New Geography

Category: Economics

  • Rebuilding the Idea of the City: The Present Crisis in Perspective

    New York long was a product of the harbor economy. Before there was a Times Square or a Grand Central Station, Lower Manhattan, then ringed with docks, was oriented to the railroads and factories of the Jersey coast to its west and the merchants and manufacturers of Brooklyn across the East River. The decline of Lower Manhattan as an economic engine is in large measure a reflection of the fall of that harbor economy as first Manhattan and then its partners in Brooklyn and Jersey City de-industrialized.

    Still, there’s cause for optimism. In the last two decades, the old harbor economy of trade and industry, severed by the collapse of manufacturing, has been re-knit on the basis of the service economy. By the middle of the 1970s, even as New York was at its nadir, the growth in service sector jobs began to exceed the decline in manufacturing jobs. And despite the impact of 9/11, New York continues to attract the key element of the modern economy, talented people; college applications are up for next year.

    One sign of New York’s vitality is that so many places want to be considered the city’s ‘sixth borough’ — Fairfield County, Conn., Jersey City and even Philadelphia. This dispersion has brought both opportunities and challenges to New York itself.

    My optimism has been tempered by two questions and a frightening possibility. First, attempts to accommodate all the interest groups has slowed the entire rebuilding of Lower Manhattan. Second, the Bloomberg administration — for all its posturing about rebuilding downtown — continues to focus as well on expanding the far west side of Manhattan and downtown Brooklyn as well as various new stadia. With a recession already underway, one that is centered in part on the critical financial industry, it would seem more prudent for the city to narrow its priorities.

    Perhaps a better focus would be to seek how to revive the harbor economy first envisioned by ironmaster and former Manhattan mayor Abraham Hewitt, the son-in law of Peter Cooper, and the corporate lawyer and anti-Tammany reformer Andrew Haslett Green. Their vision was one of a vast united city united by new bridges across the East River as well as a rebuilding program for the city’s crumbling docks, streets and transit facilities. In the late 19th Century, basic infrastructure and opportunity were inextricably intertwined.

    The upshot was extraordinary. New York became “the engineers’ city.” New York City bonds were issued to build bridges across the Harlem and East Rivers, and tunnels under the Hudson connecting New York to New Jersey as well as the subway system that became the city’s circulatory system for labor. These tied Brooklyn and Lower Manhattan together into a single economic unit. With this New York became not only the largest city in the U.S. but its busiest port, a paradise for small manufacturers and a headquarters city for national corporations.

    New York’s consolidation also promoted a rapid expansion of the urban area. Even at a time when centralization seemed to be in the saddle, the wildly crowded and extraordinarily expensive downtown began to shed some of its functions. Given the extraordinary cost of land, those who stayed increasingly worked in skyscrapers like the Woolworth Building, which opened in 1913.

    In the 1920s, even as New York surpassed London as the world’s financial center — a designation that may not be reversing again — the functions of the downtown were narrowing. The opening of Penn Station in 1910 gave Long Island and New Jersey easy access to midtown. It helped set off a real estate boom in Times Square, which was intensified three years later when Grand Central Station opened. The Holland Tunnel followed in 1927. Not surprisingly in the 1920s most new construction was in midtown, a trend that continued even into the depression years when Rockefeller Center was built, with midtown beginning to eclipse Lower Manhattan.

    While midtown grew, the port thrived; in the 1920s half of U.S. export and import traffic moved through the harbor. Eighty-five percent of the traffic landed on the New York side and then had to be moved across the Hudson on “lighters.” This was the so-called “Manhattan Transfer.” The problems of cross-harbor traffic were magnified by the control exerted on both sides of the harbor by the local political machines.

    As a response harbor congestion during World War I — at one point trains were literally backed up to Pittsburgh — the new bi-state Port of New York Authority turned very effectively to constructing the Lincoln Tunnel and the Outerbridge, Goethals, George Washington and Verrazano bridges linking New York to New Jersey by car and truck. By 1950 New York had it all, including a vast and varied manufacturing sector, the largest port and undisputed dominion over the financial, cultural and media life of the nation.

    What Went Wrong and Right
    In the early 1970s the harbor economy fell apart. Even though the financial sector grew, the fastest growth was in government workers engaged not in basic city services but rather in social services and make-work health care jobs. Between 1960 and 1975 spending tripled in constant dollars, while the city population was declining slightly. The money went to public assistance, health social services and housing. Redistribution rose from 26 percent of NYC expenditures in 1961 to 36 percent in 1969 and has stayed at about one-third.

    This change in economic character transformed New York from a city that fared well in recessions to one more susceptible to wide swings in employment and growth. Taxes rose, city services deteriorated and businesses fled.

    The city, of course, is in much better shape today, largely due to the reforms of mayors Koch and Giuliani and some favorable trends in the global economy. New York is clearly a better place to live and work than it was just two decades ago.

    In part, the decline of manufacturing finally began to pay off for New York. De-industrialization, a disaster for some sections of the city, had been an opportunity for others to upgrade their quality of life by turning manufacturing lofts into living spaces. Old manufacturing districts like SoHo became “funky.” First, they attracted artists who were soon followed by Wall Street yuppies. New York became a magnet for twenty-somethings, a dating bar for young college graduates. Brooklyn also is bustling with business and shopping districts, with a wave of gentrification beginning in the brownstone neighborhoods of Park Slope, Carroll Gardens and Fort Greene.

    “The restoration of the brownstone belt,” explained Carl Weisbrod of the Downtown Alliance, “was a crucial element in the revival of Lower Manhattan. Just as at the turn of the century, Brooklyn’s tony neighborhoods were once again the neighborhood of choice for many location decision-makers, senior managers in investment banks, partners in law firms, and bank executives.”

    With the nexus between Manhattan and Brooklyn restored — intertwined by the best mass transit connections anywhere in the county — the chance to reinvent the great harbor economy is better now than any time in fifty years. Instead of turning its back on the harbor that created and sustained the city or centuries, the future depends, in large part on n turning the waterfront into an asset.

    It’s beauty and recreational possibilities can make downtown into an attractive live-work location. And then there are the extraordinary possibilities presented by 172 acre Governors Island, a five-minute ferry ride from either Lower Manhattan or Brooklyn’s Red Hook, Governors Island, with its golf course, playing fields and historic buildings.

    The future of the city once again will depend on capitalizing on the waterfront. Born a harbor city, New York can be reborn once again as a city the lives and thrives on its waterways — if the city can decide that this again represents its priority for the future. We will probably have to wait for a Mayor with a name other than Bloomberg for that process to start.

    Fred Siegel is a Professor of History at Cooper Union in New York.

  • A New Model for New York — San Francisco Anyone?

    From the beginning of the mortgage crisis New York and other financial centers have acted as if they were immune to the suffering in the rest of country. As suburbs, exurbs and hard-scrabble out of the way urban neighborhoods suffered with foreclosures and endured predictions of their demise, the cognitive elites in places like Manhattan felt confident about their own prospects, property values and jobs. So what if the rubes in Phoenix, Las Vegas, Tampa and Riverside all teetered on the brink?

    Now only a deluded real estate speculator — or a flack for Mayor Michael Bloomberg — could deny that the mortgage crisis wolf is now at Gotham’s door. Having underwritten and profited obscenely from the loans that launched the crisis, Wall Street is now reeling from the collapse of several of its strongest linchpins, including Lehman Brothers and Bear Stearns, while Merrill Lynch has become little more than an annex to Charlotte-based Bank of America. AIG has been forced on the federal teat and other giants, even Citibank, could be next.

    With perhaps tens of thousands of high-paying jobs about to evaporate, and with them the rich bonuses that fueled Mayor Bloomberg’s grandiose vision of a “luxury city,” New Yorkers should brace themselves for hard times. Bloomberg’s brave talk about media, tourism, bioscience or the arts making up the difference should not be taken too seriously. In reality New York has never been more dependent on Wall Street than it is today, in large part because most other middle class sectors, like manufacturing and warehousing, declined massively over the past seven years.

