New Geography

Category: Economics

  • A $15 Minimum Wage Is A Booby Prize For American Workers

    In principle, there is solid moral ground for the recent drive to boost the minimum wage to $15, with California and New York State taking dramatic steps Monday toward that goal. Low-wage workers have been losing ground for decades, as stagnant incomes have been eroded by higher living costs.

    This has been particularly tragic for workers in high-priced cities like San Francisco, Seattle, Los Angeles and New York, where the movement has achieved irresistible momentum. If the Democrats manage to win a sweeping victory in the fall, the $15 minimum could also be imposed nationwide, with huge impacts on “laggard” regions like the South.

    Yet if the campaign to boost the minimum wage reflects progressive ideals, the underlying rationale also exposes the failure of these high-priced cities to serve as launching pads for upward mobility for the vast majority of their residents. In effect, the fight for $15 is a by-product of giving up – capitulating on the idea that better opportunities can be created than the menial service jobs that increasingly are the only opportunities for the urban poor. Higher wages will make these jobs moderately more tolerable, while further cementing the wide gulf between the haves and have knots.

    It is not a coincidence that inequality — the issue most closely tied to the minimum wage drive — is consistently worst in larger, denser, deep blue cities such as New York, Los Angeles, San Francisco. Manhattan, the densest and most influential urban area in North America, exhibits the most profound level of inequality and bifurcated class structure in the United States. If it were a country, New York City would rank 15th worst out of 134 nations, according to James Parrott of the Fiscal Policy Institute, landing between Chile and Honduras.

    New York, San Francisco, L.A. and Seattle are at the forefront of a new urban economy, based on industries such as finance, technology and media, that generally creates jobs for the highly educated only. Virtually every region at the cutting edge of the minimum wage movement has seen a rapid decline in traditional blue-collar jobs — notably in manufacturing — which often paid well above the minimum wage, and offered potential for further individual advancement.

    In these and other core cities, we are seeing something reminiscent of the Victorian era, where a larger proportion of workers are earning their living serving the wealthy and their needs as nannies, restaurant workers, dog-walkers and the like. In New York City, as of 2012, over a third of workers were employed in low-wage service jobs, a percentage that rose through the recovery from the Great Recession, according to a study by the Center for an Urban Future. The largest growth in new jobs in NYC between 2009 and 2014 came primarily in low-wage fields. Of the 401,800 net jobs the city gained over that span, 76,400 were in food services and drinking establishments, with an average annual wage of $26,200. The sector that added the second largest number of jobs: ambulatory health care, at 55,400, with an average wage of $46,200. Meanwhile at the high-wage end of the spectrum, Wall Street employment was flat, and the glitzy fields of information services and movies and sound recording added 26,000 jobs.

    Given shrinking opportunities for middle and working class people, it’s not surprising that many seek a more direct redress from the government. If the odds of working your way up are limited, and a working-class job cannot pay for your basic necessities, people have to resort to political solutions, much as occurred in the early decades of the last century. If you have been relegated to the expanding precariat –those essentially living check to check — raising the wage floor might seem very appealing.

    Essentially the minimum wage campaign rests on the notion that traditional middle class uplift cannot be achieved. The problem is, a $15 an hour income represents hardly enough to pay the rent for a small apartment anywhere near the blue cities where the new minimum will hit first. It does allow, however, a way of allowing the dominant wealthy wings of the Democratic Party — financial, real estate, media and tech interests — to hand out a convenient sop to their erstwhile labor allies.

    In some places, the hike may not have an immediate discernible economic impact. Higher wages and prices can likely be absorbed in high-cost areas with lots of wealth, such as Seattle, Manhattan and San Francisco. Some recent research shows that Seattle, which was the first big city to pass a wide-scale, phased in increase, with some wages now hitting $13 an hour, has seen slower growth in restaurant employment than its periphery. However, its economy has hardly collapsed.

    The impacts may be less positive in places like the Bronx and ungentrified Brooklyn. It is in these areas where the likely shrinking of lower-wage opportunities in response to higher salaries may be felt the strongest; the flow of jobs that can move to lower-wage states will likely accelerate.

    The  impact in California will, if anything be larger, as the wage hike will be imposed in a wider fashion on a hugely diverse state. Some 25 percent of workers would get a raise through the kindness of Sacramento. By 2022, by some estimates, the California minimum wage would represent 69 percent of the median hourly wage in the state, assuming 2.2 percent annual growth from the current median of roughly $19 per hour. This compares with a current federal minimum that is 38 percent of the median. Economic modeling suggests the precipitous rise on such a mass scale will slow the state’s employment growth, particularly at the lower end.

