New Geography

Author: Joel Kotkin

  • Stimulate Manufacturing and Production, Not Consumption and Consumerism

    As store earnings plunged last week, the National Retail Federation proposed that the country create the mother of all sales by suspending taxes on all purchases. These tax holidays would occur in March, July and October and be national in scope.

    The bill, they suggested, should be picked up by – who else? – the federal taxpayer, who would make up for the lost local revenues even for the five states without sales taxes. The rationale, suggests the Federation’s chairman, J.C. Penney Chief Executive Myron Ullman III, in a letter to President-elect Barack Obama, would be “to help stimulate consumer spending as one of the first priorities of your new administration.”

    Now I can understand the manager at the local Target, Macy’s or Nordstrom feeling a bit neglected as money pours out to prop up financial institutions and the Big Three. This proposed subsidy for mallrats, however, makes the previous somewhat-dubious bailouts look like good policy.

    In fact, if there is one thing Americans do not need, it is yet another incentive to spend money they do not have. This has become a fixture of stimulus-think under the Bernanke-Bush regime. Remember the tax rebates earlier in the year? That was a big help, wasn’t it?

    Sadly, this “shop ’til you go bankrupt” strategy is being adopted by the new kingpins in Washington as well. Already you can hear Barney Frank, chair of the House Financial Services Committee, talking about a big stimulus to “prop up consumption.”

    This quick-fix approach has become a new genus of bipartisan madness. Like “the best minds of my generation … looking for an angry fix” – to recall Allen Ginsberg’s Howl – politicians and policymakers seem to feel we need some quick high to restore our battered economy.

    Like a bad drug habit, reckless stimulation may make us feel better in the short term, but it could leave us shaky later on. To be effective over time, a stimulus plan must first address some fundamental challenges that have haunted the American economy for a generation.

    Of course, there are countries that should be spending more. Places like China, Germany and Japan have gotten fat off our consumption. Now their beggar-thy-neighbor policies are backfiring as shopaholic nations, most notably the U.S., rein in their spending.

    In contrast, our economy’s failing stems from not producing nearly enough in goods and services to pay our bills. Our long-term weakness stems not from a shortage of consumer credit – the main obsession of Wall Street and both parties – but from the decline in manufacturing, growing dependence on imported fuel and deteriorating basic infrastructure.

    Our consumption patterns – coupled with disdain for production – explain how our deficit in goods-related trade alone has soared over the past two decades from roughly $100 billion annually to over $800 billion. In the process, we have created an enormous shift in currency reserves to countries like China, Russia, India, Korea, Brazil and Taiwan. They produce and save too much; we consume and borrow too much.

    Reversing this dangerous disequilibrium does not necessitate the end for American-style capitalism – as suggested recently by France’s president, Nicolas Sarkozy – but instead a paradigm shift within it.

    First, we need to swear off our addiction to hype-driven bubbles, seen first in technology and more recently in real estate. The fact that the government may be about to start yet another – this one colored “green” – suggests bad habits are hard to break.

    Of course, bubbles certainly benefit some individuals and companies, most notably the financial sectors, who can best take advantage of wild speculative swings. The financial sector’s share of profits more than doubled as a percentage of national income since the 1980s.

    However, this pattern has not worked so well for most Americans, who have seen their wages stagnate or even fall. Most of us would benefit far more from robust growth that stems from productive industries like energy, fiber, food, logistics and manufacturing. Parts of the industrial Midwest, Texas and the Southeast have enjoyed expansions in these fields – until the onset of the recession, at least.

    More important, productive economic growth creates demography far more egalitarian than the Namibia-like bifurcation that characterizes bubble centers like Manhattan and San Francisco. In fact, notes University of Washington demographer Richard Morrill, areas with greater concentration of these kinds of industries tend to suffer less inequality and offer better prospects for the average middle class worker.

    Concerns over income equality should persuade Democrats – the supposed party of the people – to focus primarily on the basics of economic growth. This is precisely what we have not been doing for over a generation.

    Just think of the billions sunk into convention centers, yuppie condos, performing arts centers and other ephemera. These produce some high-wage short-term construction and architecture jobs, but after that, they offer largely low-paying service work. Meanwhile the Chinese and other competitors dredge new harbors, build high-speed rail systems, new freeways and fiber-optic lines – the keys for pushing their economies to the next stage.

    Sure, you can say the Chinese are also hurting from this financial crisis. But at least they can pay for their own stimulus. The Germans, Russians and Japanese, for now, can also dip into their dollar reserves to pay for new infrastructure investment. In contrast, we will have to beg the money for our stimulus like some busted-up small-town bookie.

    More serious yet, the real problem may be whether we even want to make the changes necessary to boost our economy. Americans were once masters of both innovation and production, but we have begun to fall behind on both counts.

    Indeed, our policies no longer focus on such things as manufacturing and energy production, deeming them beneath our dignity. As early as the mid-1980s, the New York Stock Exchange issued a report baldly stating that “a strong manufacturing economy is not a requisite for a prosperous economy.”

    At the same time, we have deluded ourselves into believing that a small number of “creative” alchemists – software engineers, hedge fund managers, urban developers – could transform code, cash and condos into limitless pots of gold. The huge winnings of these few would then allow the rest of us to spend like teenagers on a borrowed credit card, consuming everything made by the hard-working fools abroad.

    By now we should know better. Americans possess no monopoly on “creativity.” Our suppliers abroad are using the billions made from selling us everyday stuff to help finance future moves up the value-added scale. You can see it in every critical field from aerospace, steel and pharmaceuticals to software services, fashion design and entertainment.

    Americans can meet this challenge but not by goading the family to spend more at Wal-Mart. Instead, we need to remember what actually drives economic growth. The ultimate fate of the economy will not be determined in the malls, but in the mines, oilfields, farms, factories, design shops and laboratories of a more productive economy.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Good-Bye, Gentry

    The proposed investiture of Caroline Kennedy as the replacement senator for Hillary Clinton has inspired a surprising degree of opposition – at least from other claimants to the throne, such as the Cuomos, and from those obstreperous parvenues, the Clintons.

    Perhaps less obvious may be a wider disdain expressed by even liberal New Yorkers who feel Kennedy’s elevation may be one celebrity rising too many. Although the big New York editorial boards are expected to line up, like so many obedient lap dogs, grassroots dissent seethes. Queens Congressman Gary Ackerman, in a remarkable display of chutzpah, groused: “I don’t know what Caroline Kennedy’s qualifications are except that she has name recognition. But so does J. Lo.”

    Other liberal New Yorkers I have spoken to detest the idea of Kennedy replacing Hillary Clinton – particularly without even having to battle, as she did, through the elective process. One reporter even spoke of a discernible “populist backlash” against this ultimate insiders’ deal among lower-level pols, reporters and grassroots Democratic activists.

    Still, these yelps are not likely to stop the Kennedy juggernaut. The forces behind Caroline – like moneybags Mayor Michael Bloomberg, Wall Street bagman-in-chief Sen. Charles Schumer – are too powerful and well-heeled to be resisted. The word is out that dissenting on Kennedy could result in loss of the kind of largesse that can make or break political careers.

    The disquiet about her appointment does offer a glimmer of hope about our battered democracy. It could point toward a backlash against the gentrification of liberalism, the Democratic Party and much of American politics. Gentry, of course, have been involved in American politics from the earliest time, but generally as a conservative influence tied to the protection of their moneyed interest or privileges.

    Of course, some wealthy hierarchs also supported liberal politics. Perhaps the most important examples were Theodore and Franklin D. Roosevelt. Yet if the Roosevelts favored the middle class and the poor, they often did so at the expense of being labeled class traitors by their peers.

    In contrast, the current gentry liberals increasingly reflect the biases of their own social class. The upper echelons of Wall Street, academe and the media have been moving toward what passes for the “left” for over a generation. Ironically, this movement became most evident in the early 1960s in the elite support that gathered around Caroline’s father, John, who brought with him into office “the best and brightest.”

    As historian Fred Siegel has noted, the Kennedy phenomena differed greatly – in both style and substance – from the “lunch pail” liberalism epitomized by President Harry Truman and, to an extent, that of both Lyndon Johnson and his vice president, Hubert Humphrey. Their Democratic party was sustained by appealing to the economic interests of working and middle-class Americans.

    As opposed to gentry politics, whose bastions lay in fashionable urban districts and college towns, Truman-style democracy reached into the vast suburban dreamscape – even into small towns and rural areas.

    Over recent years this version of the party, with its more geographically diverse middle-class base, has lost influence. It’s been a process of both addition and subtraction.