    As a result, nearly one out of four dollars earned in New York — although accounting for less than five percent of all jobs — are tied to the financial sector. Overall job growth has been slow in finance, and stood well below historic highs even at the crest of the boom, and are now dropping radically. This means, as a result, a group of relatively few big earners are more and more important as overall employment in finance declines.

    Tourism certainly cannot make up the balance since it is a notoriously low wage sector and may soon be subject to a major decline in visitors due to higher airline prices and a growing downturn in Europe. New York has a decent bioscience sector, but Gotham is far as dominant here as in finance or media. There’s strong competition from a host of places, notably St. Louis, Houston, Boston, San Diego and Silicon Valley.

    So where can a plutocratic Mayor look for inspiration for the future? He may not like it but arguably the best model for New York may be San Francisco. More than any American city, San Francisco epitomizes one possible future for American urbanism of the “luxury” variety.

    The parallels between San Francisco and underlying trends in New York, and to some extent Chicago, are striking. Like New York on a smaller scale, San Francisco was once a corporate headquarters town and a powerful financial center. But starting in the 1980s and 1990s that all started to change. Corporations fled for the suburbs, or got merged with firms located elsewhere. It started with the exodus of Crocker Bank. In 1998 its most important company, started by an Italian immigrant in the city, the Bank of America, fled to North Carolina. Like New York, it has flushed away virtually its entire industrial sector and lost ground as a port.

    Yet through this all, San Francisco managed to reinvent itself. First it anchored itself to Silicon Valley, becoming the playground, advertising and media center for the nerdistan to the south. Then, after the collapse of the dot.com bubble, the city fell back on its intrinsic appeal as a place, relying largely on tourism and its ability to attract high-end residents.

    This discreet charm has allowed San Francisco to enjoy a reasonable economic comeback, not so much as a corporate or economic center, but as a high-end destination for the nomadic rich, the culturally curious and the still adolescent twenty and even thirty somethings. Many of this last group have strong skills sets and remain a powerful asset to the city.

    You can see the changes just by walking the streets. Three decades ago, when I worked in the City, San Francisco was still in large part a city of suits and blue-collar workers; today it’s black-garbed cool and casually elegant. There are more wealthy residents and decidedly less minorities, even Hispanics, and ever fewer children.

    This pattern could represent the future — and even the present — in parts of New York and even on the fringes of Brooklyn. We have seen that the “baby boom” in Manhattan does not last much past age five. When Wall Streeters lose their ability to pay for nannies, summer camps, private schools, etc, many affluent families may not be able to hang out that long.

    But then again there are those residents there will not lose their jobs. These include those tied to “luxury” industries, media, and non-profits. Not to be ignored also are the growing ranks of trustifarians, wealthy people living off their parents or grandparents’ labor. These are not the prototypical New Yorker on the make, like Charlie Sheen in “Wall Street,” but they have spending power, connections and often political influence.

    None of these groups are likely to disappear because of a mere trifle like a financial system collapse. These are committed denizens of the urban pleasure dome, content either to live minimally or (for the time being at least) pursue such generally non-remunerative activities like working in the arts or making documentary films.

    Of course, cities like New York and Chicago, also likely to be hard hit by the securities industry meltdown, may not be able to live as richly in hard times like San Francisco. Parts of Manhattan and Manhattanized Brooklyn might endure a metropolitan recession, but it may be tougher on the mostly minority, poor and working class residents who inhabit the outer reaches of the outer boroughs . These residents will suffer from the inevitable cutbacks in city services as well as the loss of retail, hospitality and construction jobs.

    In contrast, “The City,” as San Francisco likes to be known, is both small, compact and surrounded largely by affluent, low-density suburbs. It effectively has no real analogue to the outer boroughs. To see the dark side of America’s urban reality, you increasingly have to go east across the Bay to the crime-infested streets of Oakland, where the once proud dream of civic renaissance appears to be slowly fading.

    Of course, New Yorkers may reject this vision of their future. San Franciscans, have long prioritized joie de vive over imperial visions. In contrast, New Yorkers derive much of their civic self-esteem from their city’s role as the “capital of the world.”

    But if New Yorkers want to keep this slogan to be more than a marketing jingle, they will have to transcend the lame “luxury city” zeitgiest. Spending nearly four billion on new sparkling sports stadiums, and even Bloomberg’s media mastery, won’t get it done. It will take hard work, a commitment to infrastructure and broad-based job growth.

    It’s hard to know if New York still has the stomach for this kind of hard work. As someone whose familial roots in the city span over a century, I hope so. New Yorkers are a resilient lot, as they have shown many times in the past. But if they have lost their appetite for hard struggle, well, they can always consider becoming the next San Francisco.

    Joel Kotkin is Executive Editor of NewGeography.com

  • Sports Complexes: Economic Prosperity or Pompousness?

    In the heart of downtown Indianapolis lies a recently constructed monolith, the envy of other cities aspiring for new digs for their NFL football team. Lucas Oil Stadium has 63,000 seats and features a retractable roof allowing for comfort control during Indiana’s fickle fall weather season. And for those urban enthusiasts in the crowd, when open, the roof provides a captivating view of an Indy skyline that in years past was barely visible to the naked eye.

    Many of the state’s residents though are asking why a new sports venue was built in Indianapolis. In fact, one only needs to take a drive along I-65, the main interstate bordering downtown, to get a taste as to why this issue keeps surfacing. Namely, if you look directly across the street from Lucas Oil Stadium, you’ll see a much larger structure that appears to be in relatively good condition. While many have confused it with a large spaceship, Indiana sports enthusiasts know it as the infamous RCA Dome.

    Home of the Indianapolis Colts for over 15 years and the site of numerous NCAA basketball regional and national championships, the RCA Dome has in many ways come to symbolize Indianapolis’ distinction as the sports capital of the world. The “Dome” also reflects Indiana’s lore and history as the hotbed of high school basketball, having served as a venue for annual state tournaments, including the highest attended game in our nation’s high school basketball history.

    So part of the argument among Indiana residents is that the RCA Dome was more than adequate (it actually has a larger seating capacity than Lucas Oil Stadium). The other gripe has been the cost: $720 million to be exact, financed by a nine-county food and beverage tax that passed in 2007. In other words, many of the state’s residents are footing the bill.

    Advocates for low taxes would certainly argue that building the new stadium was a pompous act on the part of city leaders, interested in only the local economic and financial implications. The argument can also be made that the stadium only benefits a small segment of Hoosiers, as many state residents, struggling to make ends meet in today’s tepid economic times, can’t even afford to purchase a ticket to the game, let alone a hot dog and parking.

    Indianapolis is not alone in terms of public outcry regarding new sports complex projects. The San Francisco 49ers are currently exploring a move to a yet-to-be built new stadium in Santa Clara, Calif., a city embedded in the ever prosperous environs of the Silicon Valley where money continues to flow like “milk and honey” despite the dot-com bust of several years ago. Recently the Santa Clara City Council put off a public vote on a whopping $916 million stadium initiative for at least a year in order to assess funding options as well as to allay environmental impact concerns raised by local residents.

    In the state capitol of Sacramento, where legislators have spent months grappling over an exploding state budget deficit, the talk of the town for months has been the proposed arena for the NBA’s Sacramento Kings–a movement championed by renegade owners Joe and Gavin Maloof with the support of opportunistic NBA commissioner David Stern.
    Caustic battles have ensued between supporters of the Kings who believe the sports franchise is vital for the city’s economic vitality and state voters who have been historically hostile to taxes for private sports facilities. The latter concern has been further fueled by the Maloof brothers who as millionnaire owners seem willing to cough up only a pittance of the new construction investment.

    Then there is Robert Kraft, owner of the NFL’s New England Patriots, who led the construction of a new shopping complex next to Gillette Stadium that at $300 million ended up costing as much as the stadium itself. Decked out with a football museum, four-star hotel and spa, restaurants and cool stores, “Patriot Place,” as this complex is affectionately named, aspires to provide year round pedestrian foot traffic as a major dining and entertainment destination.

