flier and I’m immediately sickened because I’m seeing ‘local,’ ‘sustainable,’ ‘local farms,’ ‘local chefs,’ ‘local wine,’ ” Mr. Bechard recalled, “and then two of the pigs are from Kansas and Iowa? I’m looking at my friend and he said, ‘Eric, just let it go.’ ”

Many hours and drinks and insults later, witnesses told police Mr. Bechard was the aggressor when he encountered Brady Lowe, the event’s Atlanta-based organizer, outside a bar. Words were hurled and fists flew. The police came, firing Tasers and pepper spray.

This isn’t just Portland. For example, last year America’s first USDA certified organic bakery, the Bleeding Heart Bakery in Chicago, was kicked out of that city’s super-elite Green City Market for not being sustainable enough:

In short, if you want to set up a stand at Green City in the next few years and sell blueberry muffins, it doesn’t matter if those berries are organic or not. You’re better off worrying about the carbon-emitting trucks carting those berries in from California or Mexico should you choose to cook out of season. But with the Midwest’s limited growing season, is it realistic to expect bakers and chefs to stick solely to what they can procure within a 100-mile radius and, even beyond that, to what proves to be certified sustainable?

To some extent, this represents little more than the next iteration in the cycle of pretentiousness. It’s a very old story. As Jean Renoir so aptly summed it up:

Each of these cliques has its customs, its mores, indeed its own language. To put it simply, each has its rules, and these rules determine the game. And the smaller the clique, the harsher and more complex the rules. That’s why groups of wealthy people, tennis players, horse lovers, and, more simply, the people of a social set, live by a code that is all the more severe since these groups stand apart from a nation’s overall population.

It’s fine line between sustainability and farce.

But if you look at this more closely, there’s a real embedded notion that autarky is actually an important way to live and for cities to function. A growing number of people believe that we really should do everything we can to consume as much as possible that is produced locally to use.

As with most things we all defend and promote, this is touted both for its moral correctness (sustainability) and its utilitarianism (talent attraction, economic development, etc). Putting aside the moral questions for a moment, is trying to source as much as possible locally, whether that means buying products grown or manufactured locally, or from locally owned establishments, really a good idea practically?

Jane Jacobs might have us believe so. She talked about how cities generate new export industries by adding new work to old. (Of course, how can you have exports if you never import anything?) But more importantly, she talked about how certain businesses could only locate in major cities because of the ecosystem of suppliers that were there. This might be less important in the internet age, but having the suppliers you need in your business at hand is helpful. It’s sort of like the venture capital rule of thumb of not investing more than a 20 minute drive from the office. For example, if you are a designer, having something like a Tech Shop comes in handy. My friend in suburban Chicago is restoring an old house in a manner that’s totally date compliant. He is able to do this by tapping into the network of craftsmen that exist in Chicago.

These types of businesses are only there if there’s a local market. So buy local can be good in some regard if it creates this type of ecosystem that entrepreneurs are able to combine or leverage into new sources of value. Local artists and such can also provide a local cultural scene that enhances life in the city.

But there’s another side to the story. In her seminal work Regional Advantage, AnnaLee Saxenian described how Silicon Valley gained ascendance over Boston’s Route 128 corridor, despite starting out with many disadvantages. Principal among the reasons for this was the high degree of autarky in Boston firms. They were vertically integrated, and they believed in doing everything in house. Conversely, Silicon Valley was famous for smaller, specialized firms that were related via dense, overlapping knowledge and value networks.

Would a city want to consciously choose to proceed down the Boston path? Now Boston is still the #2 tech hub in America, so it didn’t die off or anything. But given the ever more complex, globalized, and networked global economy, I’m not sure that a city seeking to disconnect itself from various trade networks is actually a good idea.

If you look at the cities that have traditions of retaining unique local cultures, products, and traditions over the long term, places like New Orleans, Pittsburgh, and Cincinnati come to mind. But these places have not been economic dynamos. In fact, for a long time they were very sleepy, and still to some extent are known for insularity. For a newcomer, no matter how long you are there, you are never really going to fit into certain parts of the social sphere. In effect, the price of this strong tradition of localism was calcified local networks and ways of doing business. That’s not to say it’s not worth it. These are among the best cities in America to visit, and for many, to live, precisely because they have not succumbed to the lure of generica. But it deadens civic dynamism.

Think about it. There’s a reason why “provincialism” is generally considered a negative word.

Perhaps for cities like Portland, with so many newcomers and so many connections to the broader world, this is less of a risk – at least for now. It is something worth watching though. As the article above goes to show, people are already enforcing new orthodoxies, and I think it would even be fair to characterize Portland as somewhat of a self-selected monoculture that might one day calcify.

But for other cities there’s more danger. The real problem in a lot of Heartland cities isn’t too few local products, it’s too few global connections and too little global perspective. For these places, the real imperative is to establish more networks, for more new ideas, new ways of doing things, and new people to make their way in. These cities need more imports, not less. They’d be better served to demand excellence no matter where it comes from than to insist on buying local regardless of whether or it is any good.

That’s not to say cities should ignore the local trend. I think there’s a lot to be said for having an ecosystem as noted. It’s about balance. A simplistic “buy local” notion comes with downsides all its own. Autarky is not the answer.

Thursday, July 15th, 2010

“James Drain” Hits Cleveland

My latest post over at New Geography is called “James Drain” Hits Cleveland. It’s a look at how the LeBron James decision to head to Miami is a reflection of what is ailing Cleveland and so many other places, especially the fixation on brain drain, and how Cleveland blew a huge opportunity to create a new evangelist for itself.

If I must say so myself, this is a pretty important piece on the topic of talent, so please read it.

For those who don’t know who Harvey Pekar is and have never heard of American Splendor, see this fantastic obituary by Anthony Bourdain: Goodbye Splendor. I’d also recommend the excellent American Splendor film.

Thanks to Jim Russell for a good deal of inspiration on this one.

Tuesday, July 13th, 2010

Randy Simes: Cincinnati’s Dramatic, Multi-Billion Dollar Riverfront Revitalization Nearly Complete

[ I don't know how much money Cincinnati has spent promoting itself, but in my book nobody has done more to get the positive message out about what is going on in central Cincinnati than Randy Simes and his site UrbanCincy without one dime of city support. Continuing in my series of writers giving us positive stories in what's going on in their Midwest towns, Randy fills us in on Cincinnati's riverfront transformation. Growing up as a Reds fan in the 70's and 80's, I spend my share of time in Riverfront Stadium and its bleak environs, and so know this story is real - Aaron. ]

Several decades ago Cincinnati leaders embarked on a plan to dramatically change the face of the city’s central riverfront.  Aging industrial uses and a congested series of highway ramps was to be replaced by two new professional sports venues, six new city blocks of mixed-use development, a new museum, a central riverfront park, and parking garages that would lift the development out of the Ohio River’s 100-year flood plain.

Paul Brown Stadium, home of the Cincinnati Bengals, was one of the first pieces of the puzzle to fall into place.  The $455 million football stadium kept the Bengals in Cincinnati and has since received national praise for its architectural design while also entertaining sold-out crowds.

Downtown Cincinnati in the 1980’s

The next piece to fall into place was the reconstruction of Fort Washington Way which consolidated the stretch of highway and opened up land critical for the construction of yet another stadium and the mixed-use development which became known as The Banks.  The 40% reduction in size was not the only accomplishment though.  The reconstruction project also included the Riverfront Transit Center designed to one day house light rail connections and a sunken highway that could be capped with additional development or park space.

Following the reconstruction of Fort Washington Way, Riverfront Stadium was then partially demolished to make room for the construction of the $290 million Great American Ball Park.  Once complete, Great American Ball Park began entertaining baseball fans at 81 home games each year and at a new Reds Hall of Fame & Museum.  The new venue eliminated any need for Riverfront Stadium and thus led to its implosion in 2002.

