Thursday, March 27th, 2014

The Urbanophile Interview: Louisville Mayor Greg Fischer

I recently sat down to talk for about half an hour with Louisville, Kentucky Mayor Greg Fischer. We had a wide ranging discussion that ventured from branding to globalization, regionalism, talent attraction, legacy, and more. If the audio player below doesn’t display, click here for the MP3 file.

Mayor Greg Fischer. Image via Wikipedia.

Here are some edited highlights of our discussion. For those who prefer reading to listening, a complete transcript is available.

On an economic development partnership between Louisville and Lexington, Kentucky’s second largest city:

[Globaization] is central to who we are as a city. We have a very high export ratio here. We out export, we punch above our weight if you will, as a city. My background is one as an international business guy and we’ve spent a lot of time growing a broader regional economy. The city of Lexington and Louisville have a joint economic development plan that we did with the Brookings Institution called BEAM, Bluegrass Economic Advancement Movement. And a central thrust of that is growing exports throughout the region. We have people that go out and help businesses understand that’s the way of the future.

As a business guy, I’ve been more of a small, medium sized business person, 500 employees and below, so frequently I would compete with large, multinational corporations. When you start your career, you’re like, “My gosh, how can I compete against this firm that’s got manufacturing plants or offices all over the world and 10,000 employees?” What you find is as a small company, you have a lot of advantages that the big company doesn’t have. You’re closer to the customer. You’re nimbler. You can speak for the company.

So when you take a look at the challenges of a state like Kentucky, we’re not one of the biggest states. We’re certainly not one of the smallest, either. So what we’ve got to do is be excellent at partnering with each other internal to the state so that we can use that as a competitive advantage when we compete with other countries or other states for economic development. Louisville and Lexington combined metro region, including Southern Indiana, is about two and a half million people or so, more scale than just us at 1.3 million and certainly, more scale than just Lexington.

On regional cooperation with Southern Indiana:

When people move to Southern Indiana, they identify as moving to the Louisville area, typically. Our restaurants over here, our housing options over here are complementary to what’s in Southern Indiana so if a company is going to say, “Okay. I’m going to be in Southern Indiana or I’m going be in Missouri,” I want them in Southern Indiana.

Southern Indiana’s got some advantages that we don’t have. We don’t have that much open land left in Jefferson County. River Ridge, which is just opening across the river, is going to be helped by these bridges going in right now, these megaprojects, the Ohio River Bridges Project. It will be where a lot of these businesses are going to locate. I’d rather they locate there again than in some other state. So we win as a region because people live regionally. We’re happy to cooperate and brainstorm with Southern Indiana.

On how Louisville’s relationship with the state of Kentucky is evolving:

Evolving is the right term. Louisville produces about $2.4 billion a year of taxes and we get back $1.2 billion. Kentucky has been cited as the fourth most centrally controlled economy in the country in terms of states. In other words, sending taxes to our capital and redistributing them throughout the state. So it’s a challenge for us. I’m working right now to get the state constitution changed so that all cities and counties have the right to levy a local option sales tax where their citizens have the right to vote on specific capital projects, paid for in a specific way with that temporary sales tax sunsetting. Part of that is so local cities, whether it’s Louisville or Pikeville or anywhere in the state, could have more specific control over their built environment. So, that’s one way to address it.

Long term, we need some type of overall state tax reform. But in any state, you’re going to have an economic engine like we are here in Kentucky that contributes more to the balance of the state than what it is they generate. Our rural legislators are very good at teamwork, if you will, and our metropolitan legislators are not so good at teamwork. So they can be our own worst enemy in terms of directing more funds back to where they were originally generated – in this case, Louisville.

On the local food scene:

It’s been an interesting way to see how the rural parts of the state and the metropolitan areas really appreciate the partnership that we have with our local food movement. Like many places around the country but particularly here, when you go into restaurants, you’ll see the origin of the food in terms of the farmers that they came from. We were the first city in the world that we know of to do a demand analysis for local food, how much local food do people want to consume here. We did that deliberately to help our partners in the rural areas of the state, the farmers, so that they can understand that they’ve got a big, growing market in the biggest city in Kentucky.

When we did this survey, no matter what somebody’s socio-economic background was, everybody supported local food. They said, a), it’s healthier and b), we want to help local businesses. So, it kind of busted this myth that local food, farmers markets, all this was just yuppie kind of thing. Everybody appreciates good local food.

On why a 2014 college grad would choose Louisville over other cities such as Cincinnati or Nashville:

One, you want to take a look at the culture of the city. Are you going to be able to fit in? Are you going to be able to make a difference? You know, not every city is perfect for every student. So, is there a connection? Do you like our art scene? Do you like our local food scene here? What about the innovation we’re doing with the makerspace, for instance? Because I think we’re among the best in the country in that regard.

Take a look at the economic development clusters that are important to a city. In our case, are you into lifelong wellness and aging care, or food and beverage, or logistics and e-commerce, or business services, advanced manufacturing? Where is that fit for you? I can guarantee if you’re going to live here, you’re going to have a good quality of life and enjoy yourself, but are you going to be able to be employed in a meaningful way?

Any city that says they’re everything for everybody is being disingenuous. It’s just like a company. When you look at the city, find a place whose values mirror yours and whose opportunities mirror your interests at the same time. Make sure it’s got a beautiful, natural environment like we have here that’s full of nice people, and then you’ll have a good place to live – and it would be nice if it was Louisville.

There’s a lot more where this came from so listen to the whole thing or read the complete transcript.

Some may be wondering about the Ohio River Bridges Project. There were no restrictions on what topics I could ask about, and I haven’t changed my opinion on it. But I felt the discussion time would be productively spent elsewhere so did not ask about it.

Tuesday, March 4th, 2014

The Bentonville, Arkansas Effect by Eric McAfee

[ It's frequently alleged that Wal-Mart is a destroyer of small towns. Today Eric McAfee of American Dirt takes a look at Wal-Mart's home town of Bentonville, Arkansas to see what its effect has been there - Aaron.]

It is a truth universally acknowledged that, from the perspective of urban sociologists and planners at least, major discount retailers such as Walmart have thrived on the destruction of commercial activity in traditional town centers. No doubt my assertion borders on exaggeration, but it would have to, considering I’ve cribbed Jane Austen’s famous (and equally ironically hyperbolic) first seven words to Pride and Prejudice, in which a man’s search of a wife sets a blithe tone for much of what follows. By contrast, the unceasing diatribes against Walmart from urban advocates are rarely whimsical. And while not every high-profile writer/blogger on urban affairs excoriates Walmart, the general tenor of the discussion ascribes much of the decline of downtown retail to the much-maligned megachain. After all, virtually every freestanding small city in America over 20,000 people that is not part of a larger metropolitan agglomeration can claim a Walmart, perched at the edge of the municipal limits. And yes, the burgeoning of Walmarts does more or less coincide with the near abandonment of historic, pedestrian-scaled main streets in favor of car-oriented commercialization consolidated into big-box department stores.

But did a corporation—or the corporation—really cause all this?

If the average American consumers genuinely cared enough about Main Street or the courthouse square, wouldn’t they have shunned this commercial cataclysm before it radically altered the entire landscape? Wasn’t it the consumer that ultimately fueled Walmart’s meteoric growth, by opting for the convenience of everything under one roof, abundant free parking, and (perhaps the most objective factor) those famously low prices? Some might argue that I’m unreasonably throwing Walmart a bone, since the folks at the boardroom table clearly knew what would happen to Main Street, as department-store big-box shopping encroached on communities that commercial developers had previously perceived as too modest in size to support this retail typology. And, yes, I recognize the firm’s historic opposition toward unionization, its eventual reneging on a long-standing “Made in America” pledge, and even the management of logistics/merchandising favoring the automatization of functions that once provided communities with stable jobs. Maybe I am cutting Walmart some undeserved slack. But I also think the corporation’s biggest critics fail to recognize that Walmart didn’t become a leviathan overnight, any more than these towns devolved from flourishing to failures with the flick of a light switch.