    As the aforementioned examples highlight, there are certainly arguments that can be made against these sorts of expenditures, particularly during uncertain economic times for cities and counties. I would also argue that there may be strong reasons for constructing these sports complexes in terms of the boost they can provide to the economic and social prosperity of an area. Indianapolis is an excellent example of this in terms of branding itself as America’s premier sports city. It is clear that the city’s efforts to attract sports buffs from far and wide is vital to the sustainability of its local economic engine.

    The Colts are not the only game in town here: Indianapolis hosts more Olympic trials and NCAA basketball finals than any other city in the nation. It is also the home of the NBA’s Indiana Pacers, a franchise that plays its games in yet another downtown sports venue–Conseco Fieldhouse. There are also the Indianapolis Indians who play in one of the finest minor league baseball parks anywhere. And not to be overlooked is arguably the largest sporting event in the world, the Indianapolis 500. Mark Rosentraub a Professor at Indiana University, estimates that the speedway generates $36.5 million in state and local taxes annually. It should also be noted that the track is privately owned and races occur without public expenditures beyond local law enforcement.

    So what’s the verdict? A study by Dennis Coates, Professor of Economics at the University of Maryland, Baltimore County sheds some light on the “economic prosperity versus pompousness” argument. First of all his research reveals that there is little evidence that large increases in economic impact, particularly in income or employment, ensue from the construction of new stadiums. He does say however that Downtown stadiums are likely to have larger benefits than suburban stadiums.

    As I see it, this latter point is the magic behind Indianapolis’ efforts to promote sporting events as an economic catalyst — that outside of the Indianapolis Motor Speedway, all of the sports facilities are located in the downtown, central district. The evidence is clear that sports venues in the “Circle City” continue to generate loads of foot traffic and activity in downtown Indianapolis, from the bustling Circle City Mall to burgeoning crowds in downtown restaurants and music venues. One could in fact argue that all of this economic and community vitality in the city’s urban core would have made America’s preeminent urban activist Jane Jacobs proud and maybe even a frequent visitor to the city for a hot dog and a game.

  • Is the heartland the economic armpit of America?

    Writing in the Wall Street Journal last week, native Kansan Thomas Frank isn’t too complimentary on the state of affairs:

    …you will find that small-town America, this legendary place of honesty and sincerity and dignity, is not doing very well. If you drive west from Kansas City, Mo., you will find towns where Main Street is largely boarded up. You will see closed schools and hospitals. You will hear about depleted groundwater and massive depopulation.

    While the windshield tour may yield an array of sorry small towns, much of the mostly rural Heartland has beaten the national job growth rate since the early 1970s. Like the rest of the nation, the heartland of America is urbanizing — producing many small growth nodes of prosperity.

    While many of the small prairie towns are dying on the vine, the biggest reason is not “electing people like Sarah Palin who claimed to love and respect the folksy conservatism of small towns, and yet who have unfailingly enacted laws to aid the small town’s mortal enemies,” as Frank suggests, but rather a combination of larger factors including the re-balancing of 100-year old settlement patterns and the macro effects of automating the ag industry.

    So what’s the prevailing politics in small towns? Here’s the Iowa Independent’s Douglas Burns writing about Obama’s “bitter” rural American’s gaffe:

    …does any thinking person believe Obama’s brief and failed turn as a rural anthropologist will hurt him more than what Republican presidential candidate John McCain said today in Alabama?

    “We must reduce barriers to imports, to things like ethanol from Brazil, and we’ve got to stop subsidizing ethanol in my view,” Senator McCain said.

    If the ivory-towered urban elites hawking their tiresome flyover views on cable television each night want to see what a bitter small-town American looks like, they can come to western Iowa during the second year of what we have every reason to expect would be a decidedly anti-rural John McCain presidency.

    Barack Obama misspoke. John McCain didn’t.

    Rural Americans know the difference.

    Burns also correctly predicted Palin’s Vice Presidential nomination. What all three of us can agree on is that many rural voters seem to elect candidates who enact policies contrary to their interests. Can Obama make any real inroads with Great Plains rural voters?

  • An Economic Recovery Program for the Post-Bubble Economy

    By Bernard L. Schwartz, Sherle R. Schwenninger, New America Foundation

    The American economy is in trouble. Battered and bruised by the collapsing housing and credit bubbles, and by high oil and food prices, it is having trouble finding its footing. The stimulus medicine the Federal Reserve and Congress administered earlier this year is already wearing off, while home prices are still falling and unemployment continues to creep upward. By the time a new president is sworn in, there is a good chance the economy will have stalled again, and the hope for a relatively quick rebound will have given way to the fear of a protracted slowdown.

    The next administration must therefore have a second dose of medicine ready that is stronger, more enduring, and different in kind from the first stimulus program of tax rebates and tax cuts for business. Tax rebates may have been appropriate for an economy entering a standard cyclical downturn. But this is clearly not a normal business recession. It is a post-bubble slowdown involving a painful de-leveraging of America’s household and financial sectors. This means that consumers and housing will be struggling for some time, and that new sources of growth are needed.

    A longer-term economic recovery program must therefore steer the economy onto a new growth path that is less dependent on the debt-financed consumption that has driven economic growth over the past decade. The most promising new sources of growth are America’s enormous public infrastructure needs and the increased global demand for American technology created by the drive for greater efficiency in economies around the world. An economic recovery program built around public infrastructure investment and demand for American technology would be more effective in stimulating the economy in the short term, and far better for it in the long run, than would another round of tax rebates for American consumers.

    Getting the Diagnosis Right
    The experience of Japan and Sweden in the early 1990s should be a warning to those who believe that all the economy needs is a bit more of the standard countercyclical treatment-a few more tax cuts or rebates here, a little bit more unemployment insurance there, and perhaps some assistance to state and local governments. Japan and Sweden both experienced serious prolonged recessions after the bursting of their property and financial bubbles in the early 1990s, and it took extraordinary fiscal and monetary measures before either enjoyed a real recovery.

    The U.S. economy is more dynamic and more flexible than Japan’s or Sweden’s. Still, there are reasons to worry about the effectiveness of standard countercyclical measures in today’s post-bubble economy, notwithstanding our economy’s many strengths. To begin with, measures like temporary tax rebates are too transitory to generate a sustainable recovery. Businesses may act quickly to restore profitability by adjusting inventory levels and cutting costs, but households generally take much longer to put their balance sheets in order and increase spending again. This is especially the case when many Americans are already overleveraged and experiencing a decline in the value of their homes. With home prices falling, many households will not be able to maintain consumption levels by tapping home equity as they have in the past. Moreover, with unemployment rising, they cannot easily or quickly replace the credit they previously relied on with new sources of income. Thus they will have no choice but to cut consumption and increase savings gradually. In light of the fact that housing markets by their nature are slow to correct, this household de-leveraging process could take years to play out. Household consumption, which at its peak accounted for more than 70 percent of the economy, may thus be a drag for some time to come-at least until wages rise or home values begin to increase again.

    Second, standard stimulus programs generally are too modest to make a substantial difference to the parts of the economy affected by the bursting of the housing and credit bubbles. The Democratic leadership in Congress is considering a supplemental stimulus package of $50 billion. But $50 billion would count for little in a $13.8 trillion economy. David Rosenberg, chief economist at Merrill Lynch, estimates that the unwinding of the housing and credit bubbles, together with rising unemployment, will create a $475 billion reduction in consumer spending. Rising food and gas prices, he estimates, will drain another $300 billion from discretionary spending. Together, these sums dwarf the current $150 billion fiscal stimulus and suggest the need for a larger and more potent economic recovery program. Even the bursting of the tech bubble, which had relatively little impact on most Americans, required a fiscal stimulus the equivalent of more than 6 percent of GDP (measured by the increase in the budget deficit) over a three-year period, in addition to 16 cuts in the federal funds rates to 1 percent. In light of the much larger effect housing has on consumption, the unwinding of the housing and credit bubbles will require a stimulus of comparable size at the very least.