The removal of Riverfront Stadium then freed up room for the construction of the National Underground Railroad Freedom Center atop the first piece of a two-deck parking garage intended to both lift the new riverfront development out of the flood plain, and provide enough automobile parking to replace what was previously there in the form of surface lots and satisfy new parking demands created by the development.

The most recent piece of the puzzle has been the development of the initial phases of both the Cincinnati Riverfront Park and The Banks.  The two separate projects are developing in complimentary fashion and are on similar time tables, and are both developing east to west from Great American Ball Park to Paul Brown Stadium.  Recent news will add a modern streetcar line running through The Banks development that will transport people from the transformed riverfront into the Central Business District, Over-the-Rhine and beyond to Uptown.

The 45-acre, $120 million Cincinnati Riverfront Park is expected to become the crown jewel of an already nationally acclaimed Cincinnati Park System.  The Banks meanwhile will bring thousands of new residents, workers and visitors to Cincinnati’s center city.  The initial phase of both projects is expected to be complete in spring 2011 and will include 300 new residences, 80,000 square feet of retail space, Moerlein Lager House, Commuter Bike Facility, additional components of the two-deck parking garage, and the first elements of the park.

The transformation of Cincinnati’s central riverfront from aging industrial space to a mixed-use extension of downtown that includes residential, office, retail, and entertainment options is not complete, but the two decade old, $3 billion vision is finally nearing reality.  And with that, one of the remaining traces of Cincinnati’s industrial past will be replaced by a new vision for a 21st Century city and economy.

Randy A. Simes is an award-winning Urban Planner, who graduated from the University of Cincinnati’s nationally acclaimed School of Planning in 2009.   Mr. Simes currently works for CH2M HILL as a Community Development Planner and specializes in public policy and local government management.  He writes regularly about public policy and urban development for UrbanCincy.com and Soapbox Cincinnati, and his work has also appeared in the Cincinnati Business Courier and the Cincinnati Enquirer.

Sunday, July 11th, 2010

The Columbus, Indiana Values Proposition

I once provoked some heated responses on a Columbus, Ohio message board when I suggested that outside the United States, Columbus, Indiana actually has higher brand awareness than Columbus, Ohio. And that among a certain international set, a mention of “Columbus” means the one in Indiana.

North Christian Church, 1964. Eero Saarinen, architect. A National Historic Landmark.
Photo Credit: Wikipedia/Greg Hume

That’s true because Columbus, a small city of about 40,000 in south-central Indiana, has one of the finest and most significant collections of modern architecture anywhere in the world. Starting in the 1950’s, a foundation backed by J. Irwin Miller, president of diesel engine manufacturer Cummins Engine Company, agreed to pay the architectural fees for public buildings such as schools, provided that the community chose from architects on his approved list. He and his company, along with many other citizens and firms, also hired top architects for private commissions. The result is dozens of buildings by world-renowned masters such as Eero Saarinen, I. M. Pei, Harry Weese, and Cesar Pelli, six of which are National Historic Landmarks, the highest designation of historic site recognized by the federal government.

Barrett Crites, a huge mid-century architecture fan and proprietor of the blog Atomic Indy, arranged to have the Columbus Convention and Visitors Bureau sponsor a VIP architecture tour of city, including access to the interiors of many of these normally off-limits buildings and a special early-access tour of the Miller House and Garden, a landmark recently acquired by the Indianapolis Museum of Art. I was fortunate enough to be able to glom onto this trip, which was spectacular. It would be easy enough for me to make a huge number of blog posts about the architecture of Columbus.

But this is not an architecture posting. Or perhaps it is, but at a more fundamental level. This is a post about people – the people of Columbus and their character. Because cities are about people, not buildings. As passionate as I am about good design, and for all the true and legitimate importance of design excellence, great architecture doesn’t make a city great. Great architects don’t make a city great. A great city, that is, a great people, is what makes great architecture.

First Baptist Church, 1965. Harry Weese, architect. A National Historic Landmark
Photo Credit: Wikipedia/Greg Hume

J. Irwin Miller didn’t start his architecture program as an act of charity. It was also self-interested. He foresaw even back in the 1950’s the importance of being able to get talented people to want to live in his town. He needed to recruit not just factory workers, but executives and engineers to work at his company, and he knew it would be difficult to get them to want to come to his small city. He thought that this architecture, and particularly quality school buildings that would show his town’s commitment to education, would help differentiate Columbus.

Today Columbus is widely perceived as a different sort of place in Indiana. Chicago journalist Richard Longworth summed it up when he said of Southern Indiana:

Southern Indiana, from Indianapolis on south, is Dixie – hilly, scenic, with small farms and small towns, more akin to Louisville than Chicago. It contains two of the Midwest’s gems, Indiana University at Bloomington and the architectural mecca of Columbus, but both are cultivated outposts not typical of their region.

As a Southern Indiana native, from along the Ohio River where I guess I was one of the uncultivated ones, and a graduate of IU, this passage struck me. It’s totally fair to describe Bloomington as a different sort of place. The Dali Lama’s brother lives there – case closed.

But Columbus? All I remember about Columbus growing up is that my grandparents loved to drive up there to have lunch at the Holiday Inn, hardly an upscale diversion. I know about the architecture, but what else is there? Curious, I decided to take a look, comparing Columbus to other small cities in Indiana – Anderson, Bloomington, Elkhart, Kokomo, Lafayette, Marion, Muncie, and Terre Haute – to see what is different about it.

The big one – and it’s big, no doubt – is college degree attainment. Other than Bloomington and Lafayette (home to Purdue University), Columbus has far higher college degree attainment than all of the other cities at 27.6% Given the importance of educational attainment as a predictor of civic success, some might be tempted to simply declare game over at this point.

Source: Census Bureau 2006-2008 American Community Survey

But that misses the whole other side of the story, which is not about how different Columbus is from its state, but how similar. Any Hoosier visiting Bloomington will instantly know he’s in a different sort of place. But Columbus, architecture aside, feels much like any other Indiana town. This can be a huge disappointment to out of towners who come in expecting Aspen or Burlington, Vermont. For example, a Brooklyn snob by the name of Philip Nobel castigated Columbus for, among other things, its Wal-Mart and other chain retailers, saying:

Cruising those thoroughfares, predictably, one finds the rest of the town as it is actually lived in: the fast food, the Kohl’s, the Lowe’s—all the interchangeable parts of our interchangeable sprawl….Certainly it’s not the fault of the town’s great Modern buildings that Columbus has fallen prey to the same commercial and pharmaceutical scourges that have plagued less designerly burgs. But it does cast Miller’s vision, and the wisdom of the Cummins patronage system, into doubt.

Tom Vujovich, chairman of the Columbus Redevelopment Commission, put it directly, “This is a blue collar town.” If the sine qua non of blue collar status is manufacturing work, then Columbus certainly qualifies. In 2008 Indiana was the most manufacturing dependent state in America, with 18.2% of its employees working in that field. But in Columbus/Bartholomew County it’s an astounding 36.1% – higher than any of those other small cities except Elkhart.

Source: BLS Quarterly Census of Employment and Wages, 2008 Annual Average

Because of the way industry classifications work, white collar workers at Cummins probably count in these number, but there aren’t that many of those, and the many factories that line I-65 through town attest to the fact that this is a place where actual stuff is still made.

One of the people on our tour said she would love to live in Columbus “if you had a Trader Joe’s.” Vujovich told her bluntly, “It’s never going to happen.” Columbus may be a place where you can find world class architecture, but you’re not going to find gourmet food stores, independent cinemas, or high end boutiques. (They do have a farmers market, however).

In short, Columbus residents are mostly just normal Hoosier middle class folks. Someone could move there from Kokomo or Marion and feel right at home except for the strange buildings and the thicker drawl.

I happen to think that’s perhaps the most exciting thing about it. Because if it is really a successful town – and that’s a big if we’ll turn to momentarily – it offers a model of success similar Hoosier cities can imitate. And, what’s arguably more important, a model that fits the values of people who live in Indiana. Telling Terre Haute to act more like Portland – or even Indianapolis or Bloomington – is purest fantasy. But potentially they could aspire to be a lot more like Columbus.

