New Geography

Category: Economics

  • Oregon’s Fringes: A New Rural Alternative

    Once the bastion of a thriving rural middle class, Oregon’s rural communities are now barely scraping by. The state’s timber industry employed 81,400 residents at its peak in 1978. At the time, the industry made up 49% of all manufacturing jobs in the state according to the Oregon Employment Department.

    Since then, the recessions of the early eighties and nineties, increased land-use restriction, decreased timber supply, global competition and automation of the timber industry have devastated rural communities that relied on once-plentiful timber jobs. Total timber industry employment has dropped to barely 11,000. Long term forestry prospects are glum. The benefits of carbon sequestration, endangered species protections, growing green building industry and the desire to protect Oregon’s forests for recreation will continue to hamper extraction and employment opportunities.

    Meanwhile, residents of such places as the southwest town of Oakridge (pop, 4,000) are left with few options. As the last mill went in the early nineties, so did the jobs. Many left for employment in surrounding cities. Those who stay often work multiple minimum-wage retail shifts; a trailer or shared space is many times their only living option.

    Oregon’s rural places were wrecked not just because of the necessary industry shift (away from logging) but because of the lack of long-term planning required to accommodate that shift.

    The obvious decline in timber employment called for a multi-generational plan to re-invent the state’s rural communities. Instead, towns like Oakridge were allowed to sink until the situation became bleak enough to gain state attention. What followed was reactionary policy that mandated mostly welfare and other band-aid solutions.

    The current situation calls for a more drastic plan that will once again restore Oregon’s proud rural tradition. The initial step is recognizing that rural Oregon – if the state is to preserve its natural resources and provide healthy communities for its residents – must transition from a rural layout to denser small town formations. The state lacks the resources, population density and geographic appeal to allow all of rural Oregon to make this change.

    Instead, select areas with the potential for turn-around should be identified across the state and given special attention in making the transition. At best, this should come from the ground up: through the initiative of local communities. These “New Towns” will be allotted state resources and special legislation to reinvent themselves as more compact and sustainable communities with the capacity of attracting skilled workers and business alike.

    Rather than attempt to wrestle with every factor in the discussion of the New Town model, what follows is a broad outline of the more crucial considerations suggested by such an approach . This leaves much open to discussion, to which the reader is invited to contribute.

    First, Oregon’s historically strict land-use regulations need to be re-evaluated. Instead of discouraging development, it should be encouraged within the New Town boundaries by incentive packages to developers who add an element of “community value” to their projects. Projects that are built sustainably, offer employment, scenic access, cultural attractions, restaurants, and/or retail options will qualify for the incentives.

    Of course many oppose almost any further development across rural Oregon. But in reality we really have two options: either accept a future of rural disenfranchisement and resource extraction; or concentrate resources, re-zone, and intelligently build new, economically as well as environmentally sustainable towns across Oregon.

    Alternative energy companies such as SolarWorld, Vestas and Solaicx, Inc. are just a handful of the dozens of renewable energy companies running or planning new facilities in Oregon.

    Initially, these firms have clustered around Portland or its surrounding suburbs. But factors such as dwindling space and access to workers could drive these firms further outwards. The right incentives package, inexpensive land and labor would make the New Towns an attractive option for the green industry in the coming years.

    Green business could provide one foundation for these places. Once the green industry demonstrates confidence in the New Town model, other economic players would likely follow. These include industries – such as food processing, data centers and specialized services – that could also be nurtured successfully, as has occurred in smaller communities elsewhere in the region.

    The New Town proposal also offers a viable solution to Oregon’s expected population growth. Between 1980 and 2006, the Oregon population grew from 2.6 million to 3.7 million, an increase of 40.5 percent. By 2050 population growth for the state is projected at 5.8 million according to the Northwest Rural Development Center using U.S. Census data.

    The state’s population growth – mainly from immigration and domestic migrants – will be attracted to locales with affordable housing and job opportunities. So far this has translated into a largely urban migration. Growth within cities or in their surrounding suburbs increased by as much as 50%, while non-metro growth increased by only 19%.

    As long as jobs remain in or near the handful of cities Oregon has to offer, these trends will continue. Fortunately, the majority of newcomers are not drawn primarily by urban amenities. Inexpensive housing, job opportunities, and scenic attractions could compensate nicely for the increasing cost and congestion that accompanies urban living.

    The development of the suburbs stemmed from the desire to escape the urban core’s problems. The suburbs continue to surround our cities because of the resources and job availability. However, there is little reason that with the digital revolution and the coming green revolution, once-isolated towns cannot become self sustainable and very desirable.

    Many readers will feel uneasy by the suggestion of deliberately spurring growth in particular places while allowing others to wane. It seems to go against free market ideology and even to be unauthentic.

    Yet a change is needed. These places initially thrived because they were located near natural resources. By shifting from extraction industries, the basis of the local economy has shifted. The whole approach to town development needs to be readjusted to meet these new realities.

    Without a complete shift in how planners view and design for the spaces across the entire state, the rural poor will continue to struggle, while population increases will make our metropolitan areas less and less attractive. The New Town model could present a viable option to the contemporary problems Oregonians face and perhaps to other problems now only on the horizon.

    Ilie Mitaru is the founder and director of WebRoots Campaigns, based in Portland, OR, the company offers web and New Media strategy solutions.