My own articles on main street America have explored the topic routinely. But it took a visit to Bentonville, Arkansas to develop a more nuanced understanding of Walmart’s approach to community engagement right at the belly of the beast.

My suspicion is that, until probably around the year 2001, 98% of Americans hadn’t heard of this well-scrubbed little municipality in the northwest corner of the state, just a stone’s throw from the rugged topography of the Ozarks. Even today, if people are familiar with the town, it is only because it hosts the corporate headquarters for the world’s largest retailer. And there’s nothing wrong with this seemingly simplified association: after all, one would be hard-pressed to find anyone in Bentonville who would argue that the city is better known for something else. But what sort of impact has Walmart’s presence exerted on what otherwise would likely be a nondescript, mid-southern county seat?

Not surprisingly, the influence has been formidable. I mention the year 2001 because, upon publishing the results of Census 2000, the nation learned that the Northwest Arkansas Metropolitan Statistical Area (consisting of the primary cities of Fayetteville, Springdale, Rogers and Bentonville) had become the sixth-fastest growing region in the nation. While a Census update isn’t the sort of news item that necessarily grabs the public by its lapels, it can flirt salaciously with the unconscious and, eventually, through mimetic repetition, penetrate to the conscious. With each passing year, Bentonville has grabbed the headlines more often, as decisions from the Wal-Mart Stores, Inc. Home Office exert a greater impact on the global economy. I would hesitate to assert that the name “Bentonville, Arkansas” is common knowledge to the same level that a similarly-sized city such as “Beverly Hills, California” might be, partly because the similarities between these two places basically stop there. But its star is rising on both the national and international horizon, since many of Walmart’s foreign retail ventures have proven just as successful as their domestic efforts. And Bentonville, predictably, has enjoyed its share of the region’s growth: at over 35,000 people in 2010, it more tripled its population since the 1990 census, and, as recently as 1960, it was a quiet village of barely 3,500 people.

The impact on this growth is obvious, particularly when viewing the street configuration.

The shift from a conventional grid to a more hierarchical arrangement is conspicuous and unsurprising.The oldest part of the city adopted the grid, which was customary for shaping virtually all communities in the 19th and early 20th century. Yet 80% of Bentonville’s city limits (which extend in all directions beyond the boundaries in the image above) fits the more expansive, automobile-oriented configuration, in which streets curve and wend, sometimes into hairpins, sometimes into full loops. Often they terminate as culs-de-sac. For a municipality that remained a modest village until the 1950s, this growth pattern is normal and broadly characteristic of numerous Sunbelt communities.Thus, the city of Bentonville has decentralized considerably in the last fifty years, in addition to hosting the global headquarters to the retail behemoth most regularly flagged as the culprit in expediting the demise of downtowns. Given these two factors, one prevailing question remains: what on earth does its beleaguered town center look like?

Chances are, you’d be as surprised as I was.

It looks terrific.Nearly 100% occupancy, clean sidewalks, a well-manicured streetscape. And virtually of all the retail mix—from bike shops to brasseries, yoga studios to yogurt cafes, tea rooms to trattorias—caters to an upmarket clientele, suggesting that the leasing rates are fairly high.

The culminating attraction, however, is the humble storefront that spawned it all:

Sam Walton’s original five-and-dime now serves as the Walmart Visitors’ Center and a mini-museum, with interactive exhibits and the recreation of a soda fountain.

These pictures date from a summer festival on the central square, taken a few years ago, in 2010. Though they are obviously a bit faded by now—not all of the visitor attractions were open yet during my visit—I can say with a fair amount of confidence that downtown Bentonville is even stronger today. After all, most estimates show the city has continued to grow another 10% since the 2010 Census results, and, considering that it was demonstrating considerable resilience during the peak of the Great Recession, the downtown is likely only to build on a momentum it had established long before the bubble burst. A detractor might challenge my assertion by arguing that I captured the city during an atypically vibrant time, when out-of-towners had flocked to the city for the summer celebration on the courthouse square. But how could the downtown support a high concentration of restaurants, cafés and boutiques if it weren’t lively during the other times of the week as well?

The fact remains that downtown Bentonville boasts a number of civic associations that have worked tirelessly to boost its cachet, including Downtown Bentonville, Inc, a nonprofit association that promotes, attracts investment, and plans activities for Bentonville’s historic downtown, as well as the Bentonville Merchant District, which seeks to attract upscale traveling merchants through the provision of Class A office space and furnished loft-style apartments close to the city center. The city also has a Convention and Visitors Bureau and a Chamber of Commerce. These organizations have no doubt worked tirelessly to re-centralize investment in Bentonville’s small downtown, even as the vast majority of the population growth over the last two decades has taken place in the purlieus. By most metrics, their efforts have paid off. But plenty of other similarly sized cities can claim the same business associations without these results; I blogged about Jefferson City, Missouri earlier this year, a small city whose civic leaders have collaborated to promote the downtown. However, the results in Jefferson City, while palpable, have been much more modest than Bentonville—and it is nothing less than the state capital.

Bentonville is simply part of a region that is enjoying a persistent economic boom. The other primary cities in this unusual metropolitan area—Rogers, Springdale and Fayetteville—are also growing like mad. It doesn’t hurt that the region is home to two other nationally prominent companies: Springdale’s Tyson Foods, the world’s largest meat producer, and trucking giant J.B. Hunt Transport Services, Inc., based in the town of Lowell, which abuts Rogers. But the real cog in the wheel remains the world’s largest retailer, headquartered in Bentonville, and I still suspect the corporation and its numerous investments has more to do with downtown’s vibrancy than the tourist bureau. Walmart undoubtedly prefers to associate its name with a municipality that enjoys a profile of prosperity and high quality of life; the company will do what it takes to maintain that image within Bentonville.

So what is the visual evidence that this isn’t just a run-of-the-mill boomtown? Beyond from the picture-perfect courthouse square, the air of plentitude permeates the city.

However, it isn’t just the park spaces that distinguish the more recently developed outer reaches of Bentonville; all the spaces in between have received above average treatment as well.

So a city street has sidewalks. Big deal, some might say. But it is out of character for low density, hierarchical, auto-oriented development in the South to make any concession for pedestrians, let alone a full network of sidewalks along all of the major streets. Compare Bentonville to just about any other city in Arkansas (outside of the Northwest) and you’d be hard pressed to find sidewalks on any arterial or collector roads beyond the historic original
street grid. Both the Department of Parks and Recreation and the Department of Planning in Bentonville have determined that core pedestrian access remains critical, even when the development pattern is sparse, in keeping with the preferences of the majority of people who settle in this part of the country. The former of the two aforementioned departments reveals that it has conceived network of parks, greenways and biking trails rivals that of a community three times its size.

Meanwhile, the latter-mentioned planning department has several aces up its sleeve as well. While it isn’t unheard of that a city might support a 76-page Bicycleand Pedestrian Master Plan, a Smart Growth Guidebook, or a Traffic Calming Guidebook, it certainly places the city well outside the bell curve when juxtaposed with its peers. After all, even the neighboring city of Rogers (pop. 55,000) shows no evidence that its planning department has the resources even to conceive of such initiatives.

