Category: Economics

Florida: The Music Has Stopped

And those without chairs will be standing for an awfully long time

By Richard Reep

Florida real estate, which boasts a notorious tradition that dates back to Ponce de Leon’s search for the Fountain of Youth in 1513, has recently exceeded even its own flaky reputation. Quality of life here will suffer in the near term. In the long term, Florida’s economy will recover its viability, but in a new form.

The immediate future will be difficult. By referendum, Florida enacted multiple property tax cuts in a state already known for low taxes. Now, with declining property values, the state legislature has drastically less money to spend on infrastructure, services, and capital improvements. Business, mostly tourism and land development, suffers from the economic turmoil. But it is the nonprofits who probably struggle the most. Floridians, known as the least generous donors to nonprofits, have now even less to donate, causing more holes in the safety net, reduced care for the needy, and reduced funding for the arts. It’s going to be a tougher state, particularly for the poor.

Consider the Gulf coast town of Sarasota. Once known for its high-net-worth retirees, Sarasota diversified and prospered in the 1980s and 90s. Sarasota sported world-class public art along the waterfront, terrific galleries, and an affinity for contemporary architecture rare in the Southeast. Downtown was surrounded by a necklace of authentic, unique neighborhoods ranging from the Ringling School of Art in the north to Towles Court in the south. Sarasota County also boasted a mix of marine/industrial, agricultural, and tourism economies.

Little of this has been sustainable in the current boom/bust cycle. Florida’s growth management dictates that each county submit a Comprehensive Plan for development. Once submitted, this Plan may be amended by the county Planning Commission if a landowner has sufficient cause to challenge it. Sarasota County’s Comprehensive Plan historically focused on coastal development. The pressure to add massive tracts of subdivisions, however, amended the Plan multiple times, diluting this concentration and allowing eastern inland regions of agricultural land to be rezoned for single-family houses. “It’s as if a company’s business plan could be changed at will by any employee of the company”, commented one county staff member recently, “making this Plan totally meaningless.” Sarasota threw away its own special sense of place, to its own detriment.

As a result, the cultural life of Sarasota has perceptibly declined. Art galleries are closed, the public art venue is vacant, and waterfront redevelopment has stalled. In an effort to chase high-tech jobs, the county ignored the needs of a major local employer, causing the employer to relocate thousands of jobs out of the county. No high-tech companies were recruited in the process. Sarasota will need a great effort to pull out of this dive.

Orlando, in the northern center of the peninsula of Florida, is a quintessential Ephemeral City, supporting private, world-class family entertainment. Orlando has suffered from similar issues as Sarasota, but somewhat less dramatically. Unlike Sarasota, Orlando can expand in all directions and has earnestly done so, encompassing three counties and two million people.

Orlando seems to live in Disney’s bright shadow. Getting to know the older, denser parts of Orlando in more detail takes time. This mostly-ignored area offers an authentic and beautiful place that is relatively livable in terms of affordability, access, and social life.
When the music was playing, downtown politicians were giving tax incentives to unique arts-oriented businesses that moved downtown. Today, they offer similar tax breaks to big box retail. Like downtowns of many primary and secondary cities, Orlando has sprouted multiple – mostly empty – condominium towers, but the city escaped the egregious situation of Miami (20+ empty towers). Nearly all surrounding communities have emulated this condition, with even sleepy Sanford (population 39,000) displaying an empty downtown condominium.

Spreading out from downtown Orlando are older suburbs – including College Park, Thornton Park, and Old Winter Park – where marvelous pockets of sustainable mixed-use streets are interlaced with lakes and diverse residential neighborhoods. The saddest counterpoint to these jewels is the half-brownfield efforts of developers from Texas, North Carolina, and Atlanta. Large tracts of older building stock in these neighborhoods have been bought and scraped clean, with billboards advertising bland, residential-over-retail “town centers.” Without residential buyers, these projects have stalled, leaving empty wastelands of sand poignantly anchored by lonely sales trailers likely to remain dormant for years.

Central Florida is also the breeding ground of garish New Urbanism developments, most notably Celebration and its facsimiles. These form-obsessed developments issue patternbooks for architecture, hoping that front porch control will instill community values and social order among those able to afford their mortgages and community association dues. Planners of these neighborhoods seem to find the industrial-era “streetcar suburb” to be the best America has had to offer. Every advance or innovation since then is regarded as too ‘modern’.

At the same time, the social dimension of New Urbanist development has been very disappointing. Promoted in its early phase as a way to integrate multiple income levels into one community, New Urbanism is instead an excuse to ratchet up home sizes, lot sizes, and property prices to the highest possible threshold. There may be far more diversity in post-1950s suburban tracts than in these Celebration look-alikes.

Further out, Orlando’s more conventional new subdivisions are in a similar condition to those of Phoenix and parts of California. All these trends make for a mixed prognosis for the livability of this region, and the State of Florida overall, after the unsold inventory is finally distributed and occupied.

Yet despite the global factors working against them, both Orlando and Sarasota still have areas of interesting, special, and authentic quality for which locals and visitors express genuine affection. People who care about the quality of their built environment always seem to find a way to improve it, whether by overt investment in downtowns or in more covert fashion by staging cutting-edge art events in abandoned warehouses. The spirit of a good community seems to be alive, despite the uncertain future of Florida. Due to the intrinsic appeal of warm weather and beaches, a broad cross-section of people will continue to relocate here.