    To be sure, higher wages could be a blip in wealthy and thoroughly de-industrialized places like San Francisco – if higher labor costs boost the price of beet-filled ravioli, it doesn’t undermine the market in a place where hipsters and elite workers still have dollars to spend. But it could mean the loss of employment in the lower ends of construction, manufacturing and logistics, and a broader impact in the state’s interior and more heavily minority cities, where much of the state’s poverty is concentrated. The $15 dollar minimum represents only 40 percent of median wages in San Jose/Silicon Valley and 44 percent in San Francisco, but 61 percent for Los Angeles and 74 percent in Fresno.

    Ultimately local workers in poorer areas may see higher wages, but less opportunity. One possible harbinger may be the decision by Wal-Mart to leave Oakland.

    Who Wins: Reviving the Blue Model

    Of course, not all jobs can be moved — but they can be automated. This is already occurring in parts of the restaurant industry, where chains have been introducing touch screen devices to take orders in lieu of waiters and waitresses. The mass automation of industries such as fast food will accelerate, eliminating all but necessary jobs. Some of this would occur naturally; it’s interesting that some of the most cutting-edge developments in the low-labor content restaurant model have occurred in high cost, progressive San Francisco, where the new restaurant Eatsa has almost entirely automated service, and the startup Momentum Machines is developing a mechanized system to cook and assemble burgers, and other meals. Those who will find their way to a new minimum will sing its praises, and rightly so, but many others –notably entry level workers and teenagers — may find themselves forced out of the labor market, or joining the growing ranks of contingent workers.

    Perhaps the greatest beneficiaries of the minimum wage hike will not be the bulk of lower wage workers in blue states, but the people who increasingly dominate their economies. For one thing, a higher minimum removes the stigma of extreme inequality that gives a bad reputation to an economic system that has little need for broad categories of workers. They can feel better about themselves, and avoid the kind of redistribution promised by the likes of Bernie Sanders.

    And as the American Interest recently predicted, those most likely to benefit down the line from the higher wages will be the tech companies that will come up with the software and automated systems that replace the service jobs now made less economically competitive by the wage hikes. It’s not a loony fringe concept: the President’s Council of Economic Advisers recently estimated that lower-wage service jobs have an 80% probability of being automated.

    So in the end, a $15 minimum wage, set in the low growth economy of our times, may end up boosting the very class-based hierarchies that are already increasingly evident. Ultimately it may represent a case of a well-intentioned measure that, while sounding radical, only accelerates our road back to feudalism: a society dominated by the few where many depend on the generosity of their betters and the middle class, already shrinking, fades into the dustbin of history.

    This piece originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

    Unemployed woman photo by BigStockPhoto.com.

  • Aristocracy of Talent: Social Mobility Is the Silver Lining to America’s Inequality Crisis

    Yes, wealth concentration is insane. But the ways in which wealth is shifting are surprising—and give reason for a little optimism.

    In an age of oligarchy, one should try to know one’s overlords—how they made their money, and where they want to take the country. By looking at the progress of the super-rich — in contrast with most of us — one can see the emerging and changing dynamics of American wealth.

    To get a sense of these trends, researcher Alicia Kurimska and I  tapped varying analyses from the Forbes 400 list of richest Americans. No list, of course, captures all the relevant data, but the Forbes list (I am a regular contributor to that magazine’s website) allows us to look not only at who has money now, but how the dynamics of wealth have changed over the past decade or more.

    The bad news here is that our oligarchs are getting richer, and, unlike in the decades following World War II, they are primarily not taking us on the ride. Indeed at a time when middle-class earnings have stagnated for at least a decade and a half,   the oligarch class is making out like bandits. This, of course, extends to much of the infamous “top 1 percent.” The share of income of the top 1 percent of households in the US increased from 10 percent in 1979 to upwards of 20 percent in 2010, as famously found by economist Thomas Piketty and Emmanuel Saez. 

    But if the highly affluent are thriving, the super-rich are enjoying one of the brightest epochs since the days of the robber barons. These people , according toa study by economists Steven N. Kaplan and Joshua D. Rauh, the top 0.0001 percent of 311.5 million US individuals. In constant 2011 dollars, their wealth has grown seven-fold since 1992 — from $214 billion in 1982 to $1.525 trillion in 2011. This at a time when most Americans have endured little or no real income growth.