The aforementioned features are hardly likely to elevate anyone’s pulse; they aren’t exactly competing with Manhattan’s High Line for infrastructural innovation. And it’s unreasonable to surmise that Walmart had any real influence on what remain purely publicly owned assets. But one structure in Bentonville is likely to turn the head of even the most skeptical coastal snob: the Crystal Bridges Museum of American Art.

The structure was not complete when I visited Bentonville in 2010, but it opened to the public in late 2011, and made international headlines for both its novelty (first major American art museum to open in 50 years, and the only one in an over 100-mile radius) as well as its magnitude (over 200,000 square feet of space on 120-acre grounds and a collection valued in the hundreds of millions). The striking edifice reaches Bentonville courtesy of internationally recognized Israeli-Canadian architect Moshe Safdie. Perhaps most importantly though, it is resolutely the vision of Alice Walton, daughter to founder Sam Walton and heiress to his fortune. In one of many interviews she offered at the time of the museum’s opening, Walton, who has been an art collector most of her life, acknowledged that she wanted to make a difference in this part of the world by bringing “something we desperately need”. She contributed over $300 million to the project, built on family land. Admission to the museum is free, but because of its destination status, visitors will typically linger, travel the grounds, shop, buy a meal. A Huffington Post article from the museum’s infancy concluded that the museum would skyrocket past its estimated 250,000 first-year visitors, based on the success after just three months open to the public.

If Crystal Bridges Museum lives up to its promise as an attraction of national or even international caliber, Bentonville clearly needs the tourist infrastructure to support those visitors. But it would appear it already has it. Just down the road, in neighboring Rogers, an Embassy Suites Spa and Convention Center flanks one side of the interstate; the Pinnacle Hills lifestyle center sits on the other. And, earlier this year, the sleek 21c Museum Hotel, famous for the prominent positioning of contemporary art, opened right off of Bentonville’s courthouse square – only the third of its kind in the country. (Louisville and Cincinnati claim the other two.) Many of the amenities that have sprouted across Northwest Arkansas over the last twenty years are in keeping with a metropolitan area of nearly a half million people; of course it has a mall, convention center, and a seasonal symphony orchestra. But while growth trajectory of the metro might resemble that of Phoenix or Las Vegas, no single municipality has spawned everything here in Arkansas. As of 1950, only college town Fayetteville had even 10,000 people. The other towns—Lowell, Rogers, Bella Vista, Johnson, Springdale, and of course Bentonville—were isolated villages that boomed simultaneously, swelling their incorporated boundaries until they touched one another. As a result, Northwest Arkansas may be the country’s youngest conurbation: a 35-mile string of small cities—a microlopolis. (The only comparable phenomenon I can think of domestically would be the Texas border towns along the Rio Grande, but even Brownsville and McAllen were more than villages fifty years ago, and they’re big cities over 100,000 people now.)

The rapid ascension of these communities into a regional economic powerhouse—with the amenities one might from a single, medium-sized city—may very well neatly manifest the multiplier effect. But it still doesn’t explain how Bentonville, the epicenter of Walmartlandia, has managed to hold its own with a lively downtown, when plenty of other fast-growing big cities struggle to keep it all centralized (Houston, for example). After all, in one of the most famous journalistic explorations of Northwest Arkansas, Financial Times’ “The Town that Wal-Mart Built”, Jonathan Birchall observed in 2009 that he always found it “hard not to be hit by the irony in this Bentonville Renaissance. Wal-Mart’s football-stadium-sized supercentres are, after all, the epitome of the chain store culture that has destroyed small town centres and homogenised communities all over America in the past three decades.” But it sounds like he took the bait.

The town that Walmart built has either proven itself immune to the main-street-murdering forces that afflicted most American cities, or it has recovered from that ailment magnificently. Bentonville also boasts a regional airport that offers year-round, nonstop daily service to New York, Los Angeles, and Chicago; Alice Walton’s money helped build the terminal, which serves a population that had no regular airfare until 1998. Bentonville Public Schools have offered the prestigious International Baccalaureate program since 2007. And yes, Bentonville has a Walmart not so far away, in what probably was the edge of town not too long ago.

By this point in such a lengthy analysis, it’s obvious what has happened: Bentonville has responded to the fact that it hosts a multinational corporation by offering the sort of amenities needed to attract talent to the region—talent that, its current leadership presumes, will propel Wal-Mart Stores, Inc. to another fifty years of unprecedented growth.

Most MBA grads trained at Harvard, Wharton or Kellogg are going to need enticement to move to an area not recognized for its urban offerings. On top of all the talent in multinational retail, Bentonville and its neighbors most also graciously host the satellite offices of 1,300 suppliers whom Walmart has lured due to its vast trade network—ranging in size from one sales exec to something as large as Procter and Gamble, for whom a few hundred employees call Northwest Arkansas home. The elite business class that routinely visits the Walmart headquarters expects top-tier hotels and shopping, while many of the executives who make it
their permanent home will inevitably seek sophisticated eateries in an attractive, walkable setting. How much of all this was funded directly by Walmart is anyone’s guess (though I’m sure at least someone out there has the numbers). The fact remains that the corporate culture in Bentonville fueled a demand for a Parks Department that builds a network out of its green space, or a Planning Department that performs traffic calming studies.

The hardened cynics can read about this serendipity in the Ozarks and offer an acerbic rebuttal: of course Walmart is going to prop up its hometown, but does that absolve it from the devastation that has taken place virtually everywhere else? This assertion would be valid if every town with a Walmart suffered an equally moribund Main Street. But they clearly haven’t. And there remain villages too small or too remote for a Walmart, which have confronted the exact same decline of entrepreneurism in their historic centers. Arguing from that same angle, the City of Bentonville did not enjoin Walmart to revitalize downtown—or force Alice Walton to build Crystal Bridges—any more than existing laws compelled Cornelius Vanderbilt to endow a university in Nashville, the capital of a state he never even visited. No doubt some of Walmart’s boosterism in Bentonville is self-serving, since a desirable community only helps to improve Walmart’s reputation as both an employer and corporate citizen, which in turn can attract further investment. However, viewing all corporate altruism as suspicious requires a labyrinthine recontextualization that is just as distorted as saying “Walmart killed our downtowns”. Or its equally hyperbolic counterpart: “Walmart has had no impact on the way we shop on main street”. Clearly it has, but the forces compelling consumer behavior remain complicated—baffling even. For while most of us can understand that we abandoned our old downtowns out of convenience and lack of foresight,
no one will ever truly be able to explain want prompted many American consumers
to give up their cars so they could return to bicycles. And if you don’t think I’m concluding ironically, I’ve got a Jane Austen novel to sell you.

This post originally appeared in American Dirt on October 16, 2013.

Thursday, February 27th, 2014

UAW Loss at Volkswagen Shows Why Unions Need to Reinvent Their Business Model

Workers at Volkswagen’s Tennessee auto plant voted down representation by the UAW last week, a result the Detroit Free Press labeled a “devastating defeat” for the union. Conditions were as close to ideal as possible for the UAW to organize a Southern auto plant. For one thing, VW, prodded by the labor representatives on its supervisory board (German companies operate under a co-determination regime in which unions hold half the seats on the company’s board), tacitly endorsed the UAW’s organizing drive. The company even allowed the UAW into the plant to make pro-union presentations, something not afforded to employee critics of the union. Beyond pressure from Germany’s IG Metall union, VW wanted to set up works councils to help guide the plant, something forbidden by America’s archaic labor laws that only permit outside unions to represent workers.