Also, I’ve been skeptical of the ability of places whose size is below a certain critical scale to compete economically. Columbus would be, perhaps, a counter-example to show that it is possible, and how it can be done.

Irwin Union Bank, 1954. Eero Saarinen, architect. A National Historic Landmark.
Photo Credit: Wikipedia/Reywas92

So how is Columbus doing? I looked at the data – population growth, job growth, GDP, personal income, average wages, foreign direct investment – and there is no two ways about it. Columbus isn’t just out-performing these other Indiana cities, it’s total world domination. Columbus is even beating up on Big Ten college towns Bloomington and Lafayette on many measures. Let’s do a quick rundown on the numbers

Population Growth
Unlike many other small manufacturing cities in Indiana, Columbus actually experienced population growth in the last decade, albeit at a rate a bit slower than the national average.

Source: Census Bureau Mid-Year Population Estimates

Columbus also had strong net domestic migration during the 2000’s, with over 1400 more people moving in than moving out. That’s called voting with your feet. People are fleeing most of these other towns in droves.

Gross Domestic Product
GDP is a base measure of economic output. I don’t have it for all of these cities, since it is only reported at the metro area level and a couple of them aren’t big enough to make the cut for having an MSA, but most of them are there.

Source: Bureau of Economic Analysis. Data in 2001 chained dollars.

Not only is Columbus ahead of the pack, it is pulling away. As we’ve seen elsewhere in America, the people who are doing well, are doing well. And vice versa. Columbus was also number one for GDP growth.

Source: Bureau of Economic Analysis. Date range is the maximum available

Employment
Adding all the economic value in the world doesn’t help you if your job market is in bad shape. The Great Recession walloped America hard, and we experienced an overall “lost decade” of job creation. Small manufacturing cities got hit hard. Columbus has not been immune, but did far better than most other places.

Source: BLS Quarterly Census of Employment and Wages

On the unemployment front, I don’t think anyone would call Columbus’ numbers good, but they could be a whole lot worse.

Source: BLS Local Area Unemployment Statistics

Foreign Direct Investment
I don’t have dollar numbers on this, but the Indy Partnership did put together a map of foreign owned business operations by city in Indiana grouped by various countries. Columbus clearly has a huge cluster of foreign investment. For example, it has 17 Japanese owned operations alone, more than any city in the state other than Indianapolis. The next closest on my list of peer cities, Lafayette and Richmond, only have five Japanese operations each. Clearly, Columbus is the preferred location outside of Indy for Japanese investment in Indiana. And businesses from seven other countries are also located there.

Income
Hoosier incomes have long trailed the nation, and none of these cities reaches that level, but Columbus is closest at 95% of the US average. And with its low cost of living, that’s probably good enough.

Source: Bureau of Economic Analysis

I’m already on chart overload, but lest I be accused of leaving it out, Columbus does only rank in the middle of the pack on PCI growth during the last decade.

Lastly, let’s look at average weekly wages. Kokomo is famous for having some of the best wages in the country – it’s the number five metro area in the entire United States on this measure – because it has two large auto related plants that somehow managed to avoid getting closed. But Columbus is a close second here.

Source: Quarterly Census of Employment and Wages

Again, Columbus is in the middle of the pack on wage growth in the last decade.

Looking at the totality of the data, I don’t think there’s any dispute that Columbus is simply the best performing small city in Indiana economically. Bloomington is the only other one you could make an argument about. And it has a Big Ten university, putting it into the category of what Richard Florida calls “big government boomtowns.” While prosaic matters like jobs, income, and economic output may not impress East Coast aesthetes like Philip Nobel, these results suit the citizens of Columbus just fine indeed.

Mabel McDowell Elementary School, 1960. John Carl Warnecke, architect. A National Historic Landmark.
Photo Credit: Wikipedia/Greg Hume

Why is Columbus so different? Is it the architecture? Can buildings alone have such an influence on a city’s economy? It’s doubtful, at least not directly. I’ve yet to hear anyone argue the point. But you do hear several things posited.

Corporate Headquarters. Columbus is home to Cummins Engine, a Fortune 500 company, which clearly helps. But look closely and some of those peer cities have advantages too. Bloomington and Lafayette have Big Ten universities with over 30,000 students each and some of the world’s top minds. Muncie until fairly recently was HQ to Ball Corp, and the Ball family was as generous as the Millers to their town, even creating Ball State University, another major campus. Terre Haute is home to Indiana State University, a nationally elite boutique engineering school called Rose Hulman, and is the home base of the Hulman-George family business empire, whose assets range from the Indianapolis Motor Speedway to Clabber Girl baking powder. No one can doubt the Hulman-George family’s importance to Indiana. Kokomo has those two auto plants I mentioned, with top pay rates.

Columbus has no university. Cummins is still HQ’d there but probably has only about 50% of its peak employment. Another local company, auto parts supplier Arvin Industries, was bought out and closed its headquarters and laid off many workers. Columbus has not been immune from industrial transformation.

Educational Attainment. Clearly those college degree stats are important. But that just begs the question: why did all those college educated people choose Columbus, even without a university or a Trader Joe’s? It goes back a long way. Perhaps architecture did play a role here, and the recognition that talent was importance long before other places. Columbus understood the principle of the Talent Dividend 50 years ago, and how it is harvesting its crop.

Unionization. The last traditional explanation of Columbus exceptionalism is weak unions. As Longworth put it, “Southern Indiana is beginning to draw industrial investment, particularly in cars, but mostly for the same reasons companies invest in Alabama – no unions.” Except in limited circumstances, I think organized labor is overblown as an explanation for poor economic growth. Right to work is a red herring. Alabama is a right to work state, but that hasn’t saved Birmingham. Nor has being right to work and having no state income tax done much for Memphis.

I’m less familiar with these smaller cities, but in Indianapolis organized labor is with the program. Public sector construction with lots of union jobs is big there, with major projects like a new hospital undertaken in the recession timed partially as an employment stimulus. In return, you don’t see labor problems like what Wal-Mart experienced in Chicago, nor do you hear the complaints about work rules like at Chicago’s McCormick Place. I get the impression that Indiana labor unions are mostly pro-growth.

Also, Southern Indiana does have fewer unionized manufacturing centers than central and northern Indiana, but Evansville is a strong labor town, as is Louisville, Kentucky, which has much of Southern Indiana in its orbit.

I tried to get some facts around unions in Columbus. Cummins production workers are organized, but mostly by a company specific union called the Diesel Workers Union. The company characterized its relationship with its unions as “productive”.

Remembering that auto-parts supplier Arvin Industries used to be HQ’d in Columbus and still has a plant there, I thought maybe they would be a UAW shop. But when I called the UAW regional office in Indianapolis to inquire, they refused to speak with me at all. The UAW’s reaction to someone who was actually trying to debunk an anti-labor meme, I think, says more than any facts I could collect that Columbus probably is a weak labor town, and this, along with its educational attainment, does play a role in the city’s economic success at some level.

Miller House, 1957. Eero Saarinen, architect. Alexander Girard, interior designer. A National Historic Landmark.
Photo Credit: Indianapolis Museum of Art

Yes, all of these things play a role, but they don’t explain it all. There’s something else, something that underlies all of them at a more basic level. The real difference in Columbus is in the character of the people who live there, and the values they bring to bear on creating the city in which they live. Most places would claim to have a value proposition. But Columbus has a values proposition, and therein lies the difference.

What values do Columbusites hold that made them successful? They fall in three basic areas.