  • Phantom Bonds Update: The New Treasury Bond Owner’s Manual

    Shortly after my piece on Phantom Bonds, Blame Wall Street’s Phantom Bonds For The Credit Crisis, posted here on NewGeography.com in November, a friend called from New York to ask if I’d seen the latest news. Bloomberg News reported on December 10 that “…The three-year note auction drew a yield of 1.245 percent, the lowest on record… The three-month bill rate [fell] to minus 0.01 percent yesterday.” The US Treasury is seeing interest rates on its notes that are “the lowest since it started auctioning them in 1929.”

    My friend is an intelligent person, a lawyer who managed to accumulate more than $1 million working a 9-to-5 job in a not-for-profit firm and retire in her 50s. Some of her portfolio is in Treasury bonds, so she had a lot of questions. In the course of our conversation, it became clear that I wasn’t going to be able to explain all she needed to know on the phone, despite her background. I decided to write this short owner’s manual.

    Here’s how it works, and how it ties back to the problem of phantom bonds. When the US government needs to raise money it authorizes its agent, the Federal Reserve Bank (FRB), to sell securities. The different names for these securities are associated with how long they will remain outstanding, like the term of a loan: bills are up to 1 year, notes are up to 7 years, and anything longer than that is a bond. We’ll just call them bonds to make it easy.

    The FRB has relationships with several primary dealers like Citigroup, Goldman Sachs, JP Morgan, and Morgan Stanley. When notifications are sent out that some bonds will be sold, these primary dealers submit bids in the form of prices. If a financial institution bids $99 for a $100 bond, then that bond will essentially pay – or ‘yield’— roughly 1% from the US Treasury (UST) to its holder. If the investor bids $101 for the $100 bond, then it will pay 1% for the privilege of lending money to the UST; the bond’s ‘yield’ would then be minus 1%. That’s a very good thing if you happen to be the UST, which of course we all are because it’s all taxpayer money.

    So— as the prices of bonds rise, the yields fall, and these yields translate into the interest rate that the UST pays to the bondholders in order to borrow the money it needs to fund the budget deficit (and to refinance the existing national debt).

    This is all roughly speaking, of course. But the idea is that the interest rates are set based on the prices that are bid in something that’s like a blind auction. The bidders don’t see the other bids, but because there are more bids than there are bonds available, financial institutions will bid the highest prices they can to avoid being shut out altogether. (FRB usually gets bids for 2 to 3 times as many bonds as they have available to sell.) This is good for UST, with a heavy emphasis on the “us”! High bond prices translate into low interest rate loans for UST.

    Bonds are funny that way: when a bond’s price goes up, its interest rate goes down, and interest is the cost of borrowing money. So we should like to see Treasury bonds selling at very high prices, and with very low costs to the UST. Unfortunately, all those fails-to-deliver — those phantom bonds — especially over the past few months, had the effect of pushing down the price of bonds by (artificially) increasing the supply. That was keeping the interest rate paid by UST higher than it needed to be over the last year or so.

    When bond prices are high — or inching up, as they are now — we all benefit. UST sold $32 billion in 30-day Treasury bills on December 9th at a yield of 0%, meaning that investors are lending UST money for nothing except the promise to return their money without losing any of it. Investors bid for four times as many of these particular Treasury bills as were available for sale. This is as it should be.

    As the primary brokers rush to cover their phantoms — those failed to deliver Treasuries of the past — in order to settle their transactions, we’re seeing a surge in the price of treasury securities. The prices of bonds are rising, the yield is falling; the UST is paying lower rates on the money it borrows from investors.

    An increase in the price of the new bonds can also mean that the price of existing bonds – those already outstanding – will also increase. The increase in the prices of outstanding bonds will help my friend in New York. A good part of her $1 million retirement portfolio is invested in Treasuries. Treasury bond funds, like Merrill Lynch and Vanguard, are earning 11 to 12 percent for their investors.

    These high rates of return in Treasury bond funds won’t last forever, of course. The number of fails-to-deliver in Treasuries is falling quickly, now that the spotlight is on. When settlement is final and on time, then the usual rules of supply and demand will apply. Prices of new bonds and those bonds in the funds (the outstanding bonds) will even out. But the demand for UST bonds will likely stay strong as long as there is global financial turmoil. And that demand turns out to be good for the US (lower interest rates) and good for us (higher prices for the bonds in funds).

    People like my friend in New York ask me if Treasury bonds are safe. I tell them: if the US Treasury fails to pay you back, you’ll have bigger problems than a decrease in the value of your portfolio.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

  • Will the Bubble Burst Aspen?

    Aspen is a great town. Its uniqueness extends beyond its spectacular geography to its amenities, people and community spirit. It’s a world-class, year-round Rocky Mountain resort offering great food, music, skiing, shopping – great everything – right in the middle of a real, functioning, small American community.

    It’s no surprise people like it, want to keep it going. And not just the good, smart people who live in Aspen full-time and those who own second homes there (including some of the wealthiest people on Earth), but the thousands of good, smart people who visit every year to address big issues at the Aspen Institute and numerous other forums. These include elites of American arts, sciences, politics and economics with amazing amounts of brainpower and money at their disposal.

    But geographic realities plus inexorable economic, demographic, and social trends are conspiring against the best of intentions. The future of Aspen – playground to the smart, rich and famous – may soon become untenable.

    The financial crisis dominates thinking now. Could it be the catalyst that signals the beginning of the end of business as usual: the start of a major, long-term and permanent change?

    The list of interested parties includes a wide cross section of year-round residents, second homeowners, business and property owners, public officials, visitors, employers and employees, builders and construction companies, managers and personnel at SkiCo (the town’s largest employer).

