Sunday, September 30th, 2012

Thoughts on Chicago’s Tech Scene

This article is part of the State of Chicago.

I wasn’t planning to write a piece on Chicago tech, but I did a radio interview about it this week and since I never know how much might be used from me in a space constrained medium, I thought I’d lay out something here too.

I’ve said before that I don’t think Chicago is well positioned to become some type of dominant tech hub, but should only seek to get its “fair share” of tech. However, as the third largest city in America, Chicago’s fair share on tech is still pretty darn big. If you look at what’s been happening in the city the last couple of years, I think you’d have to have to say it’s something real. Built in Chicago lists 1145 companies in its inventory, and that’s definitely something. I’ll give a bit of a mea culpa by admitting that the tech community has done better than I probably thought it would a couple years ago, though I still stand behind the statement I made at the beginning of the paragraph.

Part of what has happened in Chicago is the general decentralization of technology in America. It used to be that tech in America was heavily concentrated in the Bay Area and Boston. In an era when pretty much literally anybody can start a company, you simply don’t need to be in any particular place to be successful these days.

Mark Suster made this point in his Tech Crunch post, 12 Tips To Building A Successful Startup Community Where You Live:

I would point out that these days there are really talented tech developers and teams everywhere. And I really mean everywhere. Ever play Zynga’s “Words with Friends” or any of their “with Friends” games? Didn’t come out of the SF facility. It came from an amazing small startup in McKinney, Texas (30 miles North of Dallas) called NewToy, which they acquired.

Think the next big startup can’t come from Dallas? Think again. Angry Birds? From startup Rovio in Finland.

Think USV is only invested around Union Square in NYC? How about in the last 12 months deals were announced with Dwolla (Iowa) and Pollenware (Kansas City). I met the Pollenware team myself – they were KILLER.

In this environment, it’s possible for lots of cities to find success. This is why places like New York and Chicago have been table to reboot their tech ambitions, and why some of those hot startups Suster mentioned are in smaller Midwest cities. Strong tech/startup scenes have been emerging all over the country. Being a startup hub isn’t what it used to be in terms of joining a highly exclusive club.

This is a case where there aren’t of necessity winners and losers. It isn’t like the Midwest can have just one tech center, for example, and thus the battle for Chicago is to be the winner, while everyone else gets to be a loser. The good news here is that Chicago can win and other places can win too. This might be one economic change that really can start rebranding a region.

Not only has there been legitimate strength in the Chicago tech community of late, it is also starting to get some good press. For example, just this week the New York Times ran a story on tech businesses moving into the Merchandise Mart. (An unfortunate subtext of this piece appears to be a serious decline in Chicago’s vaunted design community, however). This is one of a number of positive pieces that have appeared recently.

The city has really put on the full court press for tech, with Mayor Rahm Emanuel in effect making it the signature economic development cluster of his administration. I cannot think of any other sector of the economy in which Emanuel has so put his personal imprimatur. He has repeatedly stood up to endorse Chicago tech and its ambitions, and I think it’s fair to say he’s got a lot riding on it being successful – and not just successful, but an outsized success compared to peer cities.

Rahm has also put city action behind the marketing. For example, making an open data push, and also the recent broadband deployment initiative to underserved areas.

The trendlines certainly appear positive for Chicago at this point, but I want to highlight a few areas I find lacking and/or risky to the future.

The Booster Club Society

I’ll lead off a video from last year’s Chicago Ideas Week. This is JB Pritzker’s keynote at the Midwest Entrepreneur’s Summit. (If the video doesn’t display for you, click here).

This is a pretty good talk, but thinking about it a bit, a few things jumped out at me.

First, this is a talk in the finest tradition of “the sun is always shining on Chicago.” I’ve noted many times that under the Daley administration there was in effect a gag rule against saying anything that could be construed as even slightly negative about the city. I’ve noticed a change in that under Emanuel, but there’s one big exception, and that’s the tech sector. In Chicago tech pretty much everybody is pretty much 100% on the rails of the marketing message all of the time.

Listening to this, you’d think Chicago basically is tech nirvana, with the exception of a central gathering place for techies, something that Pritzker conveniently has a plan to create. Strong as Chicago may be, I can’t believe everything could possibly be this rosy. Similar sentiments from various members of the tech community are prominently on display in pretty much every article out there.

There’s nothing wrong with being a champion for your city, but when you become too much the booster club society, it’s not healthy. A little more paranoia and a little less spin would probably do the city good. Chicagoans would clearly recognize the excess earnestness that characterizes such rhetoric if they saw it in another city – I see it all over the place, as all kinds of cities make the case for why they too are one of the next great tech hubs by closing ranks and presenting a unified, totally positive marketing front to the outside world – so I’d suggest they think about how they’d evaluate the statements they make if those same statements were being made by boosters of another place like say Kansas City.

Here’s another example. Announcing some additional protected bike lanes, Rahm Emanuel had this to say:

It’s part of a planned bike lane network that Mayor Rahm Emanuel on Sunday said will help Chicago to attract and keep high tech companies and their workers who favor bicycles.

“By next year I believe the city of Chicago will lead the country in protected bike lanes and dedicated bike lanes, and it will be the bike friendliest city in the country,” Emanuel said Sunday at Malcolm X College.

“It will help us recruit the type of people that have been leaving for the coast. They will now come to the city of Chicago. The type of companies that have been leaving for the coast will stay in the city of Chicago.”

I like protected bike lanes. I applaud Chicago’s protected bike lane program. But this is a bit over the top. I got unsolicited email from as far away as the West Coast mocking this.

