New Geography

Category: Economics

  • Will we be over-stimulated?

    Stimulus fever is in the air, and with the election of Sen. Barack Obama to become the 44th US president, it’s now reaching a fever pitch. US automakers have already made the rounds on Washington DC, meeting with Congressional leadership to generate political support for another $25 billion in government subsidy to avoid bankruptcy. Now, congressional leaders and some economists are clamoring for $150 billion to $300 billion in additional stimulus to goose the national economy – all this on top of the $700 billion financial services “rescue package” passed in October.

    Harking back to the days of the Great Depression, many policymakers see transportation spending in roads, highways, and transit as an effective job creation program. Indeed, the American Association of State Highway and Transportation Officials has identified 3,109 “ready to go projects” worth $18.4 billion that could, in theory, produce 644,000 jobs.

    That’s more than double the number of jobs that disappeared in October according to the U.S. Department of Labor. Unemployment edged up to 6.5% in October as the economy shed 240,000 jobs. The number of employed has fallen by 1.2 million workers since the beginning of the year. Meanwhile, wages for those with jobs increased an average of 3.5% over the last year, significantly lagging inflation (for urban consumers) of 5.3% during the same period. More than half of that fall occurred in September, October, and November.

    These numbers embolden economists and pundits alike. Paul Krugman, writing in the New York Times, advises President-elect Obama to be bold and audacious in his fiscal stimulus:

    “My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little. In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.”

    Krugman’s observation is an extraordinary statement because little evidence exists that this kind of discretionary fiscal policy has a meaningful impact on the economy. Alan Aurbach, one of the nation’s leading macroeconomic policy experts and an economist at the University of California at Berkeley, examined fiscal policy during the 1980s, 1990s and early part of 2000s and concluded:

    “There is little evidence that discretionary fiscal policy has played an important stabilization role during recent decades, both because of the potential weakness of its effects and because some of its effects (with respect to investment) have been poorly timed.”

    Where fiscal policy has been effective it’s been through “automatic stabilizers”– programs such as social security and unemployment insurance that maintain income levels regardless of current economic conditions. Of course, these programs are not discretionary—they are ongoing programs resistant to manipulation by politicians responding to the immediate political climate.

    In short, a blanket infusion of cash through a one-time (or two or three) Congressional stimulus package(s) focused on transportation is not likely to be effective. This is true for a number of reasons. The key should not be how many miles of concrete we pour, or even how many jobs we create. Instead the focus should be on how much the investment creates a more productive and globally competitive American economy.

    It’s true transportation spending will ramp up construction jobs, but these are temporary ones that provide little stimulus to the advanced service, information technology, and manufacturing jobs that are critical to the long-term growth of the US economy. In addition, construction jobs tend to be seasonal, hardly the type of job creation that builds long-term economic expansion.

    More substantively, the transportation needs of a globally competitive, service-based economy differ fundamentally from those of the industrial economy that benefited so much from federal highway largess in the 20th century.

    In the 1950s, transportation investment was rather straightforward. Mobility was relatively low and restricted. Most households owned a car, but usually just one. Most households lived close to where they worked and walked to meet their daily needs. Typically, the wife stayed home, dropping the husband off at the train or bus station to take mass transit into work, picking him up at the end of the day. Many families could afford to allow one spouse to stay at home.

    A national transportation infrastructure program was relatively easy to identify during this period (even if it was politically controversial): connect major urban cities to create a unified economy, keep freight moving, and ensure workers could get to their places of employment. An Interstate Highway System linking the Central Business Districts of major cities, complete with beltways to shuttle employees and through traffic around these centers, created a highly efficient hub-and-spoke highway network.

    Today’s travel environment is far more complex, and doesn’t lend itself to the hub-and-spoke system. Current travel patterns point to a transportation network that should focus on improving point-to-point travel in a dynamic economy, more of a spiderweb than a hub-and-spoke network, as Adrian Moore and I point out in our new book Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century.

    In an era of customized travel, massive infusions of funding into a transportation network designed for the industrial era won’t be effective. Moreover, the legislative process is likely to be far less efficient at allocating transportation funds in a meaningful way without a system that allows travelers and highway users to determine what projects get the highest priority. What politicians or even federal planners think is important may not be to travelers. Only by adopting the latest and newest technology to gauge user willingness to pay, most usefully through electronic tolling, can the right projects be put in the right place at the right time while also ensuring a sustainable funding stream for the road network.