Florida real estate will certainly continue its colorful tradition, but who will profit in the long run? I think communities that invest in the basics – good education, good jobs, and well-planned infrastructure – will find themselves leading the state’s next resurgence.

Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

October 9, 2008
An Investment Agenda for the Millennial Era

By Morley Winograd and Michael D. Hais

Historians will mark 2008 as the year that started the fundamental political debate that will define America in the Millennial Era. This is not just because Millennials (young Americans born from 1982 to 2003) have propelled the candidacy of Barack Obama but also because their entire civic orientation is now permeating the policy debate crystallized by the nation’s unfolding “financial Pearl Harbor”.

Clear indications of a shift can be seen in the adoption of the bipartisan bailout proposal and many cases of agreement across partisan lines on what needs to be done now. Both liberals like former Clinton Labor Secretary Robert Reich and conservatives such as former House Speaker Newt Gingrich agree that America should reinvest in its physical infrastructure. They were equally supportive of the need for the country to invest in human capital through a new educational system that would enable America to compete in the global economy. They each acknowledged the necessity for a health care system that would alleviate an ever-increasing financial burden on American families and businesses. From previously and presumably irreconcilably opposite sides of the political spectrum, Reich and Gingrich sketched out an economic growth agenda they could both support.

Their conversation demonstrated one critical new reality: the demise of the ideologically driven Baby Boomer era of American politics. Although a stubborn majority within the Republican House minority implored its party to stick to its Reagan-era idealism by voting against the rescue package even the second time around, most GOP leaders, especially in the Senate, recognized that if their party didn’t change its rigid belief in free markets über alles, then as one put it, “Heaven help us” in November.

Interestingly, October 1929 was the last time the market crashed as dramatically as it did on the day the Republicans first voted down their leadership’s recommendation. That event led to the end of America’s previous idealist era, one that also glorified free markets and attempted to enshrine laissez-faire economics as the end-all of U.S economic policy. What followed was an era of government intervention in the country’s economic well-being and an opportunity-expanding fiscal policy led by the civic generation of its time — the GI Generation. That generation supported policies that cut the share of the nation’s wealth held by its richest one percent from 50% on the day of the crash to 30% in 1949. Today’s civic generation, Millennials, are equally determined to reduce the level of economic inequality in America, which was approaching pre-depression levels before the market dived and investment houses disappeared from the landscape of Wall Street.

Economic jingoists like Lou Dobbs may celebrate the humbling of the nation’s financial elites, but anger and resentment don’t make good economic policy. Instead, Americans will have to learn to behave like Millennials: finding win-win solutions that work for the whole group. The Millennial generation will create a new paradigm of governmental policy with guidelines for behavior established at the national level, but with implementation left to each individual or local community interacting with others in their peer-to-peer networks to make a choice on how best to comply with those national rules.

This will create a “patient-centered healthcare system” analogous to the Millennial Generation’s fondness for user generated content on social networking sites like YouTube. America’s educational system will be refashioned with schools run as much by kids and their parents as it is by administrators. Just as Barack Obama’s acceptance speech called for individuals to make their homes more energy efficient and for executives to do the same with the companies they lead, energy and environmental policy in a Millennial era will be linked through policies that provide tax incentives along with moral persuasion from the bully pulpit of the presidency to ensure America finally ends its dependence on foreign oil. America’s role in the world will be to lead other nations in the way Millennials expect leaders to behave: finding consensus for a course of action that gains its power from the unity of the group, not the raw strength of the biggest kid on the block.

This will require the country to make all types of productive investments. As we enter the Millennial era, America will experience changes as sweeping as any the country witnessed in the 1930s and 40s. If the past is any indication of the future, the Millennial Generation will provide the same level of leadership as America’s greatest generation did nearly eight decades ago. In the process the Millennials will put an end to the Boomer era’s destructive clashes of irreconcilable ideologies.

Morley Winograd and Michael D. Hais are co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics published in 2008 by Rutgers University Press

October 8, 2008
What a Difference 1500 Miles Makes

After several days in New York, I encountered serious climate change — in terms of atmosphere — at a USA-Canada Summit in Grand Forks, ND. Sure people were concerned about the market meltdown, but the talk was all of new plans for expanding the economy across both sides of the border. The distressed martinis of Manhattan nights were gone in a place where drinks also came with good cheer.

Perhaps most inspiring was an appearance by Senator Byron Dorgan (D-ND) who spoke of the economic crisis but in terms far less hyperbolic than those used by many members of Congress and most of the media. He compared to the current crisis to a low tide that has exposed some weak points in the economy but has not fundamentally altered the underlying strength of what he called “the real economy”.

This includes the manufacturing, farm, energy and business services firms that are flourishing across large parts of the country, particularly in the Heartland. Firms representing these industries at the conference were not whining about competition or the credit crunch, but talking about cooperation across the border and the prospect of a better future.

How refreshing it would be if either of the two major candidates, particularly Senator Obama, the likely winner, spoke with such confidence about the intrinsic strengths of the country and this continent in general. I would not deny the real significance of the stock market crash and the real estate mess, but, as Senator Dorgan suggested, “optimism” about the future has been a primary driver of American progress since the founding.

Let’s hope Senator Obama, or Senator McCain, lose some of their negative rhetoric when they take office. It may be good politics now to be a nay-sayer, but as President, these fellows will need to comprehend the country’s fundamental strengths and how to utilize them to make a strong recovery.