    Third, the standard stimulus measures are too focused on consumption and not enough on investment. Thus, to the extent such measures were successful, they would merely reinforce a suboptimal and ultimately unsustainable pattern of economic growth that over the past decade has been too dependent on debt-financed consumption and inflated asset prices. The root cause of this suboptimal pattern of growth has been the excess savings generated by the Asian export economies and the petrodollar states of the Persian Gulf, which were recycled into the U.S. financial system, fueling the credit and housing bubbles. The housing bubble in turn helped inflate consumption, as U.S. households took advantage of poorly regulated new financial instruments to purchase more expensive homes and tap rising home equity. U.S consumption in turn helped drive Asian export growth, resulting in even higher trade surpluses. The weakness in this pattern of economic growth lay in the fact that U.S. consumption was made possible not by real wage and income gains but by unsustainable increases in home prices and household debt.

    Seen from this perspective, the bursting of the housing and credit bubbles was a necessary, albeit painful, adjustment in the pattern of U.S. and world economic growth. The goal of a new recovery program therefore must not be to recreate this pattern with more short-term consumer-oriented stimulus but to steer the economy onto a more sustainable growth path. Future economic growth will need to be driven less by debt-financed consumption and more by investment that leads to the creation of good jobs and rising wages, and by exports to those economies that have underconsumed for much of the past decade.
    A new economic recovery program would not preclude measures such as the extension of unemployment insurance or assistance to state and local governments to ease the adjustment many households are now experiencing. But these worthwhile measures are not a substitute for what must be the overriding goal of a new economic recovery and growth program, namely finding a new big source of economic growth that can replace personal consumption as the main driver of economic growth in the short term and that over the medium term can lead to higher wages and incomes to support increased household consumption.

    There are two areas of enormous pent-up demand on which such a recovery program can be based. The first and most important is the pent-up demand in the United States for public infrastructure improvements in everything from roads and bridges to broadband and air traffic control systems to new energy infrastructure. We need not only to repair large parts of our existing basic infrastructure but also to put in place the 21st-century infrastructure for a more energy-efficient and technologically advanced society. This project, entailing several trillion dollars in new government spending over the next decade, would provide millions of new jobs for American workers.

    The other significant source of potential growth is the enormous pent-up demand in China and other emerging economies for both consumer goods and the productivity-enhancing and energy-efficient technology needed to sustain both corporate profitability and rising living standards. For years now, these economies have suppressed domestic demand at the expense of the living standards of their workers and have been able to use low wages to offset the rising cost of energy and other materials. But high energy prices, together with rising wages, are beginning to force a change toward more consumption-oriented economies that must do more to increase productivity and energy efficiency. This shift will increase demand for U.S. goods and services, allowing the United States to improve its trade balance and remove a drag on economic growth.

    These two areas of potential growth in turn will help fuel both domestic and international demand for American technology across a broad range of new growth clusters where U.S. companies enjoy a leadership position or, with new investment, could do so in the future. These areas include not just such traditional American strengths as aerospace, information technology, and networking, but emerging growth areas associated with what might be called the “triple green revolution” in agriculture, efficiency-enhancing clean technology, and renewable energy sources. Increased world and domestic demand for American technology will help spur new investment and, with it, a new generation of technological innovation.

    Public Infrastructure Investment
    The main pillar of an economic recovery and growth program must be a massive increase in public infrastructure investment, in part because it has the greatest multiplier effect of any stimulus and also because it provides the foundation for private investment in the productive economy. There is increasing public recognition that two decades of underinvestment in public infrastructure has created a backlog of public infrastructure needs that is undermining our economy’s efficiency and costing us billions in lost income and economic growth. The American Society of Civil Engineers estimates that we need to spend $1.6 trillion over the next five years to bring our basic infrastructure up to world standards. In addition, we need to spend sizeable sums in newer areas of infrastructure, like broadband access and new energy infrastructure for wind, solar, and clean coal.

    Public investment of this magnitude would give a significant boost to the economy, filling the gap left by the falloff in housing construction and consumer spending, while laying the foundation for a more productive economy. Indeed, public infrastructure investment is the most effective way to increase demand and investment at the same time, and thus the best way to counter an economic slowdown caused by the unwinding of the housing and credit bubbles. If, in spite of low interest rates, companies will not commit to more investment spending because of weak demand or uncertainty, the best way to jump-start more investment will be to do so directly by increasing public investment outlays. Public investment in turn will help stimulate new private investment by increasing the efficiency and potential returns of that investment, and by adding demand to the overall economy.

    Public infrastructure investment would have the advantage of creating more jobs, particularly more good jobs, and thus would help counter the negative employment effects of the collapsing housing bubble. For example, the U.S. Department of Transportation estimates that for every $1 billion in federal highway investment, 47,500 jobs would be created, directly and indirectly. Similarly, an analysis by the California Infrastructure Coalition concludes that each $1 billion in transit system improvements, including roadways, would produce 18,000 direct new jobs and nearly the same level of induced indirect investment. If all public infrastructure investment created jobs at the same rate as transit improvements in California, $150 billion in infrastructure investment would create more than 2.7 million jobs directly, more than offsetting the jobs lost since the bursting of the housing bubble.

    Public infrastructure investment not only creates jobs but generates a healthy multiplier effect throughout the economy by creating demand for materials and services. The U.S. Department of Transportation estimates that for every $1 billion invested in federal highways more than $6.2 billion in economic activity would be generated. Mark Zandi, chief economist at Moody’s Economy.com, offers a more conservative but still impressive estimate of the multiplier effect of infrastructure spending, calculating that every dollar of increased infrastructure spending would generate a $1.59 increase in GDP. By comparison, a combination of tax cuts and tax rebates is estimated to produce only 67 cents in demand for every dollar of lower taxes. Thus, by Zandi’s conservative estimates, $150 billion in infrastructure spending would generate a nearly $240 billion increase (or close to a 2 percent increase) in GDP in the first year.

    Public infrastructure investment would not only help stimulate the economy in the short term but help make it more productive over the long term. America’s current economic structure-relying heavily on financial services, entertainment, and certain tech industries-reflects our low investment in public infrastructure over the past two decades. However, many of the potential new growth sectors of the economy in agriculture, energy, and clean technology will require major infrastructure improvements or new public infrastructure: new transmission grids to tap the potential of wind and solar power in the Southwest and the Great Plains, better broadband access and new airports to support the growth of agribusiness and new tech companies in the lower-cost areas of the American heartland, and a new generation of information technology to reduce traffic congestion and speed up all sorts of transactions.

    In the first year, the increase in public infrastructure investment envisioned here could be funded as part of a second stimulus package. But to ensure adequate continued funding of public infrastructure over the next decade, the next administration will want to move quickly to establish a National Infrastructure Bank, along the lines proposed by Senators Christopher Dodd and Chuck Hagel, or a National Infrastructure Development Corporation, such as proposed by Congresswoman Rosa DeLauro. If properly structured, the proposed entities would enable the federal government to tap the private capital markets by issuing long-term special purpose bonds to help fund state and local infrastructure projects of national significance.

    Inevitably, a massive increase in public infrastructure investment will raise concerns about the deficit. But, as we have noted, the government deficit will need to widen for the next year or two in any case to fill the gap created by the falloff in consumer and business spending. It is better that it increases as a result of public infrastructure investment than as a result of tax cuts and other spending, because spending on infrastructure will create more new jobs and economic activity.

    Rising Exports from More Balanced World Deman
    Given the magnitude of the housing and credit bubbles, a massive public infrastructure program may not be enough to offset consumer weakness and jump-start new business investment. Therefore, rising exports must constitute the second pillar of an economic recovery and growth program. Thanks to a weaker dollar and strong growth in emerging economies, exports are in fact contributing positively to U.S. economic growth for the first time in more than 15 years. Over the past two quarters, the improvement in the net exports of goods and services has contributed the equivalent of 1 percent of GDP growth on an annual basis.