    Perhaps not surprisingly, economists Clifford Winston and Chad Shirley, writing in the Journal of Urban Economics, estimate that the return on investment to highway spending has fallen from 15% in the 1960s and 1970s to less than 5% in the 1980s and 1990s. They suggest one reason for the decline in productivity impacts has do with the fact that the highway system is already built out. Another reason is that federal transportation policy often targets unproductive investments – such as “Bridges to Nowhere” – rather than high-priority items, reducing transportation spending’s effectiveness at boosting overall economic growth.

    All this suggests that blanket spending on transportation projects may not have substantive long-run impacts on the economy. In fact, it could work against job creation and productivity if the added spending reinforced a transportation network that is already poorly suited to the needs of a modern, 21st century services-based economy.

    Douglas Elmendorf and Jason Furman, writing for the Brookings Institution, report that infrastructure spending has a lackluster record for boosting short-term economic growth. The focus should be elsewhere. For example, we should look more to the longer-term impacts of investments that actually increase productivity and competitiveness.

    Infrastructure should be seen, then, as a way to boost the speed of information and movement of goods, not as a quickie jobs program. Congressional leaders and urban planners should keep these cautionary points in mind as they ponder the need and efficacy of yet another stimulus package.

    Samuel R. Staley, Ph.D. is director of urban policy at Reason Foundation (www.reason.org) and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century (Rowman & Littlefield, 2008).

  • Down on the Farm

    2007 was a good year for rural America. Driven by “bumper crops, strong demand, and high prices” in commodity markets, farmers across the United States enjoyed an “exceptional year”. Strong conditions continued into the first half of 2008, spurring farmers to increase “purchases of capital equipment and household consumption,” and fueling “double-digit percentage gains in cropland values,” in many areas of the nation.

    Unfortunately for rural America, these boom times appear to be drawing to a close. Over the past few months, prices for wheat, soybeans, corn, and other commodities have come back to earth, while input costs have soared. According to the Fargo Forum, the USDA calculates that expenses faced by farmers “increased half as much in just the past year as they rose in the previous 15 years combined,” leaving farmers “hard-pressed to make money next year even if they enjoy good yields”. This has left many farmers concerned that farm country may be facing a repeat of the lean times faced during the farm crisis of the late 70’s and early 80’s. One long-time farmer, Harlan Meyer of Davenport, Iowa, expressed his reservations about the situation to the AP, stating that,

    “I guess you could say there’s an awful lot of concern in the rural communities and with some of the city people… I would think there would be a lot of cautiousness among farmers because most of the people can remember the ’80s and I would think there’s probably a lot of cautious people now on spending a lot of money.”

    While rural communities may be facing tougher economic times in the face of a bursting commodity bubble, it appears that their banks will be able to meet such challenges from a position of relative strength. According to Reuters, banks throughout rural America “are not freezing credit to customers like large money center banks, offering a bright spot in an otherwise gloomy economy”. Such banks have “largely steered clear of the subprime housing loans,” have “low to no exposure,” to credit derivative instruments, and are able to draw on a strong base of deposits to continue to provide loans. Those loans will also be made at far better terms than those seen during the farm crisis, with banks today offering farmers “interest rates that are one-third or one-half of what they were in the late 1970s.”

    While conditions may have some ways to go to match the bleak days of the farm crisis, some legislators are already expressing concern about access to credit in farm country. This week, Sen. John Thune of South Dakota called for a hearing to explore the impact of the credit crisis on rural America. While rural banks may be in relatively sound health, it appears that those same banks are, according to the AP, requiring “more collateral and higher interest rates,” for loans, and are, in the words of a Texas A&M economist, “turning conservative”. However, the AP also notes that even in the face of such tightening, lending will continue, as “the industry’s traditional lenders — independent commercial banks — are on more solid financial footing than the country’s largest investment banks and commercial banks”.

  • Geography of the US Auto Manufacturing Industry

    Talk of bailing out US automakers has dominated the news recently, and we all know that means Michigan. Michigan is home to roughly a quarter of the country’s auto manufacturing jobs, and the industry is in rapid decline there and in Ohio, but the state of automaking employment in the rest of the country may surprise you.

    The economies of Michigan, Alabama, Ohio, Indiana, and Missouri are the most highly dependent on auto manufacturing. While Michigan and Ohio have lost more than 43,000 auto jobs since 2001, Indiana actually added almost 3000 over the same time period and Alabama more than doubled its auto industry, adding 8600 jobs.

