New Geography

Author: Joel Kotkin

  • Who Stands The Most To Win – And Lose – From A Second Obama Term

    As the probability of President Barack Obama’s reelection grows, state and local officials across the country are tallying up the potential ramifications of a second term. For the most part, the biggest concerns lie with energy-producing states, which fear stricter environmental regulations, and those places most dependent on military or space spending, which are both likely to decrease under a second Obama administration.

    On the other hand, several states, and particularly the District of Columbia, have reasons to look forward to another four years. Under Obama the federal workforce has expanded — even as state and localities have cut their government jobs. The growing concentration of power has also swelled the ranks of Washington‘s parasitical enablers, from high-end lobbyists to expense-account restaurants. While much of urban America is struggling, currently Washington is experiencing something of a golden age.

    So what states have the most to lose from a second Obama term? The most obvious is Texas, the fastest-growing of the nation’s big states. Used to owning the inside track in Washington during the long years of Bush family rule, the Lone Star state now has less clout in Congress and the White House than in recent memory. Texans are particularly worried about restrictions on fossil fuel energy development, which is largely responsible for robust growth throughout the state.

    “Obama now wants to take credit for the increased production that has happened, but [increased production] has been opposed in every corner by the administration,” says John Hofmeister, founder of the Houston-based Citizens for Affordable Energy and former CEO of Shell USA. Hofmeister fears that in a second term, with no concern for reelection, Obama could exert even greater controls on fossil fuel development. This would have dramatic, negative implications not only for Texas but for the entire national energy grid, which includes North Dakota, Wyoming, Montana, West Virginia, Oklahoma, Alaska and Louisiana. These states fear that the nation’s recent energy boom, which has generated some of the nation’s strongest job and income growth, could implode in Obama’s second term.

    Take Louisiana, which is still recovering from Hurricane Katrina in 2005 and the BP oil spill in 2010. The administration’s moratorium on offshore drilling, sparked by the spill, has had a deleterious effect on the state’s energy economy, according to a recent study, with half offshore oil and service companies  shifting their operations to other regions and laying off employees.

    Once the moratorium was lifted in 2010, companies have faced long delays for new wells, growing from 60-day delays in 2008 to more than 109 last year  .  “The energy states feel they are being persecuted for their good deeds,” says Eric Smith, director of the Tulane Energy Institute in New Orleans. “There is a sense there are people in the administration who would like this whole industry to go away.”

    Many of these same states also worry about the administration’s proposed downsizing of the military. Obama’s move to cut roughly towards $500 billion in defense spending may make sense, but it  threatens places with large military presences such as Texas, Florida, Oklahoma, Virginia, Georgia, South Carolina and New Mexico.

    The D.C. metro area might also be hit by defense cuts, but overall the it has many reasons to genuflect toward the Obama Administration. Federal wages, salaries and procurement account for 40% of the district’s economic activity, roughly four times the percentage of any state. Expanding regulation on energy, health care and financial services has sparked a steady job boom in lobbying, think tanks and other facets of the persuasion industry — including among Republicans –at a time when employment growth has been sluggish elsewhere.

    D.C. partisans hail their city as the leader of a national urban boom. The district clearly benefits from diminished job opportunities in more market-based economies, particularly for educated 20-somethings.

    No place has flourished as much as the capital, but a second term would be favorable to states such as Maryland, which depend heavily on research spending directed from Washington and where federal spending accounts for fifteen percent of the local economy, over seven times the national average. Maryland agencies such as the National Institutes for Health will likely expand under an increasingly federalized health care system — particularly if Democrats gain more seats in Congress with an Obama win.

    Other big states that may benefit from a second term include New York, California and Illinois. New York benefits largely from the administration’s Wall Street leanings, despite the president’s recent attacks on financial elite. Even for the non-conspiracy theorists, the administration’s ties to Goldman Sachs appear unusually intimate. Powerful allies like Democratic Sen. Charles Schumer, D.C.’s greatest Wall Street booster, suggest big money has little to fear from a second term.

    Overall the administration’s basic policy approach has favored the financial giants. Support for bailouts, seemingly permanent low interest rates, few prosecutions for miscreant investment bankers, the institutionalization of “too big to fail” and easy loans for renewable fuel firms all have benefited the big Wall Street players.

    Of course, a Republican victory would not be a disaster for these worthies. Companies like Goldman Sachs are hedging their bets by sending loads of cash to the likely Republican choice, former Massachusetts Gov. Mitt Romney.

    But other New York interests, such as mass transit funding, would benefit from the current administration’s  generally pro-urban, green sensibilities. Tight regulations on carbon emissions — increasing the price of fossil fuels — may help the competitive position of New York City, which has little industry left and relatively low carbon emissions per capita, in part due to a greater reliance on hydroelectric and nuclear power.

    California also has reasons to root for an Obama victory. Although among the richest states in fossil fuels, particularly oil, the Golden State has become a bastion of both climate change alarmism and renewable energy subsidization. It adamantly won’t develop traditional its energy resources — which would help boost the state’s still weak economy — and Silicon Valley venture firms have eagerly grabbed subsidies and loans for start-ups from Energy Secretary Steven Chu’s seemingly bottomless cornucopia.

    Furthermore,  more powerful EPA would make California’s current “go it alone” energy and environmental problems less disadvantageous compared to more fossil-fuel-friendly states, leveling what is now a tortuous economic playing field.

    Similarly, attempts to push the state’s troubled high-speed rail line — recently described in Mother Jones as “jaw-droppingly shameless” –  will succeed only with strong backing by the federal government. Under a Republican administration and Congress, Brown’s beloved high-speed line would depend entirely on state and private funding, likely terminating the project.

    But no state needs an Obama victory more than his adopted home state of Illinois. To be sure, having a native son in the White House has not prevented the Land of Lincoln from suffering one of the weakest economies in the nation. The state has one of the highest rates of out-migration in the country, according to recent United Van Lines data and Census results.

    Even worse, the Land of Lincoln faces a fiscal crisis so great that it makes California look well-managed.  Without a good friend in the White House, and allies in Congress, Illinois could end up replacing long-struggling, now-improving Michigan as the Great Lakes’ new leading basket case. Count Illinois 20 electoral votes in the Obama column.

    This piece originally appeared in Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo from BigStockPhoto.com.

  • Making Room for the Old and the New Economies

    The announcements by Sens. Ben Nelson (D-Neb.) and Kent Conrad (D-N.D.) that they would not run for reelection reflects what may be the last gasps of the Great Plains Democrats, much as California’s 2010 Democratic landslide assured that Republicans are soon to become endangered species in places like Los Angeles and Silicon Valley.

    The conventional explanation for these trends centers on culture or ideology, but the real cause may lie with an evolving conflict between two dueling political economies.

    On one side lies the information or “creative” economy, centered in coastal big cities and university towns. On the other lies the larger “basic” economy, which produces tangible items like food, manufactured goods and fossil-fuel energy.

    In the past, both political parties had liberals as well as conservatives and operated in both of these economies. Republicans thrived not only in the Heartland but also in information hubs like Silicon Valley, Southern California and even parts of Manhattan.

    Similarly, Democrats were influential in large swaths of the resource and agriculture-dependent parts of the country, including the Great Plains.

    However, this is increasingly no longer true. Plains Democrats, like former Sen. Byron Dorgan of North Dakota, struggled to sell the state’s remarkable energy-driven recovery to an administration hostile to fossil fuels. Many in his state, and other energy centers like Texas, view the Obama administration’s resistance to oil and gas development as an assault on economies that, over the past decade, have had the highest rates of job creation and per capita income growth in the nation.

    Dorgan, frustrated with Obama’s economic policy, chose not to run for reelection in 2010. But his House colleague, Earl Pomeroy, as well as Stephanie Herseth Sandlin (D-S.D.) were defeated. Nelson’s decision reflected a reaction to the strong GOP tide in the Plains. Registered Democrats in Nebraska have dropped from 38 percent to 33 percent just since 2008. The Republicans are at 48 percent.

    This is a remarkable fall from grace. As recently as 2006, Democrats held four of the six Senate seats representing the 650 miles of plains from Nebraska north to the Canadian border. If, as expected, Nelson’s seat is taken by the GOP, there will be only one — Sen. Tim Johnson (D-S.D.), who is up for what might a difficult reelection battle in 2014.