There was some kerfuffle over local government officials in Tennessee urging the rejection of the UAW, and hinting that signing on to the union would lead VW to stop future investments. The UAW is asking the National Labor Relations Board to void the election because of that. The claim appears specious, but with the heavily politicized NLRB, anything is possible, particularly if VW refuses to mount a defense in order to aid the UAW over the wishes of its own workers.

But rather than outside pressure, it seems more likely that Volkswagen workers were already satisfied with their jobs. Beyond a works council, it’s hard to see what they would be getting. Pay is comparable to the Detroit Three. Working conditions appear to be excellent. No one is complaining. It’s a very different situation from the sit down strike era in which by organizing the UAW was able to significantly upgrade the condition of labor, in the auto industry, but ultimately also in the country at large. The specter of the GM and Chrysler bankruptcies, along with the disastrous experience at an early VW plant in the US some years back which ultimately closed after UAW strikes, seems to have led workers to conclude that the ineffable benefits of unionization weren’t worth the risks.

This result has emboldened organized labor’s critics. For example, South Carolina Governor Nikki Haley said unionized jobs were not welcome in her state. Apparently even the Detroit Three’s management is worried about the union’s future.

What then should the UAW and the American labor movement do, at least with regards to private industry?

First, let’s get one thing out of the way. Who caused GM and Chrysler to go bankrupt? The blame clearly lies with management. Whatever the flaws of the union, they weren’t the ones charged with running the company. Management was. Other heavily unionized companies managed to make the transformation required to succeed. General Electric did it. Caterpillar, a UAW shop, did it. CAT fought a lengthy and bruising battle that left wounds which will never heal in Peoria, yet today they are an American industrial champion in the global economy. The automakers’ management by constrast never had the stomach for tough choices or tough fights.

Instead, their executives lived like kings. The stories I’ve heard from friends who worked at these companies blows my mind. My one friend, who was a manager at GM, had to collect a company Escalade, pick up an executive’s wife at the airport, and chauffeur her around shopping on Michigan Ave. in Chicago during the auto show. He also had to make sure the exec’s hotel room was properly prepped with the right drinks and chocolates. Another friend told of buildings at Chrysler in which there were doors you could only use you were above a certain classification level in rank. The order of the names on memos had to be in the correct pecking order. On and on. Even if these were exaggerated, the various stories from different people in different companies – all of which happened during a time in which these companies were in steep decline – shows an extraordinarily arrogant management culture.

Nevertheless, it’s still difficult to see the relevancy of traditional union models to the modern American workplace. The VW vote shows that they have little to offer, and perhaps might even be a negative. In fact, the enthusiasm of IG Metall for the UAW might not be all that it seems. They represent German workers. And it’s in the best interest of those workers to make American plants inefficient so as to reduce the incentives to offshore from Germany to America. Keep in mind, for VW, America, like Eastern Europe, is a low cost location.

If you look at it, unions may be on the last institutions in America that haven’t rethought their business model for the 21st century. They still want to play hardball to organize, then insist on things like crazy work rule systems and puristic seniority pay structures, political advocacy, etc. What has that gotten them? The private sector is down to like 6% unionized, much of it in industries that are increasingly subject to foreign competition and thus whose management cannot give much away without sabotaging their business.

But could there be a role for unions if they rethought their entire approach? I Think there could be. We keep hearing about a workforce gap in skilled technical workers. We also have a collegiate model of education that’s churning out too many semi-employable graduates with mountains of debt they can’t pay back. And companies increasingly what “just in time” labor the way they want just in time delivery of materials. Why can’t the unions be part of the solution to this?

If unions repositioned themselves as the go to place for skilled labor – or even just workers who can pass a drug test and are able to operate at the level of expectations for the modern factory in a low skilled context – this would be a hugely valuable service.

The one part of the union movement that still seems to be doing fairly well is the trade unions. Many of them have long operated on this model. You get into the union where the union trains you and are staffed on a project basis (e.g., constructing a bridge). The union delivers your benefits and pensions, based on payments from the employers. While this system does have its problems – witness the recent racketeering indictment of Philadelphia ironworkers for violent intimidation (they called themselves the THUGS, The Helpful Union Guys, I’m not making this up) – but in general when I ride an elevator up to the 50th floor of a skyscraper, I’m glad it was built by union labor.

Trade unions and their hiring halls are basically contract consulting providers of the type that routinely provide technical employees to major corporations. Why can’t other unions, reconstituted as a type of worker’s collective, do the same thing? And unlike contracting firms, they wouldn’t have to take nearly as big a middleman’s cut.

This is only one speculation of course. But the need for unions to reinvent their business model into something that’s relevant to the 21st century economy is urgent. With continued declines in membership and the rise of right to work laws in places like even Michigan and Indiana, they’d better figure it out fast before it’s too late.

Friday, February 21st, 2014

The Great Urban Divide, Michigan Edition

I’ve said many times that it is predominately larger metropolitan regions of 1-1.5 million people or larger that are best positioned to succeed in the global economy. This is in effect the minimum viable scale to compete. These cities have bigger talent pools, thicker labor markets, the right infrastructure (e.g., major airports) and amenities, bigger local markets, more specialized suppliers, and more entrepreneurial ferment. Smaller places that don’t have a unique asset (such as a major university) are going to struggle.

We see that on display again in Michigan, where Battle Creek based Kellogg’s is opening an operations center in Grand Rapids. This will employ 300-600 people, including some transferred from the headquarters. As the company put it:

Kellogg CEO John Bryant told The Grand Rapids Press/MLive they chose Grand Rapids for the new center after looking at nine possible locations around the U.S. as part of a new corporate restructuring initiative dubbed “Project K.”

Bryant said the company chose Grand Rapids because 40 other corporations have created similar service centers in the area, creating a labor pool from which Kellogg hopes to draw.

“We’re very excited about the Grand Rapids location. There’s a good population base for this sort of activity,” Bryant said.

Leaders in Battle Creek are angry about the company choosing to open in nearby Grand Rapids:

“This was a unilateral action by the Kellogg Company,” [former Battle Creek mayor and U.S. congressman Dr. Joe] Schwarz said Monday, “blindside, if you will. And that’s not the way people in Battle Creek, especially those that have been here a long time and worked with Kellogg on so many issues like myself, that simply is not the type of behavior we’ve come to expect from the company.”

At the time, Jim Hettinger was CEO of Battle Creek Unlimited. In a column for the Battle Creek Enquirer, Hettinger expressed his frustration over Kellogg’s announcement, saying the city has continually gone to great lengths to accommodate the company’s needs.

I understand the frustration, but at the end of the day, this is the reality of the modern world we live in. We see similar business decisions every day. Kellogg’s is in Battle Creek for historical reasons. There’s no way the company would ever choose to locate there today. The changing demands of the global marketplace create a need for skills that are easier to find in or lure to a place like Grand Rapids (metro population one million) than Battle Creek (metro population 135,000). That’s reality.

Note here that cost is simply not the issue. Both Grand Rapids and Battle Creek are lower cost locations. It’s clearly about being in a place that has better scale to serve the needs of a business serving upwards of 600 white collar employees.

This divergence understandably fuels resentment and bitterness within states, as I noted in a recent column in Governing magazine. I frequently find that to locals it’s particularly galling when a company does something like this within the state boundaries. Had Kellogg’s opened in Austin, Texas, I strongly suspect Battle Creek wouldn’t be nearly so bitter. I’ve long noted the same thing in Indiana, where smaller towns and cities would far rather see an out of state company buy their local bank or whatever than have an Indianapolis company come in. (Though I’ve also noticed this has changed for the better in the last 20 years). The reality is these jobs could have left the state entirely. Had Grand Rapids not been there, they probably would have.