1. Bedrock Hoosier Values. Let’s not forget again that the people of Columbus are, above all, Hoosiers. And the best of Indiana values play a key roles in the city’s success. These include thrift, hard work, faith, patriotism, community, hospitality, modesty, family, and yes, that uniquely Hoosier orneriness. Urban sophisticates may mock these straightforward values at times, but they are many of the values that built America. They are ones that Columbus and Indiana can take pride in. Like Southern cities that shed off their previous torpor to become America’s great growth stories, Columbus positioned itself for the future, but it didn’t forget about the things that were really important to it. Its people didn’t forget themselves and their heritage. They know that a great city, a great people, like a great wine, has to express its terroir.

2. A Commitment to Excellence. Tony Moravec, owner of Blairex Laboratories, says he’s in Columbus “by choice, not by chance.” (I don’t know the entire backstory, but he appears to have moved the business there from Evansville). Why? He said he came to Columbus for two reasons. “One, it’s pro-business. Two, we do things first class here.”

As much as I love Indiana, I must repudiate its overwhelming tendency towards the active discouragement of the pursuit of excellence and improvement. This attitude is a disease that affects the entire Midwest, and does perhaps more than any single other thing to hobble it.

It’s a long standing condition. When my father came out of the service, he was berated by my grandfather for deciding to enroll part time in college. My grandfather thought it was a total waste. Thank goodness my dad had enough Hoosier orneriness to do what he wanted. Last year I ran across an old neighbor who went to my high school about a decade before I did. He recounted how, upon telling the guidance counselor he planned to attend university, he was told there was no way anyone from such a small school could ever make it in college and he should be a welder instead. Today he has a master’s degree and a significant professional position. I remember myself in school hearing a repeated refrain of how there were lots of people “with book learning but no common sense.” Admittedly, in my case that might have been true, but I think it shows an attitude that doesn’t just not value education, but actively despises it.

Fast forward to today and I think of all the discussions on sites like the Indianapolis Business Journal’s Property Lines blog. For every lousy to mediocre project that comes along, there are a chorus of people defending its merits. People who ask for better design – and keep in mind many of these projects have heavy tax subsidies – are told that they have no right piping in or, “it’s just student housing” or some other complaint that doesn’t just indicate a lack of personal concern with low quality urban development, but outright irritation at anyone who does. Try to ask for something better, for something truly worthy of a great city or town, and you’ll be told that we can’t afford any “gold-plated projects,” notwithstanding that good design can actually cost less than mediocre, even on up front costs. (It’s like Jaime Lerner said, “If you want creativity, cut one zero from your budget.”)

Indiana doesn’t just accept mediocrity, it actively embraces it and actually demands it of its people. Indiana and the Midwest require that anyone who lives there surrender his ambitions, or else be subjected to endless questioning, discouragement and ridicule.

But Columbus is different. In Columbus, excellence is not a byword. That’s not to say it is a luxury or high end community, because it is clearly not. But it is a place where choosing what you want to do, and then doing it well is valued. J. Irwin Miller could have simply hired some local politically connected architecture firms to churn out facsimiles of modern architecture. Instead, he sought out the world’s foremost architects for his project. He wanted Columbus to be the original, not the cheap imitation.

This spirit continues. Back to Moravec, he recently bought up an old turn of the century soda fountain called Zaharakos and restored it to pristine condition, including acquiring a rare collection of top quality antique soda fountains and self-playing musical instruments. The guy must have invested millions. Let’s just say the food and ice cream aren’t exactly gourmet, but the prices can’t be beat – he knows his Hoosier customers – and the place was mobbed when I was there. Moravec picked the battle he wanted to fight, then he went out and won it.

And it isn’t just something that affects architecture. You can see it in the way the tour guide from my very first architectural tour of Columbus some years back pointed with pride to the trees in the parking lot of the Wal-Mart, the result of a landscape ordinance designed to beautify the town. Or the first class playgrounds donated by citizens. Or the top quality design of the new Mill Race Park. This is a place with high standards for itself.

This pays huge dividends in the economic development sphere. In a competitive world, only firms that deliver excellence can survive the brutal global competition. Which workers are more likely to produce excellent products, ones that demand excellence in their own communities, or ones who disparage it? How can any investor believe that residents who tolerate a run down, mediocre community for their own family to live in will suddenly start taking pride in the products coming off their employers’ production lines? It makes no sense at all.

Also, I believe this belief in excellence played a particularly crucial role in establishing Columbus’ role as a hub of Japanese business. The Japanese are notoriously fastidious about quality. They certainly don’t compete on the basis of labor costs. I can’t prove this, but I’d also speculate that the architecture itself has affected Japanese investment decisions. The Japanese are hugely design conscious, and Japanese aesthetics have heavily influenced modernism generally.

Think about it. When a foreign company is deciding to open a major overseas operation, they’ve got to convince some of their executives to move there, usually meaning their families and children will be with them. I’ve got to believe that seeing the architectural and overall excellence of Columbus, the Japanese simply decided this was a great cultural fit for them. The people of Columbus shared their values and their passions. It was a place they believed would deliver good work, and where their families could find a home.

Today, of course, Columbus has a mini-community of Japanese residents, which creates a huge draw by itself. That’s the self-reinforcing nature of industry clusters. Today Columbus/Bartholomew County is 3.6% Asian, trailing only Bloomington and Lafayette, and its 2000’s growth in Asian population of 85% blows away any peer city.

Unfortunately, too many of the folks in this part of the country just don’t get it on this. J. Irwin Miller said that “a mediocrity is expensive.” For all too many Hoosier towns and families, the price of their embrace of mediocrity has been staggeringly expensive indeed.

3. A Broader Vision. Columbus just also seems to have a broader vision than the rest of the state. This goes back to Miller and his embrace of a modern architecture very different from Hoosier traditions. He knew what was going on in the world and was willing to embrace the new, something Columbus still does today.

Contrast with Kokomo. Economist Morton Marcus recently lamented Kokomo’s inability to convince factory workers there to live in town. Marcus actually has it wrong on his framing of the problem, but take it at face value and consider this. Kokomo’s mayor had to publicly pledge in the local newspaper not to consider a modern roundabout at a local intersection after a local uproar at the thought of one. Just 25 or so miles south by four lane highway, Hamilton County is the nation’s leader in embracing this new and better approach to intersection design. This difference in attitude tells you everything you need to know about why those high wage workers aren’t living in Kokomo, and why Kokomo is struggling while Indianapolis is thriving.

But you see it in other ways. Reading articles about Midwest towns, I’m frequently struck by the bitterness about NAFTA. Longworth has described NAFTA as a “code word” people use to talk about what’s happening to them. But NAFTA is yesterday’s news. The plants are now decamping from Mexico and heading to the Far East. The real competition isn’t just Mexico or Japan, it’s global.

Columbus gets that. Describing a new Cummins office building, Vujovich told me, “They could have put that facility anywhere. It could have gone to China or India.” Columbus knows it is competing on a global level. Too many Indiana towns think they are still competing against their high school basketball team’s next door arch-rival. Or, you’ll hear about competing against Michigan, Ohio, and Illinois.

This is easy to see in some respects. Indiana and Iowa are like the two best houses on a bad block. They are more pro-business and cheaper than places like Michigan. With a certain amount of inbound Midwest investment that will happen anyway, this leads of a mindset and economic development strategy of, “I don’t have to outrun the bear, I just have to outrun you.”

This is naive thinking. As David Waymire at Michigan Future put it:

The lesson from the Gateway job contraction is that even in South Dakota, the state with the lowest state and local tax collections per capita in the nation, the Gateway factory couldn’t survive. Ditto Tennessee. When Americans, no matter how “skilled” they may be in factory work, have to compete against $4 an hour labor overseas, they lose the competition.

I’m less pessimistic on industry that Waymire, but that’s a legitimate point. Columbus is actually overly dependent on manufacturing, but at least they get what’s going on out there. Too many other places don’t.

Nothing shows Columbus’ broader vision on this more than its approach to public sector expenditures. As Hoosiers, Columbusites are as thrifty as they come. But they take a life cycle view of costs. They look at things, as private sector businesses do, on a total cost of ownership basis. They know that their town isn’t going out of business tomorrow. They will still live there, and one day their children and grandchildren might still want to live there. And they think about what the long term implications are of decisions they make today, where it is taking them. They know that saving a nickel today can lead to higher costs down the road. They know it’s not a good idea to be penny-wise, pound-foolish.