    However, there is a danger that this export boomlet will be cut short as other economies begin to feel the effects of weaker consumer demand in the United States. The next administration must therefore adopt an international strategy to encourage China and other large current account surplus economies-Japan, Germany, and the large oil-exporting countries-to expand domestic demand to offset weaker U.S. consumer growth.

    There are a number of factors that will give the next administration leverage to move China and other surplus economies in the direction of more balanced economic growth. As we have noted, one of the main factors is pent-up consumer demand and the accompanying political pressure for rising living standards within large emerging economies. Over the past decade, investment and savings have grown faster than consumption in Asian export-oriented countries as well as in oil-exporting economies. Thus, there are enormous pent-up consumption needs in these societies. China, for example, has one-half the televisions, one-quarter the computers, and one-third the cell phones per capita as Europe.

    At the same time, higher food and energy costs are creating pressure on China and other Asian exporting economies to let wages rise in order to avoid political tensions. Higher wages would increase the purchasing power of Asian workers and augment consumer demand, which would help create a healthier balance between demand and savings in these societies. China has an unusually high savings rate of more than 50 percent, while consumption constitutes only 35 percent of GDP. This combination of extraordinarily high savings and low consumption is unique among newly industrialized economies.

    Higher wages would also force companies in emerging economies to seek out new productivity gains to compensate for rising wage levels. The drive for more rapid productivity growth in emerging economies would in turn increase the demand for labor-saving and efficiency-enhancing technology. This would benefit many American technology companies that supply software and networking equipment, as well as American companies that are developing cutting-edge technology to improve energy and materials efficiency.

    In short, there are both political and economic reasons for large surplus economies to shift their economic policy toward more balanced economic growth in the near term. The next administration needs to do a better job of sending the message to large current-account-surplus economies, including the advanced economies of Japan and Germany, that they need to do more to generate their own demand. In the case of China, it can do so by pushing Beijing on international labor rights, by encouraging currency appreciation to stem inflation, and by using the OECD and the World Bank to help create a social safety net and develop a home mortgage market. Because China lacks a real safety net and does not have reliable systems of health care and education, Chinese workers engage in enormous precautionary saving, which is holding down consumption. The best way to reduce this high level of precautionary savings is to encourage China to put in place a modern social safety net and do a better job of providing education and health care for its citizens.

    The biggest threat to the favorable rebalancing of world trade now getting underway is higher inflation in emerging economies. If these economies tighten their monetary policy to stem inflation, the mini export boom that has kept the U.S. economy out of recession will be cut short and one of the new drivers of U.S. economic growth will come to a premature end. An early priority of the next administration, therefore, must be to reach an understanding with other economies about how to best handle the incipient global inflation threat. Inflation in many emerging economies is the result of their policy of pegging their currency to the dollar, whether formally or informally, in order to maintain export competitiveness. Hence, as the value of the dollar has fallen so have their currencies, raising the cost of imported food and energy. (The accumulation of large foreign currency reserves has also spurred monetary growth in these economies, in spite of efforts to “sterilize” capital inflows to reduce their effect on inflation.)

    The alternative to relying solely on monetary tightening would be for these economies to re-peg their currencies-by letting their currencies appreciate against the dollar but without abandoning the dollar peg entirely. This would create the best of both worlds for the U.S. economy: it would provide continued support for the dollar while also increasing domestic demand within the Asian and oil-exporting economies, thus expanding the market for U.S. goods and services. For this reason, the next administration should move quickly to a new set of understandings about world currencies that would facilitate these currency adjustments. The goal of these understandings should be to manage the dollar over the next few years to assure that it does not appreciate too much so as to cut short America’s export boom or fall too far so as to provoke a currency crisis.

    Capitalizing on the Next Tech Boom
    Expanded public infrastructure investment in the United States and the transition to intensive, energy-efficient growth in emerging economies will greatly increase the demand for American-made technology, setting the stage for new investment in a wide range of American technology companies. As we have noted, U.S. companies still enjoy a competitive advantage in a range of technology areas, from aerospace to business software to networking. What has been missing in recent years has been a new demand catalyst to drive new investment and innovation.

    Higher commodity and energy prices are also helping drive a new tech boom in other areas. In addition to benefiting many American producers, high commodity prices are setting the stage for new growth industries aimed at tapping scientific breakthroughs in agriculture, biotechnology, nanotechnology, the life sciences, energy extraction, and materials. The United States needs to position itself to take advantage of potential huge returns from new investments in the emerging growth industries of the triple green revolution: agriculture and biotechnology, clean technologies and energy and resource efficiency, and new energy sources.

    We have potential competitive advantages in each of these areas. We still lead the world in agricultural production and in related agricultural products and services, as well as in the life sciences. While parts of the world have resisted some American innovations in genetically modified seeds and materials, the need for new drought- and disease-resistant crops capable of greater yields is increasingly apparent. American agricultural companies turned biotech companies, like Monsanto, stand to benefit from the pressure to feed more people and improve the diets of millions of new members of the global middle class.

    In the area of energy and resource efficiency, rising commodity prices and concerns over global climate change are creating a huge demand for technology that can help make traditional industries more efficient and eco-friendly. Technology for squeezing more production out of existing oilfields, for example, is in great demand. So is technology for extracting minerals in a more environmentally friendly way. These same factors are also leading to a new cluster of clean technology companies, which specialize in technology to enhance energy efficiency and reduce carbon emissions. The demand for such engineering solutions has the potential to create a rebirth in America’s industrial heartland, especially in the old mining and commodity belt of the Upper Midwest.

    High oil prices have also spurred a mini investment boomlet in new renewable energy companies-wind and solar power, second-generation biofuels, and clean coal. Wind technology has advanced to the point that it is now cost competitive with traditional sources of electricity generation, and U.S. companies are becoming competitive with their European counterparts. Solar is not far behind. However, as we have noted, the lack of appropriate energy infrastructure is an obstacle to future growth. Wind and solar power is plentiful in what energy investor T. Boone Pickens calls the “Saudi Arabia of wind and solar”-namely the Southwest and the Great Plains-but this is the region that least needs more electricity generation. Future growth therefore will depend on new transmission lines to get the electricity to those parts of the country that need it most.

    In order to fully capitalize on these technological trends, the United States needs a more conscious technology and competitiveness strategy. One of the main short-term goals of this strategy should be to help start-up companies that are developing new energy technology grow by helping sustain demand for energy efficiency, not only domestically but globally. The government can do so by putting a floor under oil and gas prices and by mandating ever higher energy efficiency standards so that any temporary fall in prices does not deter further investment. Another goal should be to create incentives for new technology companies to invest and create more high-value-added jobs domestically. A technology competitiveness strategy would lower the cost of doing business in the United States by providing better infrastructure and more skilled workers, eliminating the tax incentives for companies to move their operations abroad, and adding tax incentives for companies to increase investment and job creation in the United States.

    With the right technology and competitiveness policies, we will be able to take advantage of the increased global demand for technology to spur investment in a cluster of new growth companies. In the process, we will be able to broaden the productive base of the American economy and create millions of new jobs that pay middle-class wages, helping to reverse the slow growth in wages that has held back living standards over the past several decades.

    A Strategy of Mutual Prosperity
    In the short term, the new economic recovery and growth program outlined here will help sustain U.S. and global economic growth during a period of painful adjustment following the bursting of the housing and credit bubbles. Over the longer term, it will put the U.S. and emerging economies on the path to mutually reinforcing productivity revolutions and mutually rising living standards. Increased public investment in the United States will lead to increased private investment and greater productive capacity, enabling American-based companies to take advantage of rising export demand for their goods and services. It will also lead to rising wages, enabling households to reduce their debt burdens without cutting back on consumption.