This is one reason I have pounded the table for more expanded regional thinking by the likes of Grand Rapids. It’s not an easy problem, but if they can’t demonstrate that there’s a win-win in here somewhere for regional metros like Kalamazoo and Battle Creek, resentment will become entrenched. This can be difficult because the answers aren’t obvious and places like Grand Rapids – which itself is of marginal scale and what’s more not on the trade routes in the way a place like Columbus, Ohio is – are pedaling hard to just to make sure they themselves can make it. But longer term I think it’s imperative.

In the meantime, it’s important for state leaders to understand and respond to these realities. If they don’t, they will only drive business out of the state completely, just like effectively Indiana’s entire banking industry got gobbled up with little to show for it.

PS: One exception I’ve noted to this rule: Chicago. I didn’t seem to hear the same anger from Decatur over ADM that we see here. I think in part it’s because they understand Chicago is just a far different place than them. It’s such a unique city that losing a small executive headquarters doesn’t even seem like genuine poaching. Plus the entire leadership of the state is Chicago-centric, and and their top priority is building up global city Chicago.

Sunday, February 16th, 2014

What Entrepreneurs Want

A new study from Endeavor Insight called “What Do the Best Entrepreneurs Want In a City?” has been making the rounds. They interviewed 150 founders of fast growing companies in America to determine what those founders valued in a place to start a company.

Their conclusions are probably not news to most. Most people started companies where they already live (i.e., they didn’t move somewhere to start one), the most important thing they wanted in the city was access to talent, and the second thing was access to customers and suppliers. The report highlights that taxes and regulations were not major considerations. Quality of life items were mentioned by many. The “vast majority” of founders were in metro areas of over one million people and they were described as “highly mobile as young adults.” Their very direct conclusion stated up front is: “We believe that the magic formula for attracting and retaining the best entrepreneurs is this: a great place to live plus a talented pool of potential employees, and excellent access to customers and suppliers.”

This got a lot of press because it supports the standard urbanist narrative. And while I think there’s significant value and truth here, it’s important to drill down to understand the limits. Since many others have already touted the headline findings, I’ll take care of the caveats.

First, the reason people gave for picking a city to live was most frequently having “personal connections” or “specific quality of life factors.” The report doesn’t break down who said what, so we don’t know the ratio of these or their overlap. It shouldn’t be any surprise that personal connections such as being born in a place, family, etc. play a dominant role in people’s decisions on where to live. As for quality of life, I’ve yet to visit a place where people don’t boast of it. Think about it, how many people live in a place they think sucks, even if they do have a connection there? Some, surely (say a child moving to a place he doesn’t want to live to care for an aging parent), but I suspect not many. I think it’s natural for people to brag about the quality of life in places where they live, so I wouldn’t read too much into this. Based on what the report actually says, personal history or connections could overwhelmingly account for location decisions, with quality of life mostly an overlapping secondary indicator.

The companies whose founders were interviewed weren’t specified. It was only said that they were on the Inc. 500, had an average of 100 employees and $20 million in revenue, and had revenue growth of 600%. In other words, these are predominantly early to mezzanine stage companies. Unsurprisingly, a big concern of new and smaller companies is finding customers and suppliers, as well as employees. Often these firms are not even profitable, so things like taxes are irrelevant. But no customer means no company. And small, rapidly growing firms can’t afford to carry a lot of deadweight employees. Traditional business climate items generally loom larger as companies mature and already have an established customer, supplier, and employee base.

It may be that these companies tended to stay located where they were founded when they reach maturity, but that doesn’t mean they grew their operations in that place. That’s why Silicon Valley has fewer jobs than it did back in 2000 even though its companies have thrived. Many of them have grown their jobs base in places like Salt Lake City and Austin.

Additionally, the survey says the companies represent dozens of sectors, but doesn’t give a lot of detail. However, “media” and “software” were mentioned. Also, the among those founders citing talent as a key location factor, “technical” talent was the most commonly mentioned.

This implies to me that tech/media startups loom large in this survey. If true, this would also explain the lack of concern around business climate items. These industries are among the most lightly regulated out there. There have even been specific legislative exemptions to keep the internet space clear of regulation and taxes (such as on internet retail). Most communities think tech startups are key to their future, so bend over backwards to cater to them. You don’t need complex permits to start a tech company.

This means the business climate for technology firms and startups can be very different from what is experienced by other businesses. For example, a recent Rhode Island PBS roundtable featured executives from Hasbro and Banneker industries lamenting the state’s attitude towards business while Allan Tear of tech accelerator Betaspring took a much more positive view. They are all probably right. Life’s probably great if you’re Betaspring, but not quite so good if your company’s name includes “Industries” in it. In short, the experience of tech/media startups is relevant mostly only to other such startups.

Blogger Alon Levy once made a provocative observation that one reason India specialized in software and BPO industries was because those were the only ones that are viable in a country without much infrastructure. The China manufacturing strategy would be a non-starter there. You actually don’t need to invest much in real quality of life items like even universal sanitation or paved roads to have a tech cluster, as many cities in India prove. As long as you have an internet connection to other places you can sell your services to, you’re in business. (Did I mention that Indian outsourcing firms had a massive tax holiday on export revenues for an extended period of time?)

So media/tech are the companies naturally less likely to talk about old school type business climate items, especially when younger. But it’s worth pointing out what mature hypergrowth tech companies have tended to do at some point, namely put their European headquarters on the Emerald Isle where they can take advantage of the “Double Irish” and similar such techniques to all but zero out their tax bill.

I mention this because that the end of the report the authors cite a couple case studies to try to demonstrate the irrelevancy of taxes. Yet this study was in part funded by the Omidyar Network, the philanthropy of eBay founder Pierre Omidyar. Where is eBay’s European Headquarters? Dublin, Ireland. Think that’s because the CEO likes to drink Guinness?

I don’t want to suggest that talent is irrelevant or that taxes mean everything. I’ve clearly pounded the table on the opposite. But just because this survey flatters our conceits in such matters doesn’t mean we should take it to the bank. I see it useful information, but limited in scope to only a narrow segment of firms. I just don’t think this study justified the forcefully stated conclusion

Also, regarding the mobility of youth, this was defined from a Kauffman Foundation study that noted 75% of entrepreneurs started their company in a different city from where they received their final university degree. This is unsurprising and irrelevant. Colleges can be understood as “education factories” whose nature is to produce graduates. Much as actual factories export their widgets, colleges export graduates. This is especially true since many great schools are in proverbial “college towns.” I went to school at Indiana University which is in Bloomington. Bloomington is an awesome town, but how many of the 30,000+ students at IU can a town that’s otherwise only about 50,000 people absorb? This is a not very useful statistic of mobility in my view.

Lastly, the notion that regions of one million people or more are economically advantaged seems very right to me. In this regard, their survey foots to everything I’ve seen and written about. These cities have thicker labor markets, more talent, unique infrastructure (e.g., major airports), bigger local markets, more specialized suppliers, and more entrepreneurial ferment. I’ve long said that there’s a “minimum viable scale” of around 1-1.5 million people in a region you need to have to really succeed in the modern economy. Smaller places generally only have thrived to the extent that they’ve got a unique amenity like Bloomington’s Big Ten university. Since I took a critical eye towards this survey’s actual support for its findings, I thought I’d end on one where I think they hit it.

Thursday, January 30th, 2014

City-Specific Immigration Visas Would Be a Modern Day Indentured Servitude

An idea that’s been kicked around by many is to help turn around struggling cities like Detroit by offering geographically limited immigrations visas. That is, to allow foreigners get their green card if they agree to live in a particular city for a certain number of years.