    Yet another energy-state Democrat, Sen. John Tester of Montana, is facing a tough reelection contest. If he is defeated, only a handful of Democrats from energy-producing states — Joe Manchin and Jay Rockefeller of West Virginia and Mary Landrieu of Louisiana — will be left in the Senate.

    For the most part, these Democrats are not being chased from office by cultural brawls over issues like gay rights or abortion — particularly in the socially moderate northern Great Plains. More damaging is the perception that Obama Democrats have little regard, even contempt, for the fundamental economics of basic industries.

    The battle over energy extends beyond the major oil-producing states. In places like eastern Ohio and western Pennsylvania, a nascent shale oil and gas boom is helping strengthen resurgence in industrial jobs lost decades ago. To many business people and workers in cities like Fort Wayne, Ind., looming Environmental Protection Agency regulations on mercury as well as carbon emissions could threaten this nascent revival. Reviving the Rust Belt, many believe, requires the cheap, reliable energy that, in the near future, can come only from fossil fuels.

    Instead, the Obama team reflects an urban, information economy bias. In contrast to President Bill Clinton, who supported industrial and agricultural development back when he was governor of Arkansas, Barack Obama represents an odd admixture of faculty lounge and urban bloc machine. He never developed any links to the basic economy; his worldview appears largely divorced from the realities of production. “It’s MoveOn.org run by the Chicago machine,” according to the mayor of a California farming town, a longtime Democrat.

    This tilt can also be seen in the widely touted strategy of conceding working-class white voters in states like Pennsylvania and Ohio in favor of what Democratic strategist Ruy Texeria calls “the mass upper middle class.”

    Today barely half of white union members, says researcher Alan Abramowicz, tilt Democratic compared with nearly two-thirds who supported them in the 1960s, when Democrats still identified strongly with the industrial and energy sectors.

    This trend may be further accelerated by the prospect of deep defense cuts. Many Plains and Southern states are dependent on defense-related expenditures. In the past, Plains Democrats and Southern Democrats, like retiring Sen. Jim Webb (D-Va.), were the product of or identified strongly with the military. But today, the Democratic Party’s hawkish traditions — extending from Harry S. Truman and Sen. Henry M. Jackson to Georgia’s Sam Nunn and Webb — is all but extinct.

    A parallel development can be seen in the information hubs of the Northeast and West Coast. As recently as the 1990s, Republicans could muster considerable numbers both in Silicon Valley and throughout the Los Angeles Basin. Manhattan’s “silk stocking district” regularly sent Republicans to the House.

    These exceptions barely exist today. Los Angeles County, home to nearly 10 million people, has only one Republican congressman. The Bay Area, which includes the district of House Minority Leader Nancy Pelosi (D-Calif.), and Manhattan each has none. The same pattern is evident at the state and local levels — where almost the entire delegation is now “progressive” Democrats.

    As in the Great Plains, this shift parallels changes in the political economy. Over the past decade, the Bay Area experienced the single largest decline in manufacturing in the country, and New York ranked second. Now the information sector — as well as related finance, health and education sectors — dominate these economies. Even business people in these areas share little in common with business people in the manufacturing or energy economies.

    With dense population and far less reliance on cheap energy like coal, greater metropolitan areas like New York or San Francisco find it easier to embrace the administration’s green (read expensive) energy agenda. Indeed, many companies, including Google and several investment banks, have invested in new renewable fuel and electric battery firms that have received large loans and other subsidies from Washington and sympathetic local governments, notably in California.

    The information economy is also dependent on international markets, capital and, most particularly, brainpower. This makes them more sensitive to the nativist pandering that has been de rigueur in GOP national politics. Republican politicians, who now usually cater to their religious right by campaigning against gay marriage and abortion, turn off even libertarian voters in information hotbeds, where such views are anathema.

    Sadly, these two economic visions exacerbate already existing cultural and political divisions. This also threatens the country’s ability to compete globally at a time of great opportunity. To overcome our competitors, particularly China, the United States needs a Washington that embraces both the information economy — where the United States still remains pre-eminent — and the basic economy — where we are seeing signs of a nascent renaissance.

    Only when both economies are appreciated and supported in both parties can we find the common ground necessary to succeed in the coming decade.

    This piece originally appeared in Politico.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo from BigStockPhoto.com.

  • Welcome Back, Britain! Why The U.K. Doesn’t Need The E.U.

    To some, British Prime Minister David Cameron’s decision to demur from the new euro rescue plan has made the U.K. irrelevant on the world scene. Yet by moving away from the euro zone, Cameron did something more than reaffirm Britain’s opposition to a German-led Europe: He asserted Britain’s greater, historically grounded legacy as the center of the Anglophone world.

    This obstinacy could end up maintaining the U.K.’s global importance by shifting its focus away from “the declining and irritable nations of the old world” and toward its legacy as the center of the English-speaking world.

    Over time cultural ties generally prove more enduring than ideological or geographic ones. The 14th century Arab historian Ibn Khaldun once observed, “Only tribes held together by a group feeling can survive in a desert.” Throughout history, the most powerful, far-reaching cultures — namely the Greek, Roman, Arab, Chinese, Mongol and British empires — shared this intense kinship.

    Like the world’s two other primary global tribes, the Chinese and Indians, Anglo share ancient and deep-seated affiliations. In contrast to the profoundly insular Japanese or the Germans, global tribes are transnational and transcend mere geography. They share not only economic ties but “group feelings” shaped by commonalities of food, language, history, spiritual and political ideals .

    The British are “cousins” to Americans, Canadians, Australians and New Zealanders in ways the French, Germans and Italians are not. When young and educated British emigrate they generally head not to Germany or China but to other English-speaking countries. Retirees might seek out the Spanish or French Rivera, but those building careers go overwhelmingly to Anglophone countries.

    Equally important may be the British connection to other former colonies like India, South Africa and Nigeria that, although not racially Caucasian, function largely in English and retain close ties to the mother country. Any close look at British interests and personal ties reflect the enduring nature of its tribal essence. London’s status as the world’s financial center — the critical reason for Cameron’s break with the E.U. — lies not primarily with Europe, but with its scattered former colonies. Britain is the world’s fourth largest investor and the top investor in the United States, which in turn serves as the U.K.’s biggest export market. The U.K. also plays an outsized role in South Africa, Singapore and India, where it is by far the largest European investor.

    In this sense, the Anglosphere — including places like India — constitutes a kind of transnational family. Usually ignored or scoffed at by globe-trotting pundits and politicians who define the world by geographic proximity, these global linkages are more important than ever.

    Consider the fate of the insular Japanese, who, without a large diaspora, have no recourse but to fall back into the relative obscurity of their home islands. Similarly, the E.U., particularly in its post-Christian,phase has no common tribal essence. Instead the continent seems to be breaking into at least three tribes: an austere neo-Hanseatic Nordic core, a spendthrift and effectively bankrupt Mediterranean south, and a troubled, rapidly depopulating eastern rim.

    The drive to create a powerful European superstate lacks the girding of a common ideology and social norms that give the English-speaking world coherence. Whatever her ambitions, Germany’s Angela Merkel, Chancellor of a prosperous but rapidly aging and militarily weak country, seems more like a wily schoolmarm than an inspirational European leader. She’s no Caesar, Charlemagne or Napoleon who’s capable of uniting the continent by force of ideology, personality and power.

    Given these fundamental flaws, Britain’s best course would be to focus on linkages to her offspring. Taken together the Anglosphere represent more than a quarter of world GDP, and the Queen’s tongue remains the dominant language of international business, science and diplomacy, utterly supplanting French, Russian and German even on the continent. The E.U. may have been constructed largely by French visionaries, but English is spoken by 41% of Europeans, while only 19% speak French.

    More important still, the developing world is turning Anglophone. French schools have been closing even in former colonies such as Algeria, Rwanda and Vietnam, where students have protested against learning the old colonial tongue. English is being widely adopted in China, and it dominates the Gulf economy, where it serves as the dominant language of business in hubs such as Dubai. It is also, of course, the dominant language of India’s burgeoning middle class.