I think Emanuel’s media savvy and willingness to sell Chicago is a big plus for the city. But he has had a tendency to sometimes step over the line and make extravagant statements that just don’t pass the sniff test. I think this comes from his days in Washington where that sort of thing is expected, understood, and discounted by everyone. It’s just the way the game is played there. But for mayors there’s a different standard of judgement. Yes, everyone expects you to make the aggressive case for your city. But mayoral statements that seem un-moored from reality – like the various claims that have been made about crime and shootings, for example – end up calling into question the truth of everything else you say. This in my view is a danger for Rahm or anyone else who has been overly steeped in Beltway style communications.

So I would suggest that Chicago continue to be aggressive on marketing, but tone down some of the orgasmic rhetoric and take care that they don’t end up believing too much of their own press. This can be a fine line to walk. I hope that in private at least the city’s tech community has a huge punch list of things that need to be better they are actively working on.

Better Tech Media

Another aspect of Pritzker’s talk that jumped out at me immediately at the time he gave it (I attended the event), was his failure to mention that Chicago already had a very successful version of his own 1871 incubator called Tech Nexus. Tech Nexus is a self-described “clubhouse” for Chicago’s tech community, a co-working space, and an incubator (ranked one of the top ten in the United States by Forbes) that has served over 100 companies. Tech Nexus also hosts tons of meetups and other events, and through the affiliated Illinois Technology Association has been an instrumental booster of the Chicago tech scene the last few years.

Now Pritzker did mention them in passing in a long list of institutions he gave in the talk. But to claim Chicago lacked the central gathering place for tech until he, JB, rode to the rescue with 1871 is a) not true and b) pretty obviously a deliberate snub of Tech Nexus.

I certainly don’t think everybody needs to be on the same page in a city’s tech community. I actually think that would be a weakness. I think it’s healthy to have different groups of people with different visions each pushing them. Building a space like 1871 is a positive. The more the merrier I say. But this type of talk smells to me like pretty much just a political power play in the Chicago tech community.

Speaking of which, Pritzker may be a venture capitalist, but he’s also an heir to the Pritzker family fortune and one of the richest men in America. (Oh, the irony of having as the keynote speaker for your entrepreneurship conference a guy who inherited over a billion dollars – that tells you a lot about how Chicago works). The Pritzkers have long been power players in Chicago and a key part of what I’ve called the Nexus. So being on the executive committee of World Business Chicago is not so far a leap as he may have us believe. (I also wonder if perhaps Pritzker is the guy who convinced Emanuel to make the very risky move of piling all those chips on the tech square, as he’d appear to be one of the few guys with an interest who would have the clout to do it).

My point here isn’t to bash JB Pritzker, but rather to wonder why no one is asking questions or talking about stuff like this in the press. There are lots of very rich guys with no doubt big egos involved Chicago tech. There’s bound to be lots of interesting politics and personality clashes and maneuverings going on behind the scenes. I want to be able to pop some popcorn and follow the drama. But it doesn’t get covered. I think the local media is basically out of their depth when it comes to covering Chicago tech.

My believe is that Chicago needs a new, independent media source covering the local tech market. This would not be part of the marketing machine of Chicago tech, though like TechCrunch would of course be institutionally favorable to the industry, but instead would provide real, credible coverage of the what’s what and who’s who of the community. As Mark Suster said in the post I linked to earlier, “Local press matters.”

In my review of Enrico Moretti’s book, I noted how he took a face value some mainstream media reports on how tech giants like Facebook were acquiring startups just to get their talent while shutting down the actual companies. He apparently didn’t read Gawker, which gave a fuller story. New York tech community also benefits from other sites, such as the irreverent Betabeat from the New York Observer. Suster mentions sites like GeekWire in Seattle and SoCalTech as well but I don’t know them personally so can’t say they’d be the models to replicate.

In any event, I believe Chicago needs a first class tech media site. A site like Technori does a good job, but it strikes me more as a “how to” site than a media property. Chicago needs a someone asking tough questions, and looking at the people and politics around tech, not just the bits and the bytes. Because IMO the traditional Chicago media hasn’t really shown any interest in pursuing this.

Why Digital?

I’m also a bit puzzled as to why Chicago is leading its marketing with the digital/social media/consumer space. Obviously Groupon (which seems to be in the process of getting airbrushed out of the Chicago tech politburo photo) played a role in this. But this seems like a shaky place to stake a claim. I don’t see consumer type brands as Chicago’s strong suit, and the digital market seems weak in any case. Even juggernaut type companies like Facebook and Groupon have struggled financially. There’s a big question mark over the whole space. What’s more, it seems like lots of places, ranging from San Francisco to New York, are rushing to tell basically the same story in digital and are frankly ahead in the space.

By contrast, Chicago has a long and successful history of business to business and information technology. Flip Filipowski’s Platinum Technology was a great example of this. These types of companies might not have the sexiest brands, but they deliver value and make money. What’s more, because of the support demands of corporate clients, these businesses often employ a material amount of highly skill, highly paid people, unlike most digital startups.

Also, Chicago has been a major center of corporate IT for a long time. This is often not valued by the pure tech crowd, but is a huge source of value and good paying jobs. Terry Howerton (who runs TechNexus) said of State Farm:

“State Farm has 12,000 employees in IT in Bloomington,” Howerton said. “I’m sure many of those employees are really smart people, but how innovative can you be with 12,000 IT workers in your bureaucratic corporate environment in an industry as historic as insurance?”

Well, to start with, 12,000 IT employees is likely more than the total local employee count of every digital startup in Chicago combined. And that’s just one company. Howerton is the best advocate out there for a B2B vision for Chicago tech, but I would also add the IT part to the equation as well.