Michigan Gov. Rick Snyder has now officially endorsed the concept, calling for Detroit to be awarded 50,000 city-specific immigration visas for skilled workers over five years. As the NYT put it:

Under the plan, which is expected to be formally submitted to federal authorities soon, immigrants would be required to live and work in Detroit, a city that has fallen to 700,000 residents from 1.8 million in the 1950s.

“Isn’t that how we made our country great, through immigrants?” said Mr. Snyder, a Republican, who last year authorized the state’s largest city to seek bankruptcy protection and recently announced plans to open a state office focused on new Americans.

Later, he added, “Think about the power and the size of this program, what it could do to bring back Detroit, even faster and better.”

The appeal of the idea is obvious. I’ve probably said positive things about it myself in the past. But examine it more closely and it’s clear this is an idea that’s fatally flawed. By requiring immigrants to live and work in the city of Detroit for a period of time, this program would effectively bring back indentured servitude, only instead of having to work for the people who paid for their trip to America, these immigrants would have to work for Detroit.

I’ve got to believe that the courts would look skeptically at such a scheme that so radically restricts geographic mobility and opportunity. What’s more, I think it’s plain wrong to invite people into our country with the idea that they are de facto restricted to one municipality.

L. Brooks Patterson, county executive of wealthy Oakland County in suburban Detroit, took huge heat again this week when he was quoted in the New Yorker saying “I made a prediction a long time ago, and it’s come to pass. I said, ‘What we’re gonna do is turn Detroit into an Indian reservation, where we herd all the Indians into the city, build a fence around it, and then throw in the blankets and the corn.’” Yet isn’t this idea of city specific visas almost literally treating Detroit like a reservation, only for immigrants instead of Indians?

Some have likened this to programs to entice doctors to rural areas by paying for medical school. I’m not sure how all of those are structured, but they may have questionable elements as well. But more importantly, my understanding is that they are purely financial, where medical school loans are paid off in return for a certain number of years of service. If a doctor elects to leave the program, they are in no worse shape than someone who didn’t sign up would be. They are still licensed to practice medicine and have to repay their loans just like every other doctor.

I don’t think Gov. Snyder is motivated by any ill will in this. I think he’s genuinely looking for creative solutions to the formidable problems Detroit faces. He’s taken huge heat for finally facing up to the legacy of problems there, and hasn’t shied way from making tough calls. He’s even willing to call for some bailout money, which many in his own party don’t like. But this idea is a bad one. He should withdraw it, and the federal government should by no means open to the door to these types of arrangements.

Immigrants remain a great way to pursue a civic turnaround, however. Detroit just needs to lure them on the open market the same way Dayton, Ohio and others are trying to do.

Sunday, December 1st, 2013

Moving from Balkanized to Globalized in Cleveland

“Cleveland didn’t decline because industry left. Cleveland didn’t decline because people left. Vacant houses are not Cleveland’s cross to bear. Cleveland’s ultimate problem is that it is cut off from the global flow of people and ideas. Cleveland needs to be more tapped into the world.”

“It is important to note how this ‘[population] churn’ helps cities. Knowledge-based economies run on the quality of ideas. Ideas are not only a function of intelligence or education, but also the depth of information a person, or a city, receives. Historically, a lack of information – via a lack of demographic inflow – has ‘Balkanized’ social networks in Rust Belt cities. This has led to a culture of parochialism, which has hurt economic development.” – From the report “From Balkanized Cleveland to Global Cleveland”

Jim Russell and Richey Piiparinen have released a new whitepaper on Cleveland that should be read by anyone looking to reboot the economies of struggling post-industrial cities. Released under the auspices of Ohio City, Inc., “From Balkanized Cleveland to Global Cleveland: A Theory of Change For Legacy Cities” looks at how a lack of population churn has stunted Cleveland’s ability to connect to the global economy.

This paper puts a different spin on talent and the knowledge economy. “Knowledge” is not just facts acquired through education or work experience. It also includes the set of personal relationships and knowledge of other places and social networks that we all carry to some extent. Global cities not only score well on traditional knowledge measures, but because they are destinations for migrants, they excel in this more broader notion as well.

Cleveland is not a global city. In fact, in his book Caught in the Middle, Richard Longworth said, “When I went to Cleveland I found not alarm but complacency. In a city that is being destroyed by global forces…I found almost nobody willing to actually talk about globalization or global challenges…In all my travels through the Midwest, Cleveland was the only place, big or small, that seemed heedless of the global challenge.”

Part of that comes from a lack of migrants coming in to bring global knowledge and connectivity to global networks. Using IRS data from Telestrian, Russell and Piiparinen note that Cleveland actually only ranks 34th in America in its outflow of people, versus being the 28th largest metropolitan area. The city is actually doing a better than average job of retention.

The problem is that Cleveland ranks 47th in inflow of people. Attraction is very weak. Hence population decline, but also an inbred, closed society. About 75% of the people in metro Cleveland were born in Ohio, versus 30-60% in other, more globalized cities. Among large metros in the US, Cleveland ranks 6th in its percentage of the population living in the state they were born. (In fairness, this in part derives from a low foreign born percentage and the fact that the Cleveland region isn’t a multi-state metro).

I did my own analysis to take a look at the in-migration shed of the city. Cuyahoga County (the central county of the Cleveland region) had reported in-migration from 320 counties during the 2000s, with 228 of these sending at least 100 people to Cleveland. I decided to contrast with better preforming Columbus. There, the core county of Franklin drew people from 486 counties, with 335 of them having at least 100 people. Now Columbus is a huge university town, so I also looked at Indianapolis. Indy’s central county of Marion, which is significantly smaller than Cuyahoga in population, drew from 381 counties, including 273 of 100 or more people.

Clearly Cleveland is drawing fewer people from the outside world, and drawing from fewer places, than cities that are performing better, though one could quibble with the causality arrow here.

As a result, we see what is frequently true in such places. Cleveland’s social and power networks have balkinized. They don’t receive much new information or many new people, and what they do receive they don’t integrate well. Hence what Longworth observed. Cleveland needs much more demographic churn to open up these social networks and generate more global connectivity.

That’s the bad news. The good news is that there’s evidence this is already happening. The authors note that several central city areas have attracted newcomers from both inside and outside of the region – and these are disproportionately young. My own analysis showed that Cleveland had surprisingly strong downtown population growth of 4,200 people, one of the best showings in the Midwest.

The authors also note other potentially encouraging trends. A good number of Cleveland’s gentrifying neighborhoods are also becoming more not less diverse. While all they note diversity doesn’t mean people automatically start interacting with each other, it’s a start. What’s more, they suggest that the decline in social capital that results in diverse neighborhoods might paradoxically be a plus, as Cleveland suffers from excess social capital today. Lastly, they note that Cleveland has pretty high churn already with both New York and Chicago, making it one of the few similar types of cities that already has well-established migration paths. They believe this is poised to continue as high costs and “cool fatigue” push people out of many of today’s key global hubs like New York.

The potential for Cleveland in capturing this is significant in their view. As the paper notes, “This scenario, then, that’s unfolding in which coastal talent is arriving, or re-arriving, into the legacy city landscape can foretell an economic sea change…The long-term economic potential for this talent migration rests not in how many microbrews are consumed or condos are leased, but rather how it affects Cleveland’s global interconnectivity. These migrations are re-arranging Cleveland’s historical insular social networks, with the gentrifying neighborhoods acting as urban portals to the global flow of information.”