    I have both personal and professional interests in trends in Aspen, and have been fortunate to visit many times and spend considerable time there over the past 35 years. My in-laws have been gracious and generous hosts (how lucky is that?), and in my role as an analyst of economic and demographic trends, I have been invited to speak, make presentations and attend seminars on many occasions (I always accept!).

    Over the years I have personally seen the transformation from funky (I think the first time I skied there was in jeans and a sweatshirt) to glam and chic. To me it has always posed the classic development problem: how do you both improve and preserve what you’ve got, without setting forces in motion that undermine what you were trying to protect?

    Before the housing and economic meltdown Aspen’s future was considered in State of the Aspen Area 2008, a report commissioned by the Aspen City Council and Pitkin County Board of Commissioners to provide guidance for future decisions on issues ranging from housing to growth management to transportation. The goal was to generate a 10-year community vision for the future, but that future may have to be put on hold.

    The report highlighted several trends that seemed to pose serious challenges for Aspen. Most prominently, it suggested that the Aspen economy was becoming dangerously dependent on real estate and construction, as opposed to the original drivers of skiing, lodging and retail/restaurants. There were many new jobs, but a decrease in available housing for workers.

    Aspen backs up to the Continental divide (closed all winter)! The Roaring Fork Valley is steep and narrow. Low- and middle-income workers must all live and commute “down valley.” But down-valley communities, where one used to be able to find cheap housing, have themselves become too crowded and expensive.

    On top of this the Roaring Fork Valley has moved within sight of being “built out.” Traffic congestion is expanding up and down the valley (there is only one road – Route 82 – to get in or out of town), reaching intolerable levels during rush hours which start earlier and end later. A population of primary and second homeowners increasingly “aging in place” (with large percentages intending to retire in place), taking both their labor and residences off the market, exacerbate existing housing/lodging/worker imbalances.

    The only reason the town “works” now is massive cross-subsidization. The fabulously wealthy subsidize the town budget with high property taxes on their mansions (even though some are in residence only a few weeks a year). They also subsidize the many arts, cultural attractions and charities so ubiquitous to Aspen as well as a range of services for year-round residents, from child care to education, health services, senior services, and police and fire departments.

    Revenues from the rich and ultra-rich also pay for a town government that has a budget of $100 million plus for a town of 6000 permanent residents. In other words, Aspen could not afford itself if it had to rely on itself. Yet it was assumed the system would continue to work indefinitely because of the belief that “there will always be [a need for] an Aspen,” a playground for the ultra wealthy who spent freely and gave generously.

    The burst of the housing bubble, and now the financial and economic crisis, throw that assumption into doubt. Even before the financial meltdown, the usual source of funds – more building to generate more fees, and/or raising taxes on visitors and residents (those both full-time and part-time) – were reaching limits. Now many construction projects have come to a virtual halt; it is no longer certain there will be buyers or a market for the completed structures – developers need to stop bleeding cash immediately. The value of building permits issued in Aspen this year is down 47 percent through Dec. 10.

    Meanwhile the all-important non-profit sector has fallen into a tailspin. Contributions to the arts and other charities are primed to plummet. Endowment funds have lost millions. Sales tax revenue, which is the main tax source, will soon crash due to decreased tourism. Visitor reservations are dramatically down this Holiday season; retail stores are posting “Help Not Wanted” signs.

    As a result, Aspen, a city unused to troubles, now has about all it can handle. Budget cuts threaten to cause havoc. Cuts in services, both governmental and those subsidized directly by the wealthy patrons, seem inevitable. Conflicts among elected officials, business, full- and part-time citizens could get ugly.

    Of course, there is always the possibility that Aspen will weather the storm: after one or two down seasons at most, the number of visitors and dollars collected, spent and donated will resume their inexorable rise. After all, the ultra rich, trendy and connected will always need a playground. The problems listed above are not impervious to solutions; those bridges will be crossed when encountered by lots of brainpower and money.

    In addition, not everyone is alarmed by the economic crisis and housing crash; some Aspen residents are indeed rooting for it, welcoming a lull in the constant construction, development and traffic, and hoping a slowdown will ameliorate such problems as the housing and worker shortages. Fiscal constraints will also bring some sanity back to (what they feel has been) the town government’s extravagance.

    Long, slow decline is certainly possible: less spending, fewer visits, tax receipts, and charitable contributions could unravel the entire structure of cross-subsidization. Could it mean a reversion to the “old Aspen,” the laid-back, counterculture, easy-going, hippy-dippy, live-off-the-land Aspen?

    Maybe so. But perhaps Aspen is facing systemic problems that can not be easily solved. Obviously, there are a great many demands on the area’s land, people, government and businesses. There has never been a consensus in Aspen that growth and development are desirable, even though the town has been dependent upon them. Now that certain limits are within sight of being reached, the already politicized town could become even more polarized.

    The city government has always been composed and supported by year-round local residents, of course, who have always had a love/hate relationship with growth and development: the tourists and wealthy second homeowners bring the city great wherewithal, but they also bring great demands on the area’s carrying capacity and inevitably change the character of the place.

    Of course, these conflicts have always existed, but as the stakes and money involved have grown, they have become more intense. It’s going to be an interesting next few years. See you at the Nell.

    Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American agent for its US Consumer Demand Index.

  • Go North Young Man

    With his foreign policy team now in place, President-elect Barack Obama certainly will be urged to make his first forays into high profile places like Pakistan, Israel and Palestine, as well as to greet his devoted fan base in Europe.

    But before heading off on the diplomatic grand tour, he might do well to turn his attention first to the country with which we have the closest political, economic and environmental ties: Canada. Although not as momentous or sexy a locale as Paris or Jerusalem, Ottawa could well hold the key to developing a bold new strategy for America in an increasingly incoherent and multi-polar world.