    In fact, the rest of the nation aside from Ohio held about the same number of automobile manufacturing jobs in 2001 as the state of Michigan. While Michigan has shed more than 35% of its employment in the industry, the rest of the country actually held its own over the same period.

    One major caveat – this source of BLS data is only current through the end of 2007, so it doesn’t quantify the effects of the recent credit market implosion. What it does show is a strong decentralizing trend in the auto manufacturing industry.

    Looking at average annual pay, the small vehicle sector in Minnesota leads the way – jobs there average over $100,000. At well over $90k per job in Michigan, you can see what the rapid decline in automaking has contributed to the evisceration of the state economy. In the top four highest paying states – where workers make more than $90,000 on average per year – automakers have cut more than one third of the jobs in those states since 2001.

    So while the failures of major automakers would send ripples throughout the North American industrial economy, what we are really contemplating here is doling out support for the declining states of Michigan and Ohio.

  • 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.

  • Pittsburgh’s Brain Drain Game

    Rust Belt communities are obsessed with brain drain. The demographic losers of economic restructuring, cities are employing a variety of strategies to stop the bleeding and keep the talent from leaving the region. Akron, OH recently voted down a proposal to lease the city’s sewer system in order to fund a scholarship program designed to plug the holes of out-migration. The voters balked at the initiative partly as a result of the 30-year residential commitment necessary to reap the full benefits of the funding for post-secondary education in Akron schools.

    You would think plugging the brain drain seems like a good idea. I thought so when I decided to help Southwestern Pennsylvania solve its declining population problem. However, a few months into the project I determined that the exodus from Pittsburgh ended almost two decades ago. The devastating loss of young adults in the early 1980s still echoed throughout the area and informed a great deal of policymaking.

    The most comical anti-brain-drain campaign was Border Guard Bob, a product of the Pittsburgh Regional Alliance who was invented to keep local graduates around home. The pitch was that Pittsburgh is too great of a place to leave, if you knew where to look. Bob was retired before his unveiling, hopefully because he was too ridiculous even for our local leaders, but the spirit behind it remained.

    I’m not aware of any successful anti-brain-drain program, but Pittsburgh continues to try despite having more college graduates than the region can employ. If anything, Greater Pittsburgh suffers from a glut of talent that stubbornly tries to stay. Average wages are below even those in nearby Cleveland, which sports notably more unemployment and a much more acute foreclosure crisis. Yet the initiatives keep coming.

    The Pittsburgh Urban Magnet Project (PUMP) claims to better enfranchise young adults living in the city. The ultimate goal is to retain talent by giving them reasons to stay. Empowering residents is noble enough, but I doubt PUMP can deliver the population boost the City of Pittsburgh desperately seeks.

    Maybe the problem is not that Pittsburgh or other Midwest cities are unattractive places to live. Instead the roots of the out-migration lie elsewhere – in dysfunctional economies and wretched politics. It’s not lack of “cool places” to hang out but things like a declining tax base and a growing pension debt that effectively hamstring the city.

    Frustrated job seekers aren’t heading to the Sun Belt because they need a cooler place to hang out. They are looking for jobs and opportunities. And if they hang around until their thirties, they then leave to the surrounding suburbs and their better schools.

    The Pittsburgh Promise, a child of the Kalamazoo Promise, offers a better alternative. Thanks to money from the University of Pittsburgh Medical Center (UPMC), the City doesn’t have to lease its sewers in order to provide graduates from Pittsburgh public schools with scholarships. The suburban schools don’t look quite so attractive when we are talking about a free ride for college.

    But even if it’s a step in the right direction, the Pittsburgh Promise still won’t keep families from moving to Charlotte, NC. It certainly won’t attract families from Austin, TX. Therein lies the flaw. There are no mechanisms to bring new talent into the region. Without substantial in-migration, particularly immigration, no Rust Belt city is likely to experience an economic renaissance. But the focus is always on the people who leave. The real problem is why people don’t come.

    Just about anywhere in the Rust Belt, the perception of brain drain and actual rates of out-migration are horribly out of whack. This past summer, the Land Policy Institute at Michigan State University issued a report that concluded that the number of young adults in the state was growing faster than the national average during the period of 2000-2006. The cry to stop brain drain in Michigan – epitomized by Governor Jennifer Granholm’s “cool cities” program – has never been louder. The rhetoric doesn’t concern me, but the ineffectiveness of the programs should give everyone pause.