October 8, 2008
A Grand Alliance: Fostering a North American Central Economic Region

Given current economic trends, the time may be ripe to consider as a concept, an economic region straddling the middle of the North American continent – a North American Central Economic Region (NACER). These cross-border economic regions spanning Northwestern Ontario, Manitoba, North and South Dakota and Minnesota, already share infrastructure, production facilities and research and development capacity. A North American Central Economic Region (NACER) would build on these existing relationships, as well as historic patterns of cultural exchange, cross-border trade, and travel.

Governments with fixed territorial boundaries do not always effectively address the need for cross-border regional economic partnerships and co-operation. Often created under radically different conditions, borders can result in transactions costs that limit interaction and opportunity.

The concept of cross-border regions in North America is not new. Joel Garreau’s Nine Nations of North America describes cross-border regions that share similar economic, social and cultural characteristics. Other concepts for cross-border economic regions include Cascadia on the west coast and Atlantica on the east coast. Atlantica is more formally known as the Atlantic International Northeast Economic Region (AINER) and is currently the focus of advocacy and research on the part of the Atlantic Institute for Market Studies based in Halifax and the Eastern Maine Advocacy Corporation. The AINER concept comprises the Canadian Atlantic provinces as well as Maine, Vermont and the northern part of New York State bordering Lake Ontario.

Cascadia has been nurtured by a government funded cross-border advocacy group initiative known as the Pacific Northwest Economic Region or PNWER. PNWER defines a region of the Pacific Northwest that includes British Columbia, Alberta, the Yukon, Alaska, Idaho, Montana, Oregon and Washington with a total population of about 20 million people. The PNWER provides a forum to address important cross-border issues in trade, transportation, the environment and energy. The 18th annual summit of the PNWER was held in Vancouver in July 2008 and discussions focused on marketing the Pacific Northwest in advance of the Vancouver Olympics, trade and travel across the Canada-U.S. border.

In a similar manner, a North American Central Economic Region (NACER) could span Northwestern Ontario, Manitoba, North and South Dakota and Minnesota. This region stands at the cross-roads of the North American continent and essentially comprises the north-central portion of Garreau’s “Breadbasket Nation.” As a region, NACER covers 1.8 million square kilometers with a population of nearly 8 million people and a GDP (US$) of about 370 billion dollars. This economic region contains agricultural production activities, food processing, forestry, petroleum, coal, mineral and hydroelectric resources as well as substantial manufacturing and service capacity.

The recent rise in commodity, food and energy prices has demonstrated the increasing strategic importance of the NACER zone in the long run. As well, the major centers of Minneapolis-St. Paul and Winnipeg are already locations for numerous corporate head offices, health, educational, research and government services. In addition, NACER contains vital road, rail and airport hubs that would be complemented by three ocean-going ports – Churchill, Duluth and Thunder Bay as well as the Mississippi route down to the Gulf of Mexico.

The similarities and geographic proximity of the provincial and state economies of this region create a conjunction of common interests and possibilities for economic growth. For example, Manitoba and Northwestern Ontario have abundant hydroelectric resources and would benefit from increased exports to meet growing American power needs. Given current trends in energy prices, NACER has the potential to be a 21st century energy export giant rooted in agricultural and forest bio-fuels and hydro-electricity. In particular, the potential of Northwestern Ontario as a forest bio-refining energy center and hydro-electric producer would be enhanced by sharing of expertise with Manitoba and Minnesota.

Another specific example of economic interests coinciding can be seen in the conjunction between the aerospace program at the University of North Dakota and Winnipeg’s aerospace manufacturing sectors. As well, Manitoba and Minnesota both provide large adjacent markets for goods and services for firms in North and South Dakota.

As a further example of common economic interests, Minnesota has robust growth and a tight labor market and some of its firms could benefit from setting up operations in nearby Northwestern Ontario which suffer a surplus of highly skilled surplus labor and capacity due to the forest sector downturn. Moreover, recent economic development initiatives announced for northeastern Minnesota could also provide opportunities for Northwestern Ontario firms. As well, improvements to the highway, road and border-crossing network in the NACER region could also generate benefits for increased regional partnerships.

This economic region requires a sense of common vision in order to grow and prosper during the 21st century. Leaders in this region need to facilitate cross-border commerce and activity in the areas of cross-border employment and business opportunities, better relationships between producers and suppliers, improving cross-border transportation infrastructure, cross-border environmental and nature conservation, and tourism promotion. At the very least, a regular regional forum between Chambers of Commerce and political leaders to examine common economic problems and solutions would be a worthwhile endeavor.

Institutionalizing a regular set of meetings as has been done in the Pacific Northwest would be a good start. Furthermore, developing a regional vision and set of common statistics that could be used to lobby both federal governments could also help, particularly when border issues threaten the role of the border as a zone of interaction.

The time is indeed ripe for a North American Central Economic Region (NACER). This cross-border region shares common economic interests and is strategically positioned at the heart of the North American continent. Key immediate priorities for this region involve research and industrial partnerships, common tourism marketing and steps to reduce congestion and streamline flows of legitimate trade and travel. The next step is for interested parties and stakeholders to come together and establish a cross-border institutional framework to promote this alliance, identify issues, set priorities and most importantly, mobilize resources on both sides of the border.

Livio Di Matteo is Professor of Economics at Lakehead University in Thunder Bay and specializes in economic history, public policy and health economics.

October 7, 2008

Canada’s High Tech Leaders

If you ask most Americans, or Canadians, for that matter, where Canadian high tech is concentrated, they will point you to the great metropolitan centers of Toronto and Montreal. But in reality the real centers of tech growth in Canada are concentrated elsewhere.

