New Geography

Category: Economics

  • Attracting American Companies to Canada

    A few days ago I received in the mail the latest issue of Area Development. I really enjoy this magazine with its rankings on the cities with the best business climate and articles on how to attract skilled workers. As an academic whose research deals with how to attract and retain top-quality workers, I cannot help but enjoy this magazine.

    This time Area Development came with a 40-page glossy pamphlet called Location Canada. It was filled with colorful pictures of downtowns, industrial parks and happy workers. What a great idea, I thought. This is the perfect readership.

    But I wonder how many readers or companies would be attracted by these happy scenes. First there’s the issue of politics. It is no secret that Canada is a center-left country. The only right-wing folks are mostly concentrated in the Province of Alberta— which is also the fastest growing economy in the nation. True, Conservatives ran the country for about a decade in the 80s and have run a minority Government since last year. But most American conservatives would find ours a bit too liberal. Although the Conservatives may be against abortion, they will have to accept gay rights, strong gun regulations, universal health care and multiculturalism (as opposed to the melting pot). So this could be a major turn-off for most American conservatives willing to give it a try in Canada.

    If you’re a member of the religious-right , you’d better forget Canada. Here religion and politics are totally separated. No God Bless Canada. And No God Saves the Queen ether. Most people, at least under 70, don’t care much about British Royalty either.

    Needless to say that a young left-of-center Democrat would react differently – not that he or she would fall in love with our values and want to move right away. After all, we have our very own cultural identities, celebrate different holidays and have different heroes (one might argue we also have fewer and venerate them less).

    If a tech worker and his family wanted to work in Montreal (in the Province of Quebec with its 80-percent French-speaking population with 50-percent of them dreaming of splitting from Canada), well, be ready for a real culture shock. No, this is not fake! People do speak French for real. And those outside of Montreal do not speak much English. I am saying this because I have heard many Americans saying out loud that Quebecers are just faking it. Believe me, they are not. Quebecers are also very proud of their culture and language, and expect immigrants to learn their language , support their values and culture (there was a very hot debate last year about what to do with immigrants who want to impose their religious beliefs at work and in schools).

    So while many tourists or students might enjoy a sojourn in La Belle Province, staying on as a working adult is a different matter. True, some working environments are mostly English but occasionally they are fined for it.

    But Canada’s mild socialism — inside and outside Quebec — also has its advantages. Government health care can be very attractive, not only for working families but for companies concerned with a large health care burden. This is one key reason why Toyota recently chose to build its plant in Woodstock, Ontario rather in the US (it already has one in Cambridge, Ontario).

    Canada also has a generous parental-leave program for pregnant women and even for fathers. We are not talking weeks here but months of well-paid leave. You can also put your child in state-subsidized daycare.

    Paternalism does not stop as you age. Once your child is almost an adult he or she will have to chance to attend a Quebec university for about $4000 a year, including elite schools like McGill University . Students from low-income families can very easily obtain student loans. Interest rates on those loans are low and will not negatively affect their credit record when the time comes to get a mortgage. Banks actually don’t even look at it even if you owe $50,000. Also, for families, municipalities run $20 a week summer camps . Generally those are safe and state-regulated. Of course, Canadians pay for those services through their income tax ; it’s really a question of whether the trade off is worth it. Generally speaking, the more affluent you are, or intend to become, the less the welfare state works for you.

    And let’s talk the worst thing about Canada: winter! That, we cannot do anything about it. It is snowy and cold across the country from December until March. Things are worst in Quebec. However, Minneapolis and Boston pretty much have the same kind of winter as Toronto. Vancouver is just a few hours drive north of Seattle so it frequently as gloomy, rainy and cool.

    So would this make talented Americans think twice about working in Canada? Would it be worth the try? Liberals would like it; many conservatives would become very antagonistic and frustrated. Basically, despite the similarities, you must become accustomed to big differences. As a country, Canada works very well, but for Canadians. For Americans with big ambitions, it’s really a matter of who you are — and who you want to be.

  • Greenhouse Gas Reduction Policy: From Rhetoric to Reason

    Greenhouse (GHG) gas emission reduction has moved to the top of the public agenda. Virtually no field of public policy will escape being examined through the prism of this issue. With this comes one of the greatest public policy challenges in memory — barring hawkers of various ideological and commercial interests from hijacking the agenda for their own purposes.

    There are at least two ways to comprehensively reduce GHG emissions — not surprisingly, a right way and a wrong way.