     What we are talking about is a concentration of wealth and power unprecedented since the turn of the last century. According to an analysis by the left-leaning Institute for Policy studies, America’s 20 wealthiest people own more wealth than the entire bottom half of the population—152 million people in 57 million households. The top 100 own as much wealth as the entire 44.5 million-strong African-American population  (there are only two African Americans on the list), and the top 200 have more than the entire 55 million-strong Latino population (there are 15 Latinos on the list). To make an international comparison, the 400 have more wealth than the GDP of India, arguably the most up and coming big economy on the planet. 

    The Rise of the self-made

    Not all the news is bad, however. The proportion of the 400 who inherited their money has been steadily decreasing. There are more self-made billionaires than existed in the 1980s. Kaplan and Rauh report that since the 1980s the share who grew up wealthy fell from 60 percent to 32 percent. 

    This does not mean so much the return of Horatio Alger — the share who grew up poor remained constant at 20 percent — but that most super-wealthy came from affluent but not rich families, which gave them some head start, notably in education.They did not hand the keys to the kingdom to their offspring. Rather than country clubbers clipping coupons, the rich since the 1980s have become largely, if not entirely, self-made.  

    But origins are not the only thing that has changed in this era of oligarchy. So too have the industries that create the wealth — largely represented by the shift toward technology and finance — and, not surprisingly, where that wealth tends to concentrate. These shifts are already changing not only our economy, but also the outlines of political power, as industries friendlier to Democrats, notably tech and finance, supplant those, notably energy, that have long been associated, particulary in the last decade,  with the Republicans.

    The shift in the fortunes of the super-rich reflect changes in our industrial structure over the past third of a century. The big winners have been in scalable businesses  where capital is king and rapid accumulation possible. Rauh and Kaplan, for example, report that the big winners have emerged  not only in tech, but also include owners of retail and restaurant chains, tech firms and private finance, including hedge funds  Over the period between 1982 and 2012, finance’s share grew the most, followed by technology and mass-retailing.

    Who’s losing ground? The big losers are a bit counter-intuitive. Despite all the attacks on “big oil,” energy has actually suffered the biggest decline in terms of presence on the Forbes list. Energy, for example, used to account for about 21 percent of the 400,  but that has shrunk to about 11 percent. Equally puzzling, amidst a high-end building boom (not so much for the hoi polloi), real estate’s share has dropped about as much. Perhaps less surprising are the losses among non-tech based consumer industrial companies. 

    Since 2012, the year the Rauh study was completed, the tech billionaires have, if anything, expanded their presence, while it’s likely that, with the drop in energy prices, the oil barons will slip even further. On the 2014 list, for example, in terms of dollar gains, five of the top six were from the tech sector, led by Mark Zuckerberg, whose fortunes increased by a remarkable $15 billion (Warren Buffett was the lone exception). Mark Zuckerberg’s gains were larger than the $12 billion increase between Charles and David Koch, even at the peak of the energy boom.

    Fully half of the top 10 on the list came from the tech community, with the balance made up of Wall Street/finance people (Buffett and Michael Bloomberg) along with the Kochs and David Walton, the youngest son of Wal-Mart founder Sam Walton.

    The New Geography of Wealth

    Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy. 

    Oil, of course, still plays a critical role among the Texas rich, but it’s much more than that now. The richest people in the Lone Star Stateinclude Alice Walton, the Ft. Worth-based heir to the retail fortune, but also Austin tech mogul Michael Dell, Dallas financier Andy Beal, and San Antonio supermarket mogul Charles Butt. The first energy billionaire, pipeline entrepreneur Richard Kinder, clocks in as fifth richest Texan. Even if energy remains weak for the next decade, Texas seems likely to keep producing gushers of billionaires.

    If we break the rich list by region, it’s no surprise that New York, long the nation’s premier financial center, would rank first, with 82 billionaires. In second place is the San Francisco area, with 54 billionaires, most of them tied to technology. The Bay Area, with about one-third of the population, surpasses third-place Los Angeles, with 34. Miami ranks fourth with 27, Dallas fifth with 19; each is ahead of the traditional second business capital, Chicago, which ranks sixth with 15, just a few paces ahead of  Houston with 12.

    The Future of Oligarchy  

    What is the future trajectory of wealth in America? One thing seems certain: the twin tech capitals of Bay Area and Seattle, now home to nine of the 400, are likely to expand their reach. One clear piece of evidence is age; people generally do not get richer when they retire. In contrast, virtually all self-made billionaires under 40 are techies. 

    Of course, the biggest growth can be expected in the Bay Area, particularly as tech people think of new ways to “disrupt” our lives – for our own good, of course. Whole industries such as music, movies, taxis, real estate are increasingly controlled from the Valley; as these companies wax, many of the old fortunes made in these fields will begin to wane. This is also true across the board in retail, where Seattle’s Jeff Bezos now looms as a colossus greater than any individual chain of traditional stores.