    A focus on Canada and to some extent Mexico as well, would require a reversal of the kind of wide-ranging foreign policy focus that has dominated the country since the 1940s. In that period, the United States has extended – one might increasingly say overextended — its economic and political reach ever further from its continental base.

    In the process, the country has become ever more intertwined with unreliable and often malicious regimes on the Asian continent and subservient to the interests of an often jealous and uncomprehending Europe. As a result, the country has sacrificed its own economic health, becoming ever more dependent on fuel, manufactured goods and even its self-esteem from countries with which we often share distressingly little.

    Instead, the new President should place greater emphasis on the fundamental basis of our uniqueness and economic strength: the enormous continent we share with our Canadian as well as Mexican neighbors. This would represent a return to a version of the politics – so important in our 19th Century emergence – that understood resources, natural and human, constitute the true foundation of national greatness.

    This shift also would help us establish significant psychological distance between the United States and Europe. Although there are segments of the country, notably in the Northeast, who would prefer America become a clone of the Old Continent, our demographic and physical realities are diverging every day from those of a rapidly aging and resource-poor Europe.

    In contrast, Canada shares with America a somewhat more vibrant demography. This is driven largely by immigrants who are rapidly integrating and invigorating both countries. With Australia, the two countries have emerged as the preferred location for immigrants in part because they are where they are – in sharp contrast with that of Europe – most likely to succeed.

    Being a country of immigrant aspiration represents just one aspect of our close cultural ties with Canada. Our northern neighbor ranks among the largest senders of immigrants as well; roughly 840,000 Canadian citizens now have established themselves south of the border. On a familial level millions of Canadians have relations with Americans; in fact, places like Los Angeles, if current and former Canadians were counted, would constitute among the largest cities in that country.

    Canada is also our country’s largest source of visitors – there are parts of Florida where French is the second language – and a major player in our national real estate and financial market. Whole sections of the northern Great Plains depend on consumers coming from over the border. (Full disclosure: Joel Kotkin’s wife is a native of Montreal, Quebec and the Schills live in Grand Forks, an icy spit from the Manitoba border).

    Most critically our economic ties to Canada represent the largest bilateral relationship in the world while Mexico has emerged as our third largest trading partner. And unlike our chronically poor terms of engagement with countries like China and Japan, our trade with Canada and Mexico also includes healthy transactions in basic manufactured goods, technology and farm products.

    At the same time, Canada and United States together share a critical interest in agricultural commodities, a market where they are the undisputed world leaders. In a world that is likely to get too crowded and short of basic resources, a strong North America should be well-positioned in comparison with relatively resource-poor competitors such as Western Europe and East Asia.

    But perhaps the most critical relationship lies in the energy arena. The globally Saudi-centered energy policy of recent years, particularly during the Bush-Cheney era, has fueled our deadliest enemies and also threatens both our environment and long-term economic viability.

    A U.S.-Canada energy consortium — with the eventual involvement of Mexico — provides an out from our fundamental geopolitical dilemma: how to grow our economy while reducing our dependence on imported energy and, over time, carbon-emitting fuels. This could take the form of something like a North American Energy Community, which would help coordinate research, development and environmental resources across the continent.

    This approach would offer a way to shift our economic interests away from unreliable and unfriendly regimes towards countries with whom we have far better personal, political and economic ties. Current estimates indicate we will increase oil imports from 12.6 million barrels a day today to 16.4 million in 2030. More than half of that is expected to come from OPEC suppliers, with much of the rest from Russia and the Central Asia autocracies.

    A continental strategy would halt this dangerous slide. Taken together, the resources of our three countries are both immense and extraordinarily diverse. Overall, North America ranks second only to the Middle East in proven oil reserves. Canada, for example, has the world’s second largest proven crude oil reserves, outpaced only by Saudi Arabia; the United States ranks 11th and Mexico 14th. The three North American states rank in the top fifteen in natural gas production, as well.

    This alliance can work both in the short run on fossil fuels and will, over time, blossom with the shift to renewables. Canada, well known for its surplus of fossil fuels, also possesses promising potential in hydroelectric and wind energy. Wind alone, Canadian researchers believe, could provide 20 percent of that nation’s power. Prince Edward Island, on the country’s east coast, is already conducting a major experiment to shift its primary energy dependence towards wind and biomass.

    Mexico, long an oil exporter, needs new technology both to upgrade its current energy industry and to exploit its potential in renewable fuels. Over time, experts say, Mexican production of fossil fuels will drop, but the nation has an almost totally unexploited potential in solar and sugar-based ethanol fuel, following the Brazilian model. For its part, the United States also has considerable solar, wind, and biofuels, of which we are already the world’s second largest producer.

    This energy alliance would also help spark employment and growth across the continent. Money spent on development and importation of energy from Russia, Saudi Arabia, or Iran offers few benefits for our economy. We conduct pathetically little export trade with these nations; we constitute less than 5 percent of Russia’s imports, less than 14 percent of Saudi Arabia’s, and virtually none of Iran’s. Europe, Japan, and, increasingly, China – not the United States – are the growing and primary beneficiaries of the energy-producers’ wealth.

    The same dollars spent within North America have a very different effect. Canada and Mexico together constitute by far the largest export market for the United States. Over one third of our exports now go to our North American allies, compared to less than 5 percent to OPEC and less than one percent to the Russian Federation.