    Basically fighting out-migration is a losing cause. The US Census found a positive correlation between increasing levels of education and the greater likelihood of leaving a region. Should Pittsburgh stop investing in its schools in order to better retain residents? Of course not. But this is no more absurd than spending a lot of money to keep people from seeking opportunity elsewhere.

    If you are a parent, then the idea of moving in order to improve your children’s opportunities makes sense. However, for a community to invest in a student likely to leave the economic area presents a conflict of interest.

    The Pittsburgh Promise isn’t a bad idea. Maybe it will encourage people to stay or even move in from the suburbs given the carrot of subsidized college tuition. But that won’t alleviate anemic regional population growth. Pittsburgh needs to sell itself globally as a place where you can access opportunity, either for yourself or your children. Pittsburgh must attract new blood. Pittsburgh, essentially, needs economic growth.

    I’ve labored over the best way to align the interests of individuals with that of the community concerning geographic mobility. I think the solution is, counter-intuitively, to promote out-migration. Pittsburgh’s exodus during the early 1980s was impressive, perhaps uniquely so. The result is what I call the Burgh Diaspora, the scattered expatriates who still retain an unusual preoccupation with their hometown.

    My idea is to use the Burgh Diaspora like an alumni network, to help Pittsburghers get a leg up on globalization. You can always find an ex-neighbor prepared to help you. Facilitating this odyssey could deepen loyalty and might eventually spark a return migration. But my hope is that non-natives would also appreciate this value proposition, seeking access to the diaspora network.

    Read Jim’s Rust Belt writings at Burgh Diaspora.

  • 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.

  • Two-Timing Telecommute Taxes

    Telecommuting — or telework — is a critical tool that can help employees, businesses and communities weather the current financial crisis, and thrive afterward. However, right now, the nation is burdened with a powerful threat to the growth of telework: the telecommuter tax. This tax is a state penalty imposed on Americans who work for employers outside their home states and sometimes telecommute.

    Proposed bi-partisan federal legislation called the Telecommuter Tax Fairness Act would abolish the telecommuter tax. To help assure that the nation can take full advantage of the economic relief telework offers, Congress must pass this bill – either as stand-alone legislation or as part of a new economic stimulus package.

    Relief for Employees

    Working from home (or alternative sites close to home) can save struggling families money on gasoline, parking, train and bus fares, dry cleaning, business wardrobes and work-week meals. They can save on dependent care by providing some of the necessary care themselves during the time they previously spent commuting.

    Telework can also relieve the considerable strain on Americans nearing retirement who have unexpectedly lost their pensions and must now continue working. Working indefinitely may be a hardship for many older employees. Some may not be able, physically, to continue making a daily round-trip commute. Some may need to move closer to their adult children who live out-of-state, either to receive physical help from them, or to help them with child-care costs by baby-sitting. If Americans who have been robbed of their retirements can work from home at least some of the time, they can stay on the job without having to travel as often or live as close to their offices.

    Relief for Employers

    Employers (both public and private) can use telework to slash real estate and energy expenses. When fewer employees work on-site every day, employers need to rent, heat, cool and light less office space.

    Implementing telework can also reduce recruitment and turnover costs: Employers offering flexibility can attract top-tier candidates from a wide geographic area, and generate loyalty among valued employees.

    Telework can reduce business interruption costs when an emergency or other major disruption occurs near the main office. If, for example, a severe storm, fire, bomb threat or transit strike affects the employer’s area, a staff trained to work remotely can keep operations running smoothly.

    And organizations adopting telework can become more productive. Employees can replace commute time with work time; concentrate better because they are less exposed to the frequent interruptions typical in busy offices; reduce absenteeism by completing tasks at home instead of taking whole days off when they have to meet non-work responsibilities, like caring for sick children, and reduce “presenteeism”, the phenomenon of employees showing up at the office when they are too sick to be productive and are likely to compromise the health and productivity of co-workers.

    Relief for Communities

    Telework can bring new Internet-based jobs to rural areas with sagging economies. It can also bring new home buyers to such regions: Americans who want to maintain their high paced, big-city careers in a slower paced, more scenic environment. A significant growth in the population of home-based workers in these communities can also produce growth in businesses catering to their needs, such as home office supply stores and business service providers.