    Ultimately what will make “the sovereigns of cyberspace,” to quote author Rebecca MacKinnon, so dominant is precisely what made John D. Rockefeller so rich: control of markets. Google, for example, accounts for over 60 per cent of Internet searches. It and Apple control almost 90 percent of the operating systems for smartphones. Similarly, over half of American and Canadian computer users use Facebook, making it easily the world’s dominant social-media site. 

    And soon, they, like the old Wall Street elites or the energy barons, may be able to regard the government as yet another subsidiary. They will benefit greatly from the likely electoral victory of the Democrats, who are increasingly dependent on tech contributions, while the old economy oligarchs already in retreat, in energy, manufacturing and real estate, fade before them. 

    The prognosis for the future of American wealth, then, is for an ever-expanding role for both tech and private investors, and a gradual shift away from basic industries that are geared to our diminishing middle class. This may not be good for America but will be wondrous indeed for the ever more powerful, and outrageously wealthy, new ruling class.

    This piece originally appeared at The Daily Beast.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

  • The Relationship Between Fertility and National Income

    We all heard that “demography is destiny”. But how many of us truly believe it? If demography was destiny, the world would look very different today. The two demographic giants China and India would be uncontested economic and military powers. The United States would be a regional power struggling to keep up. Larger European nations such as Britain, France and Germany would barely register on the economic map, while smaller ones such as Switzerland and Finland would be invisible. Nigeria and DR Congo would be African powerhouses. Brazil, Indonesia and the Philippines would be the shining stars of their continents.

    None of this is true because demography is not destiny. Population size alone does not set a country on a predictable course. Still, demography is, among other factors, an important determinant of destiny. While the rate of demographic growth (or decline) is important, what is more important is the age distribution of the population. Too many old people means an elevated dependency ratio and less income available for spending and investing. Too many young people means an overburdened education system and high unemployment.

    The chart below shows for each country the percentage of the population that is aged 0-29 vs. per capita GDP based on purchasing power parity (PPP). The correlation is undeniable.

    Screen Shot 2016-02-02 at 4.56.14 PM

    Countries with a smaller percentage of young people have higher GDP per capita. Many of these countries and regions, including the United States, Europe and China, have benefited from a demographic dividend while their birth rates declined in recent decades.

    Conversely, countries with more young people have lower GDP per capita. Most of them are in Asia and Africa.

    We can argue about causality. Are countries poorer because they have more children? Or do they have more children because they are poorer? Or are they both poorer and have more children because of a third factor?

    Nothing is simple and all three are true. Countries are poorer because they have too many children, mothers have no time to educate themselves, and there is little or no disposable income to save or invest. But countries also have more children in part because they are poorer, have inadequate health services and suffer from high child mortality. And many countries are poorer and more fertile because female literacy is low and gender inequality is high.

    What is known is that countries that experience a decline in their birth rate sometimes realize a demographic dividend, an economic boost that can last years or even decades. Improving health care and boosting literacy have been shown to break the cycle of extreme poverty and extreme fertility.

    Meanwhile, this is the world that we face in the next few decades: rich countries that are getting older and poor countries that are very young. Working-age populations are shrinking in the rich countries while in poor countries, they are booming beyond those countries’ abilities to educate them, shelter them and employ them.

    The chart above shows that there are many outliers, countries that are either poor despite being relatively older, or richer despite being relatively younger. When we looked to see if the outliers have anything in common, it turned out that they do.

    The first group (old and poor) are shown in red and are the countries that are former or current communist states. The second group (rich and young) are shown in black and are the leading oil and gas-producing nations. The yellow data points are the nations that are (or were) both communist and wealthy from energy resources.

    Communism may be considered an “unusual” way of managing an economy since it conflicts with strong human instincts for creativity and innovation. Likewise, the huge accidental wealth that comes from finding oneself living on top of vast underground resources may also be deemed “unusual” (or certainly lucky) since it is probably rare, or perhaps even unprecedented, in several millennia of human experience.

    If we remove the outlying red and black data points, we end up with the chart below with a much better regression and trend line and an r-squared of 0.78, a large improvement from 0.37 when all the data is included. The trend line is curved because the y-axis is on a log scale.

    This reinforces the idea that in a large majority of countries, young populations tend to be far poorer. At first, this statement may ring intuitively true and uncontroversial, because young people have had less time to accumulate wealth, until one examines the magnitude of the wealth gap. The GDP per capita of the very youngest nations is less than 5% that of the oldest. The Central African Republic’s is 1% of Switzerland’s.