    Investment in Mexico’s Peninsula de Atasta, an ethanol plant in Iowa, or a hydroelectric plant in Quebec enriches customers for whom the United States is a primary source of both manufactured goods and of services, including tourism. A wealthier Mexico also means more visitors to the parks of Orlando, Anaheim or to Houston’s Galleria. Canadians, for their part, flock first to New York, Seattle, Chicago, Los Angeles or Florida when they have extra change to spend.

    So as he considers his options, President-elect Obama may want to consider this continental strategy as a means to create new wealth here and to strengthen our hand abroad. We know these proposals are radical, and will be subject to all sorts of opposition by well-organized pressure groups.

    But by focusing on our continental economy, the United States can begin facing the world not as another slowly declining European descended power but once again as a youthful, defiantly multi-racial and ascendant one.

    This piece originally appeared at Politico.com

    Joel Kotkin is a presidential fellow at Chapman University and is finishing a book on the American future. He is executive editor of www.newgeography.com. Mark Schill is the site’s managing editor and an associate at the Praxis Strategy Group.

    December 19, 2008

  • Hyde Park, St. Louis: Are We Almost There Yet?

    Among potential titles for this article about the Hyde Park neighborhood of St. Louis, I played with The Archaeology of Stasis. My husband suggested It’s Not Happening Here. But neither seemed right. Both were too depressing to describe a place where people are working hard for change. I wanted a title that suggested a lot of hard work, but hope nonetheless.

    I recently toured the neighborhood on a chilly Sunday morning with a former graduate student of mine, Dan Gaeng. Hyde Park is in north St. Louis, near downtown. Its roots extend to the 1830s and ‘40s, when large numbers of German Americans settled there. Today, it is predominantly African-American. Dan, whose dad grew up in Hyde Park, had written a paper about the neighborhood, and it captured much of what I feel about the city of St. Louis in general. All the ingredients are here for a city that can turn the corner and make urban living a reality for a wide swath of folks – a few solid industries, devoted locals, an ideal location for communication and transportation with the rest of the nation, beautiful old housing stock, at least the bones of a viable public transportation network, ongoing local traditions, and affordable living. Yet St. Louis never seems to get there.

    There are some neighborhoods that have done it, to be sure. And downtown looks a lot better than it did when it served as the post-apocalyptic setting for “Escape from New York.” But there’s still a sense that St. Louis is stalled, moving neither toward recovery nor toward total desolation.

    The negative tinge to my headline candidates no doubt owed something to Kenneth Jackson’s 1985 Crabgrass Frontier. The author traces the construction of interstates, federal housing programs, mortgage lending practices, and white flight to explain the abandonment of urban cores for increasingly distant suburbs. St. Louis is a poster child of the phenomenon. Jackson quotes former St. Louis mayor Raymond Tucker, who explained in frustration, “We just cannot build enough lanes of highways to move all of our people by private automobile, and create enough parking space to store the cars without completely paving over our cities and removing all of the economic, social, and cultural establishments that the people were trying to reach in the first place.”

    Excoriating a 1973 RAND study that suggested that St. Louis could become “one of many large suburban centers of economic and residential life,” Jackson suggests that “such advice is for those who study statistics rather than cities. Too late, municipal leaders will realize that a slavish duplication of suburbia destroys the urban fabric that makes cities interesting.”

    And he paints a grim picture of neighborhoods like Hyde Park, as he notes St. Louis’s declining population. “Many of its old neighborhoods have become dispiriting collections of burned-out buildings, eviscerated homes, and vacant lots. Although the drone of traffic on the nearby interstate highways is constant, there is an eerie remoteness to the pock-marked streets. The air is polluted, the sidewalks are filthy, the juvenile crime rate is horrendous, and the remaining industries are languishing. Grimy warehouses and aging loft factories are landscaped by weed-grown lots adjoining half-used rail yards. Like an elderly couple no longer sure of their purpose in life after their children have moved away, these neighborhoods face an undirected future.”

    Twenty-three years after Jackson’s words, Hyde Park’s perseverance suggests that his portrait, while apt, misses a remarkably resilient local pride. Indeed, one title I considered was On the One Hand, On the Other Hand. It’s not that Hyde Park hasn’t suffered from the very trends that Jackson describes. In the mid-1950s, I-70 split the residential side of the neighborhood from its industrial workplaces. Pedestrian traffic virtually stopped. The decline of industrial employment in the city and white flight followed. The neighborhood appeared to hit bottom in the late 1960s, when youths began stealing from elderly residents.

    Since then, a series of revitalization efforts have made their own mark. The result is a patchwork of hope and despair. Renovated nineteenth-century homes mix with recently constructed townhouses, shuttered and crumbling row houses, and piles of burnt-out bricks. Some owners clearly take pride in their houses and yards (many yards still proudly displayed Obama signs on my post-election tour), while other properties appear barely occupied. The traces of old business names are visible on the bricks. It’s just the kind of local color that proponents of gentrification are fond of preserving, but there are few local businesses in operation now. An artist has purchased a former library, which he hopes to turn into a gallery, but it’s not yet open, and there’s no public art in the neighborhood.

    There is a full grocery store on the northern edge, but it’s a hike from the most vibrant part of Hyde Park, the cluster of homes that surround the still-active Holy Trinity Catholic Church and parish school. The church has bought up some of the area’s property and encouraged resettlement, much of it in Section 8 housing, but three of the most recent homes are shuttered because no one has purchased them. Former locals and parish school graduates do return to church on Sundays, but the neighborhood is now mainly non-Catholic.