    The linguistic dominance propels the Anglosphere’s dominion over such critical growth industries as technology and culture. Britain may no longer be an industrial superpower, but its media, research institutions, investment banks, courts and culture remain globally relevant. Nearly half the world’s sales of audio-visual products, for example, come from the English speaking world, with Britain constituting the second-largest exporter behind the U.S.

    Technology follows a similar pattern. Three-fifths of global pharmaceutical-research spending comes from Britain and the U.S.; more than 450 of the top 500 software companies in the world are based in the Anglosphere. Out of the ten fastest-growing software companies, six are American and one is British.

    This brain power is backed up by a treasure trove of natural resources. The U.K. itself may lack sufficient raw materials — after all that was what the empire was all about — but its diaspora countries, notably in North America and Oceania, account for much of the world’s food exports and, increasing, its supply of fossil fuel energy.

    How about the thorny issue of politics? In the end, when there’s a crisis the Anglosphere countries can most rely on one another. Time and again, the British, Canadians and Australians have been the peoples who send troops and ships in concert with America. What country is a more American solid ally in Asia than the remarkable English-speaking enclave of Singapore?

    Conversely, when Argentina seized the Falklands, Prime Minister Margaret Thatcher could count on logistical help, first and foremost, from the United States. And as the Australians contemplate an expanding Chinese military presence in their backyard, they look to the Americans to send in the maritime cavalry.

    Sadly the critical nature of these linkages is not fully appreciated by the current U.S. administration. President Obama, the grandson of a Kenyan victimized by the brutal colonial regime, has dissed Britain repeatedly. Opposition to colonialism, of course, resonates with American tradition, but he perhaps went too far when he famously returned the bust of Winston Churchill sent by Tony Blair to President George W. Bush back to Britain.

    More recently Obama has even poisoned the well against Canada, our greatest trade partner and continental soul mate, by rejecting the Keystone XL project. It’s as if he were urging Canada to align itself with China. What’s next a move to ban the import of Australian uranium or Uggs?

    Yet the great strength of tribes, or families, lies in their ability to endure despite the most egregious family foolishness. Even a wayward president, or two, cannot tear asunder what has been hundreds of years in the making.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Creative Commons photo by Flickr User “angies”.

  • The Last Patrician: Romney Falls From Favor as America Loses Faith in Old Money

    Mitt Romney’s collapse in South Carolina reflects the larger, long-term decline of the American patrician class he represents. That decline was accelerated by the 2008 financial meltdown that resulted in both the wave of populist anger now being channeled by Romney’s Republican competitors, and the rise of the new post-industrial elite championed by President Obama.

    Defined by inherited wealth, property and (like the original Roman patricians) a certain sense of propriety, Romney’s once dominant class has become increasingly marginalized as the bond between its interests and those of the rest of the nation has been effaced.

    The son of top corporate executive and former Michigan Governor George Romney, Mitt holds joint degrees from Harvard’s law and business schools and enjoyed a lucrative career in private equity—a pedigree that may prove a bigger liability in the increasingly working-class Republican Party than his supposed social moderation. Both Newt Gingrich, who bested Romney in South Carolina, and Rick Santorum, who edged Romney in Iowa, successfully stressed their middle-class roots in a way impossible for him to imitate.

    Romney’s Mormonism may be a departure from the old Protestant aristocracy, but the former Massachusetts governor epitomizes both the traditional strengths (a sense of modesty and self-control, a pristine personal life and lack of ostentation) and the weaknesses (an inability to personally connect with those less fortunate, less able or less educated) of the patricians. Perhaps nothing illustrates those weaknesses better than the inability of the richest major party candidate in a generation to comprehend how his scandalously low personal income tax rate and his use of offshore tax havens might offend voters, particularly in an economically ravaged state like South Carolina.

    In a general election, against a far more disciplined foe than his party rivals, Romney’s patrician values could pose a mortal danger to the Republican cause—although perhaps not as lethal as the weaknesses of his rather pathetic GOP opponents. But in the primary Gingrich, Santorum and even Ron Paul have the advantage of those with little to lose. They can demagogue the national media class as “elitist” in ways that would not come naturally to the refined Mitt, or play well in the general election.

    The decline of the patricians has been occurring slowly for decades as the interests of the wealthiest have diverged from those of ordinary Americans. In the country’s first two centuries, some common ground joined the traditional conservatives who made up the bulk of the moneyed class and who spearheaded the quest for national power and economic expansion with the muscular progressivism epitomized by the two President Roosevelts. The forgers of American preeminence in the business world—Henry Ford and Alfred Sloan, the Rockefellers, Thomas J. Watson of IBM, David Packard and Bill Hewlett—embraced the ideal of growth where enriching themselves meant creating unprecedented opportunities for hundreds of thousands of Americans. These men built and financed things—from oil wells and high-tech instruments to autos and suburban tract houses—essential to the prosperity of the working and middle classes they employed and depended on to purchase their products.

    But the last successful product of this class, John Kennedy, was elected more than a half century ago, to lead a nation that was ascendant, confident and economically vibrant. In the ensuing decades patrician politicians, particularly George W. Bush and his 2004 opponent, John Kerry, lacked the self-confidence and charisma to transcend their class. In contrast, the two most popular and accomplished politicians of recent decades, Ronald Reagan and Bill Clinton, were self-made men from the working class with a great facility for establishing a clear connection with a vast portion of the electorate.

    This patrician decline occurred at the state and local level as well. In New York, the old WASP establishment epitomized by Citibank’s Walter Wriston was deeply engaged in the fate of the region. Wriston once explained to me that before the 1980s banks had depended heavily on the New York public primary schools and especially the City University for employees; but as finance unmoored from the rest of the economy in its “go-go” period of derivatives and other abstract financial instruments it found itself less anchored to the rest of Gotham’s economy. In the new financial world, employers had little need for competent “ordinary” public school graduates as employees but rather courted “rocket scientists” with primarily Ivy League, Stanford or MIT pedigrees.

    A similar pattern can be seen in California. The founders of the Golden State’s great aerospace, semiconductor and computer firms, the great suburban developers and even Hollywood moguls employed tens of thousands of skilled workers. Now few new facilities are built in the state, and few well-paying jobs outside of government exist for those without an elite education. When tech firms create middle-income jobs, they are increasingly located abroad or in other, cheaper states. The winners of each tech “boom” tend for the most part to be graduates of elite schools like Stanford rather than places like San Jose State. The idea that captains of industry and common citizens were in a significant sense “in the same boat” has disappeared—one of the common complaints that seemed to bridge the Tea Party and the erstwhile Wall Street occupiers.

    Given how little the patrician class now provides to the rest of the country, it’s not surprising that public esteem for them has plummeted, particularly in the ongoing aftermath of the Wall Street meltdown of 2008. According to a recent Gallup survey, less than one in four Americans express any confidence in the primary institutions traditionally dominated by the patrician class—big business and the Wall Street banks. In contrast, roughly half or more expressed confidence in small business, the police and the military, areas where the patrician class is rarely present these days.

    Seen in that light, it’s no surprise then that Republican voters preferred a Pennsylvania working-class warrior like Rick Santorum in Iowa and even as unlikely a self-identified champion of the middle class as Gingrich in South Carolina over the refined resume of a private equity executive.

    The demise of the patrician class could be more palatable if it signaled the restoration of middle- or working-class political power in America. But the real winners here are not likely to be the largely suburban masses but a new, heavily urban littoral ruling class. Of course, the politically potent liberals who populate these urban areas live amidst far greater income inequality than the non-coastal, red-state “rubes.” Epitomized by Barack Obama, this ascendant force draws its strength largely from high reaches of academia, the media, the environmental lobby and, increasingly, the digital billionaires of Silicon Valley.

    Like the old patricians, this new group shares a basic ideology. Indeed they can be seen as something of a clerisy—members of a secular congregation whose shared faith is in a society run by experts such as themselves according to the dictates of accepted science. That those experts would profit from their own advice is seen as merely part of a virtuous circle, scarcely worth the notice of the high-minded citizens scientifically calculating the common good. For the most part, the clerisy believes not so much in economic growth but in enforcing an agenda of ever-increasing urban density, racial redress, cultural experimentation and “green” energy. Obama reigns largely as high priest of this class.