    A series of strong Republican politicians since Richard Nixon and Ronald Reagan lured many middle-income voters out of the Democratic Party by appealing to their patriotism, economic self-interest and, in some cases, prejudices.

    At the same time, the core of the elite liberal constituency – academics, high-tech businesspeople and media figures – has been growing steadily in wealth and influence. By marrying this constituency to poor minority voters, gentry liberals have turned our core urban areas into a collection of electoral “ditto heads,” with so-called “progressives” winning as much as 70 or 80% of the vote in presidential elections.

    This year’s thrilling primary battle between Sens. Hillary Clinton and Barack Obama represented a clash of these two tendencies. Although Clinton herself enjoyed strong ties to some gentry liberals, she campaigned, particularly toward the end of the marathon, as Harry Truman in a bright pantsuit. Obama, for his part, sallied forth from a solid base of academics and well-educated professionals, as well as African Americans.

    In first the primary and then the general election, Obama’s growing fundraising advantage stemmed increasingly not from his early base among students and liberal professionals, but from his strong ties to the highest echelons of the gentry. As we now know, it was big money – hedge funds, Silicon Valley, Hollywood – not small donors who helped propel Obama’s financial juggernaut.

    Then it’s not surprising that, so far, the Obama pre-presidency reflects the values of the gentry class. His appointments in key economic posts have been very much in sync with the Schumer-Robert Rubin Wall Street wing of the party. Contrary to the hyperventilations of some conservatives, Obama seems as unlikely to confiscate the holders of mega-wealth, inherited or otherwise, as that muddle-headed blueblood, George W. Bush.

    If the president-elect looks to raise taxes, a more likely target will be the less-well-heeled small businesspeople, farmers and others who have tended to remain closer to the Republican Party. These are the people who earn about $250,000 a year and may now be demonized as “rich.” Another source of pain for the middling classes may come from carbon trading, which could boost energy prices.

    Indeed, Obama’s most liberal positioning may come on environmental issues, a favorite concern of many gentry liberals. “Green” politics appeal to these factions in part because it poses little threat to “information” industries like finance, software and entertainment. Instead the losers will be blue-collar polluting industries – such as traditional energy production, trucking or manufacturing – which have largely remained close to the GOP.

    Another arena may be found in new federal initiatives on urban and planning issues. Many gentry liberals, starting with Al Gore, have long disdained suburban lifestyles that allow most Americans an enviable level of privacy, safety and comfort. After all, members of the gentry don’t need supports since they can afford both spacious city digs and country retreats.

    But it’s not only ideology or cultural preferences that drive the gentry agenda. Many venture capitalists and investment bankers see a carbon-trading regime and massive subsidies for renewable energy as a potential source of windfall profits.

    Yet for all of these synergies, Obama’s embrace of the gentry agenda also poses some longer-term political risks. For one thing, there’s a growing cadre of congressional Democrats from non-gentry constituencies – the Great Plains, various suburbs and exurbs – who may find the Obama approach both not sufficiently populist and too dismissive of their basic economic concerns.

    The patterns of this dissent can be seen in the early opposition among these Democrats to the initial plan for the financial bailout proposed by President Bush and House Speaker Nancy Pelosi. It might be further stimulated if the administration seeks to smother fossil fuel, agricultural and industrial development as well as steer the stimulus away from financing the roads and bridges critical to the suburban and rural economies.

    For right now, the drive for the Kennedy nomination suggests how powerful, pervasive and even cocky the gentry class has become. But if the economy worsens and grassroots anger grows, the new president may want to avoid emulating JFK and instead follow another playbook, one oriented toward the middle class and epitomized by Harry Truman – the very same approach that almost helped elect his primary rival and new secretary of State.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • How To Save The Industrial Heartland

    You would think an economic development official in Michigan these days would be contemplating either early retirement or seppuku. Yet the feisty Ron Kitchens, who runs Southwest Michigan First out of Kalamazoo, sounds almost giddy with the future prospects for his region.

    How can that be? Where most of America sees a dysfunctional state tied down by a dismal industry, Kitchens points to the growth of jobs in his region in a host of fields, from business services to engineering and medical manufacturing. Indeed, as most Michigan communities have lost jobs this decade, the Kalamazoo region, with roughly 300,000 residents, has posted modest but consistent gains.

    Of course, Kalamazoo, which is home to several auto suppliers, has not been immune to the national downdraft that has slowed job growth. But unlike the state – which he describes as “a hospice for the auto industry” – Kalamazooans are already looking at expanding other emerging industries, including advanced machining, food processing, medical equipment, bioscience and engineering business services. Unemployment, although above the national average, is more than two points below the horrendous 9.3% statewide average.

    As Kitchens notes, this relative success came through often painstaking and laborious work, a marked departure from the “magic bullet” approach to economic recovery that often dominates Michigan and other rustbelt states. In the past, Michigan Gov. Jennifer Granholm has touted ideas about developing “cool cities” to keep young people from bolting to more robust locales and, more recently, on the promise of so-called “green jobs” tied to sustainable energy.

    “People don’t want to talk about ‘blocking and tackling,’” Kitchens suggests. “You keep your head down and keep pushing. It’s not sexy but it works over the longer term.”

    For his part, Kitchens never much embraced the idea of coolness – a “cool Kalamazoo” effort even received $100,000 from Gov. Granholm as part of her strategy of promoting “creative urban development” as a way to keep talent in the state.

    Of course, this gambit failed miserably almost everywhere, even before the recent economic meltdown. Nearly one in three residents, according to a July 2006 Detroit News poll, believes Michigan is “a dying state.” Two in five of the state’s residents under 35 said they were seriously considering leaving for other locales.

    Kitchens does not express much faith either in Granholm’s latest gambit, developing Michigan into a green energy superpower. After all, states like Texas and California have a wide lead in these technologies and other areas, notably the Great Plains, possess a lot more wind and biofuel potential. And in terms of low-mileage “green” vehicles, the Big Three lag way behind not only the Japanese but even some European competitors.

    So instead of believing in reincarnation or finding some miraculous cure, Kitchens believes places must rely on exploiting their historic advantages. In the case of Michigan, those are assets like a powerful engineering tradition and a hard-working and skilled workforce that can be harnessed in fields outside the auto industry. In addition, the area enjoys a cost of living significantly below the national average and far less than those in the coastal states.

    “There’s no easy way to get out of the trouble the region is in,” Kitchens suggests. “You can’t make it by trying to be ‘cool places’ or be the green capital. Instead we have to focus on who we are, a place that has a great tradition of advanced engineering, and take advantage of this.”

    So far this approach has paid off, leading to the creation of some 8,000 new jobs over the past three years. The region has focused both on bringing in new companies as well as helping existing ones expand. Perhaps most importantly, it has also raised a $50 million venture capital fund from local investors to help launch fledgling entrepreneurs.

    The region also boasts an extensive set of business incubators, which seek to leverage the engineering skill of those just out of school or those who have left bigger companies.

    The Kalamazoo experience shows one way out for not only Michigan but also other struggling Midwestern industrial hubs. Another promising example can be seen in Cleveland’s recently developed “District of Design,” which seeks to capitalize on the regions historic strengths in specialty manufacturing. It is all about taking advantage of the embedded DNA that exists in these once wondrously productive places.

    This approach can even revive the residues of the automobile industry. There may be widespread and deserved contempt for the top management of firms like General Motors, but industry veterans repeatedly point out that the region – most particularly the area around Detroit – retains an enormous reservoir of engineering talent, which could provide the linchpin for regional recovery.

    One recent sign validating this was the opening of a new $200 million Toyota research and development center in suburban Detroit. The key reason for making the investment, noted Japanese Consul-General Tamotsu Shinotsuka, was Michigan’s “abundant human resources.” If you are looking for “resources” who know the business of building cars and engines, locating in Michigan has certain logic.

    Of course, this talent pool long has been available to the Big Three. However, as retired automotive engineer Amy Fritz has suggested, they have been ill-used by top management. American engineers, the British-born and educated Fritz suggests, are not inherently less talented than their Asian or European counterparts. They tend be more innovative but their creativity is often stifled by the short-term oriented management priorities of their bosses.

    “With or without a bailout, the Big Three as we have known them will not be the same,” writes Fritz. “One or two could disappear. Others will no doubt shrink. However, the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.”

    Indeed, even in a future with a shrunken Big Three – and perhaps the extinction of at least one of them – the industrial heartland does not have to die. Nor does it have to become a permanent “hospice” for failed once-great companies. The way to a long-term prosperous future cannot be built by depending on the administrations of Washington or the political clout of the United Auto Workers.