    Meanwhile in large emerging economies, higher wages and more consumer spending will increase domestic demand, allowing these export-oriented economies to weather a slowing of U.S. consumer demand. Rising living standards in turn will accelerate the transition in these economies to more sustainable growth based on rising productivity and resource efficiency. This new growth orientation in turn will open up even greater growth opportunities for American companies at the forefront of the triple green revolution.

    It will be up to the next administration to turn this opportunity into reality. To do so, it must have a bold and optimistic economic recovery plan that goes beyond conventional thinking and harnesses the American economy to the new growth drivers of public infrastructure investment and rising demand for efficiency-enhancing technology.

    Bernard L. Schwartz is Chairman and CEO of BLS Investments, llc. Sherle R. Schwenninger is Director of the Economic Growth Program at the New America Foundation.

  • Charlotte’s Expanding Financial Web

    The takeover of Merrill Lynch by Charlotte-based Bank of America represents another step in the emergence of a true full-tilt competitor to New York as a financial capital. Already dominant in commercial banking, the acquisition places the North Carolina metropolis into the first ranks of cities in wealth management.

    Charlotte’s emergence has been remarkably rapid. When John Harris was growing up on a dairy farm outside Charlotte some six decades ago, it was still a sleepy little southern town. “It was a quiet kind of place back then,” he recalls. “We were a stepchild to the people back East.”

    Today, Charlotte is a stepchild no longer. Taking advantage of a traditional Southern sense of being under-estimated, the leadership in this region of some 1.5 million has worked to become not only a bigger place but an important one.

    “The stepchild always has to work harder,” explains Harris, one of the region’s leading real estate powers. “We’ve always known what it’s like to be ‘have nots,’ not the ‘haves.’”

    Like Houston, Charlotte represents a classic opportunity city, a place built by newcomers used to not getting too much respect. While other New York rivals like Chicago and San Francisco could seem cosmopolitan enough to be real contenders, Charlotte has emerged very much out of nowhere, in a charge led by people who, at least before the last decade or so, seemed like nobodies.

    Charlotte’s ascendancy has not been brought about by a well-developed hierarchy but by entrepreneurs like Bank of America’s Hugh McColl, many of whom came from smaller southern cities to Charlotte in the 1960s and 1970s. In the ensuing decades, through mergers and regional expansion, Charlotte has vaulted past not only its southern rivals but traditional banking power centers like Chicago, Pittsburgh and San Francisco.


    Although Charlotte had been home to banks for generations, two men dominated the city’s ascendancy, McColl and Wachovia’s Ed Crutchfield. Taking advantage of North Carolina’s liberal banking laws, these two dynamic leaders spent much of the 1980s and 1990s gobbling up other region’s banks, including the 1998 takeover of San Francisco’s greatest financial institution, the Bank of America.

    In the process, Charlotte basically wiped out most of its major competitors, and now has more than three times the assets of the remaining San Francisco banks. Today only New York stands ahead of Charlotte — and as the Merrill takeover suggests, what’s left of its humbled financial sector now sits in the crosshairs. Like other opportunity cities, Charlotte has the lure of greater affordability to lure younger talent to their city. The top flight multi-millionaire players may stay in New York and Greenwich for decades to come, but Harris and others believe more and more of the financial industry will continue to migrate to their city.

    “People come down here for the cost of living and the weather,” suggests Buffalo native Joe Riley, a recruiting consultant at Wachovia, who claims 50 percent of his recent hires hail from the Northeast and Midwest. “Everyone misses the food and culture, but it’s great to be in a growing city, and be a part of it.”

    Although banks are important, they are not the only major players. Equally important, Charlotte has become home to other big Fortune 500 employers such as Nucor Steel, Duke Power and Lowe’s. Unlike New York, San Francisco and Chicago, which are all rapidly losing their good blue-collar jobs, Charlotte continues to develop its industrial and warehousing sectors. Over the last 15 years, for example, the Charlotte area has added jobs at a 2.57 percent rate, compared to under one percent for New York, Los Angeles, San Francisco and Chicago.

    Reasonable housing costs and a diversified employment base, notes Harris, allows Charlotte to compete broadly not only at the top levels of management, but across the board far more than a more expensive metropolitan region. “It’s hard to be a mass employer in San Francisco,” he notes.

    Yet, despite the relative advantage of affordability, the financial industry will likely determine the city’s future. Much as Houston has used its port and the energy industry to move from an opportunity to a nascent world city, Charlotte’s business leaders feel that the clustering of financial and high-end business service firms in the area will take them to the next level.

    “Charlotte for years was not quite a world class city but a very large town,” notes real estate broker Louis Stephens. “But now it’s a very fine city that’s trying to be a world class city.”

    The appeal of the area can be seen in the migration numbers. Latino immigrants, for example, feature prominently in both lower-end service, construction as well as skilled trade. The region had among the fastest growth rate in immigration of any major U.S. region over the past decade.

    Equally important, the city, like much of the Carolinas, has emerged in the last decade as a primary draw for people fleeing the high costs and slow job growth of the Northeast. Prominent among these newcomers are a strong wave of educated migrants — since the mid-1990s it has ranked among the top two or three destinations per capita for those with college degrees.

    The popularity of Charlotte among younger educated workers has allowed large companies to find adequate trained staff. Perhaps more importantly — note this New York! — the town has been developing more sophisticated financial firms, including boutique capital market companies, even before the Merrill acquisition.

    Although both Bank of America and Wachovia have been hit by the problems afflicting investment banks everywhere, it would be not be surprising that in the next expansion, more of the action may shift from New York and San Francisco to Charlotte, largely due to its greater affordability. Like Houston after the 1980s energy bust, Charlotte may be well positioned to pick up the pieces even as the finance industry hits the skids.

    “You see a migration of talented educated people from the Northeast and the rest of the world,” notes one native entrepreneur, Tim Stump, who runs his own capital market firm in the city. “There’s increasingly an international dimension here that puts us past the regional playpen. We can play in the national and international market.”

    For all the big city talk among its elites, many Charlotteans understand that their city’s key competitive edge lies not in becoming not too much like New York. Of course, both natives and newcomers alike appreciate the city’s evolving cultural scene, its improving restaurants as well as some very charming, well-maintained urban districts within walking distance of the burgeoning downtown office district.

    But at the end of the day, Charlotte is not New York, and likely will never be. In this sense, history does not repeat itself. What it offers instead is the prospect of a quality of life — a nice house in a good neighborhood, decent schools, particularly in the affordable nearby suburbs, access to the countryside — that has become prohibitive for most in entrenched urban centers.

    “Many people come here kicking and screaming,” Tim Stump observes. “Then they get here and they realize it’s a lifestyle that is abundant and they don’t want to go.”

    “You see people get involved in the arts, the little league, that you have a quality of life where you work hard but you can also be involved in your church and your community. You can live a balanced kind of life here and still be very successful.”

    Joel Kotkin is the Executive Editor of Newgeography.com.

  • New York City Bracing for Lehman’s Demise

    With the sale of Lehman Brothers seen as imminent — possibly as soon as this weekend — New York’s commercial real estate market is bracing itself for the loss of a key financier responsible for tens of billions of dollars in commercial loans.

    “It would be one less major player,” a commercial real estate finance expert at New York University Schack Institute of Real Estate, Lawrence Longua, said. “It is probably more of a psychological effect, but it is one more piece of bad news.”

    The Treasury Department and the Federal Reserve stepped in yesterday to help Lehman Brothers put itself up for sale, according to a report published on the Web site of the Washington Post last night. The sale has yet to be finalized, but could be announced this weekend before Asian markets open Monday morning, the report said. Among the companies that have been named as possible acquirers include Bank of America Corp., the French bank BNP Paribas, Germany’s Deutsche Bank AG, and Britain’s second-largest bank, Barclays.

    The deal comes on the heels of Lehman’s announcement Wednesday of a $4 billion third-quarter loss and a plan to spin off its weaker assets, including between $25 billion and $30 billion of commercial real estate investments, into a separate publicly traded company.