    The clerisy’s geographic base includes much of what was, a century ago, largely patrician-dominated turf: upper-income urban neighborhoods, high-end suburbs, and university communities. The difference now is that these areas have all expanded rapidly, due in large part to the growth of science-based industry and, perhaps more important, the money passed from patricians to their offspring. This money also funds many in the burgeoning nonprofit sector which employs many in the clerisy and often promotes their agenda.

    Not surprisingly, all five of the largest donors to the Obama campaign—Microsoft, Comcast, the University of California, Harvard University and Google—represent the clerisy’s bases in academe and the information sector. Not a manufacturing, construction or traditional energy company made the top of the list.

    The rise of this post-industrial ruling class may be the most tragic result of patrician decline. As bad or even evil as old patricians like Andrew Carnegie, Henry Ford and John Rockefeller could be, they were also generally nationalists who believed in economic growth and progress. Carnegie endowed not only concert halls and art galleries but libraries and institutes to help better middle- and working-class Americans even in small towns and rural hamlets. Teddy Roosevelt, a different sort of patrician, cleaned up New York’s police department, volunteered for the army and modernized the navy.

    Most important, as employers, the old patricians understood the need for basic education and training for their workers. In contrast, the clerisy has little needed for the basically educated, but only an approving claque and faithful servants. Many members of the rising new elite and their well-off employees depends on non-profits or family trusts for income so that their economic interests lie primarily in asset inflation, whether in real estate or equities. No surprise then that the businesses with which they most identify are media and social media companies that outside of the odd receptionist employ largely the best educated and affluent. Significantly, these companies’ stocks provide huge increases in wealth without causing any direct harm to their holders’ delicate environmental and aesthetic sensibilities. After all, the environmental impact of a computer company can easily be shifted out of the view of the Bay Area, as for instance Apple functions as an ideas company in the United States, and a manufacturer in China.

    In contrast, the clerisy generally feels indifferent or even contemptuous toward the basic industries—home building, fossil fuel energy, basic manufacturing—that still provide the best route to increased wealth and opportunity for the middle and working classes. The rejection of the XL Keystone project by Obama last week represents just the most obvious expression of this agenda. In a second term, we may see this approach amplified as the EPA and other government agencies seek to regulate any tangibly based economic growth.

    In this sense, then, the decline of the patrician class—like their antecedents in the late Roman Republic—represents something of a tragedy for the rest of us. With the middle and working classes divided by social and cultural issues and with no credible champion for their economic concerns, power may simply shift to the clerisy, supported by their media enablers. As the Who once famously put it: “Meet the new boss, same as the old boss.”

    No matter how much we might dislike Mitt Romney and his aristocratic ilk, we may someday look back at him and his class with something approaching nostalgia.

    This piece originally appeared at TheDailyBeast..

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo from BigStockPhoto.com.

  • This Is America’s Moment, If Washington Doesn’t Blow It

    The vast majority of Americans believe the country is heading in the wrong direction, and, according to a 2011 Pew Survey, close to a majority feel that China has already surpassed the U.S. as an economic power.

    These views echo those of the punditry, right and left, who see the U.S. on the road to inevitable decline.  Yet the reality is quite different. A confluence of largely unnoticed economic, demographic and political trends has put the U.S. in a far more favorable position than its rivals. Rather than the end of preeminence, America may well be entering  a renaissance.

    Just survey the globe. The European Union’s prolonged crisis will likely end in further decline. Aging Japan has long passed its prime, its market share receding in everything from autos to high tech.  China’s impressive economic juggernaut has slowed down, and the Middle Kingdom faces increased social instability, environmental degradation and a creaky one-party dictatorship.

    While the U.S. has its challenges, it is positioned to achieve a more solid long-term   trajectory than its European and Asian rivals. What it lacks, however, is a strong political leadership capable of seizing this opportunity.

    Resources

    Energy constitutes the biggest ace in the hole for the U.S. For almost half a century, an enormous fossil fuel bill that still accounts for 40% of the nation’s trade deficit has hampered economic growth. Now that situation is changing rapidly.

    Due to vast new finds and improved technology to exploit them, the U.S. is now the world’s largest producer of natural gas and could emerge as the leading oil producer by 2017. Reserves of natural gas — a clean-burning fuel — are estimated at 100 years supply and could generate more than 1.5 million new jobs over the next two decades.

    The U.S. agricultural sector is also booming, with exports reaching a record $135.5 billion in 2011. With global demand increasing, sustained growth  will continue across America’s fertile agricultural regions.

    Manufacturing

    The other big game changer is manufacturing. As President Barack Obama recently acknowledged, this is America’s “moment” to seize the industrial initiative. U.S. manufacturers have expanded their payrolls for two straight years, and they have increased production while Japan, Germany, China and Brazil have scaled back.

    A recent survey of manufacturing CEOs revealed that 85% believed production could shift soon from overseas. Both foreign and domestic manufacturers are alarmed about rising wages and labor unrest in China. Some important Japanese, German and Korean companies also have concerns about China’s policies that favor local firms and abscond with investor’s technology.

    Foreign Investment

    Rising foreign investment reflects the new American competitiveness. Since 2008 foreign direct investment to Germany, France, Japan and Korea has stagnated; in 2009 overall investment in the E.U. dropped 36%.

    In contrast, in 2010 foreign investment in the U.S. rose 49%, mostly coming from Canada, Europe, and Japan. Industrial investment rose $30 billion just between 2009 and 2010, while investment in the energy sector more than tripled to $20 billion.

    The Information Sector

    In the information sector, American domination continues to mount, contrary to predictions of decline over the past two decades. Although high-tech manufacturing has shifted largely to Asia, Americans rule the increasingly strategic software sector.   American-based companies, who constitute more than two-thirds of the world’s 500 largest software companies, including  nine of the top ten.

    Outside the U.S., there are no significant equivalents of Apple, Google, Microsoft, Amazon and Facebook. Hollywood, for its part, rules the entertainment world, producing 40% of world’s audiovisual exports, a dominion that troubles China’s President Hu Jintao, who recently complained  that the “cultural fields” represent “the focal area” for Western “infiltration”.

    Demographics

    The Great Recessionhas slowed population growth everywhere, but the U.S. maintains the   youngest and most vibrant demographic profile of any advanced country. Between 1980 and 2010, the U.S population expanded by 75 million to over 300 million. In contrast many European countries, including Germany, have suffered stagnant growth, while in Russia and Japan populations have already started declining.

    The disastrous fiscal implications of slow or negative population growth are evident in Greece, Spain and Italy, all of which suffer among the world’s lowest fertility rates. Rapid aging also will soon catch up with Germany. By 2030, Germany will have 48 retirees for every 100 workers — that’s barely two workers per retiree. The numbers are even worse in Japan: 53 retirees for every 100 workers by 2030.

    Political Factors

    Given the ineptitude of the last two administrations, enthusiasm about America’s political system is hard to justify. But our constitutional systems of laws and checks on central power remain a critical advantage. Immigration has declined with the recession, but the U.S. can expect to welcome religious and political exiles — such as Middle Eastern Christians displaced by   the “Arab Spring” — as well as Greeks and Irish fleeing Europe’s economic decline.

    Many from Russia and China are seeking to immigrate to the United States, Canada or Australia in order to protect property or just live a freer life. Indeed, among the 20,000 Chinese with incomes over 100 million Yuan ($15 million), 27% have already emigrated and another 47% have said they were considering it, according to a report by China Merchants Bank and U.S. consultants Bain & Co. published in April.

    Needed from Washington: A New American Strategy

    Sadly no leading politician or political party seems ready to   embrace the country’s new strategic advantages.  Many on the left may find the very notion distasteful, having    swallowed declinism with their academic mother’s milk. The president himself dislikes the notion of American “exceptionalism.” Many key Obama backers like SEIU boss Andy Stern and former auto czar Steven Rattner, embrace the superiority of China’s authoritarian system. Others embrace Europe and even Japan as models for an aging superpower.

    Worse still: Some Obama policies work against the well springs of national resurgence.   Threats to raise income taxes on families making over $250,000 directly threatens the aspiring entrepreneurial class more than the real “rich” whose fortunes are protected by low capital gains taxes and family trusts. Most critical: The administration’s hostility to fossil fuel represents a direct threat to the country’s greatest new source of advantage and threatens to strangle America’s recovery in its infancy.