    The wrong way is typified by the conventional wisdom among many puritanical urban planners, These social engineers have been frustrated for decades, failing to herd automobile drivers into transit and new residents into pre-War densities. All the while, their demons — the expansion of home ownership that could only have occurred by building on cheap land on the urban fringe and the greater mobility provided by the automobile — have been major contributors to the democratization of prosperity. Throughout the first world, from the United States to Western Europe and Japan, poverty levels have fallen markedly as more households take part in the quality of life mainstream. Women have been liberated to become near-equal economic players and low income households, including many that are African-American or Hispanic, have entered the middle class and beyond.

    Yet, for years, much of the planning community has exhibited an inestimable contempt for the lifestyles that have been chosen by most households. The Puritan planners have identified this once-in-a-lifetime chance to force their confession of faith on everyone else.

    This is evident, for example in a new Brookings Institution report (Shrinking the Carbon Footprint of Metropolitan America purporting to demonstrate that GHG emissions are higher in the suburbs than in more dense cores. Using this debatable conclusion — directly at odds with the findings of the Australian Conservation Foundation’s far more extensive study (Australian Conservation Atlas) (Note 1) — they jump from rhetoric to their time honored litany of anti-mobility, anti-home ownership and pro-poverty commandments, skipping right over the economic analysis that any disciplined analysis of trades-off would require.

    The planning Puritans fall into the trap outlined by Lord David King, the British government climate advisor who has suggested that much that is proposed on GHG emissions reductions would take us back to the 18th century.

    It is not enough that one strategy is less GHG intensive than another. All candidate strategies must be weighed based upon their economic cost and their social implications. Some policies will be inexpensive, others will be horrendously expensive. Be assured that the Puritanical commandments will congregate strongly toward the more expensive and socially destructive side of the scale.

    There is a better way. It involves careful examination of the potential, costs and benefits of competing strategies to reduce GHG emissions. This is the right way, because it allows using the least expensive strategies, while minimizing economic harm (read minimizing the expansion of poverty).

    The consulting firm, McKinsey and Company has set out an impressive blueprint that accomplishes just that (Reducing US Greenhouse Gas Emissions: How Much and at What Cost? (Note 2). Taking the International Panel on Climate Change maximum standard of $50 per metric ton of carbon dioxide removed, McKinsey shows that the United States could reduce its GHG emissions by 28 percent by 2030, using strategies with marginal costs of less than $50 per ton. McKinsey notes that this can be accomplished while “maintaining comparable levels of consumer utility.” This means, according to McKinsey, “no change in thermostat settings or appliance use, no downsizing of vehicles, home or commercial space and traveling the same mileage” (though they do envision car mileage improvements more substantial than called for in the recent federal energy bill). In other words, no “social engineering.” Again, read no expansion of poverty and no need to set course toward an 18th century future.

    None of this, of course, is sufficient for the planning Puritans, whose ideology gains greater satisfaction from telling people how to live than to reducing GHG emissions.

    The “bottom line” is this. Sustainability is not one-dimensional, it is multi-dimensional. Environmental sustainability (including GHG emissions reductions) cannot be achieved without economic sustainability. Already there are indications that public interest in GHG emissions reductions is waning with the mild economic downturn (Note 3), which is nothing compared to what would be in store if the planning Puritans had their way. Thus, sustainability is at least about both the environment and economics.

    To be effective and to avoid reducing the standard of living, efforts to reduce GHG emissions must be based upon sound economic analysis. The starting point is an evaluation of strategies to determine which are the least expensive in terms of cost per ton removed, and the least invasive as regards how people live and work. In the final analysis, as my Paris colleague Professor Jean-Claude Ziv frequently puts it, sustainability requires acceptability.

    Notes

    (1) A synthesis of the Australian Conservation Atlas findings is in our Housing Form in Australia and its Impacts on Greenhouse Gas Emissions, prepared for the Residential Development Council of Australia.

    (2) The report was co-published with The Conference Board and produced in association with DTE Energy, Environmental Defense, Honeywell, National Grid, NRDC, PG & E and Shell.

    (3) See for example, Wilting Agenda.

  • Political foreclosure

    Ever since his election in 2005, Mayor Antonio Villaraigosa has been portrayed as a political comer with a future that possibly included the governorship. As soon as he entered office, he launched an impressive succession of “bold” initiatives — among them, to make the Los Angeles Police Department a 10,000-cop force, to “green” the port of Los Angeles, to improve the academic scores of some of L.A. Unified’s worst-performing schools. Until the real estate bubble burst, he oversaw a building boom downtown and elsewhere, casting himself as a visionary re-creating L.A. as a model of “elegant density.”