Chicago’s IT shops have a long track record of innovation going back to before a lot today’s digital folks were even born. Walgreen’s Intercom system, for example, linked all their pharmacies nationwide together back in the 1980s so that you could get your prescription refilled anywhere you needed it. And they didn’t have today’s open systems and frameworks to make life easy. They had to use a proprietary satellite system and a specialized high volume, 24×7 uptime mainframe operating system called TPF (originally developed for airline reservations). I’m not sure most of today’s digital coders could figure out how to build and support a TPF application if their lives depended on it.

Given Chicago’s heritage as a center for professional and business services, and corporate headquarters, I believe its natural strengths in technology are in B2B tech companies, technology consulting, and corporate IT. If you can get digital/consumer startups that’s great, but I wouldn’t make that the public face of the city. Instead, take all that corporate services mojo and embed it in tech.

The Big Risk

If you look at what I’ve written about changes so far, most of them are tweaks around the margins. They don’t indicate core weaknesses. Frankly they are sort of nit-picky. That should tell you something. As I said, I think the Chicago market has been doing well – better than I thought it would. I’m not even concerned about the so-called “developer drought” of which I’m extremely skeptical (see more here).

But there’s one thing that is a clear risk to Chicago, one that could undo all its effors – and it’s one that the city can’t do anything about. That’s the risk of another tech crash.

Technology is very cyclical. Every so often, Silicon Valley has had a major crash. I believe it is these crashes that have actually helped to keep the tech industry concentrated in its major hubs. That’s because when crashes come, industries retrench and reconsolidate. For example, Joel Kotkin has said that it was actually the 1980’s energy crash, the one that devastated Houston, that actually helped trigger the industry consolidation there. We’re seeing something similar in media, where financial pressure is consolidating it into NYC and to a somewhat lesser extent DC while secondary markets get wiped out.

So too in tech. Think about the dot com era. Lots of cities had their startup dreams back then too, and it seemed like parts of the country outside the major hubs would be able to get their bite at the apple. Chicago had its “Silicon Prairie” and New York its “Silicon Alley.” All of them got blown up by the dot com crash. But Silicon Valley and Boston survived. Chicago and New York tech eventually came back, but it was on a totally new basis.

There’s a tendency locally in Chicago to now talk about the flaws of the city’s tech ambitions in the Silicon Prairie days in contrast to how it now has its act together. The idea is that Silicon Prairie collapsed because people didn’t get along, or because they chased away their entrepreneurs, etc. But the reality is that it most likely collapsed simply because the market did, not because of flaws or mistakes. I’m not convinced there’s anything the city could have done to survive that shakeout. And if another crash hit, the same thing might easily happen all over again.

We’re seeing the early part of the cycle repeat again today. We’ve had a frothy investment climate with a spread of tech around the country to a whole slew of me-too places. But as I said, the whole digital startup thing has questions marks. It’s not clear that there’s a lot of sustainable, cash generating businesses out there. Many of them (e.g. Groupon) are not even really tech companies. A lot of them are basically media type entities, and like much media in the world have more eyeballs than profits.

Regardless of whether the digital wave crashes soon, another tech crash would appear to be inevitable at some point. If it happens at a time when Chicago hasn’t built some sort of a sustainable franchise, that would be bad. Right now, I don’t believe the Chicago tech scene as currently conceived would survive a major crash. I’m somewhat skeptical New York’s would either. That’s not because the city is doing anything wrong, but because of where it is in the maturity cycle.

That is really the key weakness in the Chicago story. It’s not the fortress hub that Silicon Valley is. I believe it is benefiting from a general decentralization of tech along with a boom cycle investment climate. That can be very good for Chicago, but unless and until it can turn the corner into something that can survive the next big crash, there will continue to be a major question mark over its viability.

This is what I find most interesting about Rahm’s all-in bet on tech. The last go round ended badly. There’s lots of reasons to believe Chicago can be a strong player in the current market, but the city doesn’t have intuitive structural advantages that would make it a slam dunk candidate to become a fortress hub in tech. The digital market is looking somewhat questionable, as the stock charts on Groupon and Facebook show. This was a risky bet. Not to say a bad one, but a risky one. That’s why I think it would be a very intriguing story to find out how it came to be.

In the meantime, while we wait for the judgement of history, Chicago should enjoy where it’s at, build on the present success, and look to shore up those addressable areas of weakness around an excessive booster club mentality, the need for stronger media, and getting away from an overly digital based marketing approach to Chicago tech.

Thursday, September 27th, 2012

A Look at Educational Attainment

Finishing up my look at the 2011 ACS data release, I’ll take a quick check on educational attainment. Just as another brief plug, I’d encourage you to check out and buy a subscription to my Telestrian system that enables anyone to do analysis like this in next to no time.

Here’s a map of college degree attainment (adults 25+ with a bachelors degree or higher) as of 2011:

The top ten large metros for college degree attainment are:

Rank Metro Area 2011
1 Washington-Arlington-Alexandria, DC-VA-MD-WV 1,841,021 (48.0%)
2 San Jose-Sunnyvale-Santa Clara, CA 565,386 (45.1%)
3 San Francisco-Oakland-Fremont, CA 1,354,051 (43.9%)
4 Boston-Cambridge-Quincy, MA-NH 1,352,949 (43.1%)
5 Raleigh-Cary, NC 311,789 (41.3%)
6 Austin-Round Rock-San Marcos, TX 460,526 (40.6%)
7 Minneapolis-St. Paul-Bloomington, MN-WI 846,443 (38.5%)
8 Denver-Aurora-Broomfield, CO 666,809 (38.4%)
9 Seattle-Tacoma-Bellevue, WA 885,288 (37.1%)
10 New York-Northern New Jersey-Long Island, NY-NJ-PA 4,691,735 (36.2%)

Washington has been at the top of this list for a while, which is very interesting. It’s a government center that nevertheless managed to accumulate a higher percentage of college degreed residents than even America’s most elite innovation hubs. If you look at total population with degrees, it unsurprisingly basically follows total population. But Washington is so educated, it is actually closing in on Chicago on that metric. Chicago, a much larger metro, only has 16% more college grads than Washington.