One particular standout is Ottawa, the nation’s capital. Over the past decade, Ottawa’s image has evolved from a drab and even stern city to that of a conurbation displaying major demographic, social, cultural and economic diversification (Culturally and socially, Ottawa is now on par with other North American cities of equivalent size).

Although the public service sector remains prominent, the economy of the national capital has undergone major changes. Since 1990, the high-tech sector has grown at such a pace that in 2000, according to Mallet (2002), 80,000 individuals were on the payroll of knowledge-economy businesses, almost as many as in government offices. And Despite the sector downturn in 2001, Ottawa still ranks in the top ten North American cities where a high percentage of people holding university (bachelor and Ph.D.) degrees. This same pattern can be observed in the capital region of the United States as well.

Table 1. Percentage (%) of the workforce in professional, scientific and technical services in the United States and in Canada (top 20).

Rank

Cities

% of workforce

Washington-Baltimore

11.54

San Francisco

10.95

Calgary

10.91

Ottawa

10.47

Toronto

9.78

Raleigh

9.74

Denver

9.14

Boston

8.98

Albuquerque

8.76

Vancouver

8.74

San Diego

8.72

Austin

8.55

New York

8.20

Atlanta

8.19

Montréal

7.95

Colorado Springs

7.92

Minneapolis

7.74

Chicago

7.70

Houston

7.44

Philadelphia

7.40

Source: Statistics Canada (2001) and US Census (2000).

Indeed in the search for Silicon Valley North, Ottawa ranks close to the top by almost every measurement — jobs per capita, skilled workers, and high-tech growth. Ottawa may seem less than ‘hip and cool’ to most outsiders, but it outperforms its more vaunted Canadian counterparts in terms of tech growth. Overall if any area is to be considered the ‘Silicon Valley North’ it would be the Ottawa region.

Table 5. Science and engineering employment shares for the top 30 North American cities, 2000 and 2001.

Share (%)

Rank

San José, CA

15.7

Ottawa–Gatineau

11.6

Huntsville, AL

11.1

Nashua, NH

11.1

Washington, DC/MD/VA

10.9

Raleigh-Durham, NC

Rochester, MN

9.6

Ann Arbor, MI

9.2

Austin, TX

Santa Fe, NM

8.9

Seattle-Everett, WA

8.6

Boston, MA

8.3

Yolo, CA

Fort Collins-Loveland, CO

San Francisco-Oakland-Vallejo, CA

Trenton, NJ

Dutchess County, NY

7.9

Santa Cruz, Calif.

7.8

Melbourne-Titusville-Cocoa-Palm Bay, FL

7.8

Denver-Boulder-Longmont, CO

7.8

Colorado Springs, CO

7.8

Calgary

7.6

Madison, WI

7.5

Richland-Kennewick-Pasco, WA

7.4

State College, PA

7.1

Bloomington-Normal, IL

Baltimore, MD

6.9

Wilmington, DE/NJ/MD

6.9

Champaign-Urbana-Rantoul, Ill.

6.7

Toronto

6.7

Source: Canadian Census (2001) and U.S. Census (2000).

The other major high-tech centers in Canada are Calgary and Toronto. But even here some of the results are surprising. If you look in detail at Toronto region you find that most of the high-tech growth has been clustered not in the city, but in the sprawling suburban regions around the area, particularly in places such as Kitchener. Similarly in the greater Montreal area, much of the high-tech growth is clustered around the City of Laval, an independent municipality north of the Isle de Montreal.

What does this tell us about high-tech in Canada? For one thing it shows that places that have low crime rates, a family friendly atmosphere tend to be the best places for technology companies — very much like the pattern in the United States. Although Canada is a very different country, the fertile ground for tech companies remains very much the same both sides of the border.

Rémy Tremblay is Canada Research Chair on Knowledge Cities, Université du Québec à Montréal

October 7, 2008

Canada’s Immigration Dilemma

The subject of immigration in Canada presents a great dilemma for many Canadians. Like other countries of the western world, Canadians do not have enough children of their own to maintain the population at its present level. At the same time, the overall population, which is around 33 million, is getting older. Baby boomers are looking at retirement. Many calculate the amount of income they will need in order to maintain a decent standard of living. Their calculations include government pensions. The absence of a sufficient younger, active, working population to continue paying for the system of pensions presently in place and on which our retirees depend is well known and understood in the country.

Since the problem is staring us in the face, the evident solution is to turn to immigrants from other countries to make up for our shortfall. But Canada’s ethnic situation was already complex enough as, in addition to the original inhabitants known as the First Nations, the founding populations of Canada, the French and the English, have in the past been referred to as “The Two Solitudes”. The descendants of the original French settlers are concentrated mainly in the province of Quebec. There are French-Canadians in other provinces as well, though, generally, not in large numbers.

Over the last few decades, many French Quebecers started worrying about their diminishing numbers in other provinces as former French speakers began primarily using English in their daily transactions and sending their children to English schools, either due to a lack of French schools in the area they lived in or to facilitate their own integration or that of their children. The net result was a steady decrease of that population declaring French as their mother tongue in Canadian censuses.

Inside Quebec, after the English conquest in 1759, in order not to lose the French language and their religion (Catholicism), the French population of 60,000 people coalesced around the Church. The Church was seen as the unflinching defender of that population’s language and culture. Moreover, again under the influence of the Church, French-Canadian families were having many children, so much so that in the 1960s, Canada was home to approximately six million French-speaking people.