    But when it came to that part of the city’s economy not connected to real estate, Villaraigosa might be compared to Emperor Nero. As the city has continued to lose thousands of middle-class jobs in aerospace, manufacturing and high-end business services since 2005, Villaraigosa has basically stood by and fiddled. From February 2007 to February 2008, the county suffered the biggest percentage of job losses– 0.7% — of the 10 largest metropolitan areas in the country, according to the U.S. Bureau of Labor Statistics’ most recent report.

    The combination of the housing meltdown and steady job losses in non-real estate sectors means that Los Angeles is now surpassed only by a handful of the bigger Rust Belt economic basket cases, like Detroit, for the title of worst big-city economy in the nation.

    To be sure, the falloff in jobs cannot be solely laid at the feet of City Hall because there have been declines in other parts of Southern California. But the trend reveals the shortcomings of Villaraigosa’s near-exclusive focus on real estate-related speculative growth and relative inattention to sectors more critical to the city’s long-term economic growth.

    The problem is that, as property values and real estate-related employment — most notably in the construction and mortgage sectors — have cratered, there is little, save for the tourism industry, to take up the economic slack. That fact has come home to roost in recent weeks as Villaraigosa searches for revenue to shore up the city’s out-of-balance budget. And, unfortunately, the pain may be around for a while because once the current wave of building — which was financed before today’s credit crunch — ends, there is little prospect of a pickup in construction in the immediate future.

    All this makes the erosion of jobs outside real estate even more troubling. Since 2006, employment in L.A. County has dropped by about 2% in the manufacturing, financial services, retail and information sectors, the latter of which includes the entertainment industry. Meanwhile, business expansions in the county in 2007 fell 22.5%, according to an April report from the Los Angeles County Economic Development Corp., a nonprofit organization.

    Apparently, Villaraigosa didn’t see the economic downturn coming; he has already conceded that he didn’t recognize how precarious the revenues from the real estate boom might be. Had he known in August what he knows now, the mayor has said, he would not have approved big raises for city workers.

    Last week, during a real estate conference at the Biltmore Hotel, City Planning Director Gail Goldberg told me how amazed she was that Los Angeles, unlike her former hometown of San Diego, still has no city department dedicated to economic development. Nor is there any single person in city government recognized as in charge of boosting local commerce.

    Los Angeles could certainly use such a department. The most recent Kosmont-Rose Institute “Cost of Doing Business Survey” reported that Los Angeles remains the second-most-expensive city for businesses, behind Santa Monica, in the county and third most in the state, behind San Francisco and Santa Monica. Any hope of reform in terms of tax or regulatory relief, suggests Larry Kosmont, the report’s author, is unlikely because of the city’s fiscal crisis.

    Ironically, among the biggest economic losers during the Villaraigosa administration may be working-class Latinos, who constitute a key element of his constituency. Traditionally, Latinos have relied on manufacturing for jobs, but, countywide, these jobs have declined 15% since 2002.

    Many of the employment losses have been concentrated in automotive, aerospace and heavy industry. In contrast, the garment industry, now the largest industrial employer in the city, has largely defied the slow erosion of jobs in the city. But that may be about to change.

    Uri Harkham, president of Jonathan Martin, a clothing manufacturer, has cut his workforce from 600 to 120 during the last few years. He blames City Hall for the cutback because it has not protected the area from immigration crackdowns and has not supported worker-training programs. Worse still, he says, has been the speculative pressures of developers seeking to build residential units in the garment district, which have driven up rents for manufacturers and wholesalers.

    Harkham, who has worked in the fashion industry for 35 years, believes that if this situation continues, the once-thriving garment district will eventually lose its primacy as the center of the West Coast rag trade.

    But it’s more than the garment industry that needs attention from City Hall. The city’s small-business sector, which remains the best hope for L.A.’s economic recovery, remains burdened by what many entrepreneurs claim is an onerous regulatory regime that favors the well-connected and big financial interests. “It’s extremely difficult to do business in Los Angeles,” Eastside retail developer Jose de Jesus Legaspi said. “The regulations are difficult to manage. … Everyone has to kiss the rings of the [City Hall politicians].”