Here’s a look at the top ten metros for growth in educational attainment percentage since 2000. Note that because of the ACS margin of error, this list shows a lot of variety year to year. I would not read too much into it.

Row Geography 2000 2011 Change in % of Total Adult (25+) Population
1 Baltimore-Towson, MD 493,842 (29.2%) 660,022 (35.8%) 6.64%
2 Boston-Cambridge-Quincy, MA-NH 1,094,850 (37.0%) 1,352,949 (43.1%) 6.10%
3 Pittsburgh, PA 396,981 (23.4%) 492,369 (29.4%) 5.94%
4 New York-Northern New Jersey-Long Island, NY-NJ-PA 3,707,827 (30.3%) 4,691,735 (36.2%) 5.93%
5 St. Louis, MO-IL 435,940 (24.8%) 581,655 (30.7%) 5.87%
6 Buffalo-Niagara Falls, NY 182,144 (23.2%) 225,499 (29.0%) 5.81%
7 Providence-New Bedford-Fall River, RI-MA 248,934 (23.7%) 319,746 (29.4%) 5.73%
8 Washington-Arlington-Alexandria, DC-VA-MD-WV 1,347,618 (42.5%) 1,841,021 (48.0%) 5.55%
9 Portland-Vancouver-Hillsboro, OR-WA 362,687 (28.8%) 526,399 (34.2%) 5.43%
10 Charlotte-Gastonia-Rock Hill, NC-SC 244,104 (28.0%) 391,173 (33.3%) 5.31%

Here’s a look at degree attainment if we restrict it only to professional and graduate degrees:

Row Geography 2011
1 Washington-Arlington-Alexandria, DC-VA-MD-WV 877,323 (22.9%)
2 San Jose-Sunnyvale-Santa Clara, CA 248,790 (19.9%)
3 Boston-Cambridge-Quincy, MA-NH 596,679 (19.0%)
4 San Francisco-Oakland-Fremont, CA 535,173 (17.4%)
5 Hartford-West Hartford-East Hartford, CT 127,786 (15.4%)
6 Baltimore-Towson, MD 278,836 (15.1%)
7 New York-Northern New Jersey-Long Island, NY-NJ-PA 1,924,454 (14.9%)
8 Raleigh-Cary, NC 108,593 (14.4%)
9 Austin-Round Rock-San Marcos, TX 161,118 (14.2%)
10 Denver-Aurora-Broomfield, CO 236,259 (13.6%)

Again our friends in Washington top the list. On this list of the most educated, Washington actually has more total people with college and professional degrees than Chicago, and is within about 30,000 people compared to Los Angeles. I expect Washington to end up passing LA on this measure, though in fairness part of the greater LA area has been carved off into its own separate metro area.

New York has so many people with graduate and professional degrees that they would add up to America’s 31st largest metro area in their own right. It is actually more people than the entire population of the San Jose metro area. It’s more than double the concentration of #2 Los Angeles.

Looking at growth in the share of population with graduate degrees since 2000, here are the results:

Row Geography 2000 2011 Change in % of Total Adult (25+) Population
1 Washington-Arlington-Alexandria, DC-VA-MD-WV 607,122 (19.1%) 877,323 (22.9%) 3.75%
2 San Jose-Sunnyvale-Santa Clara, CA 184,688 (16.1%) 248,790 (19.9%) 3.72%
3 Boston-Cambridge-Quincy, MA-NH 455,971 (15.4%) 596,679 (19.0%) 3.60%
4 Buffalo-Niagara Falls, NY 74,319 (9.5%) 99,962 (12.9%) 3.40%
5 Baltimore-Towson, MD 201,072 (11.9%) 278,836 (15.1%) 3.25%
6 Portland-Vancouver-Hillsboro, OR-WA 120,885 (9.6%) 196,582 (12.8%) 3.18%
7 Hartford-West Hartford-East Hartford, CT 96,943 (12.5%) 127,786 (15.4%) 2.91%
8 Seattle-Tacoma-Bellevue, WA 215,974 (10.7%) 323,798 (13.6%) 2.88%
9 San Francisco-Oakland-Fremont, CA 413,433 (14.5%) 535,173 (17.4%) 2.84%
10 St. Louis, MO-IL 158,331 (9.0%) 224,687 (11.9%) 2.84%

Wednesday, September 26th, 2012

Founder Mobility

Kate Maxwell and Sam Arbesman at the Kauffman Foundation are out with a new study the measures the mobility of founders of high growth companies (those on the Inc. 500 list). Using network mapping software, they took a few cuts at determining mobility groupings, and here was an interesting graphic that popped out. The colors on the map are basically communities as defined by migration between the components:

This is an interesting study. I suggest at least checking out Richard Florida’s review of it over at Atlantic Cities.

Wednesday, September 26th, 2012

The Coolest Transit Ad Ever

You may have already seen this Danish commercial called “The Bus,” which some billed as the coolest transit ad ever. It is indeed pretty sweet. If the video doesn’t display for you, click here.

h/t Streetsblog

Here’s another one, this time from what appears to be Norway (though the title of the You Tube video says Sweden). If the video doesn’t display, click here.

h/t Copenhagenize

Too bad we can’t market transit like this in America.

Tuesday, September 25th, 2012

A Look at Commuting

Continuing my exploration of the 2011 data from the American Community Survey, I’ll turn my attention to some aspects of commuting. I’ve posted this piece over at New Geography as “A Look at Commuting.”