They also get that their town is already cost advantaged versus regional competition, and that there’s little competitive marginal return to be gained through slash and burn economics. The places where they are at a cost disadvantage to, like China, are those where the gap can’t be closed in any material way. So Columbus has chosen to fight a battle on different fronts.

This can be summed up simply by the data in the following table. I could do an entire other series of charts on it – and someone should. But in the interest of space, I’ll just leave it in tabular form.

It’s pretty clear. Columbus spends more – significantly more than the Indiana median of $827.89 – but its tax base is the biggest and its tax rates just about the lowest. Huh? How is that possible?

Alexis de Tocqueville said Americans practiced enlightened self-interest, not simply raw, naked self-interest. They understood the need for a system in which everyone could thrive together. Similarly, Columbus practices “enlightened fiscal conservatism.” While other Indiana cities and towns simply reduced the quality and quantity of services, or otherwise cut corners – such as through subpar designs that won’t stand the test of time – in a short term quest to save money in the now, tomorrow be damned, Columbus took a different path.

I am a fiscal conservative. Make no mistake about it, I think we’re spending too much money on too many bailouts in Washington. But I’ve also always said there are two separate questions: service levels, and efficiencies. You can’t confuse cutting service levels with efficiency gains. That sounds nice in theory, but can it work in the real world? Places that start growing public sector spending tend to turn into runaway trains. The risk of the targeted investments approach is that it will end up devolving into bloat, as a sort of incarnation of the “true communism’s never been tried” dilemma. But Columbus shows a real life example that it is possible. And perhaps Indiana is actually the ideal place for it, since the fundamental conservative nature of its residents will be a bulwark against excess in most cases.

The people who live in Columbus are as frugal as those anywhere else in Indiana. But they understand that the best way to keep their tax bills low is to keep general prosperity high. It goes something like this:

An aggressive, pro-business attitude +
A commitment to excellence +
High quality, efficiently delivered public services +
Competitive costs +
A rich awareness of the global world we live in +
Striving to create a community outsiders might choose to live in =
————————————————————–
Population growth
Economic growth (jobs, output),
High wages,
Tax base growth,
Quality infrastructure and services,
Low taxes

This is no secret formula. I talked about the exact same thing in suburban Carmel, Indiana. But since Carmel is a wealthy suburb, its approach can be seen as that of an outlier that isn’t more broadly applicable. But Columbus shows how a blue collar, workaday Indiana city can put the principles to work.

Other cities should be studying the Columbus example and taking good notes. I don’t suggest that anyone run out and just hire a famous architect or spend a bunch of money. In this recession, new spending programs are clearly not on the table.

But again, the real lesson of Columbus isn’t about architecture, or spending, or anything else on the outside. It’s about what’s on the inside, about the values that produced the results. It doesn’t take any money to engage in self-reflection. And unless there’s a transformation of people’s approach to civic development, and their thinking about what they want their community to be, simply aping the surface elements of someone else’s strategy would be money down the drain. The real change that needs to happen is the hardest change of all: changing ourselves.

Time will tell if Indiana and Midwest cities can pull it off. In the meantime, mediocrity and short term thinking will remain as stunningly expensive indulgences Indiana can ill afford.

First Christian Church, 1942. Eliel Saarinen architect. A National Historic Landmark.
Photo Credit: Flickr/pntphoto

Friday, July 2nd, 2010

A Better Tomorrow

It’s no secret the economy has been in a terrible state. How and when will it turn around? What will the future look like? When considering these questions, and looking at today’s economic trials and how to get beyond them, it’s worth a look back at how we got here. It was a three decade journey representing three major transformational waves that have profoundly transformed our economy at the macro and local level. The 80’s were the culmination of the Rust Belt Era. The 90’s were the Digital and Nationalization Age. The 00’s were the Globalization Age.

1980’s – The Rust Belt Era

The 1980’s in a sense represented the end of the post-war story arc. It opened with Volker’s sky high interest rates that broke the back of inflation and ended with the fall of the Berlin Wall and the end of the Cold War.

The 80’s started with an extremely deep, manufacturing-centric recession. While the metals industries and some others had struggled in the 70’s, along with pretty much the rest of the US economy, the rest of the manufacturing sector, ranging from autos to electronics underwent its most wrenching period of transformation. This saw the first major offshoring waves, as a large number of plants were moved to Mexico (or the Sun Belt). This legacy sill permeates the consciousness of the Rust Belt today, and if you talk to a blue collar worker in those towns, you’ll likely hear NAFTA (a 90’s construct, but clearly the continuation of the 80’s Mexican manufacturing migration) blamed for America’s industrial woes. Also, the US saw the first tough foreign competition in these industries in the form of Japanese auto and consumer electronic imports.

The cushy labor-management excess that characterized major American industry simply couldn’t hold up. I believe the early 80’s recession is what kicked off the large scale transformation of traditional American industry that is entering its final throes with the auto industry restructuring that is currently underway. When complete, the era of highly compensated industrial employment for low skill labor in the US will have largely come to an end.

The 80’s also saw the incubation stages of trends that would shape future development, such as the introduction of the personal computer and deregulation, notably the AT&T breakup in 1984.

The big trend kicked off by this was the increasing returns to college education. It was very clear even in the 80’s that if you wanted to attain a good standard of living and upward mobility, you should get yourself a college degree. It was a no-brainer. People with a high school diploma or less increasingly found themselves in a world of employment uncertainty, a financial freeze, and grim future prospects. This was stage one of the income gap problem.

1990’s, Part One – The Digital Age

The technology revolution was in many ways the signature development of the 1990’s. I’m very familiar with this because I lived it. At the dawn of the 1990’s, corporate computing was dominated by traditional mainframes. While PC’s were in use in business, it was not unusual for white collar employees not to have a computer at their desk. Laptops did not exist, nor did cell phones to any practical extent. The internet was a very limited government and academic tool. By 2000’s, new technology had not just transformed corporate IT, it had transformed business. Cell phones, laptops, and internet access were ubiquitous in business.

Consider the following technical cycles that hit during the 1990’s:

• The client/server revolution
• The Internet revolution
• The introduction of ERP (integrated Enterprise Resource Planning software such as SAP or Oracle)
• The Y2K retrofit
• The commercialization and widespread adoption of the internet
• The rise of competitive telecommunications and plunging network costs
• The large scale adoption of cell phones
• The introduction of consumer broadband technologies
• The ubiquity of computers in business and the large scale adoption of laptops

It is not surprising that this rapid change drove many economic changes. Firstly, the increasing centrality of technology to business led to an explosion in demand for technically competent people. This was the golden age for people working the technology and consulting industries. I’d suspect the technology consulting industry increased its employment at least five fold – all of it onshore. While traditional telecoms carriers shed thousands from their bloated workforces, startup telecoms hired in droves. This digitization wave reached its culmination of course in the dot com boom.

It was a good time to be a tech guy, I can tell you. People would routinely get raises of 50-100% when changing jobs. Even people who didn’t leave saw huge market adjustments in their pay. Stock options made many people millionaires. But it wasn’t just techies. Adapting this technology to business required a huge amount of business skill and savvy as well. There’s enormous change required in business processes, people skills, and organizations. As an aside I would estimate that a typical business change project underpinned by technology only involves about 20-25% of the effort spent on the tech itself.

All of this again produced enormous gains to people with college degrees. Companies such as my employer at the time were worried that the supply of college grads would simply be insufficient to keep up with projected growth. This reinforced the gap between college and high school educational attainment.

This technology and other change (regulatory, demographic, etc) also unleashed the fragmentation of the great American common culture, and ultimately perhaps the American commonwealth itself. In the 1980’s we all watched three networks on broadcast TV. In the 1990’s it was “57 channels and nothing on.” We see this today in the ever increasing array of specialty and niche products.