    A local developer, who calls his company Blue Shutters (to contrast with the ubiquitous red shutters that signal the city’s purchase of a desolate building), has renovated several houses. He also has plans for the Turnverein, a one-time German exercise hall, which could serve as a community center. Dan mentioned that his parents held their wedding reception there. Unfortunately, the Turnverein had a serious fire in 2006. As the St. Louis blog “Ecology of Absence” noted, the fire received hardly any attention in the St. Louis Post Dispatch. The neighborhood received historic district status in the 1970s, but when I mentioned to my co-workers, students and neighbors that I had toured Hyde Park, none of them knew where it was.

    And maybe that doesn’t matter. I see no way that Hyde Park could become the kind of gentrified neighborhood that lures hipsters and boutiques, and makes city council members salivate. Moreover, the folks who have committed themselves to the slow and steady efforts of revitalization don’t seem to want their home to be such a place. As one of the residents whom Dan interviewed said, “Other people have wondered why I haven’t left, and I say, ‘Why should I? I’m fine here’. The neighbors look out for each other, and I like the house and neighborhood. There is a nice mixture of people, from the poor to the college educated and well-off. That’s important to me. I don’t want to live in just a homogeneous upper-middle-class area.”

    A remarkably diverse selection of institutions and people are involved in Hyde Park’s revitalization: “Ecology of Absence” blogger Michael Allen (also the Assistant Director of the Landmarks Association of St. Louis), Holy Trinity Church, and the Friedens Neighborhood Association, which is training local high school drop-outs in construction trades and providing G.E.D. preparation. Of course, there are also the dedicated folks who patiently turn out for one redevelopment meeting after another to plot the painstaking steps – the creation of an entry monument, for example, or streetscape enhancements – that could turn Hyde Park into a place that feels fully inhabited.

    It’s possible that twenty-three years from now Hyde Park will make me think not about Crabgrass Frontier, but about another book I read with my graduate students: Charles Payne’s I’ve Got the Light of Freedom, a study of the grassroots efforts behind the Civil Rights movement in Mississippi. Activist Ella Baker called the day-to-day efforts behind the movement “spade work.” It’s not glamorous and it doesn’t get a lot of credit, but there’s no real movement without it. There’s a lot of spade work going on in Hyde Park. It just might build a place.

    For more on Hyde Park, see:
    Ecology of Absence Blogspot, Friedens Neighborhood Foundation, Landmarks Association of St.Louis, St.Louis Development Corp.

    Flannery Burke is an assistant professor in the Department of History at St. Louis University. Originally from Santa Fe, New Mexico, she writes about the American West, the environment, Los Angeles, and St. Louis.

  • 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.

  • Bailing out on the Dreamland…And Returning Home

    My father, who was from eastern Kentucky, headed with millions of other Appalachian people for the “promised land” after the great depression. The promised land in that day consisted of cities such as Dayton, Detroit, Gary, and Cincinnati, out of which rose great factories that employed thousands on giant “campuses.” They thrived through the vigor of this transplanted workforce – uneducated like my father but full of gumption, tenacity and work ethic.

    My father tells of begging for a job: when turned down by Personnel, he went running, not walking, to see the foreman who put him “right to work that night.” It was in those factories that my dad and other “immigrants” found good middle-class pay…if little in the way of inspiring work. But, he and the others were not picky, as necessity was the mother of this invention.

    Today the world is different. Many of the workers who left for jobs in other cities are returning home to Appalachia – and not entirely by choice. Many of them are being laid off from the auto factories with little else to turn to but family and ties to “place”.

    This creates a new challenge to areas like Appalachia and my region, eastern Kentucky. These are no longer inevitable geographies of distress; certainly they are no more challenged that those of the former dreamscapes up north around the Great Lakes.

    The media will be slow to see this change. Recently CNN focused on the poorest of the poor in Clay County, Kentucky in ways that fit the media stereotype as a home to the ignorant, the racist and the sexist. They even quoted a Clay County woman who observed that “Hillary’s place was in the home.”

    The media is not the only group stuck on the old images. From Kennedy’s famous tour to LBJ’s announcement of the War on Poverty in 1964 from a front porch in Inez, Kentucky to John McCain’s visit during the primary, the region has proven to be an enigma to presidents and policy makers who abhorred the intractable poverty they saw there. It just wasn’t right that an America of plenty would have that “other” “third” world so resistant to the policies and dollars designed to provide transformation.

    In the past, policies were implemented that alternately featured the fundamental nature of the people – not always flattering – to absentee ownership and the exploitation of its rich minerals by outside interests. Or they reflected radical policies and programs that did not take into account the unusual ties to local culture and the strong sense of place and community – attributes that are not often in line with of the culture of consumerism and national mega-corporate prominence.

    Have we reached a turning point where the peeling away of the onion reveals not a past assessment of red America as epitomized by sound bite depictions but one of lessons that can be learned? We were surprised if not alarmed by a Greenspan who admitted that he too was caught off guard by the crash of 2008. We were lulled into believing that Harvard and Yale graduates really do know more and are smarter than the rest of us. We were lulled into believing that just one more plastic Santa or TV set made in China was going to fill the void in our busy lives.

    Have we turned a corner? My father tells of his father making mandolins to supplement his small income as a dirt farmer. He also tells of crops failing and of meager, if existent, Christmas presents. But each spring this man with ties to the land and place reminds me to “plant my corn when tree buds are the size of squirrel ears.” Now I don’t know the first thing about planting corn or even what a squirrel ear looks like. But as we move through the current crisis and a reassessment of the American Dream, I hear echoes of a desire here not to embrace modernity but to seek a return of front porches; local foods and farms; a desire for something beyond the cold flickering computer screen in the middle of the night; and an understanding that we may have, if not more information, perhaps more wisdom than those who hold themselves out as experts.