    Instead, Michigan, and much of the industrial heartland, should build a strategy that taps into culture that once made it the envy of the manufacturing world. These people are the key to any recovery, the ones who can both transform fading companies or start new ones. As the late Soichiro Honda once told me, “What’s important is not gold or diamonds, but people.”

    This is the basic lesson of business that the current leaders of the Big Three, most Michigan politicians and perhaps too many on Capitol Hill have forgotten, or perhaps never learned. The industrial heartland may be down but as long as the talent and will is there, it is far from out.

    If you do not believe it, take a little trip up to Kalamazoo, which may be quietly showing how to take the Great Lakes toward a new and brighter future.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Rust Belt Realities: Pittsburgh Needs New Leaders, New Ideas and New Citizens

    The current recession provides a new opportunity for Pittsburgh’s elite to feel good about itself. With other boom economies from Phoenix to Miami on the skids – and other old Rust Belt cities like Detroit, Cleveland and Buffalo even more down on their luck – the slow-growth achievements of the Pittsburgh region may seem rather impressive.

    Yet at the same time, the downturn also poses longer-term challenges for which the local leadership is likely to have no answers.

    In large part, Pittsburgh’s “success,” such as it is, has been based on what may be called a “legacy economy,” essentially funded by the residues of its rich entrepreneurial past. This includes the hospitals, universities and nonprofits whose endowments have underwritten the expansion of medical services and education, which have emerged as among the region’s few growth sectors.

    The other great advantage Pittsburgh has – as do potentially other shrinking Rust Belt burgs – is lower housing prices. That’s the good news. But the lack of a great surge in housing prices during the real estate “bubble” also testifies to the region’s general lack of overall attractiveness and its languid job market.

    The current national economic meltdown now changes these realities, and in ways that may not allow Pittsburgh and other slow-growth burgs as much comfort as they might wish.

    For one thing, the “legacy” economy is almost certain to start shrinking as the portfolio investments of universities, hospitals and nonprofits begin to erode. After all, these institutions rode the boom elsewhere for a long time; they now will reap the consequences of that dependence.

    Perhaps even more important, the great housing advantage seems certain to weaken as a net positive. As prices in Florida, Arizona and even California begin to decline, Rust Belt residents who’ve been thinking of moving to warm weather, more dynamic economies and lively entrepreneurial environments will now have their chance.

    To thrive, Pittsburgh simply cannot rely on being somewhere that is a good place to go to school, get sick or die. It needs to offer restless, entrepreneurial people an opportunity to succeed and do something new.

    As local blogger Jim Russell notes, the real problem with his hometown is not that people leave, but that others do not come to replace them. People always leave places, but exciting locales – Los Angeles, New York, Seattle, Houston or San Francisco – also attract large numbers of new people. The immigrants, many of them seeking the “main chance,” are generally the people who shake things up and bring new energy to places.

    Who seeks their “main chance” in Pittsburgh? Certainly not foreign immigrants, who are staying away in droves. Metropolitan Pittsburgh has one of the lowest percentages of foreign-born residents in the nation. Even Detroit, with its sizable Arab population, has some sort of ethnic vibe.

    In the short run, some might argue, not having immigrants relieves the stress on schools and eases potential social tensions. Yet in the America that is emerging, these newcomers represent arguably the most dynamic new element and harbingers of the future. By 2000, one in five American children already were the progeny of immigrants, mostly Asian or Latino; by 2015 they will make up as much as one-third of American kids.

    Rather than compliment itself on not exhausting itself by running too fast, the Pittsburgh region should think about producing enough of a pulse to attract immigrants and aggressive young people. A place that reassures itself on the basis of its stable, homogeneous and rapidly aging population seems doomed to achieve little better than self-satisfied stagnation.

    City leaders may be proud to see Pittsburgh hailed in the media – most recently by USA Today and the Cleveland Plain Dealer – as a poster child for urban “renaissance,” yet these glowing accounts are clearly not inspiring many people to settle there.

    Indeed, in a nation with the most vigorous demographics in the advanced industrial world, the City of Pittsburgh continues to suffer one of the most precipitous declines in population. Like the former East Germany, the town needs more coffins than cribs. Even the suburbs of Pittsburgh have been losing population.

    More worrisome, there seems no strategy – or even an inclination of needing one – to change this reality. Rather than stimulate the grassroots economy, the region for decades has sought to revive itself by spending billions on new stadia, arenas, convention centers and cultural facilities, sometimes in the process demolishing vibrant working-class neighborhoods or local business districts. Meanwhile, the roads and bridges of the city – which continues to battle bankruptcy – are in a constant state of disrepair.

    Every time I read about or visit Pittsburgh, the powers that be have a new project to prove to themselves that the city actually has a life. Most recently, it’s a lame-brained scheme to create a 1.2-mile, $435 million (at least) transit tunnel under the Allegheny River to connect Downtown’s heavily subsidized office towers to the North Shore’s even more heavily taxpayer-funded pro sports stadiums and a future casino.

    Yet, in reality, Pittsburgh’s “Tunnel to Nowhere” is simply part of the same old brain-dead development strategy that may impress visiting journalists or conventioneers but creates little in the way of good new jobs or long-term opportunities.

    You have to think about what the energetic people who come to a community really want – things like economic opportunities, single-family houses and good schools for their kids. Who but speculators and city officials cares about luring the latest ESPN Zone or Planet Hollywood? These kinds of venues are simply commodities now, with no sense of place and available in any city of decent size willing to subsidize them.

    So what should the Pittsburgh region do differently?

    The first thing would be to consider using its scarce public funds to revive the old urban neighborhoods and leafy suburbs that constitute Pittsburgh’s greatest competitive advantage. These are places that may attract students now, but to matter in the long term, some of these young people must stay after they graduate. This will be particularly critical as the current “echo boom” begins to fade and the now record-high number of students begins to drop.

    Second, the region should target growing small businesses. The era when Pittsburgh was a big-business town is all but over. In 1960, 22 Fortune 500 companies were headquartered there. Now it’s roughly a third that number. High taxes, tiresome regulatory regimes and the enormous burden created by outsized city employee pensions have hit the small entrepreneur hardest. Addressing these issues is more important to them than new arts venues or jazz clubs.

    Finally, the city needs a shtick to call its own. It might look at its historic strengths as an innovative engineering city. Pittsburgh could look also to its hinterland, a region rich in beauty and resources, as part of its competitive advantage.

    All of these things could provide linchpins for a true renaissance – one driven not by public relations and shiny new subsidized edifices, but by the energy of its people.

    That’s what has always made for great cities – and what will do so well after this current recession has passed into memory. Pittsburgh has the potential to catch the inevitable next wave that will emerge after the crisis, but only if it can get past its long-standing celebration of mediocrity.

    This article originally appeared at Pittsburgh Tribune-Review.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Make Sure All That Infrastructure Spending Is Well Supported

    It’s the new buzzword: infrastructure.

    President-elect Barack Obama has promised billions in infrastructure spending as part of a public works program bigger than any since the interstate highway system was built in the 1950s. Though it was greeted with hosannas, his proposal is only tapping into a clamor for such spending that’s been rising ever since Hurricane Katrina hit New Orleans in 2005 and a major bridge collapsed in Minneapolis last year. With the economy now officially in recession, the rage for new brick and mortar is reaching a fever pitch.

    But before we commit hundreds of billions to new construction projects, we should focus on just what kind of infrastructure investment we should – and shouldn’t – be making. More important, we should think beyond temporary stimulus and make-work jobs and about investments that will propel the economy well into this century.

    After all, it’s not that we stopped spending on infrastructure over the past decade. It’s that mostly, we haven’t spent on the right things.

    New York City, for example, has wasted billions on its bloated bureaucracy and on constructing new sports stadiums and other ephemera deemed necessary to maintain Mayor Michael Bloomberg’s “luxury city.” Meanwhile, many of its subway and rail lines have deteriorated. Over the decades, brownouts and blackouts, caused in part by underinvestment in energy infrastructure, have become common during periods of high energy use in the summer.

    Similarly, California Gov. Arnold Schwarzenegger has extolled the Golden State as “the cutting-edge state . . . a model not just for 21st-century American society but the world.” Yet California’s once envied water-delivery systems, roadways, airports and schools are in serious disrepair. Many even more hard-pressed communities – Cleveland, Pittsburgh, Philadelphia, Baltimore and New Orleans – have similarly wasted limited treasure on spectacular new convention centers, sports arenas, arts and entertainment facilities and hotels while allowing schools, roads, ports and other critical sinews of economic life to fray.

