Friday, June 27th, 2014
A few interesting studies were recently released that I wanted to highlight. The first is from the Manhattan Institute, and is called “America’s Top Metros: Who’s Leading the Economy and Why.” It looks at recent metro area performance during the 2009-2012 period. I find this one of interest because it is balances horizontal and vertical measures of urban performance. Often people looking at cities talk past each other because some emphasize “horizontal” measures around total quantitative growth in jobs or population while others look at “vertical measures” such as per capita GDP or per capita income. This study blends both, looking at per capita GDP, per capita income, and job growth.
Maybe as a result of this balance approach, the cities doing well and doing poorly are a diverse lot without a one size fits all model. Among the commonalities they did see, they noted that successful cities tended to have higher educational attainment; a higher professional, scientific, and technical job share; more large corporate headquarters, and less dependency on government spending in an era of state and local fiscal retrenchment. Laggards suffered disproportionately from over-dependency on housing construction. The also found that while the Rust Belt was quick out of the gate as manufacturing rebounded, it’s tailed off of late, a classic pro-cyclical pattern we’ve seen before.
My favorite part is that they stress that there’s no one size fits all model, telling metro areas to “know thyself”:
Every local economy has strengths and weaknesses. Some, like taxes and regulations, can be changed by policy. But others are inherent in the nature of the place. You either have oil and gas beneath your feet, or you don’t. You may want to trade smokestacks for cutting-edge tech and “clean jobs,” but you don’t have the needed critical mass of talent, research institutions, venture capital, and entrepreneurs. On the other hand, you may be better than any other MSA at making something the nation (and world) needs: think of Grand Rapids and office furniture. Just as there is no single route to success, every community has to evaluate its existing strengths and figure out how best to draw on them for growth over the long term. Targeting an industry like technology only works for MSAs that have strength and support in that area.
The second study is from the Brookings Institution and is called “FDI in U.S. Metro Areas: The Geography of Jobs in Foreign-Owned Establishments.” As the name implies, it looks at the impact of foreign owned enterprises on large US metro areas, specifically on employment impact. This is a data rich study that for the first time I’ve seen makes information like that available.
A few highlights popped out to me. One is that new greenfield investments from foreign firms are not a net new source of jobs. Almost all of the foreign impact comes through M&A (mergers and acquisitions). Of course, subsequent to using M&A to gain a foothold in an area, possibly with job losses involved through consolidations, firms can later invest to grow their presence. Another tidbit is that manufacturing still accounts for about half of FDI investments.
Brookings basically suggests that FDI is not a panacea and probably not much effort should be expended on it as such. Rather, foreign firms are attracted by the same things as domestic ones, so by doing things such as improving infrastructure and boosting local industry clusters, FDI is then attracted.
They also highlight what I think is an important vector in FDI, namely using a foreign corporate presence to build global connectivity. As the study puts it:
In two key respects the foreignness of FDI itself is important: It brings with it exposure to new knowledge, customs, and practices, and it establishes trade and investment linkages between regions globally. In the process, FDI can increase the global fluency—which is itself an increasingly important determinant of regional competitiveness in the modern economy—of host regions. The foreignness of FDI therefore serves to integrate its host regions more fully into a rapidly globalizing economy where 85 percent of economic growth through 2019 is projected to occur outside of the United States—even if the capacity to take advantage of the opportunity varies by region.
You’ll definitely want to see where your region stands on this.
I also want to briefly point you to the Chicago Fed’s, Industrial Cities Initiative project. They just issued a major report with profiles of ten historic manufacturing cities in the Chicago Fed district, including Joliet, Fort Wayne, Racine, Green Bay, and Grand Rapids. For people in small to midsized industrial cities, this is a good resource.
Lastly, the Chicago Council on Global Affairs just released a study on Midwest immigration and how it is helping to offset aging and declining workforces in various communities. I haven’t yet had the opportunity to digest this one, but wanted to pass it along anyway.