    The news sent its shares into a tailspin. They dropped 40% yesterday, to $4.22, and have lost more than three-quarters of their value since Monday; Lehman Brothers stock is down more than 90% since its high of $67.73 last November.

    The news comes as a blow to an already beleaguered Manhattan commercial market. The bank has been a key player, financing office buildings, hotels, and retail centers, and boasts a portfolio with investments in America, Europe, and Asia. Last year, Lehman Brothers partnered with Tishman Speyer Properties in the $22.2 billion acquisition of Archstone-Smith Trust, an apartment building operator.

    “They are a large player in real estate transactions, and this adds to the fact that we are still not at the bottom of this market,” a partner at the law firm Orrick who heads up its New York real estate practice, Alan Pomerantz, said. “They are an important financial capital markets player in the New York City marketplace, and a group of very smart people would be scattered elsewhere.”

    Among some of its notable deals was financing real estate firm Broadway Partners’ buying spree in 2006 and 2007, during which it purchased two portfolios of properties from Beacon Capital totaling more than $8 billion. The bank also helped Broadway Partners acquire a number of Manhattan buildings, including 340 Madison Ave., 450 W. 33rd St., and 280 Park Ave.

    Lehman, which said about 58% of its real estate portfolio is in debt, while 26% is in equity, and 16% is in securities, also was a lender for SL Green Realty Corp.’s $475 million mortgage financing of 1166 Sixth Ave., and the $625 million refinancing of 1515 Broadway.

    In addition to hurting the lackluster Manhattan commercial lending landscape, Lehman’s possible demise could also throw into play the bank’s one major brick-and-mortar asset: its 38-story headquarters at 745 Seventh Ave., at 49th Street. The building boasts more than 1 million square feet of floor space and could be worth as much as $1.1 billion, according to the executive vice president and principal at CRESA Partners, Robert Stella. Lehman Brothers paid $700 million for the building in 2001.

    The last time the Treasury Department facilitated the sale of an investment bank — J.P Morgan’s acquisition of Bear Stearns earlier this year — one result was that J.P. Morgan moved its employees into Bear Stearns’s Midtown headquarters, abandoning its plans to move into new headquarters at the World Trade Center site.

    There are also many questions remaining over how Lehman will structure its spin-off. “I am still uncertain how they are going to finance this new vehicle,” the managing director of research firm Real Capital Analytics, Daniel Fasulo, said. “Not only are they supposed to provide new equity, but they are supposed to be loaning the new entity $7 billion. Where is that $7 billion going to come from? Right now I have a lot more questions than answers.”

    This article was first published by the New York Sun.

  • Paper to Paperless: Realigning the Stars

    The paper and pulp industry has been good to Wisconsin, the number one papermaking state in the nation. Wisconsin produces more than 5.3 million tons of paper and over a million tons of paperboard annually. The pulp and paper industry employs more than 35,000 people in the state representing roughly eight percent of all manufacturing jobs in Wisconsin. These are good jobs with good benefits. Papermakers earn over 20 percent more than the manufacturing sector average and over 50 percent more than the average wage in the state.

    The paper and pulp industry has been a major driver of the economy in the Wisconsin Rapids area – located about 100 miles north of Madison – since the 1800s. The Wisconsin River, whose powerful flow and easy access lured fur traders and loggers from as far away as Quebec, runs through the area. It served both as the “highway” for raw product coming and the energy source for mills.

    Through the later part of the 19th and the early 20th century, Wisconsin Rapids and neighboring communities of Stevens Point, Nekoosa and Port Edwards all benefited from this access through increased trade and commercial opportunities, concentrated in lumber operations. These locations became part of a series of paper and pulp mills that remain part of the region’s economic landscape.

    Today, as in many smaller communities, the long-time economic bastion faces major challenges. The paper industry nationally is confronted with reduced demand resulting in plant and machine shutdowns. Globalization plays a factor as foreign competition from other countries such as China, Korea and Malaysia – where production costs are significantly lower and demand for paper is rising – now are seizing larger market share. Consolidation, through mergers and acquisitions by international firms, has played a major role as paper and pulp companies have struggled to gain market share and rationalize assets.

    These challenges and obstacles have become a stark reality in the Wisconsin Rapids area. In June of this year, one of the major paper companies – Domtar – closed the mill in Port Edwards putting 500 people out of work. In virtually any community, the loss of an employer this size would be cause for alarm – and particularly so for a small community far from any large metropolitan area.

    Although still committed to keeping its leading role in the paper industry, the community needs to diversify and grow its economy. One rising star – often the Holy Grail for rural community economic developers – is information technology, specifically software design and support. Wisconsin Rapids is home to Renaissance Learning Systems a leading provider of reading software for K-12 students in the United States and Canada. The company employs over 700 people and its software products are used in approximately 50,000 classrooms across North America.

    This is a success story that we at Praxis Strategy have encountered in other smaller communities, from Fargo, N.D., to Wenatchee, Wash. Small technology companies – far from the light and luster of Silicon Valley – are finding rural locales ideal for nurturing growth and attracting talent. Instead of being a primary driver, in this case the water and land resources of the region serve as critical amenities for workers seeking a “slower paced” and physically attractive place to raise their families and call home.

    Renaissance is not alone. Sami Saydjari, president of Cyber Defense Agency, a virtual company that deals with “defending critical cyberspace,” is also headquartered out of Wisconsin Rapids. “(It’s) not Ground Zero,” Saydjari says, describing one competitive advantage the area offers. It is far away from major population centers and areas prone to natural disasters – key for disaster recovery and conducting mission critical defense work.

    It may not have the allure of Silicon Valley or Boston’s 128, but for a growing number of nascent knowledge-based IT companies, rural and small town areas are showing surprising appeal. Since 2000 virtually all the fastest growing regions for information jobs have been found among small towns and cities, ranging from Springfield, Mo., to Grand Forks, N.D. It’s a trend that could reshape more and more of small town and rural America over the coming decades.

    Doug McDonald is a Senior Associate with the Praxis Strategy Group, a development firm specializing in economic development strategies and initiatives for small to medium-sized metropolitan areas and urbanizing rural regions.

  • Understanding Phoenix: Not as Sprawled as You Think

    Phoenix may be one of the nation’s most misunderstood urban areas. The conventional wisdom is that Phoenix is one of the most suburbanized (or if the pejorative is preferred, “sprawling”) urban areas in the United States. Not so. According to 2000 U.S. Census data, Phoenix ranked number 10 in population density out of the 36 urban areas with more than one million in population.

    At this point it is appropriate to define terms. An urban area is an urban footprint, the area that would be outlined in lights from an airplane at night. Urban areas are also called urbanized areas or urban agglomerations. Urban areas do not include any rural territory — they are the continuously built up or developed territory. Urban areas are considerably different from metropolitan areas, a difference often missed by journalists and others. Metropolitan areas are labor markets, are defined using county or town (in the six New England states) boundaries and always include rural areas and more distant exurbs.

    The Phoenix urban area had a population density of 3,683 per square mile, with 2,907,000 residents living in 799 square miles. What may be even more surprising is that only one Eastern urban area — New York — was more dense and only one Midwestern urban area was more dense — Chicago. In the South, only the Miami urban was more dense than the Phoenix urban area. On the other hand, in the highly automobile-oriented newer West, six urban areas were more dense than Phoenix. Portland, despite local and international marketing efforts to portray that area as the ultimate example of urbanization, was not one of them. In 2000, Phoenix was nearly 10 percent more dense than Portland. As is shown below, this gap may have widened since 2000.

    All of that does not change the fact that Phoenix and its suburbs seem to stretch on forever. That is the nature of large urban areas. What makes Phoenix one of the nation’s most compact urban areas is that its population density declines from the center to the urban fringes at a much lower rate; the outer rings tend to be not much less dense than the inner city.