    Convention centers and other tourist attractions create reasonably high-paying construction jobs in the short term, but over time, they create an economy dominated by lower-wage service jobs. Take New Orleans. It was once one of the nation’s great industrial and commercial centers. But then the city turned its back for decades on its diverse economic base and invested not in levees, port development and basic infrastructure but in the arts, culture and tourism. The tourism and convention business surged, but the result was a low-wage economy. Nearly 40 percent of New Orleans households, or twice the national average, earned less than $20,000 a year in 2000.

    Other places have followed a similar trajectory of folly, heavily subsidizing luxury condominiums, restaurants and other amenities to help lure the so-called creative class. Michigan Gov. Jennifer Granholm’s 2003 plan to turn her state around focused on creating “cool cities” aimed at attracting hip, educated workers to Detroit and other failing urban centers. Instead of sparking an economic revival, Granholm has presided over a mass exodus of younger workers who can’t find jobs in her state.

    Perhaps no place epitomizes misplaced priorities better than Pittsburgh. Widely hailed in the media as a poster child for the urban “renaissance,” Pittsburgh has suffered a precipitous decline in population: Its 310,000 residents are less than half its 1950 peak. It now shares with parts of the former East Germany the gloomy demographic of having more residents die each year than are born.

    Like other cities, Pittsburgh has sought to revive itself with billions in new stadiums, arenas and cultural facilities. Meanwhile, its roads and bridges are in a constant state of disrepair. Most recently, the city embarked on a scheme to create a 1.2-mile, $435 million transit tunnel under the Allegheny River to connect downtown’s heavily subsidized towers with taxpayer-funded pro sports stadiums and a new casino. This “tunnel to nowhere,” derided by a local columnist as the nation’s “premier transit boondoggle,” will no doubt be the sort of thing many states and localities will seek federal infrastructure funds for, justifying them on the basis of both short-term economic stimulus and some kind of “green” agenda.

    Although some new spending on efforts such as developing alternative fuels could improve efficiencies, many “green” projects seem destined to devolve into little more than expensive boondoggles. A recent program passed by the Los Angeles City Council, for example, calls on the city-owned utility’s ratepayers to subsidize installing solar panels on office buildings. This plan, heavily promoted by labor lobbyists, mandates that the project be carried out by the Department of Water and Power, whose employees are among the most well-paid public workers in the nation. By some estimates, it would raise the price of electricity by as much as 8 percent. But it will do nothing to slow the continued flight of industrial and other employment from Los Angeles or its suburbs.

    A “red-green” tilt to infrastructure programs – essentially marrying the labor and environmental lobbies – also seems sure to raise spending on public mass-transit projects. Some transit or rail spending can, of course, promote efficiency and productivity. A significant incentive to increase rail freight, for example, could boost productivity in the critical manufacturing, agriculture and energy industries because rail can generally carry far more goods on less fuel than long-haul trucking.

    Spending on upkeep of transit systems in older centralized cities such as New York, Washington and Chicago also seems logical. But with few exceptions – the heavily traveled corridor between downtown Houston and the Texas Medical Center, for instance – ridership on most new rail systems outside the traditional cities has remained paltry, accounting for barely 1 or 2 percent of all commuters. Such projects are almost absurdly expensive on a per-capita basis; the Allegheny Institute, a Pennsylvania think tank that pursues free-market solutions to local questions, estimates that the cost to the taxpayer of each trip through the new Pittsburgh tunnel could be as much as $15.

    Infrastructure investment requires a strong litmus test. Where the cash goes should be determined chiefly on the basis of how the spending will enhance the nation’s productive capacity and raise incomes across the board. This also means looking beyond traditional brick and mortar investments to critical skills shortages. Businesspeople nationwide complain repeatedly of a chronic shortage of skilled blue-collar workers and technicians. More than 80 percent of 800 U.S. manufacturing firms surveyed in 2005 reported “a shortage of qualified workers overall.” Nine in 10 firms said that they faced a “moderate-to-severe shortfall” in qualified technicians.

    In sharp contrast to sports stadiums and convention centers, programs in skills training for U.S.-based industries such as aerospace, energy, machine tools and agricultural equipment tend to create high-wage jobs, which have expanded over the past decade even as the overall number of industrial positions has declined. Many industrial companies are increasingly desperate for skilled workers and often consider locating wherever they can be found. These companies also produce many jobs that, though not located on the factory floor, are critical to the nation’s competitive edge. For example, the Manufacturing Institute estimates that manufacturers employ one-fourth of all scientists and 40 percent of engineers.

    A forward-looking infrastructure program would also target places that would most benefit from new roads, bridges, ports and other critical facilities, including underperforming regions such as the Great Plains, Appalachia and rural Pennsylvania, as well as the depressed Great Lakes area. These areas offer cheaper labor and housing, prime locations and access to natural resources. Making them more accessible to markets and more energy efficient could replicate the great New Deal success in modernizing much of the South and West.

    Perhaps most critical, we need to look at how to combine new physical investments with new initiatives in skills training, incubating small companies and promoting better ties with local universities and research facilities. This “infrasystems” approach has been implemented successfully in places as diverse as North Dakota’s Red River Valley, the area around Wenatchee, Wash., and in various Southern locales such as Charleston and Savannah.

    The call for more spending on infrastructure represents a unique opportunity to rebuild our productive economy and create long-term middle-class jobs. But if the effects are going to last, the trick is to concentrate on the basics and forget the flashy, feel-good kinds of projects that have characterized many “infrastructure” investments in recent years.

    This article originally appeared at Washington Post.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Auto Bailout: Help Mississippi, Not Michigan

    We should be getting used to the depressing spectacle of once-great corporations begging for assistance from Washington. Yet perhaps nothing is more painful than to see General Motors and other big U.S.-based car companies – once exemplars of both American economic supremacy and middle-class aspirations – fall to such an appalling state.

    Yet if GM represents all that is bad about the American economy, particularly manufacturing, it does not represent the breadth of our industrial landscape. Indeed, even as the dull-witted leviathan sinks, many nimble companies have shown remarkable resiliency.

    These include a series of small and mid-sized firms – in fields as diverse as garments and agricultural machinery, steel and energy equipment – that have managed to thrive in recent years. It also includes a growing contingent of foreign-owned firms, notably in the automobile industry, that have found that “Made in America” is not necessarily uncompetitive, unprofitable or impossible.

    Indeed, until the globalization of the financial crisis, American manufacturing exports were reaching record levels. Overall, U.S. industry has become among the most productive in the world – output has doubled over the past 25 years, and productivity has grown at a rate twice that of the rest of the economy. Far from dead, our manufacturing sector is the world’s largest, with 5% of the world’s population producing five times their share in industrial goods.

    So what is the problem then? If it is not the effort and ingenuity of American workers or our infrastructure, Detroit’s problems must lie somewhere else, largely with almost insanely bad management.

    We have to remember that the Big Three have been losing market share through even the best of times. Their litany of excuses is as tiresome as their product lines. Back in the 1970s it was “cheap” Japanese labor, something that can no longer be cited as an excuse. European car makers, if anything, have even higher wage costs.

    Then there is high gas prices – a good excuse, it appears, back in the 1970s, as well as more recently. But the Detroit auto industry has now had three decades to come up with fuel efficient products that are also fun to drive and reliable. While they have slumbered, the Japanese, Koreans and now the Europeans – with products like the new Volkswagen Jetta – have made enormous strides.

    Now it is the credit crunch, the car makers say. OK. Will increased credit mean that people will suddenly scoop up the same products they have been deserting in droves for decades? Keep in mind that the desertion could get even worse if the congressional greens – led by new Energy and Commerce Committee Chairman Rep. Henry Waxman – impose stiffer taxes on gas, which will hurt the guzzlers that have generated most of Big Three profits.

    So why the push to bail out the Big Three? It’s basically about regional politics. The deindustrializing states of California and New York may not care much, but the big car companies’ operations are overwhelmingly concentrated in the politically volatile Great Lakes region, an area that proved decisive in President-elect Obama’s victory. Another big reason may be that up to 240,000 jobs in Illinois, the nation’s new political epicenter, are tied to the big automakers.

    Sadly, dependence on the Big Three has had long-term tragic results for this entire region. Between 2000 and 2007 – before the onset of the financial crisis – the nation’s largest percentage losses of manufacturing jobs were concentrated in Big Three bastions like Detroit, Warren-Farmington Hills, Saginaw, Flint and Cleveland. In the five years before the onset of the financial crisis, Michigan alone had lost one-third of its auto manufacturing jobs. Now that figure is up to half.

    Worse still has been the psychological dependency that has grown from this troubled relationship. By their very nature, declining businesses – particularly unionized ones – tend to protect their older members and encrusted bureaucracies more than they look to the future. This also creates a political environment where the incentive is not to spur innovation, but to protect the already established.