    Not that the Republicans are any less clueless. Many reject the infrastructure needed by an expanding economy — ports, roads, bridges as well as worker training and support for basic research — as mere “pork.” Budget restraint and fiscal discipline are important, but preparing the country for more rapid economic growth requires an active, supportive government.

    Republicans also tend to view immigration as something akin to a hostile invasion. Yet many key industries — notably manufacturing and high tech — rely heavily on immigrant entrepreneurship, intelligence and work values. Running against immigration constitutes an assault on the nation’s increasingly diverse demographics.

    So this is where we now sit.  With all the essential elements for a strong, sustained recovery place, the big question is whether we will find political leaders capable of tapping this country’s phenomenal potential.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo from BigStockPhoto.com.

  • In Keystone XL Rejection, We See Two Americas At War With Each Other

    America has two basic economies, and the division increasingly defines its politics. One, concentrated on the coasts and in college towns, focuses on the business of images, digits and transactions. The other, located largely in the southeast, Texas and the Heartland, makes its living in more traditional industries, from agriculture and manufacturing to fossil fuel development.

    Traditionally these two economies coexisted without interfering with the progress of the other. Wealthier gentry-dominated regions generally eschewed getting their hands dirty so that they could maintain the amenities that draw the so-called creative class and affluent trustifarians. The more traditionally based regions focused, largely uninhibited, on their core businesses, and often used the income to diversify their economies into higher-value added fields.

    The Obama administration has altered this tolerant regime, generating intensifying conflict between the NIMBY America and its more blue-collar counterpart. The administration’s move to block the Keystone XL oil pipeline from Canada to the Gulf of Mexico represents a classic expression of this conflict. To appease largely urban environmentalists, the Obama team has squandered the potential for thousands of blue-collar jobs in the Heartland and the Gulf of Mexico.

    In this way, Obama differs from Bill Clinton, who after all recognized the need for basic industries as governor of poor and rural Arkansas. But the academic and urbanista-dominated Obama administration has little appreciation for those who do the nation’s economic dirty work.

    NIMBY America’s quasi-religious devotion to the cause of global warming is the current main reason for their hostility to the basic economy. But it is all a part of a concerted, decades-long jihad to limit the dreaded “human footprint,” particularly of those living outside the carefully protected littoral urban areas.

    Oddly, in their self-righteous narcissism, the urbanistas seem to forget that driving production from more regulated areas like California or New York to far less controlled areas like Texas or China, may in the end actually increase net greenhouse gas emissions. The hip, cool urbanistas won’t stop consuming iPads, but simply prefer that the pollution making them is generated far from home, and preferably outside the country.

    The perspective in the Heartland areas and Texas, of course, is quite different. They regard basic industries as central to their current prosperity. Oil and gas, along with agriculture and manufacturing, have made these areas the fastest growing in terms of jobs and income over the past decade.

    Of course, the apologists for the NIMBY regions can claim that they, too, create economic value. And to be sure, Silicon Valley — now in a midst of one of its periodic boom periods — Wall Street and Hollywood constitute some of the country’s prime economic assets. Similarly, highly regulated cities such as New York, San Francisco, Seattle, Boston and Chicago offer a quality of life, at least for the well-heeled, that draws talent and capital from the rest of the world.

    But the NIMBY model suffers severe limitations. For one thing, these high cost areas generally lag in creating middle-skilled jobs; New York and San Francisco, for example, have suffered the largest percentage declines in manufacturing employment of the nation’s 51 largest metropolitan areas. Indeed with the exception of Seattle, the NIMBY regions have all underperformed the national average in job creation for well over a decade.

    These areas are becoming increasingly toxic to the middle class, especially families who are now fleeing to places like Texas, Tennessee, North Carolina and even Oklahoma. NIMBY land use regulations — designed to limit single-family houses — usually end up creating housing costs that range up to six times annual income; in more basic regions, the ratio is around three or lower.

    Ironically, America’s most ardently “progressive” areas turn out to be the most socially regressive, with the largest gaps between rich and poor. Even the current tech bubble has not been of much help to heavily Latino working-class areas like San Jose, where unemployment ranges around 10%, nor across the Bay in devastated Oakland, where the jobless rate surpasses 15%.

    To succeed, America needs both of its economies to accommodate the aspirations not only of its current population but the roughly 100 million more Americans who will be here by 2050. If the regions that want to maintain NIMBY values want to do so, that should be their prerogative. But stomping on the potential of other, less fashionable areas seems neither morally nor socially justifiable.

  • Martin Luther King, Economic Equality And The 2012 Election

    In the last years of his life Dr. Martin Luther King expanded his focus from political and civil rights to include economic justice. Noting that the majority of America’s poor were white King decried the already huge gaps between rich and poor, calling for “radical changes in the structure of our society,” including a massive urban jobs program.

    If King were alive today, he would have plenty of reason to take pride in the success of his struggle for human rights. Yet he would surely be disheartened at the economic situation among African-Americans and other racial minorities. African-American unemployment, for example, is at its worst level in more than three decades. While African-Americans make up 12% of the nation’s population, they account for 21% of the nation’s unemployed. Unemployment for black men stands at a staggeringly high 19.1%, and the Economic Policy Institute estimates that overall black unemployment will remain well above 10% till at least 2014.

    The black middle class is also under siege. The gap in net worth of minority households compared with whites is greater today than in 2005. White households may have lost 16% of their net worth in recent years, but African-Americans have lost 53%, and Latinos 66%. The recent decline in public sector jobs across the country could deepen these negative trends; blacks are 30% more likely to be government employees.

    Some of these problems stem from the larger economic crisis. The collapse of the real estate bubble, for example, has disproportionally affected minority groups, particularly Hispanics. Yet many of them are tied to shifts in government policy. The Obama administration could help ameliorate some of the pain minorities are feeling in the jobs sector, but its focus on white-collar information jobs, academia and the green economy has done little to help this already underserved community.

    But will these failures have political consequences in 2012? It’s hard to say.

    Despite the poor economic news, approval of the current administration — headed by an African-American President, Barack Obama –  stands at 84% among African-Americans even as it has weakened among whites.

    The situation among Latinos, the nation’s largest ethnic minority, is somewhat more complex. Throughout the ’90s and the first seven years of the new millennium, Latinos enjoyed steady advances in everything from business formation to home ownership.  But the real estate collapse disproportionately devastated Latinos, whose net worth tended be tied to their houses as opposed to stocks and bonds. Latinos also were over-represented in the hard-hit construction and manufacturing sectors.

    Conceivably, hard times could help the GOP a bit with Latinos. In 2004 George W. Bush — a Texan with a seemingly simpatico attitude — captured more than 40% of their votes. But in 2008, Latinos strongly lined up behind Obama, who won roughly two-thirds of their vote. In 2010, Latinos shifted somewhat to the right, remaining strongly Democratic at 60% but significantly down from 69% in 2006. Recent polls have shown presidential approval levels barely above 50% among Latino voters.

    Perhaps a bigger problem, particularly with Latinos, will be getting them to vote in anything like the numbers seen in 2008. The Obama administration might recapture their support by pointing out that their economic calamities originated during the Bush administration. It can also make the point that in the short run ameliorative steps taken by the president and Congressional Democrats — such as extending unemployment benefits — have aided minorities disproportionately.

    But the biggest question is whether the current progressive agenda supports minority upward mobility. From its inception the Obama administration’s focus has been on the largely white information economy, notably boosting universities and the green-industrial complex based in places like Silicon Valley. The Obama team’s decision to surrender working class whites to appeal to what Democratic strategists call the “mass upper middle class” makes political sense but could lead to problems for an American working class that is itself increasingly minority.

    An emphasis on green industries and strong across-the-board regulation often works against traditional industries like heavy manufacturing, warehousing and fossil fuel development that historically have employed many minorities. Opposing development of new petrochemical plants and such things as the XL Pipeline — opposed by many greens and their allies in the Obama Administration — could reduce new opportunities for minority workers, many of them unionized, particularly in the heavily African-American, and increasingly Latino, Gulf region.

    Modern-day progressivism’s primary laboratory, California, tells a cautionary tale. The draconian green legislation enacted under former Republican Gov. Arnold Schwarzenegger has hit the state’s manufacturing and construction industries far more than the national average. Even more troubling: a new report from the Public Policy Institute of California found that this region’s affluent, largely white population has expanded far more quickly than the national average.