    All this will be critical as we consider people returning from the Great Lakes and the big cities back to Appalachia. Rather than seeing them as new victims, or unreconstructed red staters, the Obama Administration needs to regard these people as assets for renewing a part of the country that, always close to last, can begin to fulfill its own potential on its own terms.

    Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

  • 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.

  • Rethinking Risk During a Financial Crisis: Learning from Mexico

    Last month I visited a small town in southern Mexico. It is a quiet and modestly prosperous place. Outside some of the homes are older Suburbans, Jeeps and Explorers; the license plates show that their owners have recently returned from the US, driven out by the collapsing economy and heightened nativist anxieties. Almost every family, it seems, has some member who has spent time up north; only a very few of them are still hanging on through the recession.

    For the most part, Mexicans are innocent by-standers in the current financial debacle. They didn’t allow themselves to be talked into strange mortgages or multiple credit cards; whether north or south of the border, this is for them still predominantly a cash economy. Even for those who went to the US, their key goal was to accumulate dollars and send them south, where, as pesos, they provide the basics and even a few luxuries for many families. Until recently, these remittances have been second only to oil income in importance for Mexico; now both are shrinking fast.

    There is something more than a little unfair in the manner in which the recession is hurting our southern neighbor. Mexicans, for the most part, have a personal risk calculus that is the complete reverse of ours. Like most people who have experienced hard times, they are not obsessed with the little things that might go awry; they don’t place little flags around puddles in the grocery store, and most dogs have never received a rabies shot. The sidewalks often look as though a tree is trying to push its way through the ground and electrical cables are frequently visible. It’s not unusual to see a local butcher frying up vast cauldrons of meats in front of his carnecineria, something that would drive American health inspectors to apoplexy.

    In contrast to their wealthier Northern neighbors, Mexicans seem quite happy to take responsibility for themselves and don’t expect to sue someone every time they stub their toe. But their collective view of risk is also the reverse of ours. Property is, for most people, something to live in and not something for speculation. Building one’s own home is common but it’s usually done in stages, whenever there is cash to spare. The results may be untidy, with streets perpetually possessing the appearance of construction zones, but there is no evidence of any foreclosure crisis—forests of ‘for sale’ signs are absent, in Veracruz, at least.

    Nor is that the only visual difference between nondescript Mexican and American cities. Antiseptic zoning is much less common in Mexico, with the result that families live above the store, or behind the workshop, or even on the roof of some buildings. Affluent homes may stand next to literal ruins. In most American cities, this would be evidence of a neighborhood slipping into decay, causing realtors to flee to more ordered areas. But for Mexicans, this juxtaposition simply adds to the sense of being in an organic place rather than on a Disney set. What it means for neighborliness is hard to judge, but it would certainly make an interesting comparative research project.

    Of course, there are some equivalents to the homogenous subdivisions that dominate the American housing market. I saw several large up-scale gated communities that were standing idle, waiting for better times. I was also shown several housing developments, where government agencies were building terraced homes for state workers. What is striking to the visitor is that these would never be offered in the US housing market, as they would be judged to be unacceptably small. At approximately one thousand square feet, they are half the size of the average American home, (approximately 2200 square feet) and significantly smaller than most new houses.

    Even though Mexican families are, on average, larger (with more children and more generations living together), the expectation is not that every member of the family gets a bathroom or even a bedroom. It is also common to buy small and build out, or up, as needs dictate and finances permit. Anyone who has traveled in Asia will also be familiar with this phenomenon, which manifests itself in ground floor apartments that encroach upon the street, balconies that become bedrooms and so forth. High density and modest means lead to invention, if not the kinds of appearance mandated by Home Owner Associations or preferred by the fusspot New Urbanist designers.

    In the past, the Mexican financial system has been criticized for maintaining a tight hold on credit. Even before the current crisis, high interest rates were unfriendly to the consumer, slowing the pace of both urban development and speculation. Given our current crisis, perhaps it’s worth asking whether this points to how the American market may develop in the future. Certainly, we can expect that credit will remain tight for a significant while. The rules for obtaining a mortgage will become more onerous; interest rates will be fixed, appraisals will be exact. McMansions will be of little interest except to large families of means; smaller and older homes will be at a premium. Definitions of overcrowding may change; design expectations will be downsized, and home maintenance will become more usual. As opportunities in the formal labor marketplace shrink, perhaps for an extended period, more Americans will work from their homes and garages, much as occurs in many developing countries.

    There may also be significantly less mobility, with little or no speculative purchasing. This is likely to have the greatest impact on the condominium market. Even affluent parents will be obligated to keep their college-age kids on campus rather than in condos that they hope to flip after graduation. And even when they have a degree, these young adults – with large student loans, minimal credit and no cash for a down payment – will become used to staying with their parents for longer periods, as is frequently the case in Mexico and other developing markets. This could extend into marriage and even family formation. The condos themselves will, for the foreseeable future, revert to rental properties, catering to those who can no longer maintain a foothold in the owner market.

    This does not imply that American cities are going to turn into Mexican ones any time soon. But there is much to be learned by studying the ways that Mexicans calculate risk. We might have fewer families borrowing beyond their means, and continually trying to beat the market. And with less aggregate risk in one part of our lives, we might then view other parts of our daily world with a little less obsession with control. We might be a little more relaxed about who lives next door; we might also be a little more tolerant about the age of their truck or the color of the drapes. After all, they might be Mexican, in which case we know that, if they are there, they can probably actually afford it.