    Michigan, for example, has met the challenge of its Big Three habit with a combination of farce and failure. Under the clueless leadership of its governor, Jennifer Granholm, the state first hoped its “cool cities” program would keep young, educated workers close to home. After that failed to work, the governor then pushed the highest tax boost in state history, a reliable job-killer.

    So let us be clear. It did not take a world financial crisis to sink Michigan; it was getting there very well on its own. Nearly one in three residents, according to a July 2006 Detroit News poll, believe that Michigan is “a dying state.” Two in five of the state’s residents under 35 said they were seriously considering leaving the state.

    Fortunately, the Big Three do not represent the entire picture of American manufacturing. Even within the Great Lakes region, Wisconsin, which ranks second in per capita employment in manufacturing, has held onto most of its industrial employment due to its large, highly diversified base of smaller-scale specialized manufacturers.

    If Congress and President Obama want to figure out how to restart our industrial economy, they need to travel not to Detroit but to an alternative universe that includes the South and Appalachia, where most of the new foreign-owned auto manufacturers have clustered. States like Alabama, with the second-largest per capita concentration of auto-related jobs, as well as South Carolina, Tennessee, Kentucky, Georgia and Mississippi, have been growing these high-wage jobs for a new generation. In the process, they have brought unprecedented opportunity to some of the nation’s historically poorest regions.

    Nor are these states looking to remain mere assembly centers. For example, they have launched bold new research initiatives, such as the recently formed International Automotive Research Center at Clemson University, which offers the nation’s only Ph.D. in automotive engineering, to make their region a major center of technological innovation for the industry. And the fact that the region will likely be producing the majority of the most low-mileage and low-emission cars certainly cannot hurt their future prospects.

    However, it is also critical to see beyond merely autos. If you look at the period between 2000 and 2007, as we did at the Praxis Strategy Group, much of the fastest growth in manufacturing was taking place in areas tied to energy production like Midland and Longview, Texas, and Morgantown, W.Va., all of which enjoyed 15% or more increases in manufacturing jobs. Already states like Arkansas, Alabama, Iowa and Mississippi boast more per capita industrial jobs than either Michigan or Ohio.

    Another strong performer has been the Great Plains. Places like Dubuque, Iowa, and Fargo and Grand Forks, N.D., experienced substantial growth in industrial jobs during the past decade. The base here, as in Wisconsin, is highly diverse and includes agricultural and construction equipment, electronics as well as a burgeoning sector in the renewable fuels sector, such as LM Glasfibre, a Danish firm with a large operation in Grand Forks. Washington state has been another bright spot, powered by Boeing and other manufacturers attracted to its low-cost, low-emission hydropower.

    If the country is serious about enhancing U.S. industrial might – as it should be – it might want to ask executives and entrepreneurs in these areas, as well as foreign investors, what they need to keep growing and expanding exports. There is clearly a demonstrated global market for Boeing airplanes and Caterpillar construction and agricultural machinery, as well as a host of high-tech and fashion-related products now being churned out in factories scattered across the country.

    The people running these firms should be those at the congressional hearings, not the pathetic losers from companies like General Motors. They might even have some helpful ideas, like streamlining regulations, investing in critical infrastructure and research facilities, expanding support for training a new generation of skilled blue collar workers and using incentives to encourage firms to improve their energy efficiency. These are the steps we can expect our competitors in Europe, Asia and the developing world to take as well.

    Rather than looking for ways to bail out the most egregious serial failures, let us find ways to provide incentives for those successful at creating new jobs and saving existing ones.

    This article originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • In Ethnic Enclaves, The U.S. Economy Thrives

    Dr. Alethea Hsu has a strange-seeming prescription for terrible times: She is opening a new shopping center on Saturday. In addition, more amazingly, the 114,000 square foot Irvine, Calif., retail complex, the third for the Taiwan native’s Diamond Development Group, is just about fully leased.

    How can this be in the midst of a consumer crack-up, with credit card defaults and big players like General Growth struggling for their existence? The answer is simple: Hsu’s mostly Asian customers – Korean, Chinese, Taiwanese, Japanese – still have cash. “These are people who have savings and money to spend,” she explains. “Asians in Orange County are mostly professionals and don’t have the subprime business.”

    To Hsu, culture explains the growing divergence between ethnic markets and that of the general population. Asians, she notes, whether in their native lands or here in California, tend to be big savers. In tough times, they still have the cash to buy goods, while others stay home or go way down-market.

    Nor is the Diamond Development Group’s experience an isolated case. Throughout the country, ethnic-based businesses continue to expand, even as mainstream centers suffer or go out of business. The key difference, notes Houston real estate investor Andrew Segal, lies in the immigrants’ greater reliance on cash. “When cash is king,” observers Segal, president of Boxer Properties, “immigrants rule.”

    This is true not just of well-heeled Asians or Middle Easterners, but also for Hispanics, who generally have lower incomes, notes Segal’s partner, Latino retail specialist Jose de Jesus Legaspi. For example, the recession has barely taken hold at La Gran Plaza, the recently opened 1.1 million square foot retail center in Ft. Worth, Texas, where Legaspi serves as part owner and operating partner.

    The center, reconstructed from a failing old mainstream mall purchased in 2005, is now roughly 90% occupied. “We are doing so well that we are expanding the mercado,” Legaspi says, referring to the thriving centers dominated by very small businesses run from attached stalls that are a popular feature of many Latino-themed centers. “It’s all cash economy. They pay their bills with cash. The banks and credit card companies are not involved. It’s true capitalism, and it works.”

    Latino shoppers, he suggests, also have been less impacted by the stock market collapse than other consumers. After all, relatively few, particularly immigrants, have large investments on Wall Street. In addition, even if they have lost their jobs, particularly in construction, Legaspi adds, they tend to pick up other employment, even at lower wages, often in the underground economy. “They get paid in cash, and they pay in cash.”

    Another key advantage lies in close connections many ethnic merchants have to economies such as Korea, China, Taiwan and India, where enormous amounts of cash have accumulated in recent years. “Many of these merchants have family and other ties to the international economy,” observes Thomas Tseng, a principal at New American Dimensions, a multicultural marketing group in Los Angeles.

    The media focuses on huge surpluses spent by major corporations or sovereign wealth funds, but a substantial amount of the money being made in places like China or India also accumulates into family networks. They often funnel this cash to relatives’ enterprises in North America, where many also retain second homes and often educate their children.

    This combination of cash-spending customers and well-endowed investors explains why in many places, the immigrant market remains one of the few still aggressively expanding. Even in thriving Houston, notes architect Tim Cisneros, the credit crunch has stopped many projects by clients from the mainstream real estate development community. In contrast, Cisneros’ Chinese, Indian and other Asian clients continue to build and expand.

    “I am doing an Asian-Mexican sushi chain that isn’t hurt by the credit crunch since they are doing this out of the checkbook,” Cisneros told me. “And the Indian reception hall I am building is doing well. The action is from these developing companies much more than the old Anglo groups.”

    If the immigrant markets helping Cisneros through the credit crush represent one of the few bright spots in the present, they also will likely become even more important in the future – even if immigration slows down dramatically. By 2000, one in five American children already were the progeny of immigrants, mostly Asian or Latino; by 2015, they will make up as much as one-third of American kids.

    Given these underlying trends, look for developers like Dr. Hsu to keep prescribing more of what she calls “multicultural shopping centers,” focused both on immigrants and their children. As long as these newcomers, both affluent and working class, continue to save, covet cash and work hard, they are likely to continue thriving through the recession and beyond.

    “We are leased up, and we think the supply [of shopping] is not enough,” Hsu says. “We are ready to go Saturday and feel great trust in the future.” At a time when most mainstream American retailers are hiding under their desks, such sentiments are not only welcome; they may also indicate who might be leading the retail recovery when it finally comes.

    This article originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Sundown for California

    Twenty-five years ago, along with another young journalist, I coauthored a book called California, Inc. about our adopted home state. The book described “California’s rise to economic, political, and cultural ascendancy.”

    As relative newcomers at the time, we saw California as a place of limitless possibility. And over most of the next two decades, my coauthor, Paul Grabowicz, and I could feel comfortable that we were indeed predicting the future.

    But much has changed in recent years. And today our Golden State appears headed, if not for imminent disaster, then toward an unanticipated, maddening, and largely unnecessary mediocrity.