    This contrast can be best seen in comparison to the Boston urban area, widely perceived as one of the nation’s most dense urban areas. Nothing could be further from the truth. Central Boston, including such municipalities as Boston, Cambridge, and Somerville clearly fit this description and rank among the highest density areas in the United States outside the four highly urbanized boroughs of New York City. The densest part of the Boston urban area (in land area) has a population density of 28,000 — more than double that of Phoenix (nearly 14,000) and even more in comparison to Portland (12,000).

    But there is much more to an urban area than the urban core. The big difference is in the suburbs. Most Boston suburbs developed as low-density communities. Land restrictions, often imposed at the town and village level, are far tighter than in similarly sprawled part of the greater Boston area. Indeed, beyond the dense core and the inner suburbs, the sprawl is so extensive that the Boston urban area covers more land area than the Los Angeles urban area, which has nearly three times as much population. The outer suburbs of Boston also are slightly less compact than the outer suburbs of Atlanta — the world’s lowest density large urban area.

    Overall, the Phoenix urban area has a density that is more than 50 percent higher than that of Boston’s. A comparison of the population density profiles of the Phoenix, Portland and Boston urban areas illustrates these differences, with higher densities in Phoenix and Portland than in earlier developing, but much more suburban Boston.

    The key to the higher density of the Phoenix urban area (and other higher density urban areas of the West, such as Los Angeles, San Francisco, San Jose, Riverside-San Bernardino, Las Vegas and Denver) has to do with the greater power of the market in newer cities. In Boston, Washington, Philadelphia and a number of other Eastern and Midwestern urban areas, suburban land use regulations required large lot zoning creating far larger urban footprints than would have occurred otherwise.

    In the Phoenix urban area, comparatively dense development continues all the way to the urban fringe — and that densification seems to be accelerating. The U.S. Bureau of the Census American Community Survey indicates that the density of the Phoenix urban area (within its 2000 definition) rose 11 percent between 2000 and 2006. This is more than double the rate of densification nationwide. Only Riverside-San Bernardino, Atlanta, Houston and Las Vegas densified at a greater rate. Further, based upon the new data, the Phoenix urban area — John McCain’s political base — is now more dense than Senator Barack Obama’s Chicago region.

    Resources:

    2000 Urban Area Data

    Comparison of Atlanta and Boston urban areas

    Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris since 2002. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey.

  • The Phoenix Lament (with apologies to J. K. Rowling)

    Fifty years ago, Phoenix was Tiny Town in the Desert, smaller than Oshkosh or Santa Fe today. Now, it is larger than Philadelphia and the metro area has the bulk of Arizona’s population. That does not mean it gets any respect; on the contrary, it is, to many, a joke, with all of Los Angeles’ traffic and smog but without the ocean, the celebrities or the Lakers. When it surpassed the City of Brotherly Love, Pennsylvania newspaper columnists waspishly described the Valley of the Sun as ‘‘a loose accumulation of crummy vinyl-sided houses occupied by sunburned retirees who happen to share a zip code.”

    They went on to note that “Phoenix has no downtown. . .and neighborhoods? None to speak of… [it] doesn’t rate as an actual city. . .it’s more like a place where a lot of people happen to live. Phoenix would kill to have a walkable city the way we do.’’ More recently, an anonymous commentator in The Economist reported that crime and other social ills were turning the city into an inhospitable and ungovernable mess. Time to roll up those sidewalks and move on—oh, that’s right, there are none. The worst opprobrium is generally reserved for the audacity, or insanity, of growing a city in a desert. As a blogger on the Grist site recently wrote, Phoenix is “a poster child for environmental ills.”

    Phoenix is hardly perfect, and it certainly violates most traditional urban principles. A city of over three million, it possesses virtually no corporate headquarters. In a globalized world, Phoenix seems a nonentity, with virtually no corporate financial institutions. Home to the world’s sixth largest airport, it has few direct links to the rest of that world with the exception of a handful of daily flights to Toronto, Mexico City and London. This is the same airport that closed one summer when the temperature reached 122 degrees.

    So then, why do people keep moving here? It is usually best to follow the advice of sociologist Juliet Schor and try not to start with the assumption that people are idiots. So, let’s rationally examine what keeps the place growing. The first factor is the weather. There is none. For half the year, it is warm, and for half it is hot. It rarely snows, and there are no tornadoes or hurricanes. It rains and it floods, but the water disappears by the next day.

    The ground may be hot, but it’s also securely tethered—the earthquake risk is about as high as that for ice storms. This may seem trivial, but consider that liabilities from natural catastrophic events throughout the U.S. have exceeded $300 billion since 1988, and nearly three quarters of that can be attributed to tornadoes and tropical storms. Viewed this way, lots of people live in the wrong place but Phoenix is not one of them.

    But what about the folly of living in the desert? How sustainable is that? Well, more so that you might think. A home in Minneapolis has to be heated from zero 60 degrees to maintain comfort, and must use energy for six months, 24 hours a day. A home in Phoenix needs to be cooled for less than five months, typically for 12 hours a day, in order to bring the temperature down from 110 to 80 degrees. Cooling devices are more efficient, and use less energy.

    Research undertaken by Michael Sivak shows that the most energy efficient cities, like San Diego and Miami, are coastal, although these are also among the most vulnerable to catastrophic natural events. The least efficient are cold—Minneapolis, Chicago, Denver. In addition, Phoenix and Las Vegas come in right in the middle of the pack.

    What about water? Like its neighbor Las Vegas, Phoenix loves to display fountains and other water features. The largest of these is the Tempe Town Lake, an entirely artificial recreational pond that evaporates the equivalent of five-acre feet each day. Where does this water come from? Largely from the development of agricultural land devoted to intensive irrigation, which consumes far more water per acre than suburban houses. Of course, this cannot go on forever—if nothing else, evaporation is a waste. But when water is properly priced, creating a natural incentive for conservation, it will be used more appropriately.

    And what about the fundamental criticism, namely that Phoenix is a dreadful example of sprawl? Clearly Phoenix epitomizes a large, low-density city. But sprawl also occurs when people leave the downtown and move to the suburbs, as we see, for instance, in Detroit. In Phoenix, a growing population is filling up Maricopa County; we have few of the neglected areas that are common in many Northeastern and Midwestern cities.

    Overall, the average journey to work is comparable with other American metro areas. And most important, low-density development is cheap development. Phoenix remains one of the most affordable large housing markets in the country, even after housing speculators from California took their equity and drove up costs in Arizona and other parts of the West in 2005-07. Current estimates suggest that when the dust settles, the median new house price will once again fall below $200,000.

    Sprawl is perhaps one of the easiest insults to fling at any city. It is associated with everything from the collapse of civic life to the rise of obesity. Yet in Arizona, low-density development, which involves building large number of homes on raw land, is cheap development. Sprawl clearly involves the cost of new infrastructure, but that has to be placed against the high costs of renewing infrastructure in existing urban neighborhoods, which can involve deep excavation, specialized equipment and higher risks (like the cranes that keep collapsing in New York).

    In the end, Phoenix’s growth machine succeeds in offering a commodity that people need—an affordable home. Few families want to live in small expensive apartments—many want the amenities of a low-cost house, and in Phoenix, that can mean as little as $150,000. It is easy to demand an end to sprawl, as has been tried in California and Oregon, but the result frequently is to price single family homes out of reach for most households. In a society that offers little to its working and middle class in terms of necessities like health care, it seems uncaring to demand an end to affordable single family housing as well.

    Phoenix and its desert neighbors do not match up to the 19th century city. They lack the grand rail termini, the city halls, the cathedrals and the parks. The grandeur of the modernist era does not extend to these experiments in low-density private space—malls, office parks, homeowner associations. Yet they succeed brilliantly as bastions of successful low-cost development for middle class families. In the future they can also serve as laboratories for alternative energy usage, water recycling and, in time, more efficient transportation. The challenge is to let them change on their own terms, not make a vain effort to reconstitute them along the lines of older cities like New York, Chicago and Paris.

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