This is when modernity set in. French-Canadians decided that the place of religion was to remain in the church and, parallel to what was taking place elsewhere in the democratic world, the birth rate plummeted. From 1956 to 1961, the birth rate was 4.2 children per 1,000 married women. In the 1990s, Quebec’s birthrate was the lowest of all Canadian provinces. From 1986 to 1991, the Quebec fertility rate was only 1.5, therefore very much less than the 2.2 children needed for a population to replenish itself.

In the short term, recent government measures such as a generous parental-leave program have contributed to an increase in the birth rate. While in 2004, Quebec had 74,200 births, the birth rate rose in 2006 to 10.6 per 1,000 population, compared to the national rate of 10.5. According to government statistics, there was a further increase in 2007, albeit a small one. However, these small increases in the young population do not come close to remedy the wide gap with the need for replenishment of the work force.

Consequently, for both Canada as a whole and Quebec in particular, the issue of immigration has become a crucial one. The question of who will support pensioners comes to mind immediately, according to a 2008 survey by the respected CROP polling firm 38% of Quebec workers say they plan to retire before age 60 and 61% plan to retire between the ages of 55 and 64. The implications are food for thought. European immigrants are now outnumbered by immigrants from the rest of the world.

Strong arguments against discrimination have led to a system of points awarded in considering whether one qualifies as an immigrant. The philosophy behind that point system is that an immigrant should have the prerequisites likely to make for harmonious integration. Having skills needed for employment, a support system in terms of already established family or friends, and knowing one of the two official languages of Canada, either French or English, are a help in determining if one should be accepted as an immigrant.

Many people arriving as immigrants came from countries that were once British colonies, such as Sri Lanka, India, Pakistan, Jamaica and Nigeria.

There is also a large percentage of immigrants coming from China. If continued unabated, these substantial numbers would have drowned the diminishing numbers of French-speaking Canadians. Also worrisome to concerned defenders of the French language was the fact that most of these immigrants in Quebec could function effectively in English and never had to learn any French.

The federal government has taken some measures to promote the language. For example, food packages must contain French as well as English. Although sometimes difficult to implement, federal government offices across the land must be able to offer their services also in French.

In Quebec, restrictive laws on the English language have promoted the use of French, particularly in Montreal. The ultimate problem, however, remains the small French population within a surrounding sea of speakers of English in North America.

Eager to maintain its predominately French speaking status, the province of Quebec came to an agreement with the federal government in 1978 and was given a measure of authority to select their immigrants. The Quebec government could select a percentage of immigrants based on the proportion of the population in Quebec versus that of Canada. The Quebec government decided to increase the number of French-speaking immigrants which it found mostly in Haiti and French-speaking Arabs from the Maghreb, mainly Algeria and Morocco. Quebec also looked for immigrants from Latin-American countries with the premise that they could adapt easily to the French language and culture.

Canada and Australia are the two leading countries with the highest proportion of their total population born in other countries. In 2004, Canada received over 230,000 immigrants. Being a democratic society, Canada does not restrict immigrants to any one part of the country. People arriving in Quebec or any other province are free to move elsewhere if they choose to. It is not rare to find that immigrants arriving in Quebec who have an easier time with English than French will not stay long in that province, thereby causing havoc with all the calculations of the Quebec government.

In the past, Canada prided itself on being different from the U.S. in its philosophy regarding the integration of its different ethnic populations.

Where the U.S. favoured the “melting pot” approach, Canada favoured the “multi-cultural” approach, encouraging immigrant societies to perpetuate their own culture in this country. Supposedly this approach would contribute to harmonious relations with other ethnic groups, with the general population as a whole, and result in happy integration within Canadian society.

Of late, the multi-cultural approach has been called into question. The issue under debate has been whether that concept of integration does, in fact, facilitate integration or whether, instead of contributing to unity, it tends to keep people apart and is contrary to Canadian unity, accentuating differences within the Canadian population. The question has not yet been resolved.

There are many problems that come as no surprise as they exist in all western countries. Immigrants have always known that the first few years in a new country could be difficult years. I, myself, did not have an easy time when I came to Canada many years ago and neither did my friends also young European immigrants. Even the many well-educated immigrants struggle because their academic credentials are often not recognized as equal to similar credentials awarded by Canadian institutions. Unfortunately for them, their expectations of recognition of those credentials are disappointed more often than not.

Stories abound of medical doctors, some with much previous experience, not granted the license needed to practice as doctors in Canada. There is much need for more medical practitioners in Canada, but both the medical lobby and the government budgets set strict restrictions on who can practice as a doctor. There is talk, of relaxing some of those restrictions, but one should not hold one’s breath. We’ve been there before.

Of course, the example of doctors is often given prominence. But similar obstacles apply to many other professionals who also are told that they lack Canadian experience. However, they are supposed to have been informed before their departure that they will not be able to practice medicine, law and some other professions. Many believe that there is an element of subtle discrimination as many of them are members of what is termed visible — meaning non-white — minorities. Be that as it may, immigrants always faced difficulties in a new country. Yet, they keep coming, and in great numbers. The backlog of waiting, hopeful, would-be immigrants is estimated at somewhat below but close to one million.