    Since 2000, California’s job growth rate— which in the late 1970s surged at many times the national average—has lagged behind the national average by almost 20 percent. Rapid population growth, once synonymous with the state, has slowed dramatically. Most troubling of all, domestic out-migration, about even in 2001, swelled to over 260,000 in 2007 and now surpasses international immigration. Texas has replaced California as the leading growth center for Hispanics.

    Out-migration is a key factor, along with a weak economy, for the collapse of the housing market. Simply put, the population growth expected for many areas has not materialized, nor the new jobs that might attract newcomers. In the past year, four of the top six housing markets in terms of price decline have been in California, including Sacramento, San Diego, Riverside, and Los Angeles. The Central Valley towns of Stockton, Merced, and Modesto have all been awarded the dubious honors of the highest foreclosure rates in the nation during the past year.

    Even with prices down, many of the most desirable places in California are also among the most unaffordable in the nation. Less than 15 percent of households earning the local median income can afford a home in L.A. or San Francisco. In Santa Barbara, San Diego, Oxnard, Santa Cruz, or San Jose, it’s less than a third. That’s about half the number who can buy in the big Texas or North Carolina markets. Moreover, state officials warned in October that they might have to seek as much as $7 billion in loans from the U.S. Treasury. This is a disappointing turn for a state that once saw itself as the harbinger of the future.

    Not surprisingly, few Californians see a turnaround soon. In the most recent Field Poll in July, a record high 63 percent of Californians said they are financially worse off than they were a year ago, while a record low 14 percent described themselves as better off. Poll director Mark DiCamillo called it “the broadest sentiment of pessimism we’ve ever seen.”

    Of course, California can still attract many newcomers, particularly young and ambitious people who dream of a career in Hollywood or Silicon Valley. The problem is that when you grow up and have failed to secure your own dotcom or television series, life in Texas, Arizona, North Carolina, or even Kansas starts looking better. According to real estate analysts, the only thing preventing the current outflow from being worse is that homeowners cannot sell their residences in order to move.

    All of this suggests a historic slide of California’s role as a bastion of upward mobility. In 1946, Californians enjoyed the nation’s highest living standards and the third highest per-capita income, noted journalist John Gunther. As recently as the 1980s, Californians generally got richer faster than other Americans did. Now, median household income growth trails the national average while the already large divide between the social classes—often bemoaned by the state’s political left—grows faster than in the rest of the country.

    Today, notes a recent Public Policy Institute of California study, California has the 15th highest poverty rate in the nation. Only New York and the District of Columbia fare worse if the cost of living is factored in. Indeed, after accounting for cost of living, L.A., Monterey, and San Francisco counties—all places known for concentrations of wealth—have poverty populations of 20 percent. “San Francisco,” says historian Kevin Starr, a native of the city, “is a cross between Carmel and Calcutta.”

    The Political Roots of the California Ascendancy

    You can blame many factors for California’s fall from grace: too much immigration from poor countries, the impact of global competition on technology and aerospace industries, the end of the Cold War, failing schools, and the 12 years of political control by the Texas-centric Bushes. Yet other states have weathered similar storms and still gained ground on the Golden State.

    The real problem lies in the decline of the state’s political culture. “Our society may be evolving spectacularly but our politics are devolving,” suggests Starr, the state’s most eminent historian. “California is in no way a role model for anyone from outside the state.”

    For much of the 20th century, California—already blessed by climate, topography, and fertility—was also relatively well governed. California’s schools, universities, and infrastructure were considered among the finest anywhere. From the 1920s on, its prevailing ideology was a kind of business-like progressivism. Californians in both parties embraced the idea that government could be a positive force in the economic and social life of California. However, they also embraced the latest notions of scientific management. One report from the administration of California’s Republican Governor Hiram Johnson, produced in the early part of the 20th century, stated that the goal was “to systematize the business of the State of California.”

    California’s state government laid the foundation for its remarkable ascendancy. Progressivism’s pragmatic orientation, the melding of science and technology into government, the large-scale investment in infrastructure, and a strong nonpartisan tradition produced spectacular results. In his famous book Inside USA in 1946, Gunther gushingly described California as “the most spectacular and most diversified American state … so ripe, golden.”

    Another Republican California governor, Earl Warren, who served between 1943 and 1953, epitomized progressive virtues—pragmatic in policy, nonpartisan in approach, and activist in his manner. Later on, as the GOP became more conservative, the progressive mantle shifted to the Democrats. Under Governor Edmund G. “Pat” Brown, elected in 1958, the state continued with an aggressive program of public works, a rapid expansion of higher education, and the massive California Water Project.

    Like his Republican progressive predecessors, Brown advocated civil rights for minorities but also promoted business interests, notably in real estate development, Hollywood, aerospace, and agribusiness. Equally important, the Democrat embraced the traditional good government principles of the progressives. Shortly after taking office, Brown initiated a thorough reorganization of state government, attempting to make it more businesslike. California, Brown himself noted, needed “to apply the latest concepts of management, organization, and cost control just as modern corporations have done.”

    The End of the Progressive Era

    By the mid-1960s, Brown’s traditional progressivism was being undermined by rising interest-group liberalism. State employees, left-liberal lobby groups, and minorities were demanding more and more from the governor. Fed up with ever-growing taxes and social spending, business interests became increasingly alienated. Once seen as a boon to the private sector, state government was becoming perceived by corporate interests as overly meddlesome and hostile.

    Perhaps even more damaging was the cultural rift that developed. Many white middle- and working-class voters felt threatened by the rise of new militant minority and student groups. Riots at Berkeley and Watts deepened resentments against the university and African Americans, two linchpins of Brown’s support.

    In the 1966 gubernatorial election, Ronald Reagan smashed Brown and the remnants of the old progressive coalition. The former actor captured both business support and grassroots votes in previously Democratic-leaning areas in suburban L.A. and the Central Valley. Numerous interviews conducted with his closest confidants at the time make clear that they did not intend to impose a conservative social agenda, but hoped to slow the regulatory regime and restore order on the state’s campuses and ghetto streets.

    One scholar has claimed that Reagan “destroyed” progressivism, but some of the blame should also be laid at the feet of the Democrats. To be sure, Reagan slowed the growth of government, but infrastructure building continued and the state university grew, as did many social problems. Much the same could be said of later Republican governors George Deukmejian and Pete Wilson, whose policies were only moderately conservative.

    Enter Governor Moonbeam

    The real problems for the progressive model, ironically, began to surface with the rise of Pat Brown’s son, Governor Edmund G. “Jerry” Brown Jr. He veered away from the traditional focus on nonpartisan governance and infrastructure spending—what long-time advisor Tom Quinn called “this build, build, build thing”—and instead focused on an environmentally friendly, “small is beautiful” approach.

    However, the real problems did not ultimately reside with the brash, creative, and sometimes unpredictable young governor himself. Entrenched Democratic interest groups, particularly public employees, resisted property tax relief for California’s middle-class homeowners. Ultimately, this failure brought about the passage of Proposition 13, a strict limit on property taxes that would sharply curtail infrastructure spending and reduce the ability of local governments to address serious problems.

    During Brown’s watch, and even despite his occasional opposition, the Democratic Party came increasingly under the sway of public employees, trial lawyers, and narrow interest activist groups. Their ability to raise money and impose their political will often outweighed that of even the most powerful business interests.

    The full bill for this transformation would eventually be paid not by Brown, but by his former chief of staff, Gray Davis. Becoming governor in 1998, Davis became the prisoner of the special interest groups with whom his predecessors, Deukmejian and Wilson, had struggled.

    By then, California’s shift to the Democrats had become inexorable and, with the fading of a GOP counterweight, influence within the party flowed to its more radical factions further to the political left. As a result, the state moved decisively away from the economic growth focus of Pat Brown. It seemed determined to wage war against its own economy. As pet social programs, entitlements, and state employee pensions soared, infrastructure spending—the hallmark of the Pat Brown regime and once 20 percent of the state budget—shrank to less than 3 percent.

    The educational system, closely aligned with the Democrats in the legislature, accelerated its secular decline. Once full of highly skilled workers, California has become increasingly less so. For example, California ranks second in the percentage of its 65-year-olds holding an associate degree or higher and fifth in those with a bachelor’s degree. But when you look at the 25-to-34 age group, those rankings fade to 30th and 24th.

    Instead of reversing these trends, the state legislature decided to spend its money on public employees and impose ever more regulatory burdens on business. Davis, a clever and experienced public servant, understood this but could not fight the zealots in his own party. When the state’s revenues shrank after the high-tech bust in 2000, he appeared to be their complete captive. Perhaps the most telling example of the misplaced priorities of the state’s majority party took place amid the state budget crisis when legislators, facing an imminent fiscal disaster, took time to debate legislation about providing more protections for transgender Californians.