This was not intended as a critique of microbreweries. Rather, the idea is that luring people is about way more than just boosting the consuming classes, it’s about tangible change in the social and economic structure of the community.

No one should pretend that positive indicators like strong downtown population growth means Cleveland’s problems are solved. I’d describe this more as “green shoots” than anything. But it’s undeniably positive and provides a platform for further growth.

The authors don’t suggest any particular policies in response to their findings. They were more interested in moving beyond the traditional “brain drain” frame of talent and inject both some key facts around Cleveland’s migration patterns and their talent churn theory of civic change into the local discourse. They got a nice writeup in the Plain Dealer, so they are off to a good start there. But more work will need to be done in the future on an effective policy response.

Clearly I find a lot compelling in this. I’d encourage you to read the white paper. You may also be interested in my previous post “‘James Drain’ Hit Cleveland” for some similar thoughts.

Wednesday, October 9th, 2013

Oklahoma City’s Mick Cornett and the New Generation of Republican Mayors

For a whole host of reasons, many of them historical, there aren’t very many Republican big city mayors. I’ve also argued that the current national Republican mindset leads to urban residents giving them the brush-off.

However, there are some interesting Republican mayors out there. And they are often blending traditional conservative government approaches with a focus on service delivery and quality of life improvements. One of them is Oklahoma City Mayor Mick Cornett. I saw him speak at the CEOs for Cities meeting in Boston, and he told an impressive story of what they’ve been doing in OKC.

To me the ultimate policy synthesis Cornett brought to the table is MAPS-3. That’s a $777M public works program with heavy quality of life investments in items like parks that Cornett convinced the voters to approve. The kicker is that in true fiscal conservative style, this is actually being paid for with cash, not debt.

Kasia Zabawa, Deputy Director of the Manhattan Institute’s Center for State and Local Leadership, recently traveled to Oklahoma City to interview Cornett. The video is below. If it doesn’t display for you, click here. If you’d rather read (it’s faster), there’s a transcript posted at the Manhattan Institute’s Public Sector Inc. site. I’ll include a few excerpts below the video.

Some quotes:

My two predecessors and I would certainly call ourselves “conservatives” and we do not believe in large government spending. But if you can create a city where people want to live and if you can create a strong economy, then you can develop a private sector that can afford a lot of the social spending that a large community needs. If you can be a partner in building a strong private sector, you’re going to be able to take care of a lot of the social needs that most people equate with tax-and-spend government.
When it gets down to city government, there aren’t a lot of traditional partisan issues, and that comment reflects the fact that what a citizen really wants is their pothole fixed, and they don’t care if a Republican fixes it or a Democrat fixes it; if it’s not fixed, it’s most likely not the result of partisan bickering, it’s an inability to run a government.
You wouldn’t necessarily think a string of Republican mayors would be pushing penny on the dollar sales taxes but indeed we have. In retrospect–it didn’t necessarily feel this way at the time–that first one was passed out of desperation. I mean, we were desperate for something better. We had created a city that couldn’t keep its young people, that was losing jobs, and that really didn’t have a quality of life that we were proud of.

Tuesday, September 3rd, 2013

Our Jobs Deficit and the Indiana Super City Council by Brian Howey

[ After I put up last week's post on quality of life's impact on economic development, Indiana political blogger Doug Masson pointed me to a column by Brian Howey that makes many related points. Brian publishes a weekly newsletter called Howey Politics Indiana and writes a weekly column that runs in many Indiana newspapers. He graciously gave me permission to repost his most recent column here - Aaron. ]

After 16 consecutive months of Indiana’s jobless rate above the national average – it’s 8.4 percent now, compared to 7.4 for the U.S. – the cold reality is that we have a problem with a quarter of a million Hoosiers chronically out of work.

Then came a Ball State University study showing Indiana’s per capita income has slipped from 30th in the nation to 40th with dozens of counties wallowing in wage levels in the 1990s and, some like my old home of Miami, in the 1970s range.

I wrote an analysis in which I noted that for almost the past nine years, we’ve had Republican governors who have made job creation and education reform top priorities, and yet we’ve been over 8 percent unemployment since early 2009.

At some point, a political reality comes into play, perhaps as early as 2014 and if this trend persists, by 2016. It used to be that a jobless rate over 7 percent would mean the boot from voters. Yet, Gov. Mitch Daniels left office with a 60 percent approval rating and President Obama was reelected.

Gov. Mike Pence gets it. Speaking before the Indianapolis Kiwanis last Friday, he acknowledged, “There’s a great sense of optimism, there’s reason to be encouraged as Hoosiers, but this is a difficult time for too many in our state.”

At Hobart, Pence told local Realtors, “I want to see where the young people can graduate from high school and can have an industry certification or even an associates degree right that day.”

There was one interesting response to my analysis, and it came from Ball State University economics Prof. Michael Hicks. “Indiana’s problem is not that the overall business climate for investment is poor (it is great) or that we have too few students graduating from college with the right degrees (they are) or that people outside Indiana don’t know how great these things are (they know),” he explained. “The problem is not statewide (we have 12 counties growing much faster than the nation as a whole). These are just facts. I also don’t believe that the overall problem is one of rapid technological progress or any of the national (and hopefully transient) problems in labor markets.”

No, the problem here is much closer to home. It comes in your city or town.

Hicks explains: “This is a really a local, not state problem. Almost all our local economic policies target business investment, and masquerade as job creation efforts. We abate taxes, apply TIF’s and woo businesses all over the state, but then the employees who receive middle class wages (say $18 an hour or more) choose the nicest place to live within a 40-mile radius. So, we bring a nice factory to Muncie, and the employees all commute from Noblesville.”

The real problem here is that Indiana Republicans parade under the banners of Reaganism, of smaller government and one that stays out of our bedrooms and personal lives. But when our cities and towns seek what we call “local control” over tax options, legislative leaders politely listen, and then tell them to shove off.

A classic example came last year when Republican and Democratic mayors from Whiting to Evansville pleaded with the General Assembly to toughen laws on access to methamphetamine ingredients. They were largely ignored, a watered down law passed, and so far in 2013, we’ve had almost 1,100 meth lab busts that have injured 17 cookers, 18 cops and involved more than 300 children.

They have passed tax caps that have crimped city budgets. The hope was that municipalities would consolidate, but what’s happened has been cuts in parks budgets and a curtailing of school bus service. So when cities compete for that new corporation, and the executives survey a city with shabby parks and kids walking to school in 10 degree weather, they go elsewhere.

Hicks explains, “As Americans became richer, schooling and community amenities matter more. This is an iron law of economics, that the share of income we spend on some goods rises as we get richer. Education and amenities (like health care and recreation) are two of these things. So, the Midwest built its small towns long before the quality of a place made much difference in migration or incomes. Today, quality of place matters deeply, and we are, in many places, unprepared to deal with it.”

Power has become centralized at the Indiana City Council (i.e. Indiana General Assembly), which has capped taxes, overridden local gun laws and constantly tinkers in municipal affairs.

“Both parties have been complicit to some degree in the long march towards centralizing power at the state and federal level that has weakened the capacity of local government to address their problems,” Hicks explains. “It will take some serious assistance, both technical and financial, for a state like Indiana to help most communities emerge from the dire straits they are in. Even then, many places face a dismal future.”

The ironic aspect to this is that the chronic 8 percent jobless rate may be just the thing that flushes the central scrutinizers in the House and Senate out of office over the next two election cycles.

You reap what you sow, senator, if the voters make this connection.

The columnist publishes at Find him on Twitter @hwypol.