In it are some interesting trends and factoids. Metro New York, for examples, has 2,686,406 transit commuters versus 3,530,932 for all other large metro areas combined. New York City metro accounts for 39% of all transit commuters in the United States. Only two cities had major gains in transit mode share in the last decade. Click through to find out which ones, along with other information around biking, walking, telecommuting, and average commute times.

Sunday, September 23rd, 2012

Review: The New Geography of Jobs

The New Geography of Jobs
by Enrico Moretti
Houghton Mifflin Harcourt (2012)

Starting in the 1980s, the American economy bifurcated. On one side, cities with little human capital and traditional economies started experiencing diminishing returns and stiff competition from abroad. On the other hand, cities rich in human capital and economies based on knowledge-intensive sectors started seeing increasing returns and took full advantage of globalized markets. – Enrico Moretti

For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath. – Matthew 25:29 (see Matthew 25:14-29)

If there’s one current book I’d recommend to leaders in American cities today, it’s Enrico Moretti’s The New Geography of Jobs. It’s not without flaws. However, this book lays out a readable and compelling vision of the innovation economy in the 21st century and what it means to America’s cities. And it should accomplish what is desperately needed in many places, namely lighting a fire under people’s asses to realize that they and their city are likely in a fight for their very economic survival.

Moretti lays out what has happened in America over the past 30-40 years. It’s a trend he labels the “Great Divergence” that is illustrated by the quote at the top of this piece. There has been an increasing division among American communities between the haves and the have-nots. As radical productivity enhancements and global competition reduced employment and wages in traditional sectors like manufacturing, new knowledge based industries took their place. However, these knowledge industries require, of course, highly educated workers with specialized skills. This leads to clustering of workers and jobs in select hubs, leaving many communities out the cold.

Moretti illustrates this with a few examples. His first was a comparison of Menlo Park with Visalia, California. Forty years ago these communities were similar enough that a middle class, educated professional might well choose to make the move from Menlo Park to Visalia. Fast forward and these communities could not be more different. Menlo Park is part of Silicon Valley, while Visalia has the second lowest percentage of college educated workers in the country, with one of the lowest average wages to boot, along with high crime, poor K-12 schools, terrible pollution, etc.

On a larger scale he contrasts Albuquerque to Seattle. Microsoft had been founded in Albuquerque, but moved to Seattle in 1979. This wasn’t because Seattle was a garden spot. Far from it. This was the era of the infamous billboard that said, “Will the last one leaving Seattle please turn out the lights?” The Economist had labeled it the “city of despair.” People forget that places like Seattle also suffered greatly in the Rust Belt era.

Forty years ago, Albuquerque and Seattle were fairly similar. In 1970 Seattle had a five percent edge in college educated workers (adjusted for population) and slightly higher salaries – both likely because of Boeing – but the gap was not huge. Today, Seattle has 45 percent more college educated workers (adjusted for population), and the income gap has widened considerably as well. Though it was not obvious at the time, Microsoft’s relocation – which was simply because Gates and Allen wanted to move back to their hometown – was the catalyst that transformed Seattle’s economy into a tech hub. Now companies like Amazon set up shop there even though the founder doesn’t have a personal connection.

Not only did Seattle, Menlo Park, and other places that successfully made the transition to the innovation economy win by getting the new high paying innovation jobs directly. Those jobs also caused huge spillover benefits into other areas of the community. There’s a multiplier effect of five on tech jobs, meaning every tech job supports five other non-tech jobs in the community. This is a much higher multiplier than export industries like manufacturing. Innovation jobs also raise incomes across the board, support higher quality public services through the taxes they generate, and a slew of other civic benefits. Places that did not make the transition not only did not see the benefits of the innovation economy, they also experienced severe dysfunction as their older industries crumbled.

This divergence of fortunes has happened in cities across America. Rather than a red vs. blue America, Moretti sees three Americas: the winners, the losers, and those on the bubble.

A large number of the cities that I’ve traditionally covered on this blog, especially smaller major Midwest metros, are places that I would classify as on the bubble in Moretti’s classification system. These are places that haven’t become Flint, Michigan yet, but they aren’t Austin, Texas either. They are cities that could go either way. They may in some cases be winning, but they have not yet won. It’s not inconceivable that any of them could flame out and implode.

Yet I see in places across America little sense of this existential struggle. Leaders are missing a framework like Moretti’s (or anyone else’s) to help them make sense of what has been happening in the world. They do not appear to have a sense of urgency around change. In particular, they are not serious about attracting talent or knowledge industries. They might pay it lip service, but everything they do says otherwise. It is actually those who are already in the best shape that are the most worried about securing their future. Parable of the talents indeed.

One of the key takeways for me from the book is that cities should be extremely keen not to go backwards. To the extent that you have a nascent talent cluster, you should take care of those young shoots until they mature. That’s because Moretti examined various strategies for trying to turn around one of the “loser” cities, and basically came up empty. They all failed. As he noted:

Regions without an innovation cluster will find it difficult to start one. It is a chicken-and-egg problem. Specialized high-tech workers will not move to a city that does not have a cluster because it will be hard to find an employer that values their unique skills. High-tech companies will not move there because finding specialized labor will be difficult. This presents a terrible challenge for communities that have fallen on hard times and are struggling to reinvent themselves.

Moretti’s only recipe is what he terms the “Big Push”:

A city stuck in a poverty trap faces the same challenges. It is trapped by its past. The only way to move a city from a bad equilibrium to a good one is with a big push: a coordinated policy that breaks the impasse and simultaneously brings skilled workers, employers, and specialized business services to a new location. Only the government can initiate these big push policies.