    Enter the Girlie Man

    Davis’s apparent inability to gain control of the looming budget crisis opened the door to his 2003 recall and the election of a Republican, Arnold Schwarzenegger. The former bodybuilder and action hero promised to clean up “the mess” in California. He took aim at what he derided as the “girlie men” in the legislature, promising to get the state’s affairs in order. It was not to be. After a bruising defeat by liberal interest groups over a series of propositions, the onetime tough guy embraced what he called “bipartisanship.” The media, particularly on the national level, cooed, but in reality the governor simply ceded initiative to the very “girlie men”—the left-leaning state legislators—that he formerly promised to rein in.

    Under Schwarzenegger, notes former GOP Assemblyman Keith Richman, the state budget actually grew even faster—10 percent annually as opposed to 7 percent—than under his spendthrift Democratic predecessor, Gray Davis.

    Dan Walters, the dean of California political reporters, argues that Schwarzenegger never bothered to learn the basics of state governance. As a result, state spending, particularly on state employees and their pensions, continued with no notion that another budget crisis was looming.

    The Economic Crash

    The Terminator and his advisors also never understood the economic rot undermining the state. The governor assumed little could be done to preserve manufacturing, warehousing, and other high-paying blue-collar jobs in California. Instead, he bought the idea that “creative” professionals in technology, finance, and entertainment could keep the state economically vibrant.

    To be sure, the big players in technology and entertainment still often keep their main offices, and sometimes their research facilities, in California. However, they also tend to locate their middle management and production jobs to more affordable, enterprise-friendly states and countries. This is one reason, notes the Milken Institute’s Ross DeVol, that tech growth has been relatively weak even during the much-ballyhooed Internet 2.0 boom.

    Worst of all, the governor’s economic team did not see the danger of the state’s growing reliance on the real estate bubble. According to my colleagues at the Praxis Strategy Group and others, as much as 50 percent of the state’s job growth in the 2000s relied on an inflated property market. It worked for a time, keeping many people—investors, homeowners, construction workers, financial types—gainfully employed and the state, for a while, solvent. A better-informed governor might have known it would all unravel. Indeed, in early 2007, even as it was clear that the bubble was deflating, Schwarzenegger continued to play vaingloriously to the klieg lights, promoting California as “the harmonious state, the prosperous state, the cutting-edge state … a model not just for 21st-century American society, but the world.”

    Instead of addressing the fundamental fiscal and economic problems, the governor preened for the local and national media by making California the focal point for addressing global climate change. He also proposed a gigantic $14 billion healthcare program largely funded by a state that has beleaguered smaller businesses.

    Fiscal reality scuttled the healthcare plan, but business is still trying to figure out how to cope with a carbon regime faced by few of their competitors. Meanwhile, California’s unemployment is now over 7.3 percent, fourth worst in the nation, behind only Michigan, Mississippi, and Rhode Island.

    In wide regions of the state—from San Diego up through the Central Valley—the only boom is in the foreclosure business. Nor are the inner-city revivals doing much better. Shining condominium towers in Oakland, L.A., and San Diego have either cut their prices or, in many cases, gone rental, a fitting tribute to an age of diminished expectations.

    …and Now the Return of Governor Moonbeam?

    The state’s Republicans might be expected to exploit such a record of Democratic failure but seem incapable of doing so. Since the mid-1990s and Pete Wilson’s embrace of Proposition 187, the ballot measure designed to restrict social services provided to illegal immigrants, many grassroots elements of the party have tended to demonize the immigrants who make up almost 40 percent of the workforce.

    The state is already close to a minority majority; Latinos alone make up half of the current kindergarten class. Republicans could blame the Democrats for the state’s persistent fiscal crisis. They could score points against the elitist aspects of ultra-green policies, the gluttony of public employees, the prospect of higher taxes, and the more radical parts of the left’s social agenda. However, that argument must be addressed toward, not against, the state’s increasingly minority middle class.

    Instead, the most probable political scenario is more of the same, or worse. The two leading candidates for governor, San Francisco Mayor Gavin Newsom and 70-year-old Attorney General Jerry Brown, are considerably to the left of and even greener than Schwarzenegger.

    Brown is clearly the stronger candidate, with a demonstrated appeal to minority voters that Newsom lacks. And Brown enjoys greater name recognition and better access to the big urban land interests, Hollywood, and Silicon Valley, the main money sources of the party other than the unions. In addition, Newsom is particularly ill suited to make even Jerry Brown seem out of touch. In a campaign, Newsom will have to justify his city’s policy of shielding illegal alien felons. He has spoken publicly about fining residents up to $1,000 for failing to sort their garbage correctly, something sure to repel most Californians.

    Yet a second Brown administration poses enormous risks. Although somewhat pragmatic as mayor of Oakland, Brown has become an increasingly strident apostle of Al Gore’s global warming ideology. Brown calls global warming “the most important environmental issue facing the state and the world.” He has made it clear that he hopes to use legislative and executive power to curb suburban growth and induce people to cram themselves into California’s already congested, often crime-ridden cities.

    Brown also seems determined to declare a holy war against the state’s already weakened agricultural and industrial base. As attorney general, he has pledged to block a proposed northern California plant that violates green values by using plastic bottles, a policy which, if he carries it out to its logical end, will decimate almost every blue-collar and industrial industry in the state.

    So is there hope for the Golden State? Perhaps, although California likely will never regain the preeminence of a quarter century ago. Brown is many things, but he is also smart and flexible, as he showed by embracing Proposition 13 after its passage in 1978. He could still find a way to push the legitimate part of the green agenda, such as expansion of renewable fuels, without forcing every carbon- consuming business or single-family homebuilder out of the state.

    Finally, there is this: no place in North America enjoys California’s combination of fertility, natural beauty, and diversity. Many Californians accept high housing prices, silly regulations, and noxious lawyers as part of the price of paradise. In a country of 50 states and more than 300 million people, there should still be a niche for an exceptional place, even if it no longer can pretend to lead the nation.

    This article originally appeared at American.com.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Young Voters Turn America Left

    Nothing made Barack Obama’s victory potentially more historically significant than his overwhelming support from millennial voters, members of the generation born in or after 1982. Obama won voters under 30 by roughly two-to-one, compared with barely half for John Kerry, making some Democrats positively giddy with the prospect of long-term domination of American politics. Most of these voters also stayed with the Democrats down ticket, enhancing the mass slaughter of GOP lambs across the country.

    Whether the Democrats keep this edge, however, depends not so much on the new president’s personal appeal, but on whether he and his party can deliver economically for workers entering a very tough economy. This will become increasingly critical as millennial voters age and begin focusing less on symbolism and more on how the new regime has worked for them in terms of income and upward mobility.

    The poor economy impacts young voters more than commonly believed. Even before the recession kicked in, a 2006 survey by the Center for American Progress found 15- to 25-year-olds twice as likely to view the economy as the main issue than the rest of population. When they came out to vote earlier this month, young voters had little reason to support continued Republican rule. Even in the expansionary period earlier in this decade, the incomes of younger workers continued to fall, in part because they were too young to enjoy gains from either the stock or housing bubbles.

    More ominously, since 2000, these reverses have been shared even by those with college educations–the very group that, outside of the poor and African-Americans, most supported Obama. They voted for him at a time when, according to a survey by the National Association of Colleges and Employers, half of all companies planned to cut the number of new graduates hired from the previous year.

    In contrast to previous generations, millennials are finding that a four-year degree no longer insulates them from declining earnings or the specter of under-employment. This may be in part because college-educated workers today face unprecedented competition from skilled labor in other countries, particularly in the developing world.

    Reversing this trend for younger workers may well prove the greatest challenge and opportunity for the new administration. If the millennials stick with President Obama and the Democrats, we indeed could witness a long-term shift toward the left in American politics.

    Certainly, the initial indications are positive. As Morley Winograd and Michael Hais point out in their groundbreaking book Millennial Makeover, younger voters were attracted to the egalitarian and “civic” orientation of the Obama campaign. They first rejected the individualist, combative baby-boomer ethos represented by Hillary Clinton, who did very poorly among younger voters. Later they also turned against the harsh tone of the McCain campaign and its embrace of both Cold War rhetoric and social conservatism.

    However, how long will the millennials’ leftward tilt last? It all depends on whether the new administration fixes the economy and creates opportunities for the millennials who will be flooding the workforce in the coming years.

    A generation’s early exposure to politics and politicians can shape their perspective for decades. The politics of the generation that came to age during the 1930s, for example, reflected their experience first with the New Deal and then with Democratic leadership during the Second World War.