There are other problems. As in other occidental countries, many would-be immigrants use the back door to come in. They arrive, legally or not, and then claim refugee status. The traffic of would-be refugees ranges in the billions of dollars. As a result of a ruling by the Supreme Court of Canada, anyone in Canada applying for refugee status has the right to have his claim being heard in person. Many of those applying have had a story of persecution concocted for them before they arrive here. Some purchase their story once in Canada or have their history of persecution “improved” by newly-found friends in their community. That way, many applicants for refugee status are able to obtain the immigrant status that would otherwise be denied to them under normal conditions.

In summary, Canada faces many of the same problems faced by several other western countries: a population growing older that needs to be replenished and the need to facilitate the integration of newcomers which are of a background different from the descendants of the earlier European population that used to constitute the backbone of the country.

Leon Graub is a former member of the Immigration and Refugee Board recently retired. He came from France to Canada in 1951 and resides in Laval, Quebec.

October 6, 2008
Financial Innovation: Wall Street’s False Utopia

In the popular media much of the blame for the current crisis lies with sub-prime mortgages. Yet the main culprit was not the gullible homebuyer in Stockton or the seedy mortgage company. The real problem lay on Wall Street, and it’s addiction to ever more arcane financial innovation. As we try to understand the current crisis, and figure ways out of it, we need to understand precisely what, in the main, went wrong.

I have studied financial innovation for years and worked with some of the best minds in that business. In 2003, I wrote in Beyond Junk Bonds that financial innovation is the “engine driving the financial system toward improved performance in the real economy”. Innovative debt securities, like collateralized mortgage obligations (CMOs), I had hoped, would add value to the economy by reallocating risk, increasing liquidity, and reducing agency costs. Like the broken promises of communism, it turned out to be a utopia that was not achieved.

CMOs were designed to diversify risk by shifting risk to larger, better capitalized and diverse institutions. Traditionally, a bank in Riverside, California would write and hold the mortgages for homes in the area. Then, if some negative shock impacted jobs and income in the area, that bank would have to absorb all of the resulting defaults. This would put the local bank at an inordinate risk. With CMOs, the risk would be spread out across banks and investors in a broader geographic area. Since CMOs could be held internationally, even a nationwide economic downturn might have little impact on any single mortgage holder.

Unfortunately, the dealmakers sold the riskiest pieces to a few hedge funds, thereby consolidating the risk rather than allocating it broadly. The result was the spectacular crash of Bear Stearns and the incendiary damage done to a slew of US and international financial institutions.

CMOs were supposed to produce more money available for lending to homeowners than would otherwise have been the case. Instead it produced more paper, more heavily leveraged and less secure. Securitized mortgages were misused to the extent that $45 trillion in bonds were issued on $5 trillion in assets; it’s as if someone bought insurance for 9 times the value of the house. By 2007, the market was over-sold: more bonds had been sold than could be delivered, possibly even more than had been issued. On average, nearly 20% of CMO trades have failed to settle since 2001, driving down the price of the bonds.

CMOs should have been used to protect against conflicts of interest between managers, stockholders and bond holders (agency costs). Instead, the same companies that issued the CMO were buying large positions in the securities. Most CMOs are typically initiated by banks seeking to remove credit risk from their balance sheets while keeping the assets themselves. Normally, these securities are issued from a specially created company so that the payments from the riskiest borrowers, i.e. the sub-prime mortgages, can be separated from the more credit-worthy payees. A trustee and a portfolio manager receive fees from the newly created company.

While CMOs reduced some of the risk to the local banks, it also led some of those banks to lend imprudently. With the cash flowing easily back to the banks after the CMOs were sold, some lenders became increasingly risk-seeking – the opposite of the intended purpose of CMOs. Companies like Bear Stearns, who acted as trustee and portfolio manager for the CMOs, also purchased the CMO securities (usually through a subsidiary hedge fund).

Critically missing from the market for CMOs was the lack of a standard for the issuance. In more than one case, when a CMO investor attempted to foreclose on a property for mortgage delinquency, courts found insufficient documentation to support the CMO’s lien on the property. Without legally binding “receipts” of ownership, CMOs
have had insufficient real backing — producing results we are still trying to cope with.

Sure, sub-prime mortgage defaults were the straw that broke the camel’s back. But Bear Stearns was in financial difficulty three to six months before the sub-prime mortgage default rate spiked. The real fundamental problem lay in the multiple sales of mortgages through CMOs – the result of too much faith in financial innovation. Experts believe that, for every $1 of mortgage that defaulted, the investment banks fell behind as much as $15 in payments on the CMOs. These, not the actual mortgages of homeowners, represent the bulk of the securities that Treasury Secretary Paulson wants $700 billion to buy.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs. Dr. Trimbath is a Technical Advisor to the California Economic Strategy Panel and Associate Professor of Finance and Business Economics at USC’s Marshall School of Business. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute and Senior Advisor on the Russian capital markets project for KPMG.

October 4, 2008
Mortgage Credit Crisis: Homeowners Also Need to Look in the Mirror

There is more than enough blame to go around for the sub-prime mortgage crisis, and the unraveling financial disaster. But I believe the fundamental blame lies in two places: A purely American NIMBY myth about homeowners being the only genuine contributors to their communities and a capitalistic axiom, presumably started and perpetuated by a troika among realtors, homebuilders, and mortgage lenders, that the only way for middle-income Americans to truly create wealth is through homeownership.

The main mechanism for translating these two, fundamentally flawed “principles” into an action plan was hatched not under the rightly derided George Bush but the widely considered economic stalwart, Bill Clinton. It was Clinton who in his second term decided that what the United States really needed was to become the greatest nation of homeowners ever. The goal: Move the country from roughly 64% homeowners to over 67%.