Terry Teachout is the best writer I know in discussing this fragmentation, and especially how it signaled the end of “middlebrow” in America, where the average middle class family consumed some culture that was, if not New York elite, at least intended to be edifying and enlightening.

I grew up in the Age of the Middlebrow, that earnest, self-improving fellow who watched prime-time documentaries and read the Book of the Month…When I was a boy, most Americans who didn’t care for high art still held it in a kind of puzzled respect. I doubt that Ed Sullivan cared much for Maria Callas or Edward Villella, but that didn’t stop him from putting them on his show, along with Louis Armstrong and the original cast of West Side Story…Just as city dwellers can’t understand what it meant for the residents of a rural town to wake up one day and find themselves within driving distance of a Wal-Mart, so are they incapable of properly appreciating the true significance of middlebrow culture. For all its flaws, it nurtured at least two generations’ worth of Americans who, like me, went on to become full-fledged highbrows…What’s really sad is that most people under the age of 35 or so don’t remember and can’t imagine a time when there were magazines that “everybody” read and TV shows that “everybody” watched, much less that those magazines and shows went out of their way to introduce their audiences to high art of various kinds.

Prior to the 90’s, when there were only three networks, where there were limited choices in arenas of all types, they had to appeal to a broad America. This a) forced people to consume them because they had no other choice and b) made those who produced them feel at least semi-compelled to produce at least some socially edifying and enlightening content. It goes beyond Teachout’s exposure to some high art. Think, for example, of the impact on racial views in America of the Cosby Show.

Today there is none of that. Marketplace fragmentation eliminated both the rationale and frankly the viability of this point. You can’t force people to eat their spinach when they other choices. This has led to what we’ve seen over and over in field after field – the hourglassing of America. You’ve got Wal-Mart at the bottom, Neimans at the top, with everyone in the middle getting crushed. This again reinforced the degree gap, as not only was the economic experience of those with and without bifurcated, there were also increasingly fewer common cultural touchstones. They increasingly inhabited different worlds.

I list this under the Digital Age, because clearly technology enabled this to happen. You need the technical capability to bring segmented offerings to bear on the market, and that’s what the Digital Age did.

1990’s, Part Two – The Nationalization Age

Everyone knows about the tech revolution, but there was a concurrent development that was in many ways equally important. This was the nationalization of business.

Think again back to the 1980’s in a mid-sized or small city. Your hometown probably had three or so major locally based, publicly traded banks. Your state probably severely limited their ability to open branches, so the market was highly fragmented. Your town probably had a couple department stores that were either part of local or regional chains. This might have been true of discounters or even fast food restaurants. The local gas and electric companies were locally based. Only Ma Bell pre-1984 was a national utility, and a heavily regulated one. In short, while may industrial businesses were national in scope, there were still a huge number of industries that were incredibly fragmented into local or regional markets.

The deregulation of the 80’s and 90’s ended that. The end of restrictive banking laws put us where we are today, with a handful of major nationwide banks like JP Morgan Chase, along with a few odd surviving “super-regionals”. Utilities have been sold off. Department stores merged out of existence, perhaps most poignantly illustrated by the rebranding of Marshall Field’s flagship store in Chicago as Macy’s. Macy’s is truly America’s department store now. Wal-Mart and Target, once regional chains, are now ubiquitous. So too Walgreens, CVS, Home Depot, etc.

In short, the business landscape of your city likely changed radically during the 1990’s, as large numbers of locally based businesses, businesses whose executives formed the leadership class of the community, were bought out. (I wrote about one implication of this in my piece “The Decline of Civic Leadership Culture.”)

This also, incidentally, transformed the professional services industry. In 1990 virtually all of these industries were city office based. To be the office managing partner of the biggest office or headquarters city was a huge deal. But in the 90’s, as business changed, and as the level business domain expertise required to integrate technology into business strategies, processes, and organizations became much, much higher, all of these industries restructured into national practices based around industries, with P&L responsibility resting with the industry sector leads. That’s one reason I spent so much time on airplanes in my career.

Of course, this disproportionately benefited large cities in the middle of the country with big airports, where you could base lots of people and fly them conveniently around. Two big winners: Chicago and Dallas.

With so many businesses now large scale, deregulation continuing in vogue, and a post-Cold War end of history euphoria in the air, the stage was set for future liberalization of international trade regimes. Your local bank or store probably didn’t care much about international markets, but Citigroup and Wal-Mart sure did.

Thus the 1990’s saw not just the oft-despised NAFTA, but the far more important Uruguay Round of the General Agreement on Tariffs and Trade that created the open global marketplace as we know it today. The WTO was a creation of this treaty.

2000’s: The Globalization Age

The digital revolution, nationalization of business, the end of the Cold War, and the resulting trade agreements, set the stage for the Globalization Area.

What’s different about globalization? What are some of its hallmarks and attributes? Here are a few:

• Connectivity. Virtually everyplace is now linked by extensive and reasonably priced communications and transport networks.
• Increasing international standardization. This includes the global internet, global financial standards and trade rules, the use of English as a global business language, the ubiquity of containerization, etc.
• Integration of previously closed economies into the global economy. The end of the Cold War meant the end of isolation of the eastern block, as well as the battles over the alignment of other nations. Also, the West made a fateful decision that, unlike during the Cold War, it would extend virtually all international privileges to any nation regardless of whether or not it was a democracy or conformed to basic western notions of the rule of law or human rights. Previously the US may have supported many undemocratic regimes, but it didn’t trade much with them and it didn’t invite them to participate in major international summits like the G-20.
• The virtualization of business. It’s not just about Japan exporting finished products to the US. It’s not just about moving manufacturing to Mexico. It’s about moving any function anywhere. Get your raw materials from Brazil, put your plant in China, your IT in the Philippines, your IT and HR operations functions in India, your R&D in Switzerland, and your finance in New York.
• Foreign champion firms. Where once it was only Japan or Europe with major champion industries that could take on American giants, today it is anyone, from South Korea to China to Mexico. One thing that characterizes these firms in many cases is their tight links with their home state government, which actively promotes them and protects them and does everything in its power to advance their interests. It’s not just China, it’s everywhere, though weaker in the Anglosphere. And I think if you look at virtually anyone who has an “oligarch” profile (i.e., a guy who nobody heard of a decade ago who became a billionaire through canny acquisitions), I think you’ll find few of them have records that would stand up to scrutiny.

What does this end up doing? I have written before on the forces of globalization. But the underlying consistent themes are mobility and speed. Mobility of production, mobility of service provision, mobility of information, mobility of money, mobility of labor. All of these are mobile, and they move at speeds that would have been considered unthinkable just a short time ago.

Implication: The New Bifurcation

What does this mean? Well, it means a lot of things. Importantly, as everyone knows, it has meant that previously non-tradeable items are now fully traded in global markets. This has particularly affected white collar work that was previously immune to offshoring, everything from IT to invoice processing to architectural drafting to call centers to HR operations.

This has upended the old college degree/high school diploma split. Now, just having a college degree doesn’t save you. You need to have skills and work in a field that is not subject to international labor arbitrage. One could argue that there’s a new economic bifurcation, this one not based on educational attainment, but the tradeability of skills. However, this really hasn’t changed the old split as much as adjusted its proportions. Few of the types of people who lost out in the 80’s and 90’s are faring much better today, but they are now joined in their misery by a new chunk of folks with degrees. In effect, globalization drove a wedge and split the educated into two groups, and threw a good chunk of them into the losers pile.

Implication: The Narrowing of the Economic Base

This split within the college degreed between those who benefit from globalization and those who are victimized by it has narrowed the US economic base considerably, and dangerously in my view. I’ll reprise my four facts about Silicon Valley that sum it up: Between 2001 and 2008, the San Jose MSA’s: a) real GDP per capita increased by 20.8% b) total real GDP increased by 25.9%, c) real GDP per job increased by 39.6%, BUT d) total employment declined by 9.4%. That’s America’s problem in a nutshell. Growth without job growth. Growth in economic output without growth in employment.