In short, Moretti advocates industrial policy on steroids. There’s just one problem: he never actually cites a single example of where it works for a city. There’s only one success story that’s at all relevant that he mentions, and that’s the Tennessee Valley Authority. And the TVA, however successful it might have been, was not dealing at all with knowledge or innovation industries.

We do have a few examples out there today of at least partial big push type efforts, both private and public. New York and Chicago both have put major efforts into trying to build tech hubs from scratch. Both of these places were already talent hubs, however. Billionaire Dan Gilbert is trying to do a sort of one man big push in downtown Detroit and Zappos founder Tony Hsieh is trying something similar in Las Vegas. These two both have money to spend and also have clout in their communities to bring others along with them. These will be interesting to watch.

Where Moretti does provide some hope is in a observations about the genesis of clusters that already exist. For many of them, the key factor seems to be the presence of “superstars” at a critical phase. In our Seattle example, Gates and Allen were the superstars. (Tony Hsieh may yet prove to be the superstar for Vegas).

The superstar theory is especially applicable to biotech. Tons of cities have great academic medical centers and such. Why did biotech then end up disproportionately concentrated in Boston, the Bay Area, and San Diego? (Other economists like Joe Cortright have a somewhat broader list that includes Los Angeles, Philadelphia, Raleigh-Durham, Washington-Baltimore, and New York). According to researchers, it was the presence of superstars that drove this. As Moretti notes:

What really explains the location and success of private biotech companies is the presence of academic stars – researchers who have published the most articles reporting specific gene-sequencing discoveries…The data suggest that the magnetic effect of academic stars is impressive. Zucker and Darby estimate that stars are more important than proximity to venture capital firms or the effects of government spending….Success in high technology, especially in its formative years, comes down to a small number of extraordinary scientists with vision and a mastery of breakthrough technology. Indeed, we can’t overestimate the impact that these unusual individuals have on the economic development of cities and regions.

Looking at stars would then appear to be the best bet. As the Seattle example showed, a couple of stars showing up at the right time can literally change the entire economic trajectory of a failing region. The legion of cities that experienced rebirth after Rust Belt malaise suggests that stars can’t be the entire story, however. Saskia Sassen, for example, takes a very different view based on structural changes from globalization increasing demand for advanced producer services linked to historical economic functions in select global cities. This was not a superstar phenomenon, though we see tremendous innovation.

And of course it’s hard to just say “go get me some stars.” The stars mentioned helped launch new clusters in new industries. It’s not clear that they’d start a new hub in an established industry with already established hubs. So hiring the top biotech guns right now might not be the best idea. Also, one can perhaps only recognize stars in retrospect. I think again of the story of Mark Andreessen, who was in Illinois but ended up getting run out of town. Tomorrows stars are very likely people who don’t look like it today. I won’t pretend to have all the answers here, but these is clearly an area to think about.

While I think Moretti had a lot of great things to say, I think he missed a few points as well. First, in addition to a divergence between the haves and have-nots, there’s another divergence we’ve been between what I call “vertical” cities like the Bay Area, Boston, and New York, and “horizontal” cities like Houston, Austin, and Charlotte. Vertical cities are producing stunning growth in output and wages, but very few jobs. The horizontal cities are producing lots of new jobs, but little or no per capita output or wage growth.

Moretti describes both the Bay Area and Austin has tech innovation hubs, yet these cities have staggeringly different profiles. For all its tech growth, the Bay Area has added almost no net new jobs since 1990 (4.6% total growth). During the same period the US as a whole grew jobs by 20%, so the Bay Area radically underperformed. Meanwhile Austin doubled its employment.

On the other hand, the Bay Area grew per capita personal income much more strongly than Austin. In fact, during the 2000s, Austin actually suffered a severe erosion in relative incomes, as its PCPI dropped from 108.1% of the US average to 97.0% (This after a 16 percentage point gain in the 90s!) Clearly being an innovation hub didn’t help there, and Moretti doesn’t address these issues.

He does hit on how restrictive housing policies drive up prices in places like California, and thus effects the purchasing power of those high salaries. But I would like to have seen more on the different philosophies of places like SF and Boston vs. Austin and Raleigh-Durham. These are not all just vanilla “innovation hubs.”

Moretti himself seems to side with the global city crowd, being a bit enamoured of the vertical style economy. He mentions how high costs, for example, don’t deter businesses from locating in these places since talent matters more than costs. That’s why, for example, Wal-Mart located its e-commerce division in the Bay Area not Bentonville. This trumpeting of defects as virtues (e.g., treating high costs and huge regulatory burdens as actual signs of health) is common, but the job creation record of those hubs suggests most businesses don’t find them attractive places to locate. Rather, they are like boutiques, specializing in a narrow, high end niche. Certainly America can, and perhaps should, sustain a few such places. The Bay Area may be the creative capital of the world. New York is New York. But these are not templates to follow.

Moretti also focuses in on fairly obvious examples like Silicon Valley and Detroit. As a research economist, I would have expected some more interesting choices. There weren’t a lot of a-ha’s in here. It seems a bit superficial when it comes to examples, and may actually mislead some people. For example, Fargo, North Dakota has been doing very well thanks to not just the energy boom (more on that later) but also because Microsoft has a huge operation there (reputedly its second largest in the US) because of the purchase of Great Plains software. America is littered with places apart from the obvious that are doing well, and more exploration of these would have given the book more depth. As it is, it can seem a bit superficial.