It was the role of the two Government Sponsored Entities, Fannie Mae and Freddie Mac, to oblige this national imperative by creating very aggressive mortgage products that, for all intents and purposes, diluted the true nature of homeownership by drastically reducing the level of investment and commitment on the part of the homeowner. Loan-to-value ratios (LTVs) rose, in some cases above 100% of the home’s value so that closing costs and other expenses could be financed as well. At the same time the amount of a homebuyer’s “skin in the game” dropped precipitously, sometimes below zero, with some homebuyers walking away from closing tables with their front door keys and cash.

Some of us in the development community were alarmed by these aggressive first-time homebuyer mortgage products. Homebuyers would be shoe-horned into homeownership, putting little to nothing in to initiate the transaction. However, as soon as interest rates climbed or home value fell, these first-time buyers were left hopelessly overextended. This disaster-in-the making was compounded by the commodification of what was once a personal asset.

The bundling of mortgage loans into mortgage-backed-securities (MRBs) completed the separation of borrowers from their lenders. At the same time, the home itself was transmuted from fundamental shelter to an investment instrument (as the realtors association likes to refer to it, the main wealth creator for middle-income Americans).

As soon as there was any cushion at all between the principal amount of the mortgage and a home’s fair market value, it was often immediately monetized through a second mortgage or equity line of credit. At the same time, owners of MRBs had to rely on mortgage servicers to manage and monitor timely mortgage payments and overall collateral values for huge mortgage pools and parsed segments thereof, often secured by a wide array of homes in disparate markets and sub-markets across the country.

And yet, policy makers, the housing and mortgage industries, and capital markets all touted this great new system for wealth creation. Why?

Because, after all, housing prices will just continue to go up, right?

That was the fundamentally flawed foundation on which this house of cards was built, with everyone along the way—homeowners included—pocketing the cash from what were double-digit, annual increases in value in some markets. The positive consumer sentiments from the good economic times of the Clinton years, that not even the 9-11 tragedy could quash for too long, dovetailed with a blatant disregard from Main Street to Wall Street to our Nation’s Capitol for the incomprehensible national debt that was accumulating, mirrored by record consumer debt. Spend, spend, spend became the national mantra and motto. We had been transformed from a producer nation to a consumer nation.

Whether it was houses, cars, electronics, apparel, home furnishings, appliances, entertainment, dinners out, whatever you can think of: If it was for sale, Americans were buying it and in record numbers. Much of these manifestations of perceived wealth were financed by the seemingly never-ending appreciation in home values and the astronomical mortgage-related debt that was being amassed in reliance on unrealistic expectations regarding those values.

To be sure, there are a lot of lower and moderate-income households — many of whom are immigrant families targeted specifically as potential first-time homebuyers — who were sold a bad bill-of-goods in the form of subprime mortgage products. If anyone deserves a bailout, it is probably them. But most Americans knew what they were doing and now should pay the price.

This includes a large number of people who could afford a home but couldn’t purchase the McMansion of their dreams with a conventional mortgage. So they went with something a little more exotic and much, much riskier that allowed them to stretch just a little farther, to continue their conspicuous consumption and help the domestic economy keep rolling along.

So in the end, it’s neither fair nor accurate to blame just the big guys on Wall Street: This crisis was also made by ordinary Americans as well, egged on by flawed policies about homeownership and wealth-creation, allowing obsession to overtake reason.

If, as Gordon Gecko said in the movie Wall Street, “Greed is good,” then as a nation, we’re about as good as it gets. There is plenty of blame to go around indeed.

Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

October 4, 2008
The future of urban settlement? Look in the suburbs

Let’s look at general urban settlement and suburbia from a geographic and demographic, not a planning or ideological viewpoint. There’s really no point to the fruitless and unscientific harangues about how people ought to live or about allegedly better or poorer forms of settlement. This is really trying to understand what is happening in the metropolitan level of settlement, agglomerations of at least 50,000 and their commuter hinterlands — where at least 80 percent of Americans live.

Definitions: I will use terms precisely. The central city is the historic, largest core incorporated place (OK, there are a few with 2 or 3 core cities). Suburbs are the rest of the urbanized area and may be usefully be differentiated between older, inner and newer, outer suburbs. Exurbia is the area of intense commuting to the urban core from beyond the urbanized area boundary, and it can be differentiated between rural territory (a.k.a. “sprawl”) and satellite towns.

As of 2000 “central cities” had 70 million persons (25 %) of the population, suburbs 120 million people (43 %) and exurbia up to 36 million (12 %). That puts the suburban and exurban share to well over 50 percent of the US total population, not even including the suburbs or smaller towns and cities.

Even worse for urban boosters, the suburbs — and particularly the exurbs — is where the growth is. In the Seattle metropolitan area, which is under unusually strong growth management restrictions and has a stronger than usual urban core, growth continues to head outwards, with inner, outer suburbs, as well as exurbs easily adding many more people than the central city.

The question now is whether this pattern will hold for a longer term or whether significant change can be expected. My sense is that these trends will broadly continue —that suburban and exurban growth will continue to be greater than central city growth, despite the passing of peak oil, the passion of anti-suburb intellectual currents, the energy crisis and new urbanist planning policies. But central cities will probably do somewhat better than they have in the last 20 years. So it is sensible to ask: what are forces for and against central city, suburban and exurban growth; and, as important, how will the character of these components of urban settlement change?