This economy simply doesn’t generate enough jobs to keep Americans employed. Perhaps in the 90’s, we could pretend that by simply getting more people through college, we’d be able to make the transition to a broad based Information Age. But not today. That’s why we had a “lost decade” in the 2000’s, and are facing a gigantic employment problem right now.

Even those who are currently prospering in the globalization age would do well to look over their shoulders. In the 90’s, people with college degrees could perhaps be forgiven for thinking that blue collar work was a far away industry of which they knew little. Today we know it’s a case of, they came for the factory worker…..

Implication: A Metropolitan Future

Back to the notion of tradeability in jobs, what jobs are these that aren’t tradeable? There are basically two kinds of these: occupations requiring face to face interaction or in person service, and those involving specialized skills that can’t be obtained elsewhere.

Occupations requiring face to face interaction can include things like school teacher or plumber or primary care physician. But some have argued that the nature of the global economy has created almost by definition a scarcity of face of face communications. To the extent that you can obtain a proprietary advantage through face to face contact, that by itself is worth something. Obtaining this generally depends on the number of people, their particular skills, the ease of interaction, and dense and open social networks. Specialized skills are often niches that are subject to agglomeration economics that are the basis of cluster theory.

It’s obvious that both of these work to the advantage of cities. They have more people, more skills, more opportunity for face to face contact, more openness to change and innovation as a general rule, and usually more open social networks. They are usually the places specialized skill clusters are found because you need a certain sized economy to support an ecosystem. (There are important exceptions to this, such as the Warsaw, Indiana orthopedics cluster). That’s one factor driving increasing urbanization on a global scale, and leading to disproportionate economic output in cities to an extent we’ve not seen previously.

This suggests that there is some critical mass of size above which you are more likely to be competitively advantaged and below which you are more likely to be in a rough spot. That doesn’t mean every place that’s big has it made, but size certainly matters. There’s great debate on where the line is. I think it is fair to say civic leaders in almost any place would argue they make the cut. I tend to draw the line lower than some, and I believe there are going to be any number of smaller places like Warsaw that do ok by finding a niche, but on the whole, cities of a certain size are where it is going to be.

Implication: A New Typology of Cities for the Global Age

Another thing this notion of specialization suggests is a typology of cities. If we think about specialization, we can think about it along a couple of dimensions. We can think about it in terms of economies that are diversified in many industries vs. those that are concentrated. And we think of an economy has having tradeable industries vs. non-tradeable ones.

I, of course, can’t resist turning this into a 2×2 matrix:*

This results in four typologies: Global City, Regional Business Center, Industry Cluster, and Rust Belt. Before discussing these, I’ll make them concrete with my mapping of four real cities into these types:

Global cities have a high diversity of industries with generally low tradeability. I wrote in an earlier post that many global cities were in fact the epicenter of some important 21st century macro-industry. But that doesn’t mean that’s all they have. New York is the paradigmatic example. Yes, it is the center of finance, but it is also the center of media, high culture, fashion, advertising, and many other things. In essence, one of the hallmarks of a global city is its diversity of specialties. This is one of the things that contributes to their resilience.

Regional business centers are diverse, but often predominantly feature tradeable industries. Atlanta is a good example here. These may be thriving places to do business in many respects – and there are many of them in America. But in some ways it seems their ability to generate economic value and wealth is eroding. Between 2001 and 2008 (the maximum range available), Atlanta’s GDP per capita actually declined by 6%. Its per capita personal income over that period declined from 109% of the US average to 95%, a stunning 14 percentage point drop that was the worst in the country among metros greater than one million in population. This is just more confirmation of what I said before, that Atlanta is a troubled region.

But beyond Atlanta, it calls into question the entire Regional Business Center model. Over that 2001-2008 period, 12 or 13 of the top 15 declining large metros on a PCI vs. US average method are ones I’d classify as Regional Business Center. Most of them have added jobs. Some of them even added a lot of jobs, like #2 Raleigh-Cary. But it seems they have increasingly lower end economies from a wage perspective and potentially a value one.

This should be setting off 911 alarm bells. This is where the preponderance of thriving American cities lie. These are America’s bread and butter cities, highly overlapping with what Brookings called “New Heartland” metros. If this model peters out as a success strategy, the results for the US could be catastrophic.

A Brookings writer sort of recognized this trend, noting that Atlanta had an income decline for “for reasons I don’t understand.” Well, people should start trying to understand it. Possibly one explanation is that the jobs they are creating, which are most of the new jobs in the country incidentally, are low wage due to their tradeability and thus are pulling down the average. If true, this means their core higher earning functions might be intact, but that America is drifting in a decidedly low wage direction. Whatever the case, we should figure out what’s really going on pronto.

Rust Belt cities are those that are concentrated in an industry that proved tradeable, like manufacturing. No surprise, places like Cleveland are hurting big time. Many of these places may no longer be technically concentrated in a legacy industry, but they still act like it. Their institutions, political systems, social structures, business practices and more are still often oriented around a legacy industry. Thus they behave as if they are concentrated even if they aren’t today.

Industry cluster cities are concentrated, but in an area that is not tradeable. Silicon Valley is the paradigmatic example here. But places like the aforementioned Warsaw, Indiana also count. It is obvious that if anything happens to the core industry of these cities, either it becomes tradeable or somehow obsolete or out of favor, these towns could be tomorrow’s Rust Belt burg.

A Better Tomorrow

Where does this take us? If we look at these trends, the future could seem rather bleak. But I prefer to be optimistic even I can’t predict how it will all work out. The endless debates over immigration reform show that America remains the place millions of people want to be. Clearly, people are voting with their feet in favor of the US, and that’s the ultimate endorsement. And if the last three decades have shown us something, it is that change happens fast. Globalization as it is currently practiced might end up proving to be just another decade long wave. In the 1980’s, many predicted Japan would displace the US as the world’s dominant economic power. It never happened. People have been betting on the decline of the US as long as I’ve been alive. But to date betting against the ultimate resiliency of the American republic has proven to be sucker’s bet.

Still, one lesson I take is that the forces unleashed in these waves have effects that are long term, and often not obvious. The early 80’s recession wasn’t just a cyclical downturn. It was a signal that manufacturing as we knew it was over. The forces of change unleashed then continue. They’ve finally taken down the auto industry, and perhaps in a short period of time the industrial restructuring will be complete.

Similarly, I’ve long drawn a parallel with between the 2000-2002 Rust Belt recession and the 2000-2002 dot com recession. There was a recovery from that, but I believe the signal is clear: technology as a macroindustry may be on the way out. It may take 20-30 years to get there, but I believe traditional tech employment is in long term secular decline. Those flush 90’s IT consultancies employ a lot fewer people than they used to (onshore at least), and probably will only employ fewer in the future. Dittos for corporate IT. While companies like Apple or nimble web startups might continue to thrive, mass IT employment for people without top tier tech or organizational leadership skill is going to suffer. I’m far from the first to suggest this. See also the famous piece, “IT Doesn’t Matter.” I could not in good conscience recommend that anyone in the US coming out of college go into IT today. (In India and elsewhere, it’s a different story). Similarly, there’s no such thing as the “green economy.” Within a decade, there will only be the economy. It will all be green and we’ll be right back to square one.

So while I certainly think these sectors are worthy of attention, we ought to be careful about them. Any “next big thing” gets absorbed into the system as it were, and becomes less of an industry in its own right. This means we should be careful about overly betting on specific sectors, particularly when those sectors have increasingly narrow employment bases.

We need to be aware of the forces and implications of the global age, recognizing that things will continue to evolve rapidly, but that nevertheless macro forces can transform us over a period of time in ways we don’t pick up from the cyclical ups and downs.