    Andrew Kirby is the editor of the interdisciplinary Elsevier journal “Cities.”This is his 20th year as a resident of Arizona.

  • Former Insider on the Auto Bailout: Never Underestimate Brainpower in Detroit

    In all the many (how many) years I worked as an engineer in and around the auto industry, I got to compare conditions in Europe, Japan and America. Yet in many ways the American situation was perhaps the most tragic – the most potential, most eagerly squandered. It’s not Americans who are flawed, but the business model imposed from the top.

    For example, I do not believe American engineers are inferior to those working elsewhere. It’s just the way their inputs are handled. Toyota and Honda have long-term viable plans that forecast many years down the road. This gives engineers a clear direction.

    On the other hand, Detroit’s automakers, as well as some European ones, tend to look at short-term gains in order to satisfy shareholders. GM’s big problems were due to planning short-term while sacrificing the farm down the road.

    GM became too big. They had too many brands and too many models. Alfred P. Sloan created all these brands in order to counter Henry Ford, but also to provide various products for people at all economic levels. These internal GM brands were to compete against one another as well as outside companies. What Sloan did not realize is how this internal competition would impact the engineers who develop products and the marketing staff who have to sell them.

    Of course some of the problem had to do with the power and influence many of GM’s shareholders had over the board as well as the CEO. These shareholders wanted their cut and they wanted things done their way. For years, it all came down to satisfying the shareholders at the expense of GM’s long-term reputation. To this day, I know people who will not buy a GM product simply because they had a poorly made Pontiac back in 1983.

    Keep in mind, buying a car is a HUGE purchase for just about anyone. This cannot be compared to purchasing a ticket on a bankrupt airliner or buying a golf club from a defunct golf manufacturer. Americans today have long memories when it comes to vehicle purchases. Yet, these are the same Americans who demand instant gratification and who trample people at stores on Black Friday in order to save an extra $12.00 on a Chinese-made sweater.

    But my biggest complaint has to do with the wasting of great talent. There is a popular myth that American engineers are lazier or more stupid than their Asian and European counterparts. I highly disagree with this notion. There may well be different cultural values, but that does not define a worker’s skill set or determination. American engineers are simply more independent in their thinking than their Japanese and European counterparts. Independently-thinking renegades will create nothing but extra trouble for a platform design team.

    This is system that American engineers and designers are placed into once they graduate from college. It’s a cultural “machine” if you will. In Japan, Toyota’s engineers become “one” with the company and they simply work as one machine. There is no “I” in Toyota’s system – or in Japan’s industrial marketplace for that matter. Unfortunately, at GM people appeared to be hell-bent on receiving singular credit for their accomplishments.

    Please understand that the Japanese people are not a diverse bunch. They are known in the automotive industry for improving upon established ideas, designs and systems. The Japanese, however, are not known to create something from the ground up like their American counterparts. American engineers take more risks, since they want to be rewarded. The Japanese simply create and work for the common good of their employer.

    Toyota
    Toyota is a company that is known for its stubborn planning and ways. They take their time and do things right the first time. This is the Toyota way – most of the time.

    But this is not always the case. Toyota got derailed with their Avalon model. This car has been nothing but trouble from the drawing board to the production line. It is a piece of garbage.

    Why is it so bad? Maybe it is because this time they followed the flawed American model. Toyota rushed it because it saw the potential for a quick profit. They did not take their time to think things through. They simply used the American business model for a short-term gain and it failed them.

    In contrast, GM took its time to develop the new Malibu, and Ford used over 1100 engineers to develop the new F150. The Malibu is better than anything Toyota has right now. How do I know? I drive a Camry and I compared it to the Malibu.

    Interestingly enough, GM Vice Chairman Bob Lutz had personal input into the Malibu’s development. That is the MAJOR divergence from traditional platform development in the past. Engineers and designers received personal hands-on feedback from a car-guy at the top, not some bean counter. I am sure they felt invigorated to hear his thoughts from him rather than receiving them in a fluff letter typed by a secretary.

    Back to Michigan?
    Up until the late 90s, many in Michigan simply did not value a college education. Many were simply cushioned by the fact that they could graduate high school and get a job on the assembly line. I fear that this attitude towards college will grow in the southern states such as Mississippi and Alabama. Many down there are starting to have the “I’ll be fine” attitude that many in Michigan once had.

    But the future in Michigan may be brighter than many suppose. Southeast Michigan will remain a research and development powerhouse well into the future. Many of Detroit’s auto engineers and related companies can easily adapt (technically speaking) to alternative technologies such as wind, solar, and new materials. Never underestimate the amount of brainpower in Detroit. Prior to my stint in Detroit, I was under the impression that every Big Three employee was a lazy slouch. My ignorant attitude was squashed pretty damn quickly once I started working with them.

    So here’s a bright point for the future. You will see more technical industries branching off from the auto industry. Companies like Dow are already taking advantage of Metro Detroit’s diverse and increasingly well-educated Arab population. I see a future in Michigan revolving around chemicals, green energy, transportation and international trade in general.

    But the car industry won’t go away either. Toyota, for example, decided to keep its R&D operation in Michigan rather than relocate to Alabama. There was simply no incentive for Toyota to migrate its brainpower to the South. Right now – although this may change – the auto industry in the south is incomplete since they lack the planning and design processes needed.

    With or without a bailout, the Big Three as we have known them will not be the same. One or two could disappear. Others will no doubt shrink. But 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.

    Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

    After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.