    Although conservative ideologues can argue incessantly that Franklin Roosevelt’s policies prolonged the Great Depression, the fact remains that most Americans supported Roosevelt through the entire period. More importantly, after the great stimulus of the Second World War, large parts of an entire generation shared in one of the greatest periods of prosperity in global history.

    Not only did they enjoy a steady increase in real incomes, but also the average person’s access to homeownership and college education expanded at an unprecedented rate. In addition, critically, the economy’s expansion took place without increasing the gap between the rich and everyone else, unlike the most recent expansions.

    Economists can bicker all they want, but most people believed that the New Deal and the Democrats delivered. This won them the loyalty of a generation that kept them as the majority party well into the 1960s.

    If President Obama and the Democrats can deliver similarly prolonged economic growth with a strong egalitarian distribution, the millennials would seem destined to constitute the bulwark of a quasi-permanent new majority. Nothing that the Republicans could do with cultural issues or security could offset this phenomenon. Indeed, millennial positions on issues such as gay marriage and abortion suggest that contemplating a continuation of the “culture wars” could be self-defeating.

    This is not the only possible scenario. In the 1960s and 1970s, many baby boomers also embraced liberal politics, largely for cultural reasons and in opposition to the Vietnam War. However, the dismal economic failures of the Carter years, and the apparent cluelessness of the Democratic Congress in finding ways to compete in a changing world economy, ultimately drove many boomers to Ronald Reagan and the Republican Party. This shift allowed the GOP to dominate American politics for a quarter century.

    For the new president, the critical millennial challenge will be to create a vibrant, productive economy that can expand opportunities for new workers, including those with college degrees. Style and symbolism will seduce young people only for so long; ultimately, they will also want jobs, income and the chance to live a decent middle-class life.

    Everything depends on what the Democrats now do. Few of the forces closest to the new president–the gentry liberals, the legal establishment, the green lobby and big city mayors–have a track record of creating widespread new employment and expanding opportunity.

    In addition, much of the leadership of the congressional party, based in urban and elite locales, favors positions that might constrain broad-based growth.

    A policy of raising taxes on entrepreneurs (as opposed to the accumulated wealth of the gentry class), increased regulation on small businesses and spending on an ever-expanding public sector bureaucracy does not bode well for a strong economic resurgence.

    It is true that younger voters, as a recent Center for American Progress report suggested, support higher taxes and expanded government as the preferred way to solve social ills. But as they age, some of those very millennials will be the ones paying the bills for their good intentions. They will have to try establishing businesses in a harsh regulatory climate. This could turn even some now fervent Obamaphiles into retro-Reaganites.

    However, if the new president proves as clever at policy as at politics, and sparks a new growth economy, all this could prove moot. With a grateful new generation behind him, Obama could help the Democrats achieve a period of predominance every bit as extended as the one shaped by Franklin Roosevelt three-quarters of a century ago.

    It all boils down to whether the senator can meet the millennial challenge not only this year but also in the years ahead.

    This article originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • The Triumph Of The Creative Class

    Barack Obama rode to his resounding victory on the enthusiasm of two constituencies, the young and African Americans, whose support has driven his candidacy since the spring. Yet arguably the biggest winners of the Nov. 4 vote are located at the highest levels of the nation’s ascendant post-industrial business community.

    Obama’s triumph reflects a decisive shift in the economic center of gravity away from military contractors, manufacturers, agribusiness, pharmaceuticals, suburban real estate developers, energy companies, old-line remnants on Wall Street and other traditional backers of the GOP. In their place, we can see the rise of a different set of players, predominately drawn from the so-called “creative class” of Silicon Valley, Hollywood and the younger, go-go set in the financial world.

    These latter business interests provided much of the consistent and massive financial advantage that the Illinois senator has accrued since early spring. The term “creative class” was popularized by former George Mason professor Richard Florida, who used it to describe those with both brainy business acumen and a very liberal cultural agenda borrowed from the bohemians of the ’60s.

    Florida, whose views have affected urban policymakers over the last several years, has attributed these characteristics to upward of 30% of the workforce, basing his figures largely on education. On close examination, suggests Brookings Institution demographer Bill Frey, the “cultural creatives” at the core of Florida’s formulation represent likely no more than 5% of the population. After all, most college-educated workers live in suburbs, have children and even attend conservative churches.

    In contrast, the narrower “creative” group clusters heavily in the very areas–college towns, urban centers, some elite suburbs–where Obama has done exceedingly well from early on in the campaign. Nearly one quarter of the core “creative group,” those working in the arts and culture industries, live in just two cities, New York and Los Angeles.

    Many of these workers are employed by a far smaller, and more influential, base of largely pro-Obama corporate and financial titans who embrace the Florida view that “creativity” can save the U.S. economy. These include the likes of Eric Schmidt, CEO of Google–whose employees contributed over $400,000 to Obama’s campaign–as well as a who’s who of other Silicon Valley oligarchs.

    Obama has also enjoyed almost lock-step support in Hollywood and among the go-go wing on Wall Street. Hedge-fund managers, for example, gave 77% of their contributions in congressional races to Democrats last year, according to the Center for Responsive Politics, a nonpartisan analyst of campaign finances. George Soros, the peculiarly left-leaning financial speculator, has been a long-time financial supporter and a critical ally in terms of funding pro-Obama media.

    Of course, many of these people had influence during the Clinton administration, but not remotely to the extent we are about to witness. Back in the 1990s, traditional business leaders, some of whom had backed the “big dog” back in Arkansas, still had some White House clout. After 1994, they were thick with the Republican-dominated Congress.

    Today the traditional business leadership, like their Republican allies, present a spectacle of utter disarray. The commercial banks have been effectively nationalized. Many traditional manufacturers, notably automakers, also yearn to suck on the federal teat. Reduced to supplicants, these companies have surrendered their standing as independent players. At the same time, the traditional energy companies, long the whipping boys of Congressional Democrats, will be fully occupied trying to survive the onslaught of anti-carbon regulations now all but inevitable.

    In contrast, the creative class comes to power with the wind at its back. Its ascendancy was first predicted by Daniel Bell in his 1973 classic The Coming of Post-Industrial Society as a natural product of the rise of science-based industry. Shortly afterward California’s Jerry Brown became the first politician to recognize this shift, embracing Silicon Valley and Hollywood as a counterweight to the industrial, aerospace and agribusiness establishment that had supported both his father, former governor Pat Brown, and Ronald Reagan.

    In the ensuing decades, the creative class establishment rallied to different political causes and candidates, including Gary Hart’s 1984 presidential campaign and the causes of other so-called “Atari Democrats.” Yet it is only this year that its members have, like the Skynet computer system in the Terminator series, reached a level of consciousness about their potential true power.

    What will this ascendancy mean in economic terms? Since the creative class deals largely with images, ideas and transactions, it’s not likely to focus much on reviving the tangible parts of the economy: manufacturing, logistics, traditional energy and agribusiness.

    On the other hand, the creatives are unlikely to be protectionist since they represent companies whose growth markets, and often suppliers, are located overseas. Heavily counted among the world’s richest people, they are also likely to support some Bushite policies–like low interest rates and financial bailouts–that prop up their stock prices and drive money to Wall Street.

    The biggest difference between the creative class and the old business types isn’t on cultural issues–few traditional CEOs embraced the religious right’s agenda–but on environmental policy. Executives at places like Apple, as well as opportunistic investment firms, have become enthusiastic jihadis in the war against climate change. Conveniently, their companies don’t tend to be huge energy consumers and, if they make products, do so in largely unregulated facilities in China or elsewhere in the developing world. And youthful financial firms looking for the next “bubble” could benefit hugely from mandates for more solar, wind and other alternative fuels.

    All this could prove very bad news for groups that produce tangible products in the U.S. or that, like large agribusiness firms, are big consumers of carbon. Also threatened will be anyone who builds the suburban communities–notably single-family houses and malls–that most Americans still prefer but that Gore and his acolytes dismiss as too energy-intensive, not to mention in bad taste.

    Theoretically, there is opportunity for the Republicans–if they can somehow jettison the more primitive parts of their social agenda and come up with their own bold, environmentally sound energy agenda. The new hegemons could easily be painted as moralistic hypocrites who live the carbon-heavy luxury lifestyle of the super-rich while demanding ordinary Americans give up their cars, homes and even their jobs.

    Yet given the creative class’ increasing domination of the media, and the inability of the GOP to comprehend the changing world around it, such a counterstroke may be years in coming. For the time being we will just have to watch to see if the new economic order can perform better than the now largely discredited old business establishment whose time in the sun, at least for now, has set.

    This article originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.