    The Telecommuter Penalty Tax

    Despite the important help telework can provide during and after the financial meltdown, states may punish nonresident teleworkers by subjecting them to a telecommuter tax. New York has been particularly aggressive on this front.

    Under the “convenience of the employer” rule, when a nonresident of New York and his New York employer agree that the employee may sometimes work from home, New York will tax him on his entire income, both the income he earns when he works in New York, and the income he earns when he works at home, in a different state. Because telecommuters’ home states can also tax the wages telecommuters earn at home, they are taxed twice on those wages.

    In some cases, a telecommuter’s home state may give him a credit for the taxes he pays New York on the income he earns at home. However, even in such cases, the employee may be penalized for telecommuting. When New York taxes income at a higher rate than the home state, the telecommuter must pay taxes on his home state income at the higher rate.

    By subjecting nonresident employees to double or excessive taxation if they telecommute, a state like New York needlessly limits the strategies available for coping with our ailing economy.

    Harm to Employers

    By deterring telework, the telecommuter tax frustrates businesses trying to decentralize their workers and prevents them from exploiting telework’s business benefits.

    In addition, the hefty payroll obligations the telecommuter tax imposes on businesses can force companies to relocate. Indeed, The New York Times reported this year on a small business that planned to leave New York because tackling the state’s claims under the convenience of the employer rule proved too draining. (See David S. Joachim, “Telecommuters Cry ‘Ouch’ to the Tax Gods,” The New York Times, Special Section on Small Business, Feb. 20, 2008.)

    Further, by thwarting the growth of telework, the telecommuter tax encourages traffic congestion, a menace to productivity. Excessive traffic can, for example, cause employees to arrive late for work and delay customer deliveries.

    Harm to States

    In addition to employees and employers, telecommuters’ states of residence also suffer under the telecommuter tax. Consider a Virginia resident who telecommutes most of the time to his New York employer. If Virginia grants the telecommuter a credit for taxes paid to New York on his home state income, Virginia forfeits its tax revenue to New York. In so doing, Virginia effectively subsidizes public services in New York (like transportation, police, fire and other emergency services) while it makes the same services available to its resident who is working in Virginia. States currently struggling with steep budgetary shortfalls cannot afford to cede their own revenue to other states. The employee who telecommutes, meanwhile, suffers under a reduced budget for home state spending.

    Even the state imposing the tax loses. In addition to driving business away, New York’s telework tax policy can drive part-time telecommuters away. Because the convenience of the employer rule applies only to nonresidents who spend time working in New York, nonresidents can avoid the rule by avoiding the state: They can increase their telecommuting from part-time to full-time, or take jobs in their home states. When nonresidents stop traveling to New York for work, New York gives up the opportunity to tax any of their wages, and New York restaurants, hotels and other businesses lose the income these teleworkers would have generated on their commuting days.

    The Remedy

    The Telecommuter Tax Fairness Act would eliminate these ills, prohibiting states like New York from taxing the income nonresidents earn at home in other states.

    The bill has bi-partisan support in both Houses of Congress, including the support of lawmakers from Connecticut, Maine, Mississippi and Virginia. Outside Congress, the measure has been endorsed by advocates for telecommuters, taxpayers, homeowners and small businesses.

    To help assure that the greatest number of employees and businesses can maximize telework’s economic benefits – during the current crisis and afterward – Congress should pass the Telecommuter Tax Fairness Act. Whether as an addition to a new stimulus package or in a separate measure, Washington must see to it that telecommuter tax fairness becomes the law.

  • 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.

  • Why can’t Wall Street be more like Ghana?

    For the past week an irritating little tune has bounced into my head unexpectedly every time I turned to news about the financial collapse. The melody would then remain at the edge of my consciousness for hours at a time like a buzz or a hum in my ear. Though I couldn’t make out the lyrics, I could distinguish the distinct nasal whine that Rex Harrison affected in the musical My Fair Lady. Still, I couldn’t pin down which song was playing on an endless loop in my head. Instead, as I made my way through the Kotokuraba Market in Cape Coast, Ghana, this past week, I found myself absentmindedly substituting my own lyrics to the Frederick Loewe score. At first I sang the line “If only Lehman Brothers was more like the Man! Know Thyself Pharmacy,” and then “If only AIG could be more like Is Not By Might Alone Construction.” Though my feeble attempt did not come close to scanning, I knew immediately that I was onto something. There was a nugget of truth there that I could never have reached through ordinary means of logical analysis. I began to rattle off all the financial behemoths who have crashed or have nearly crashed or will potentially go belly up in the coming months, giants like Merrill Lynch, Citibank, Wachovia, Washington Mutual—the list seems to grow with every passing day.