    More important is the dissatisfaction among some Latino and African American Democrats that the current progressive regime. Writing recently in the Los Angeles Business Journal, Roderick Wright, a Democratic state senator from south Los Angeles argues draconian environmental laws have seriously undermined job creation in his heavily minority, working-class districts.

    Congressman Dennis Cardoza, a Portuguese-American who represents a heavily Latino district in the San Joaquin Valley, also recently lambasted President Obama for neglecting the concerns of “real people.” Cardoza claimed that the president has been particularly deaf in addressing “the environmental, resources, housing and employment areas.” This frustration is understandable given that Cardoza’s Central Valley district suffers from among the nation’s highest unemployment rates.

    Sadly the GOP has done little to address these failings. Republican pandering to nativist constituencies will contain Latino willingness to hear the party’s message. Old links to racist groups (in the case of Ron Paul) or possession of a tin ear (Newt Gingrich) does neither the GOP nor the more important cause of political competition a great service.

    A hard focus on economic growth and opportunity by minorities might not win accolades from the mainstream press, academia or top party cadres. Yet if we wish to see Dr. King’s real dream extended beyond a relatively small number of the gifted few, minority voters should start challenging Obama’s and the other candidates’ economic agenda — or they can expect their support and their futures to again be taken for granted.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo from U.S. National Archives and Records Administration.

  • The U.S. Economy: Regions To Watch In 2012

    In an election year, politics dominates the news, but economics continue to shape people’s lives. Looking ahead to 2012 and beyond, it is clear that the United States is essentially made up of many economies, each with distinctly different short- and long-term prospects. We have highlighted the five regions that are most poised to flourish and help boost the national economy.

    Our list assumes that we will be living in a post-stimulus environment. Even if President Obama is re-elected, it will largely be the result of the unattractive nature of his opposition as opposed to his economic policies. And given it is unlikely the Democrats will regain the House — and they could still lose the Senate — we are unlikely to see anything like the massive spending associated with Obama’s first two years in office.

    Clearly the stimulus helped prop up certain regions, such as New York City, Washington and various university towns, which benefited from the financial bailout, lax fiscal discipline and grants to research institutions. But in the foreseeable future, fundamental economic competitiveness will be more important. Global market forces will prove more decisive than grand academic visions.

    With that in mind, here are our five regions to watch in 2012.

    1. The Energy Belt. Even if Europe falls into recession, demand from China and other developing countries, as well as threats from Iran to cut off the Persian Gulf, will keep energy prices high. While this is bad news for millions of consumers, it could be a great boon to a host of energy-rich regions, particularly in Texas, Oklahoma, the Dakotas, Montana, Louisiana and Wyoming. New technologies that allow for greater production require higher prices than more conventional methods — roughly $70 a barrel — and most experts expect prices to stay above $100 for the next year.

    Goldman Sachs recently predicted that the U.S. will become the world’s largest oil producer by 2017. The bounty is so great that the key energy-producing states have consistently out-performed the national average in terms of job and income growth. Houston, the nation’s energy capital, has enjoyed the fastest growth in per-capita income in the past decade. No reason to expect this to slow down much this year.

    Energy growth, notes Bill Gilmer, senior economist at the Federal Reserve Bank of Dallas, also sparks “upstream” expansion in a host of other industries, such as chemicals and plastics. Massive new expansions to serve the industry are being planned not only in Texas and Louisiana but in former rust belt states, including now gas-rich Ohio. The big exception is oil-rich California, which seems determined to keep its fossil fuels — and the growth they could drive — out of mind and underground.

    2. The Agricultural Heartland. You don’t have to have oil or gas to enjoy a strong economy. Omaha, Neb., is not in the energy belt, but its strong agriculture-based economy keeps its unemployment rate well under 5%. Demand from developing countries — especially China, which is expected to supplant Canada as our No. 1 agricultural market — should boost the nation’s farm income to a record $341 billion.

    Most of the increased product demand lies in commodities like soybeans, corn, barley, rice and cotton. Contrary to the assumptions of East Coast magazines such as The Atlantic, which paint a picture of a devastated and dumb rural America, places like Iowa are doing very well indeed and are likely to continue doing so. Urban economies like Des Moines are also benefiting and expanding into finance and other non-farm related activities. The once massive out-migration from the region has slowed to something like a balance, with increasingly strong in-migration from places like Illinois and California.

    3. The New Foundry. The revival of Great Lakes manufacturing is one of the heartening stories of the past year, but the biggest beneficiaries of American manufacturing’s revival will likely be in the Southeast and along the Texas corridor connected to Mexico. Future big growth will not come from bailed-out General Motors or Chrysler, with their legacy costs and still-struggling quality issues, but from foreign makers — Japanese, German and increasingly Korean — that build highly rated, energy-efficient vehicles. These countries are not just investing in cars; they also have placed steel mills and aerospace facilities in the rising south-facing foundry.

    Foreign companies have good reasons to look to an expanded U.S. base: aging domestic markets, diminishing workforces and a growing concern over China’s tendency to steal technology and favor state-owned firms. This shift from domestic production has been building for years, in large part due to familiar reasons of less unionization and lower business costs. Of the ten foreign auto assembly plants opened or announced between 1997 and 2008, eight were in Southern right-to-work states. As the recovery has taken hold, new expansions are being announced. In 2011 Toyota opened a new plant in the tiny hamlet of Blue Springs, Miss., just 17 miles from Elvis’ hometown of Tupelo, while Mercedes-Benz announced  $350 million to add capacity to its plant just outside of Tuscaloosa.

    4. The Technosphere. Silicon Valley, as well as the Boston area, has thrived under the stimulus, and worldwide demand for technology products will continue to spark some growth in those areas. Over the past year, San Jose-Silicon Valley, Boston and Seattle all stood in the top five in job creation among the country’s 32 largest metro areas. The coming IPO for Facebook and other Valley companies may heighten the tech sector’s already smug sense of well-being.

    Unfortunately for the rest of California, and even more blue-collar Bay Area communities like San Jose and Oakland, high costs and an unfavorable regulatory environment will keep this bubble geographically constrained. Historic patterns, particularly over the past decade, suggest that as the core tech companies expand, they are likely to head  to business-friendly places such as  Salt Lake City, Raleigh and Columbus, Ohio, which have picked up both tech companies and educated migrants from California.

    5. The Pacific Northwest. This is one blue region in the country with excellent prospects. For one thing, both Washington and Oregon enjoy considerable in-migration, in sharp contrast to New York, California and Illinois. They also have a more varied economy than Silicon Valley, with strong companies connected to retail (Amazon, Costco and Starbucks), aerospace (Boeing) and software (Microsoft).

    The Seattle region, home to all these companies,  is the real standout. It ranked first on our recent list of technology regions and third in industrial manufacturing, a trend likely to continue as Boeing expands production of its new 787 Dreamliner. The business climate and the housing costs are somewhat challenging, but more favorable than in California. The Bay Area and Los Angeles continue to send large numbers of migrants to the Puget Sound region. Over the long term, the area also benefits from possessing ample cheap renewable energy (mostly hydro) and water, which are both  in short supply elsewhere.

    These scenarios, of course, could be changed by either world events — such as an unexpected crash in the Chinese economy — or a stunning Democratic sweep in 2012 that would occasion another round of Obamaian stimulus and ever more heavy-handed regulation. Yet barring such developments, expect the back to basics economy to continue enriching these regions best positioned to take advantage of it.

    This piece also appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo by BigStockPhoto.com.

  • The Sun Belt’s Migration Comeback

    Along with the oft-pronounced, desperately wished for death of the suburbs, no demographic narrative thrills the mainstream news media more than the decline of the Sun Belt, the country’s southern rim extending from the Carolinas to California. Since the housing bubble collapse in 2007, commentators have heralded “the end of the Sun Belt boom.”

    Yet this assertion is largely exaggerated, particularly since the big brass buckle in the middle of the Sun Belt, Texas, has thrived throughout the recession. California, of course, has done far worse, but its slow population growth and harsh regulatory environment align it more with the Northeast than with its sunny neighbors.