    Yet despite the problems, businesspeople like Legaspi and Metchek believe that Los Angeles can find a way to restart its economy after the real estate bubble. After all, the city and region still possess many of the assets — concentrations of design genius in entertainment and fashion, a pool of skilled industrial workers and strong ties to the rapidly growing Pacific Rim economies — that drove recovery in the mid- and late-1990s.

    And there remains the considerable energy of the city’s immigrant community, which constitutes roughly half of L.A.’s total workforce, according to a recent study by the Migration Policy Institute. Between 1997 and 2007, according to statistics compiled by Praxis Strategy Group, a consulting firm with which I work, the number of Latino- and Asian-owned businesses grew far more rapidly — nearly 40% among Latinos and more than 22% among Asians, compared with 15% overall — than those of other ethnic groups. Today, foreign-born Angelenos are twice as likely to be self-employed than their native-born counterparts.

    Los Angeles needs to tap the entrepreneurial spirit of these immigrants to grow economically. But that means scaling back its infatuation with high-profile real estate development in favor of the mundane business of enhancing employment opportunities through training workers, reducing regulatory burdens and fostering more cooperation among our still-diverse industrial base. That’s not a politically sexy choice for the mayor, but it remains the best way to restore L.A.’s tarnished status as a city of opportunity.

    Joel Kotkin is Executive Editor of NewGeography.com is a presidential fellow at Chapman University and the author of “The City: A Global History.” He is writing a book on the American future.

  • Heartland Development Strategy

    From its inception as a nation, America’s great advantage over its global rivals has stemmed largely from the successful development of its vast interior. The Heartland has been both the incubator of national identity and an outlet for the entrepreneurial energies of both immigrants and those living in dense urban areas.

    The term “Heartland” is commonly used to describe the region west of the Mississippi River and east of the Rocky Mountains. This region constitutes the primary focus of this report, although we believe our policy prescriptions also apply to other parts of the country that are culturally similar to the Great Plains and the Midwest, including the inland valleys of the Pacific Northwest and California, as well as parts of central Florida and Pennsylvania.

    Historically, and with some exceptions — notably the South — the Heartland was dominated by capitalist principles and shaped by the forces of innovation, competition, and a continuous search for maximum economic return. The Heartland contributed significantly to America’s development as a global economic power. Over the past century, however, the role of the Heartland declined, as the United States evolved from a primarily agricultural to an industrial and finally an information-based economy. With the move toward manufactured goods and high-end services, the focus of economic development shifted from the agricultural interior toward the great metropolitan regions.

    Download “Rebuilding America’s Productive Economy: A Heartland Development Strategy” Report commissioned by the New America Foundation.

  • Whom Does the Economy Favor in the Midwest?

    There has been a basic demographic calculus to this prolonged Democratic nomination fight. In states and areas with high numbers of young, educated voters, as well as African-Americans, Sen. Barack Obama generally does well. In areas where the voters are older, less well-educated and either Hispanic or Anglo, the advantage goes to Sen. Hillary Rodham Clinton.

    However, another, more overlooked factor lies in attitudes towards the economy. Relatively robust places – the farm towns and cities of the Great Plains, or the Connecticut suburbs – have been more susceptible to Obama’s broad reformer message than Clinton’s focused economic one. By contrast, in areas hardest hit by the recession, such as Ohio, Florida and Southern California, the New York senator has enjoyed a clear advantage.

    This pattern has only been interrupted when racial or ethnic factors have trumped economic concerns. Broadly speaking, for many reasons, Jews and Hispanics have tilted towards Ms. Clinton; African-Americans clearly have rallied overwhelmingly to Obama.

    In Indiana, African-Americans are a small (8.7 percent) minority, although far more important in the May 6 Democratic primary. Jewish and Latino voters, on the other hand, represent only tiny voting blocs. For this reason, demography and economics will play outsized roles.

    Despite the usual media spin about the dying Midwest, Indiana is hard to stereotype economically. Clearly, it is not an economic disaster area like Michigan or Ohio, although one would not call it booming either. Overall, Indiana is a mild underachiever; its 18.5 percent job growth rate since 1990 stands well below Wisconsin’s healthy 28.5 percent, but well above Ohio’s 11.1 percent, not to mention the phenomenal 32.8 percent growth in the other May 6 battleground, North Carolina.

    This economic growth has also impacted the state’s demography, particularly among 28- to 50-year-old educated workers. By this measurement Indiana, according to our Praxis Strategy Group analysis, does a bit better than Ohio but fared worse than either Wisconsin and far below the blow-out rates experienced by North Carolina.