    I continued to substitute the strange names for businesses that Ghanaians seem to prefer for those of the failing financial industry. After my initial amusement of replacing Lehman Brothers with Man! Know Thyself, I realized that the way businesses are named in Ghana speaks to core values that perhaps would have kept the Wall Street CEOs in check. Ghana is a country steeped in the oral tradition of proverbs. The ancient Akan religion is full of proverbs and sayings about how to live a moral and upright life. Surprisingly, most of these Akan tribal proverbs correlate directly to Christian proverbs despite the fact that they existed long before Europeans introduced Christianity to the region. As a result, these sayings have remained a vital part of the culture and often crop up in conversation in a kind of abbreviated shorthand. On the street conversation is peppered with such statements: “But, I have forgiven you, let us not bite one another,” “So you strike fire among us ever,” “Oh great ancestors, our blood relation chain will never break apart,” “Till death ladder, together we climb to rest,” among scores of others. Since Ghana is a public and communal society unlike Western cultures which are more private and personal, these sayings and expressions of philosophies and beliefs tend to affirm a responsibility toward others.

    I’ve been particularly moved by the name of a small hardware store, “But Like A Chain Ventures,” which is an abbreviation of the Akan proverb “But like a chain, we are linked both in life and death with our people, because we share common blood relations.” As I reflected on the implications of Lehman Brothers being named “But Like A Chain Investment Bank,” I tried to tease out the implications of such a dramatic change in the strategy of naming businesses in most of the Western world. American businesses appear to emphasize ownership, especially in advertisements and product names employing the notion “this is mine”, rather than their moral and ethical relationship to customers and the community. In recent years this has played out intricately in such marketing strategies as “branding.” For Ghanaians, business names are more a form of moral or ethical expression. Names are an opportunity to publicly articulate a belief or philosophy. Because Ghana is such a public and communal society, the way you present yourself is much more important than the product you are offering. Customers are drawn to businesses that express the mores of the community first, and then they determine whether the business offers what they are looking for. In a community where politeness is primary, knowing the kind of person you are doing business with first is a determining factor greater than price, location, or variety.

    With this in mind, I now wonder if such a name would not have stopped this fallen bank’s former CEO Richard S. Fuld Jr. and his brethren from pursuing personal gain to such a degree that the entire globe was at risk. Would the message printed on the stationary and on the front of the building have been sufficient to caution their recklessness? Probably not, but it is nice to consider such a possibility.

    On October 9th, 2008, the Washington Post reported that even the International Monetary Fund, the world’s cheerleader for world markets, has now qualified its support. “Obviously the crisis comes from an important regulatory and supervisory failure in advanced countries […] and a failure in market discipline mechanisms,” Dominique Strauss-Kahn, the IMF’s managing director, told the Post. She emphasized that African countries with the least free market openness are more prepared than most to survive a major global recession.

    Like most African economies, Ghana is primarily a cash society. The average person on the street, even if he or she has a job, cannot get credit and would never consider attempting to get a loan. No one has a Visa card here because no businesses accept them. When my friend, the playwright Victor Yankah, had to pay his middle son’s college tuition at the beginning of September, he took out a six inch thick stack of ten and twenty cedis from his bank account to pay the university’s 5,000 Ghana cedi fee. As the economic crisis intensifies, Yankah feels prepared because he has diversified the African way. His wife Betty Yankah owns a small dry goods stall in the local market. In addition to being head of the Department of Theater Studies at the University of Cape Coast, Yankah also owns a small orange grove that supplies fruit to local markets as well as a fish hatchery along the Volta River. He has positioned himself to “think globally and act locally.” He hopes that by staying close to the ground he and his family will weather whatever dire economic times lie ahead.

    As I play with renaming the failing titans of finance, the reference I have been trying to remember finally comes to me. The song I am thinking about is “A Hymn to Him,” a solipsistic and misogynist diddy asking, “Why can’t a woman be more like a man?” I can imagine Lehman’s fallen CEO Fuld Jr. singing a similarly written ode to free market capitalism and self-aggrandizement. To which, I would counter: Why can’t Wall Street Be More Like Ghana? And this verse scans.