The first implication to address is the narrowing of the economic base. The signature problem of our time is to find a sustainable new model of both job growth and growth in jobs that provide a middle class standard of living with a realistic prospect of upward mobility. Without that, without a base belief by the broad public that there is economic security, progress and policy consensus on any other issue will prove illusive. The Great Recession will eventually end. But I’m not sure the secular forces that produced a lost decade will. We can’t let even a recovery lull us to sleep.

Going back to the 90’s, we’ve obsessed over how to generate more high skill jobs. Every city has programs around biotech, high tech, etc. I’ve written a lot about this myself. Clearly it is needed. Also, there’s been a lot of fascination with the urban transformation of places like New York or the ultra high value generated by clusters like Silicon Valley. Obviously places look at this and think they’d like to have some of that wealth generation for themselves.

The question is, how many cities will succeed at this, and to what degree? Also, how many jobs will this create? Probably not that many. Probably not enough to turn around even an entire metro area, much less the United States. Chicago has had one of America’s great urban core booms, but has hemorrhaged jobs.

Right now everyone is focused on foie gras, when what we really need is more meat and potatoes. I think that’s one mindset change that needs to happen. Joel Kotkin believes that the future is “vanilla.” I think there’s something to that. Yes, we need to continue focusing on wealth generating industries and high skill/high paying ones, particularly in places like the Midwest that don’t have many of them. That’s part of how you pay the freight for everything else. But we’ve also got to look at the everyday. Maybe, for example, we should put less focus on splashy downtown showcases and more on basic neighborhood services. Maybe less effort into biotech and more into creating a generally positive business climate for investment. We need better balance in our thinking.

We also need to recognize that our economic future is metropolitan, including cities and suburbs. This isn’t just an American thing, it’s a global trend. The notion of the yeoman farmer and the virtues of rural and small town life run deep in America. I grew up in a rural area and very much appreciate its values. I still hold them in many ways. We should respect them to be sure. But they aren’t our economic future. The future is in city regions with the minimum scale to compete. Our policies need to recognize that. You can be sure that other nations are very clear on this point.

As part of this we need to think about the new urban typology and how to make it work. I put one here, but there are many other ways to look at it, such as Brookings’ new take. Clearly, in a diverse America with diverse cities, one clear imperative is a diversity of strategies and policies to match. We need to think a lot less like a platoon of foot soldiers marching in unison and a lot more like a sports team where everyone has their own role to play.

I think the most important thing is to figure out how to make the Regional Business Center model work, and migrate more cities from the Rust Belt category into it. This won’t be easy. They’ve got the tough challenge of boosting incomes and maintaining job growth. Their low costs are an advantage, but a race to the bottom is a suckers bet. Much of the thinking about cities has been about America’s traditional urban centers. These places are simply too unique and impossible to replicate to serve as models. The “superstar cities” of America have an important role to play in our national economy as high value production centers. They really are foie gras, but they’ll never be the main course. We need to cultivate quality, prosperous workaday cities for the bulk of Americans to live and work. This means accepting that they are a very different animal from the tier ones.

Lastly, we need to forge a new framework for an American commonwealth. The great mass market is gone. Almost everything is fragmented today. The era where a one size fits all policy like the interstate highway system creates consensus is fading. Our nation is simply more diverse than ever on almost any metric. There are more versions of the American Dream than ever. We’ve got to find a way to make that work for us so that we can move forward. Lucky our federal system and tradition of local control give us the tools to do this. But it won’t be easy. Part of it I think will have to involve a more live and let live approach where we accept that other people simply have different values and preferences from us, that our desires and beliefs, no matter how deeply held, are largely not moral universals.

I can’t predict exactly where we’ll land. But America has long proven highly resilient and able to continually reinvent itself. It’s our great strength. I can’t say for sure how we’ll do it this time. But I believe it’s more likely than not that we will. We’ll know we’ve done it when we have an economic system that provides reasonable economic security and upward mobility prospects for the middle class, and in which a rising tide starts lifting most boats again.

* I didn’t do a quantitative analysis to map these cities, but it would be interesting to do one and see if the conceptual model holds up. And yes, I prefer to spell “tradeability” this way.

Thursday, July 1st, 2010

Urbanoscope

Top Stories

1. Grist: Tell me again why we mandate parking at bars?

2. Errol Morris: Something is wrong but you’ll never know what it is. An interview with David Dunning, discoverer of the Dunning-Kruger Effect, in which the more incompetent you are, the less likely you are to be aware of it. I’m convinced this effect has broad applicability, even to areas of urban development.

3. Karen Heller: Stuck in Pennsylvania

4. Grist has a couple of other great pieces on Charlotte’s light rail system, that are critical reads for smaller cities looking at transit. Charlotte does light rail right and “How Charlotte’s mayor championed light rail.

5. Loving London. I don’t usually put videos in my top story list, but I’ll make an exception for this simply brilliant stop motion time lapse video by Alex Silver called “You’ve Got to Love London.” It starts with 15 seconds of pastoral bliss, then Wow. Click the link if it doesn’t display for you.

Scary Labor Market Chart

Writing at his Economist blog, Ryan Avent put up a very scary chart of US job losses:

The US is the blue line. The chart shows 1Q08 to 1Q10.

Fool Me Eight Times…..

Yes, this is a video-heavy post. I don’t normally link to Jon Stewart either, but his Daily Show monologue on the failed promises of the last eight consecutive presidents to wean America off foreign oil is priceless. (If the video doesn’t display for you, click here.)

World and National Roundup

Moncole magazine just released their annual list of the best cities in the world to live and work.

Andrew Manshel: Enough with Jane Jacobs already

Business Week: Top down tech clusters often lack key ingredients

The Guardian: Norman Foster at 75

Transport Politic: Barcelona metro continues its expansion at a relatively cheap price” – Yonah demonstrates yet again how US transit construction costs are way out of line.

Joe Peach: London 2010 Olympics missing an opportunity for truly sustainable development

Joel Kotkin: The Productive Economy Still Matters

Ed Glaeser: The Health of Cities

Nancy Folbre: The Sagging of the Middle Class

Silicon Alley Insider: This latest wave of New York startups is just getting started

Fred Siegal: John Linsday’s Bright, Shining Failure

Ryan Avent: Immigration and Detroit

Business Insider: California Pension Funds Assume Dow Reaches 28 Million. I’m beginning to see why they have a pension crisis.

LA Times: LA’s ‘phantom parking’ is a jam

Transport Politic: Philadelphia selling full naming rights to SEPTA station to AT&T

Atlanta Journal-Constitution: Diversity a point of pride for East Point

peHUB: Chicago is not the next Silicon Valley, but at these prices, what a shame (h/t Windy Citizen)

Chicago Sun-Times: Regional transit faces $24 billion repair bill

Rust Wire asks if Ohioans are the Okies of the Great Recession. They link to an article in the Charlestown City Paper about with stories of people complaining about Ohioans. Most of it sounded like good-natured fun to me, but it’s interesting to watch.

St. Louis Post Dispatch: Sinquefield not discouraged with return on his political efforts. This St. Louis billionaire is spending millions to try to significantly change public policy in Missouri.

NYT: Fostering entrepreneurs, and trying to revive Detroit

Taking the Slide

Volkswagen did a promotion in the city of Berlin, where they installed a slide from the mezzanine to the platform level of a subway station. They call it the “Fast Lane”, and yes, adults can use it too! (If the video doesn’t display, click here.)

This is both super-fun and very cool. Alas for America’s litigious nature and the general killjoy attitude of our elected officials. h/t CTA Tattler.

Triple Lightning Strike

A severe thunderstorm in Chicago last week produced some dramatic lightning strike imagery. This short video captures an amazing moment lightning strikes the three tallest buildings in the city simultaneously. Click the link if it doesn’t display for you.

Post-Script

Continuing my Columbus, Indiana series, here are a couple of interior shots of the North Christian Church, designed by Eero Saarinen. My camera isn’t the greatest for dimly lit interior shots, but you can get the feel for this spectacular space. This building is a National Historic Landmark.

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