This superficiality shows up, for example, in the way Moretti highlighted companies that do acquisitions ostensibly just to acquire the talent. He cited the example of Sam Lessin, founder of, whose company was acquired by Facebook and shut down. The idea was that Facebook really wanted Lessin because he was just an amazing talent. However, as Gawker reported, Mark Zuckerberg had a longstanding relationship with Lessin going back to when Zuckerberg was still in college. Lessin’s father is an investment banker, and Lessin was apparently instrumental in making a number of early introductions for Zuckerberg’s nascent Facebook empire. The story isn’t quite what it might have seemed.

Also, back to Fargo, Moretti doesn’t mention anything at all about the domestic energy boom we’ve experienced in America in recent years. He managed to cover trends like urban manufacturing, but overlooked fracking? Assuming environmentalists don’t manage to choke off exploitation of our vast energy resources, the energy industry should be entering a growth super-cycle. (Even George Monbiot has thrown in the towel on peak oil).

I wonder too whether the trends Moretti cites, while valid over a 40 year cycle, are less true today. One way economists measure clusters is by using a metric called Location Quotient. This measures the concentration of employment in a particular industry in a specific industry relative to America as a whole. But the math works for lots of things. So we can look, for example, at literal clusters of talent by looking at the location quotient of college degree attainment. Here is a map of changes in the location quotient for college degree attainment from 2000 to 2011.

This is certainly interesting. Many of Moretti’s talent hubs actually are less concentrated in brainpower relative to America today than they were in 2000. Out of 51 metro areas with more than a million people, Austin ranked 50th on this metric. San Jose and San Francisco were 42nd and 43rd respectively. (Pittsburgh was #1, incidentally).

Now the changes are very small and could be statistical noise. But this doesn’t look to me like the vast divergence we saw looking over that 40 year span. Instead, what it looks like to me is that a number of cities that weren’t in the game at all back in the day have started to turn the corner on talent. This foots to my anecdotal view of the livability of cities. Back in 1990 moving to say Indianapolis from a tier one city would have been getting exiled to Siberia. Today it’s shocking how little you give up. This is true of other strong talent performers like Fargo and Des Moines as well. And you’re definitely seeing at least some level of innovation based economic activity showing up in all these cities.

The strong may well be getting stronger, but those who were behind are growing their brainpower at an even faster rate. I wonder if perhaps innovation/knowledge work has reached the point on the maturity curve (as Moretti talked about for other industries) where it has stopped concentrating and started de-concentrating?

Lastly, I would urge caution in looking at Moretti’s maps. I know Indianapolis extremely well so wanted to see how it fared in his rankings. I was very surprised to see it rank in the bottom group on basically every map. According to Moretti, Indy’s share of workers with a college degree could not exceed 20.4% Yet it has a college degree attainment rate of 31.1% These aren’t the same metric, and I don’t have the worker share handy, but that big of a gap seems suspect. Indy is showing as lower than far less educated metros in Indiana like Evansville and Terre Haute. Indy also showed as “no data” on the patent map, which seemed odd. I wonder if perhaps there was a coding error in the map generation? I’m not sure, but it looked possibly off. I tried to get clarification on this point, but wasn’t able to, so I’d simply suggest being careful with the maps.

Despite a few things I thought could have been more developed or stronger, I think that, as a book making the case for the innovation economy and what it means, The New Geography of Jobs is a strong one, and I again would suggest it to people in cities that have not yet fully found their place in the new century.

Saturday, September 22nd, 2012

A Look at Median Household Income

The Census Bureau just released its 2011 American Community Survey (1-yr) data. It contains quite a bit of very interesting stuff, so I’ll spend a few posts taking a look at it.

First a brief plug. I run a data system called Telestrian that has a good chunk of this data and lets you query it and visualize it in next to no time. This is the system I use for almost all the data analysis, graphs, and maps in the blog. If you’re looking for a way to support the mission of the Urbanophile, and to make sure I can continue to do this, a great way is for your organization to buy Telestrian, which at a mere $49/year is so cheap it’s basically a no-brainer.

First, here’s a look at metro area median income. One feature Telestrian has it letting you have multiple color schemes on your maps based on a threshold value. In this case, I used the US average median household income (which is one of the built in values). So blue metro area above the US average median income while red metros are below it:

Here are the top ten large metro areas for median household income:

Rank Metro Area 2011
1 Washington-Arlington-Alexandria, DC-VA-MD-WV 86,680
2 San Jose-Sunnyvale-Santa Clara, CA 84,012
3 San Francisco-Oakland-Fremont, CA 71,975
4 Boston-Cambridge-Quincy, MA-NH 69,455
5 Baltimore-Towson, MD 65,463
6 Hartford-West Hartford-East Hartford, CT 64,508
7 Seattle-Tacoma-Bellevue, WA 64,085
8 Minneapolis-St. Paul-Bloomington, MN-WI 63,352
9 New York-Northern New Jersey-Long Island, NY-NJ-PA 62,322
10 San Diego-Carlsbad-San Marcos, CA 59,477

Washington, DC remains the champion, even beating out the Bay Area.

Here’s the bottom ten:

Rank Metro Area 2011
1 Tampa-St. Petersburg-Clearwater, FL 43,832
2 New Orleans-Metairie-Kenner, LA 44,004
3 Memphis, TN-MS-AR 45,393
4 Miami-Fort Lauderdale-Pompano Beach, FL 45,407
5 Birmingham-Hoover, AL 45,635
6 Cleveland-Elyria-Mentor, OH 45,936
7 Orlando-Kissimmee-Sanford, FL 46,123
8 Oklahoma City, OK 47,023
9 Buffalo-Niagara Falls, NY 47,081
10 Louisville/Jefferson County, KY-IN 47,580

Here’s a map of median household income by state:

These maps speak for themselves. However, care should be taken in reading too much into them without further analysis. This is because these are unadjusted figures. Your actual standard of living depends both on what you make and on your cost of living. Many of the high income regions like the Boston have very high housing prices and so the actual story is worse than it appears. Joel Kotkin posted a list of income adjusted for cost of living that provides another view that should be considered.