Demography

The combination of many suburban empty nesters, later marriage and fewer children for generation X’ers (those born 1965-1981) should foster selective central city growth . But this appears to apply only for the subset of more glamorous cities with a well-developed amenity structure. . But these cities often suffer housing price inflation and strong anti-growth lobbies which constrain may constrain growth. Many, perhaps most, cities lack the appeal to attract population in from lower-density areas.

Older inner suburbs represent a zone of significant change between and the traditional newer middle class family suburbs and the gentrifying or stagnant central cities. Some are receiving the displaced poor and minorities; some have matured into quality communities, and, like parts of the central city 50 years earlier, are still attractive to families, with or without children, as well as many recent immigrants.

Housing prices and taxes vary greatly across the US, which will like push movement toward lower cost places, including to non-metropolitan small towns and rural areas. This may be particularly true for those with adequate retirement income. But middle class families remain a huge demographic component for far suburban and exurban living (see market forces below).

On balance, demographic forces seem to reinforce existing patterns rather than favor either central cities or suburbs, or more rapid non-metropolitan growth.

Economic factors

Economic changes are even more uncertain. The vast expansion of producer services to replace the huge decline in primary and secondary (manufacturing) jobs clearly is in some jeopardy, as evidenced by the problems evident finance and insurance sector. The key is whether American entrepreneurs can partially restore a greater industrial base. In general, suburban and exurban sites are likely to be cheaper, more politically pliable and more available than central city sites, particularly compared to more elite gentrified core cities. A partial recovery of production in some less glamorous cities with available idle plant could occur but does not seem very likely.

Energy, technology, environment, and cars

Most observers concerned with the “end of oil” and with global warming argue that these will inevitably drive people to denser concentrations of settlement in central cities and older inner suburbs. They even predict a decline in far suburban and exurban settlement. US technological history, however, suggests that if innovation and investment take place anywhere, it will likely be on alternative energy sources, conspicuously including the continued popularity and dominance of trucks and cars. Nevertheless, persistent high energy prices could yield some acceptance of moderately higher densities for housing and business, and a slightly higher growth in central cities and older inner suburbs.

Market forces

Markets refer to preferences and needs, and the willingness to pay among households and businesses. There is relatively little uncertainty as to preferences. Even in the biggest metropolises, no more than 30 to 40 percent of households prefer denser urban settings and enjoy apartment or townhouse living. For the nation as a whole, the share is only 10-15 percent! Those who prefer it tend to be younger, unmarried persons and empty nesters without children and are (or will be) more educated and professional than the US norm. But 60 to 70 percent of households, and not just families with children, prefer single family homes and cars. These households will pay or MOVE in order to act on these preferences. At the same time perhaps 35 to 45 percent of jobs thrive in dense urban settings, as downtown towers, leaving 55 to 65 percent to seek less dense suburban and exurban settings, often by logistic necessity. These are the continuing and overwhelming facts that created and will sustain suburban living.

Planning

Intellectual hatred of suburbia is a century old and has been especially fervent in the last 60 years. From the late 1970s the planning profession has embraced what has come to be called “new urbanism,” advocating urban containment, urban redevelopment, densification, urban villages, and a new wave of rail transit, now under the broad rubric of growth management. These efforts often have been strongly supported by environmental groups concerned with the loss of open space as well as by central city political and business interests.

Several metropolitan areas are becoming increasingly regulated by such planning ideology. But to date the movement has not been successful at significantly slowing suburban or exurban growth. A few central cities, such as San Francisco, Seattle, New York, San Francisco and Portland, have gentrified, but have not grown much in population, since the mass of new housing is occupied by much smaller non-family households. Costs of growth management include displacement of minority and less affluent families, often to the older suburbs or to other neighborhoods of the core city.

Conclusions

Market preferences have prevailed. Businesses as well as households have resisted substantial concentration or been priced out of the gentrifying core. So the suburbs persist. But they have changed, especially in those more regulated metropolises. The older inner suburbs have become more central-city like, with more diversity in ethnicity and class. But this has not slowed the long-standing trend of net growth of housing and of jobs at the suburban edge – even in the most growth managed cities, and even in the most recent 2000-2007 period.

Richard Morrill is Professor Emeritus of Geography and Environmental Studies, University of Washington. His research interests include: political geography (voting behavior, redistricting, local governance), population/demography/settlement/migration, urban geography and planning, urban transportation (i.e., old fashioned generalist).

October 2, 2008
Campaign Money and the House Bailout Vote

The late Jesse Unruh, longtime speaker of the California Assembly, was a giant of a man, both in accomplishment and girth. But he will be forever remembered for having said that “Money is the mother’s milk of politics”.

Never truer words were said. We got a good glimpse of that in the recent vote on the Paulson-Pelosi Wall Street bailout. A quick survey conducted by the Berkeley, California based Maplight.Org showed that members of Congress in both parties who supported the bailout received 54% more money from the financial service industry than those who voted against it.

The differential among Democrats was even wider — those who backed the bailout received almost twice as much from Wall Street than those who opposed the measure. A regional analysis conducted by the New York Times showed another interesting pattern, with opposition to the measure strongest in the heartland states, Texas and other places where the housing bubble was less inflated.

Clearly constituents in these areas reached some of their representatives with complaints. As for those who went the other way, well, somewhere in heaven, California’s “Big Daddy” is wearing a sly, knowing smile.

September 30, 2008