    Laban Carrick Hill is a visiting professor at University of Cape Coast in Ghana and the author of more than 25 books, including the 2004 National Book Award Finalist Harlem Stomp! A Cultural History of the Harlem Renaissance. His most recent book America Dreaming: How Youth Changed America in the 60’s recently won the 2007 Parenting Publications Gold Award.

  • San Francisco and the Meltdown

    Initially San Francisco and the Bay Area market seemed to be immune to the financial meltdown resulting from the mortgage crisis. After all, the City and its accompanying affluent suburbs had not suffered drastic drops in home prices as seen in many other regions of the country. Yet as the mortgage crisis has snowballed into a complete meltdown of the worldwide financial system, the poster child of the ‘new economy’ now appears less and less immune from the turmoil dominating our news headlines.

    The region that consists of the City by the Bay and the adjacent Silicon Valley is no stranger to drastic market corrections. Silicon Valley was front and center of the dot-com bubble burst at the early part of the decade. As it became abundantly clear that the dot-com frenzy was unsustainable, the region retracted as investment in internet startup companies waned severely.

    This time the crisis is different. The current economic realignment is not limited by region but affirms the global interdependence of financial systems. The Bay Area may sit atop the economic food chain more than most regions, but its vulnerability to the crisis is not necessarily less than that of less elite areas.

    Initially, much of core San Francisco’s resilience to the current economic conundrum can be attributed to the fact that the majority, approximately 65% of the city’s residents, are renters. But the greater Bay Area is being affected in other ways as a result of the financial crisis. As large banks fail, credit gets tighter and consumer confidence slows, business in sectors unrelated to real estate is beginning to be impacted. Case in point is Silicon Valley giant EBay recently laying off 10% of its workforce. Yahoo!, another large Bay Area employer, has also announced a significant reduction in staff. Even more troubling are moves by venture Capital Firms such as Sequoia Capital and Benchmark Capital to force companies in which they are stakeholders to ‘cut costs significantly’. With VC Firms tightening their belts, technology start-up companies, a primary driver of the Bay Area economy, are also likely to cut spending and employment.

    These cuts will hit San Francisco proper, but far less than the Peninsula, where the vast bulk of the tech-related work takes place. In contrast, San Francisco is increasingly a ‘museum city’ for those wealthy enough to afford a vacation home. This will help keep local businesses in the retail, restaurant and hospitality industries somewhat strong.

    The problems in the global, national and regional economy have touched off some alarms at the local level in San Francisco. Last week, Mayor Gavin Newsom announced his own version of an ‘economic stimulus plan.’ Under this plan, the city will lay off some government workers and continue to enforce a hiring freeze. The plan also calls for encouraging more foreign investment to the city. Capitalizing on a drop in lavish vacation spending by local residents, the Mayor is also looking to Bay Area dwellers to consider ‘staycations’ by spending time and money in the city rather than traveling outside the region. In a somewhat encouraging measure, the stimulus plan mentions reducing fees for local business and fast-tracking $5.3 billion worth of capital projects – both steps in the right direction.

    San Francisco’s relative buoyancy in the dire economic situation also can be attributed to the fact that the city has lost much of its once powerful financial sector. In addition, the one financial giant that remains headquartered in the city, Wells Fargo, happens to be one of the U.S. banking institutions faring quite well due to its careful avoidance of subprime home loans. The ongoing strength of Wells Fargo means that more people who work in the San Francisco financial services industry will be able to hold onto their jobs.

    Yet for all the relative good news, it is critical to realize that San Francisco remains an anomaly within the United States and should by no means serve as an economic model for other American cities. Most cities do not have the stunning geography and postcard-worthy locations needed to sustain a tourist economy. The unfortunate reality of San Francisco is that the gap between rich and poor residents continues to grow as the city’s middle class dwindles. Many of the city’s hospitality and retail workers are commuters from outside the city.

    In fact, the situation in San Francisco reveals a growing irony: wealthy, sometimes very liberal bastions often have the least equality. As one of the most unaffordable places to live in the nation, the Bay Area has developed an economy that has little room for the middle or working class. It may have become far less vulnerable to the nation’s economic crisis, but in a manner that neither solves society’s broader problems nor provides a model for the vast majority of American communities.

    Adam Nathaniel Mayer is a native of the San Francisco Bay Area. Raised in the town of Los Gatos, on the edge of Silicon Valley, Adam developed a keen interest in the importance of place within the framework of a highly globalized economy. He currently lives in San Francisco where he works in the architecture profession.