Friday, September 21st, 2012

Some Additional Chicago Fixes

This article is part of the State of Chicago series.

At this point in my series, I want to highlight a few areas I’ve mostly written about elsewhere in detail, so will not repeat in full as posts in their own right.

1. Fix the Fiscal mess. The changes at the city level are a nice start, but there’s a long way to go. The state of Illinois has done little to address the structural problems it faces. With the worst finances in the nation at present, this item is critical.

2. Changing the Culture. I’ve written before about Chicago’s culture of clout. That is, Chicago has a unitary power nexus centered around the mayor’s office, and personal influence – guanxi if you will – is how things get done. This has been a positive in some respects in that it enables the city to get things done. Unfortunately, it doesn’t just matter if you can get things done, it also matters what it is that you do. And how you get things done ultimately matters as well. Cultural change is an imperative here.

3. Professional Services 2.0. I believe that Chicago should seek to (at least in part) look to reframe its economic development around its structural advantages. Centrality is one of these, for example. The biggest plank here is Professional Services 2.0 – figuring out how Chicago can dominate the next generation of professional services.

4. Infrastructure. Addressing the region’s infrastructure gap is key. From a transport perspective this means most importantly 1) finishing off the Red Line L reconstruction on the North Side, 2) completing the O’Hare Modernization Plan in a timing consistent with market realities – and on no account building a new major greenfield airport and 3) finishing off the CREATE project among other things needed to unclog the horrible rail bottlenecks in Chicago. Also, I believe the Chicago River needs to be re-reversed, and the watershed systems re-separated. This is needed to stop the Asian carp invasion among other things. All of these are very costly and I won’t pretend to know where the money will come from. But they are long term major projects needed for the region.

Thursday, September 20th, 2012

Where Do You Live?

Many of you know that I moved to Providence, Rhode Island, where I live in the town of West Warwick. I’ve been learning the place more and soaking in New England culture (and seafood). This area has a Rust Belt type profile: declining population, post-industrial economic landscape, high unemployment, etc. So I’ve been trying to get a handle on conditions and think a bit about what the opportunities are.

I have been really struck by the way people here seem to think about their geographic identity. All of us have various layers of identity. Some of these are more primary than others. But let’s consider three possibilities in trying to answer the basic question “Where do you live?” Those are your state, your metro, or your town. Which of these forms the most important basis of identity?

My observation so far is that most people here think of themselves first as Rhode Islanders, and secondly as residents of their town. Providence, possibly because at 178,000 people it’s fairly small, is sort of seen as just another town. (Southern Massachusetts is maybe seen as a type of Canadian province with its own collection of towns).

So what? you might ask. Unit recently I probably would have said that it doesn’t matter that much. But now I see that it has a profound effect on creating the lens through which people process the world. Here are some local implications.

First, it leads people to exaggerate the uniqueness here. Rhode Island is geographically the smallest state, and also quite small in population. I heard people say that only in Rhode Island can you get pretty much every leader in the place to show up for a conference on the state’s economic future. If your worldview is the state, that may be true. But if your worldview is metro area, I think there are many similar sized regions that could pull this off. There are many things that appear unique if your lens is Rhode Island that are not if your lens is Metro Providence. It may be that there’s uniqueness in the small geography of Rhode Island from the standpoint of state policy, but if I may be so bold, this is hardly its strong suit. (But for a positive example of how this can work in a place like Rhode Island where it’s more difficult elsewhere, see the example of pension reform).

Second, the economic geography of the new economy is metro regions. When you look state first, you are missing the bigger picture. If you doubt that the metro area is the primary economic unit, I suggest spending some time perusing material over at the Brookings Institution. States are more or less irrelevant economically, except that they can screw things up for the metro and non-metro regions they contain.

Third, Providence is a bi-state metro area that includes Southern Massachusetts. You can also see Providence as an extended node in the Greater Boston economy. If you look primarily at the state, you miss this, or even see Massachusetts as the competition. You also lose about 60% of the population scale you have to work with.

Fourth, when you look state first, your natural inclination is to compare yourself against other states. In Rhode Island’s case, there really aren’t many similar places, so the default is other New England states. On the other hand, one can imagine many similar Rust Belt type metros to compare Providence too. Places like Buffalo, Pittsburgh, and Cleveland come to mind. Of course these aren’t exactly the same, but they’ve been grappling with the legacy of de-industrialization seriously for a really long time. There have got to be many things that could be learned by studying and networking with these areas. There’s a lot of pan-Rust Belt discussion going on these days, but Providence isn’t part of it. This is part of that new economic geography of cities I was talking about.

In short, I think treating state identity as primary has problems. Rhode Island is most certainly not the only place where this crops up, but it is noticeable here and perhaps more important here since the state is a subset of a metro geography instead of a superset.

Wednesday, September 19th, 2012

Anatomy of Los Angeles

Here’s an interesting 1969 video from French TV on Los Angeles. Not only does it contain some great footage of the city from that era, but a number of interesting observations. In French with subtitles. The subtitles are in closed captioning, so hit the “CC” button on the bottom control bar to turn them on. If the video doesn’t display, click here.

h/t Kaid Benfield/NRDC. Check out his commentary.

Report from Rhode Island

I’ve posted a number of historic “newsreel” type city documentaries in the past. Here’s another one, this time of Rhode Island. This video was made sometime during World War II. If it doesn’t display for you, click here.

Comments Off on Anatomy of Los Angeles
Topics: Historic Preservation, Urban Culture
Cities: Los Angeles, Providence

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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