    Moreover, the Sun Belt is poised for a recovery, according to the most recent economic and demographic data. Even such hard-hit states as Arizona and most impressively Florida appear to be making an unexpected, and largely unheralded, recovery.

    Take Florida. The Sunshine State may have experienced rapid population loss during 2008 and 2009, but the just-released 2011 Census estimates show a remarkable turnaround, with the state adding 119,000 domestic migrants last year. This may be less than half the gains in 2004 and 2005, when the in-migration reached nearly 250,000, but it is close to levels enjoyed a decade ago.

    The big winners in terms of growth were in the South, with Texas, Florida and North Carolina as the leading in-migration states. Virginia, South Carolina, Georgia, Tennessee and Virginia also ranked in the top 10. Overall, the Southern states reaped 95% of the inter-regional net domestic migration (people moving from one state to another). Arizona, another state widely written off, enjoyed an 11th place finish, with a net gain over 13,000.

    As for the much-cherished notion that people will start flocking to highly urbanized, high-cost littoral states? Well, as they say in my native New York, fuggedaboutit. As has been the case for most of the past few decades, the Empire State has once again been the biggest loser, not of pounds, losing 113,000 people. Following close behind are California and Illinois, all of which are once again losing people in large numbers to other places.

    In contrast, one of the few Sun Belt states to lose migrants is former high-flier Nevada, which lost 11,000 people to other states. The Silver State’s continued decline seems traced to what Phoenix economist Elliot Pollack describes as its “one-trick pony economy.” In Nevada, that economy is tied to gambling, which has been hit by the recession and by increasing competition both domestically and in East Asia. It also suffers from its unhealthy “evil twin” dependency on still-weak California.

    The reasons behind these shifts are complex. For one, there is a slowly improving economic climate in many Sun Belt cities. In terms of year-to-year job growth, Dallas ranks first and Houston third, while  Orlando, Miami and Phoenix all are among the top 10 of the country’s 32 largest metropolitan areas. Among the states Texas ranks fifth and Arizona ranks seventh, while Florida clocks in at 16th. This may not be the gangbuster growth of previous decades, but is far from moribund.

    Looking forward, some of the “bubble states” appear to be taking a lesson from Texas and are reconsidering their former growth formula, which relied far too much on tourism, retirees and housing construction. “We know the business model has to change from just tourism and retirees,” notes Chris McCarty, director of the Bureau of Economic and Business Research at the University of Florida. “We need to make a modification in our approach and now there’s a desire to do something about it.”

    Increasingly, places like Phoenix, Orlando and Tampa are focusing on more broad-based growth in such fields as biomedicine, software and trade, which may produce steadier, if not quite as rapid, growth. Aggressively pro-business governments in almost all Sun Belt states — with the exception of California — will enjoy better economic prospects as companies seek out lower-tax, less regulated environments.

    But ultimately demographic trends may prove more determinative. People moving into a state provides many things — such as new workers, skills and, perhaps most important, capital. An examination of IRS data of income brought in as a result of migration by the Tax Foundation shows that Florida ranked third in terms of overall gains, behind only Montana and South Carolina. Arizona ranked fifth. The biggest losers are all in the frost belt: Michigan, New York, Rhode Island and Illinois.

    If we are, as is likely, returning to something approximating earlier patterns, we should expect these trends to accelerate gradually over the coming years. One critical factor will be our rapidly aging population.  Over the past decade, Phoenix as well as the Florida burgs of Tampa-Saint Petersburg, Orlando and Jacksonville all ranked among the top 10 destinations for aging boomers. This pattern may be reasserting itself.

    Housing prices are a critical factor here. Once-soaring prices in communities such as Orlando and Phoenix have adjusted to the more historic median multiple (median housing price relative to income) of roughly three; in contrast, despite some declines, prices in metropolitan areas like New York, Los Angeles, San Francisco, San Diego and San Jose all remain around six or higher.

    This suggests that many retirees and down-shifting boomers — people still working but able to relocate their jobs — may find cashing out of their more expensive houses in the Northeast, Chicago or coastal California an effective way of supplementing often depleted IRAs. “There’s a lot of older people with equity who can find bargains that weren’t around in 2006,” observed the University of Florida’s McCarty.

    More important still is the movement of younger people from the large millennial generation. Despite the assumption that this group inevitably prefers dense, expensive cities, the 2010  Census showed people 25 to 34 moving primarily to Sun Belt cities such as Orlando, Tampa, Houston and Austin, as well as Raleigh, North Carolina.

    “There are a lot of people who will be getting into their 30s [who] still haven’t created a household or bought a home,” says Phoenix-based economist Elliot Pollack. “They mostly won’t be able to do that in California or the Northeast, but they can do it in places like Arizona.”

    Pollack maintains that the real estate meltdown has actually created opportunities for the emerging generation. Burdened by college debt and what could still be a sluggish economy, they may find, like so many of their parents, that their best options for homeownership lie in these Sun Belt growth markets. In this sense, the millennials, like the generations before them, may not be the ones to kill the Sun Belt  but the demographic which will  propel it into a new period of more steady, and sustainable, growth.

    Net Domestic Migration By State, 2010-2011
    State 2011
    Texas    145,315
    Florida    118,756
    North Carolina      41,033
    Washington      35,166
    Colorado      31,195
    South Carolina      22,013
    Tennessee      20,328
    Georgia      17,726
    Virginia      15,538
    Oregon      13,636
    Arizona      13,150
    Oklahoma        8,933
    District of Columbia        8,334
    Louisiana        7,085
    North Dakota        6,368
    Kentucky        5,761
    Arkansas        5,724
    Montana        3,888
    West Virginia        2,814
    South Dakota        2,610
    Delaware        2,347
    New Mexico        2,202
    Alabama        1,974
    Alaska           740
    Wyoming         (149)
    Idaho         (256)
    Utah         (826)
    Vermont         (841)
    Nebraska         (977)
    Maine      (1,000)
    Pennsylvania      (1,121)
    Iowa      (1,361)
    Hawaii      (2,320)
    Maryland      (2,994)
    New Hampshire      (3,645)
    Rhode Island      (6,273)
    Mississippi      (6,672)
    Kansas      (7,928)
    Minnesota      (8,073)
    Massachusetts    (10,886)
    Wisconsin    (10,990)
    Nevada    (11,113)
    Indiana    (11,412)
    Missouri    (11,831)
    Connecticut    (16,848)
    Ohio    (44,868)
    New Jersey    (54,098)
    Michigan    (57,234)
    California    (65,705)
    Illinois    (79,458)
    New York  (113,757)
    Data from US Bureau of the Census

     

    This piece first appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

  • Heavy Metal Is Back: The Best Cities For Industrial Manufacturing

    For a generation American manufacturing has been widely seen as a “declining sport.” Yet its demise has been largely overplayed.  Despite the many jobs this sector has lost in the past generation, manufacturing remains remarkably resilient, with a global market share similar to that of the 1970s.

    More recently, the U.S. industrial base has been on a powerful upswing, with employment climbing steadily since 2009. Boosted by productivity gains and higher costs in competitors, including China, U.S. manufacturing exports have grown at their fastest rate since the late 1980s. In 2011 American manufacturing continued to expand, while Germany, Japan and Brazil all weakened in this vital sector.

    To determine the best cities for manufacturing my colleague Mark Schill at Praxis Strategy Group measured the 51 largest regions in the country in terms of how they expanded their “heavy metal” sector — think automobiles, farm and energy equipment, aircraft, metal work and machine shops. We averaged absolute growth rate and momentum in 148 heavy metal manufacturing industries over ten-, five-, two-, and one-year time frames.

    Our top ranked area, Houston, is one of only four regions that enjoyed net job growth in manufacturing in the past 10 years. This year its heavy manufacturing sector expanded by almost 5%. Houston’s industrial growth is no fluke; over the past year its overall job growth has been about the best among  all the nation’s major metros.

    Houston’s industrial success owes much to the city’s massive port and booming energy sector, says Bill Gilmer, senior economist at the Federal Reserve office of Dallas. “Houston is about energy — it’s about fabricated metals and machinery,” he says. “It’s oil service supply and petrochemicals. It’s all paced by a high price of oil and new technology that makes it more accessible.”