Friday, August 30th, 2013

Making the Link Between Quality of Life and Economic Development

A rather prosaic economic development announcement in Indianapolis provides an opportunity to hammer home in a concrete way the connection between quality of life investments and economic development. This is something I’ve long argued we urbanists do a poor job of. We tend to adopt a “build it and they will come” marketing approach to quality of life initiatives where the connection between cause and effect is tenuous. Additionally, these tend to focus almost entirely on and tell stories about “the best and brightest” which in a country dying for middle class jobs can rightly cause the majority of folks to ask: why would we support spending money on that? That’s why it’s critical to tell stories – to tell them loud and tell them often – that show the link between quality of life and economic development, and also how these relate to the average person on the street.

The announcement in question is the relocation of a company called American Specialty Health from La Jolla, CA to the Indianapolis suburb of Carmel. This will involve 300 initial hires, growing to 675. While the company will retain a California operation as well as one near Dallas, the headquarters will be in Carmel, IN and 50 top managers, including the CEO, are relocating.

Why is the company moving to/growing in Indianapolis? Central location and costs. Plus the CEO has a personal connection of sorts to Indiana. (He attended Culver Academy, an elite military boarding school, but one located in northern Indiana nowhere near Indianapolis and of which most Hoosiers have never heard).

Why is this relevant to the average person? There will be top executives and such relocating, as well as new employees added in high skill areas like IT. However, this is also a general operations center containing what appears to be every type of employee, right down to customer service and call center types. This enables people who aren’t elite techies or execs and who might not even have college degrees to potentially be hired on. While the company is an an upscale location, it’s easily commutable from more average places like Tipton County, and commuting will be made easier when US 31 is converted to a freeway (which is in progress).

Here’s the link to quality of life investment: how do you get these call center and IT and other jobs? You do it by convincing 50 people, including the CEO, to move from La Jolla, which if you don’t know is, to put it mildly, a nice place to live. The average home price is north of $2 million. The people who live there (or elsewhere in the San Diego region and commute in) aren’t there because it’s cheap. These are people with enough money to buy nice stuff and with choices about where to live. Like most of us they are probably interested in saving a buck, but not at the expense of moving to the equivalent of Siberia.

I have written extensively before about the major quality of life improvement initiatives in Carmel, IN. This is a validation that those improvements have tangible benefits. While Carmel has long been a destination for estate homes for the wealthy of Indianapolis, it was not really at that level nationally. Now it may be that some of the ops jobs could have been won without the headquarters, but certainly that HQ represents a huge commitment to the community. And I can tell you that a decade ago these jobs simply would not have been addressable in Indianapolis/Carmel. It wouldn’t have even been in the discussion. Today because of the quality of life improvements, there’s a much larger addressable market for economic development wins like this. Without that investment, had the ASH HQ moved from San Diego it probably would have ended up in Dallas.

Carmel’s quality of life investments have been controversial in many quarters, sometimes justifiably so. There definitely needs to be a debate on these things. But a more Tea Party aligned city council majority has clamped down in opposition to these things. While I think they have been right to criticize certain things, hopefully this will prompt them to understand the value of what’s been going on. And it’s to their credit that they were very collaborative in and supportive of winning the deal for this company. Incidentally, Indy Star reporter Dan McFeely says that while there are state tax incentives, there are zero local tax incentives for this move. That speaks for itself.

I also want to review a couple of other local examples I’ve already highlighted in the past. Medco opened a mail order pharmacy distribution center employing 1,300 in Whitetown, a suburbanizing area northwest of Indianapolis. Sprawl? Yes, but major distribution centers have to go somewhere and I don’t think the urban core is the best place.

Medco obviously employs a number of six figure pharmacists, but I can assure you the focus is doing as much as possible with machines and lower priced pharmacy technician labor. You can be a pharmacy tech without a college degree. Additionally, pharmacy tech jobs at Medco come with full benefits.

How did Indy win Medco? Reportedly for a few reasons. First, Indiana moved much faster than competitor Kentucky in getting the regulatory authorization in place. Second, proximity to the Fed Ex hub (not a distinguisher vs. Louisville, but a necessary attribute) and pharmacy schools at Purdue and Butler. But third was that Indianapolis had needed amentities that were beneficial to entertaining customers.

You have to take any claims in announcements with a grain of salt, but it’s obvious that all of these are prima facie valid. Whitestown is within easy commuting distance of lots of rural and small town Indiana areas in places like Clinton and Montgomery County. Why are investments not just in obvious items like professional schools and transport infrastructure, but creating an environment you can entertain the executives of your customers in downtown Indianapolis important? Well, if you’re a single mother with a high school diploma from Clinton County who can get a decent job with benefits at Medco, it’s obvious why it’s important to you. But that’s a story that doesn’t get told, making it easy to criticize downtown investments as simply catering to fatcats.

Similarly, just 45 minutes south of downtown Indy is the thriving small manufacturing city of Columbus, Indiana. It is hands down the best performing small city in Indiana despite having the second highest percentage of its jobs in manufacturing. It’s also the top recipient of Japanese foreign direct investment (as measured by the number of firms) in Indiana after Indianapolis.

Why do Japanese manufacturers find Columbus a good place to do business? Not only it is pro-business and low cost, it also has a focus on design quality, including a world-renowned collection of modernist architectural masterpieces by the likes of Eero Saarinen and I. M. Pei. The Japanese are famously design conscious and also focus on competing through high quality and engineering excellence, not just low costs. This is speculation, but I can’t help but think that the link between the Japanese ethos and that of Columbus created a values fit. And keep in mind that those foreign manufacturers have to convince their plant managers and such to relocate – with their families – to the community in question. Columbus’ approach made it easier to make the sale. Because if those Japanese executives didn’t want to live in Columbus, all those regular Hoosier folks working in the Japanese plants wouldn’t have jobs.

In any case, in a competitive world, only firms that deliver excellence as well as cost effectiveness 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 embrace mediocrity? How can any investor believe that residents who tolerate a run down, mediocre community for their own families to live in will suddenly start taking pride in the products coming off their employers’ production lines? It makes no sense at all.

Low costs, low taxes, and a business friendly environment are clearly important. In fact, if you don’t have some stunning advantage like Southern California’s climate or NYC’s unparalleled talent base, it’s almost the price of admission. But that’s all it is – table stakes. In an era where quality global labor is available at prices no American place can match, you just can’t win on low costs alone.

This is why the Tea Party mentality which treats government purely as a fiscal engine in which the only goal is to reduce the dollars coming in and going out is so destructive in the long term. Because competing purely on low costs only works if you are the low cost producer like Wal-Mart. And 95%+ of American communities have no basis to claim to be that.

You would think that in states that are struggling, policy makers would go look at the places that are doing well, find out what those places are doing right and then figure out how to get other places to start doing some of that. Some things can’t be replicated. There’s only one Indiana University, and it’s in Bloomington. But there are lots of strategies and approaches that are more broadly applicable. Sadly, not many leaders seem interested in that. In fact, many of them seem more interested in stopping anybody from doing more of what places like Columbus and Carmel have done.

Unquestionably there needs to be a debate about whether any particular expense makes sense. Without a doubt many proposals are boondoggles and should be rejected. Places like Indiana aren’t San Diego and absolutely need to keep low costs, a strong balance sheet, and a light regulatory touch. But that in and of itself is not enough to attract businesses. You might gain some low-wage table scraps that way, but not many jobs that pay decent wages for the average person.

Places that want to be competitive in the modern economy need an environment that is relevant to the 21st century, not the 1970s. But to make the case for that investment it’s important to start identifying how these make a tangible impact and really making the case and telling the stories about them.

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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