    Overall, Indiana’s older, downscale demographics poses many problems for Obama. The state’s percentage of educated adults – traditionally his key white constituency – stands well below Wisconsin’s and even Ohio’s. In contrast, Clinton’s blue-collar appeal is well in evidence in Indiana even if, overall, the state’s economy has been doing far better than its Midwest neighbors.

    Ultimately, though, the Indiana story is really a story or regions. Well-educated Hoosiers tend to concentrate in fast growing areas around Indianapolis whose job growth more resembles a Sunbelt boomtown than a rustbelt disaster area. On the other end of spectrum, many are a series of smaller communities such as Muncie, Terre Haute, Gary and Ft. Wayne with very high concentrations of the generally older white working class residents.

    These areas were probably never fertile ground for Obama. In addition, it is likely the senator’s “bitter” comments about the religious and gun-toting characteristics of small town residents, not to mention the antics of Reverend Jeremiah Wright, have not made him seem any more acceptable.

    Ultimately, it is the weak economy that makes these places ideal for Clinton. Her policy prescriptions to save local industry – one might even call it pandering – works with people increasingly desperate about their place in the high-tech global economy. It is easy to see a summer gas tax holiday as a bad policy if you are a tenured professor at Indiana University, but saving a couple of bucks on the old Ford may sound very good to people on the economy’s hard edge.

    Core Clinton country takes you to Muncie. Since 2002, the city of 67,000 has lost almost a third of its manufacturing jobs. At the same time virtually every other sector – retail, business services, construction – are now also losing employment. The information sector has been negligible.

    Like many other smaller Indiana cities, Muncie, suggests Patrick Barkey, director of economic and political studies at Ball State University, has failed to find an answer to hard times .“A lot of our towns are not showing that they are viable in the information age,” Barkey observes.

    On the other end of the spectrum lies Indianapolis as well as Bloomington, the home of Indiana University, and Lafayette, where Purdue is located. Over the past decade, these places have been adding jobs well above the national average. In Indianapolis, manufacturing jobs may also be trending down, but other sectors like business services – up 20 percent since 2002 – have more than made up the slack. Information, education and health have also been on the upswing.

    Bloomington, Lafayette and Indianapolis are also home to large groups of well-educated, upwardly mobile voters – their percentage of educated adults reaches close to 30 percent, almost 50 percent higher than the state average. Until recently these voters could have been expected to provide a base for Sen. Obama, along with African Americans, which could outweigh an almost certain Hillary landslide in the downscale industrial cities of the state.

    However, other factors may be in play here. To be sure, college towns like Bloomington and Lafayette should be an easy roll for Obama but educated voters in heavily suburbanized Indianapolis may present a more difficult challenge. Most educated suburbanites lack the job security – not to mention the 60s style social politics – shared by college professors. This makes them more sensitive to movements in the economy. They still might be doing well, but potential instability threatens their jobs, businesses and mortgages far more directly than either students or workers in the protected non-profit sector.

    For these reasons, the suburban voters in Indianapolis, which altogether accounts for over one-fourth the state population, may provide the key to the election. In contrast to the inner city, which is almost 30 percent African-American, the surrounding suburbs are overwhelmingly white and well educated. They resemble less the traditional rural Hoosier than their suburban counterparts encountered two weeks ago outside Philadelphia.

    This should be a source of discomfit for the Obama strategists. White suburbs are precisely where Obama’s majority coalition, so impressive in the early primaries, now appears to be deconstructing. Bill Clinton, with his instinct for the jugular, likely knows this as well. When Sen. Clinton was fighting for her life in Pennsylvania, her husband, according to the Wall Street Journal, told her campaign “get me to the suburbs where I can make a difference”.

    It is impossible to calculate the “Bill” effect but in Pennsylvania, the suburbs, even the affluent ones, ended up tilting for Clinton. Since then, the Illinois senator has been weakened further by Rev. Jeremiah Wright while Sen. Clinton’s economic focus should be playing better even with relatively affluent voters as the extent of the downturn has become obvious.

    For these reasons Indiana, which once appeared to offer an excellent chance for Obama to land a final knock out blow on Sen. Clinton, might not turn out well for him at all. Until Obama can connect with increasingly anxious middle class white suburban voters, he may find his current core base of African-Americans, hardliner liberals and college students too small to win decisively. If so, it suggests the prospect not only to a considerable setback at the polls in Indiana Tuesday but also might undermine his chances in November, if he still manages to secure the nomination .