    This shift towards domestic energy augurs well for a huge and economically beneficial  shift in America’s  longer term economic prospects, he points out. Cheap natural gas, for example, makes petrochemical production in America more competitive than anyone could have imagined a decade ago. Linkages with Mexico in terms of energy as well as autos has made Texas — which is also home to No. 4 ranked San Antonio and No. 15 ranked Dallas — the nation’s primary export super-power, with current shipment 15% to 20% above pre-crisis levels.

    The energy and industry connection also can be seen in No. 10 Oklahoma City, where heavy industry has been booming through much of the recession due to its strong fossil fuel industry. This synergy between energy and manufacturing could also spread to other regions, including many not associated with large fossil fuel deposits  New finds in the Utica shale in Ohio, for example, could be worth as much as  $500 billion; one energy executive called it “the biggest thing to hit Ohio since the plow.”

    These gas finds may help ignite the heavy metal revival. As coal-fired plants become more expensive to operate due to concerns over greenhouse gas emissions, the region will have a new, cleaner and potentially less expensive power source.

    Already the  boom in natural gas has sparked a considerable industrial rebound in parts of eastern Ohio including the building of a new $650 million steel plant for gas pipes in the Youngstown area.  Karen Wright, whose Ariel Corporation sells compressors used in gas plants, has added more than 300 positions in the past two years. “There’s a huge amount of drilling throughout the Midwest,” Wright says. “This is a game changer.”

    But the industrial rebound is not only about energy. Another critical factor is rising  wages in East Asia, including China. Increasingly, American-based manufacturing is in a favored position as a lower-cost producer. Concerns over “knock offs” and lack of patent protection in China may also spark a growing “Made in the USA” trend.

    The shift back to U.S. production may be a great sign for many regions. Our No. 3 ranked area, Seattle-Tacoma-Bellevue, is picking up heavy metal jobs associated with the aerospace industry. A growing focus on domestic production for Boeing’s new aircraft could bring even more prosperity to the high-flying region, which also ranked No. 1 on our recent technology industry growth ranking.

    If new industrial growth is just another piece of good news in the Pacific Northwest, it’s manna from heaven to the long suffering industrial heartland heavily concentrated in the Great Lakes region, which includes much of Ohio, Michigan, Indiana, Illinois , Wisconsin and Minnesota.  Long reviled as the “rust belt” this area now leads in the industrial rebound with over 100,000 new manufacturing jobs in just the past year.

    Particularly well positioned is No. 2 ranked Milwaukee, which is home to a wide array of specialized manufacturing firms ranging from machine tools to energy. Over the past year alone the region added almost 3900 heavy metal jobs and has consistently led other Great Lakes communities in job creation.

    But Milwaukee is not the only rust belt rebound town. The greater Detroit area, No. 6 on our list, actually added the most heavy metal jobs — more than 12,000 — than any region of the country. The area’s ranking, however, was dragged down by its legacy; greater Detroit still has lost almost 130,000 positions in the past decade.

    The heavy metal revival has a long way to go. And we cannot expect it to produce the same kinds of jobs produced in the last century. For example, the new jobs will be more highly skilled; even as the share of the workforce employed in manufacturing has dropped from 20% to roughly half that, high skilled jobs in industry have soared 37%, according to a New York fed study.

    Regions seeking strong industrial growth will have to focus more and more on training more skilled workers. Even after years of declining employment and surplus numbers of graduates in the arts and law, manufacturers in heavy industry are running short on skilled workers. Industry expert David Cole predicts there could be demand for 100,000 new workers by 2013. According to Deloitte Touche, 83% of all manufacturers suffer a moderate or severe shortage of skilled production workers.

    The resurgence of heavy metal should lead regions, and the federal government, to consider shifting their emphasis toward productive, skilled based training and away from a single-minded focus on the BA or graduate degree. Few regions suffer a shortage of art history or English graduates.   This more practical emphasis is particularly critical for the Midwest, which is home to four of the ten highest-ranked industrial engineering schools in the nation.

    Even more important: training workers for the assembly lines of tomorrow. These jobs, notes Ariel’s Karen Wright, will require not BA degrees but high degrees of math and mechanical skills that can be apply to expanding companies like hers.

    As we enter a new economic era, regions should look beyond the current obsession with “creative” and “information” industries. Instead, they should focus on a resurgent industrial economy — which then can provide a customer base for advertising, graphics and software companies — as a primary driver of economic growth.  Turn down those soulful   Adele tracks: Heavy metal is back.

    The Top Regions for Heavy Metal
    Manufacturing Job Growth

     

    Score consists of 10, 5, 2, and 1 year job growth rate and job momentum and 2011 industry concentration. 
    Rank MSA Name Score
    1 Houston-Sugar Land-Baytown, TX 68.5
    2 Milwaukee-Waukesha-West Allis, WI 65.6
    3 Seattle-Tacoma-Bellevue, WA 64.7
    4 San Antonio-New Braunfels, TX 60.7
    5 Virginia Beach-Norfolk-Newport News, VA-NC 60.4
    6 Detroit-Warren-Livonia, MI 58.2
    7 Kansas City, MO-KS 56.3
    8 Hartford-West Hartford-East Hartford, CT 56.1
    9 Sacramento–Arden-Arcade–Roseville, CA 54.4
    10 Oklahoma City, OK 53.3
    11 Pittsburgh, PA 53.2
    12 Salt Lake City, UT 52.6
    13 Richmond, VA 52.0
    14 Portland-Vancouver-Hillsboro, OR-WA 51.8
    15 Dallas-Fort Worth-Arlington, TX 51.5
    16 Cincinnati-Middletown, OH-KY-IN 51.3
    17 Cleveland-Elyria-Mentor, OH 51.3
    18 San Diego-Carlsbad-San Marcos, CA 50.5
    19 Raleigh-Cary, NC 50.1
    20 San Jose-Sunnyvale-Santa Clara, CA 48.7
    21 Birmingham-Hoover, AL 48.0
    22 Minneapolis-St. Paul-Bloomington, MN-WI 47.9
    23 Atlanta-Sandy Springs-Marietta, GA 47.6
    24 Louisville/Jefferson County, KY-IN 47.3
    25 Austin-Round Rock-San Marcos, TX 47.2
    26 St. Louis, MO-IL 46.8
    27 Orlando-Kissimmee-Sanford, FL 46.7
    28 Charlotte-Gastonia-Rock Hill, NC-SC 46.2
    29 Denver-Aurora-Broomfield, CO 45.7
    30 Boston-Cambridge-Quincy, MA-NH 44.9
    31 Chicago-Joliet-Naperville, IL-IN-WI 44.6
    32 Washington-Arlington-Alexandria, DC-VA-MD-WV 44.0
    33 Memphis, TN-MS-AR 43.9
    34 Tampa-St. Petersburg-Clearwater, FL 42.9
    35 Indianapolis-Carmel, IN 42.9
    36 Providence-New Bedford-Fall River, RI-MA 42.9
    37 Rochester, NY 42.3
    38 Columbus, OH 42.2
    39 Phoenix-Mesa-Glendale, AZ 41.9
    40 Jacksonville, FL 41.1
    41 Los Angeles-Long Beach-Santa Ana, CA 40.2
    42 Miami-Fort Lauderdale-Pompano Beach, FL 40.1
    43 Nashville-Davidson–Murfreesboro–Franklin, TN 39.8
    44 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 39.1
    45 Buffalo-Niagara Falls, NY 38.7
    46 Riverside-San Bernardino-Ontario, CA 37.9
    47 New Orleans-Metairie-Kenner, LA 35.7
    48 Baltimore-Towson, MD 34.3
    49 Las Vegas-Paradise, NV 31.0
    50 New York-Northern New Jersey-Long Island, NY-NJ-PA 30.1
    51 San Francisco-Oakland-Fremont, CA 24.5
    Analysis includes job data from 148 six-digit NAICS industry sectors covering Primary Metal Manufacturing (NAICS 331), Fabricated Metal Manufacturing (332), Machinery Manufacturing (333) and Transportation Equipment Manufacturing (336).
    Data Source: EMSI Complete Employment, 2011.4 

     

    This piece first appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Mark Schill of Praxis Strategy Group perfomed the economic analysis for this piece.

    Photo courtesy of BigStockPhoto.com.