    Screen Shot 2016-02-02 at 5.02.29 PM

    This is a constantly changing dynamic. And it remains to be seen whether the rich countries of the West can weather the aging of their populations and maintain their GDP per capita at current levels.

    They may struggle to do so and we may find that over the long term, demography reasserts itself every so often, even if temporarily, as the leading driver of our destiny.

    Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master’s in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

    Baby photo by Bigstock.

  • Rethinking America’s Cities’ Success Strategy

    This piece is reprinted from a Kauffman Foundation series focusing on the role of cities in a new entrepreneurial growth agenda. Read the entire cities series here.

    Most cities are economically weak actors with limited ability to affect the critical forces driving their economies. Furthermore, changes in the structure of the economy often have changed the composition of urban leadership in ways that break the link between personal and community success and create an additional bias in favor of subsidized real estate development as a civic strategy. Less dependent on the local market, this local leadership increasingly identifies with a global community and its concerns in ways that have lowered the civic priority placed on inclusive economic development and entrepreneurship. To change these trends, local leadership should focus on inclusive local economic success first and make policies that reflect that priority and address areas where local government can make an impact. Creating an entrepreneur- and business-friendly local regulatory environment is a key piece of this effort, and the delivery of high-quality basic public services is vital.

    Cities as economically weak actors

    One of the most important preliminary steps to designing and implementing policies that promote entrepreneurial growth is understanding the economic and competitive context within which such policies are made. The STEEP (Social, Technological, Economic, Environmental, and Political) forces model is one method of inventorying and categorizing a business’s or community’s external context. The table below summarizes some of the key STEEP forces that create both challenges and opportunities for communities today.


    This list includes quite an array of profound and powerful forces that are difficult to understand and even more challenging to address. They are also primarily large macro forces that cities are not in a position to influence in a significant way, leaving most cities in a weak market position. Generally, local governments are weak actors and are more often market takers than market makers; they typically have limited scope for fundamentally transformative actions. Local policymakers must undertake efforts that respond to the economic context where there is a possibility of making an impact with the tools available.

    Ramsin Canon, a progressive political commentator in Chicago, describes this challenge and Chicago’s lack of pricing power in an article about his city, titled, “Entrepreneur-in-Chief: The New Model City:”1

    Why not raise property or luxury taxes, or institute a city income tax, to make up the deficit? Why not divert money from the TIF districts? …. Chicago is no longer a political community, it is an economic entity that is in competition with other cities in the region, in the state, across the world. In that mental framework, tax is cost, or price. You raise prices, you drive away your clients. In the case of the neoliberal city, the client is the developer, the investor, the employer. The federal government and the state are not going to give the city any real money; they are not investing in infrastructure, or education, or social welfare in any real way, the way they did up through the late 1970s and 1980s. The name of the game is “growth” through enticement of capital.— Ramsin Canon

    While one may not agree with Canon’s politics, his economic analysis insightfully illustrates how even many large cities today have become structurally weak players in the economic market.

    Most of the STEEP forces above have been discussed extensively elsewhere, but there are two under-appreciated and related items that deserve more consideration because of the impact they’ve had on local leadership: (1) the change in composition of local leadership resulting from the nationalization of the industrial base, and (2) the elite identification with global rather than local concerns.

    Changes in local leadership resulting from the nationalization of industry

    While talk of globalization is ubiquitous, less appreciated is the intermediate nationalization of many industries. Up until the 1980s, most cities’ commercial activities were conducted by local entities across a wide range of industries. In banking, for example, local banks dominated each city because state laws heavily restricted expansion. These banks were all independently owned, restricted to their home markets by branch banking rules, and limited in their activities by the Glass-Steagall Act. Similarly, most electric and gas utilities were local concerns due to restrictions from the Public Utilities Holding Company Act. And local and regional retailers, particularly department stores, were prominent and, often, dominant.

    This industrial structure produced a class of leaders whose business and personal successes were tied closely to the economic success of the local community. The only way to make more loans or sell more electricity, for example, was to grow the local market. There was, therefore, a high degree of alignment between business leadership and community interest.

    Beginning in the 1980s and especially the 1990s, however, deregulation and a wave of industrial rollups created a very different landscape ruled in many places by national players. The four largest banks in the country now hold about 45 percent of total national banking assets.2 There also has been significant utility consolidation. And, in retail and other industries, we have seen consolidation into a de facto “two towers” model, in which there are two large, national, primary players (e.g., Wal-Mart and Target, Home Depot and Lowe’s, Walgreens and CVS, and AT&T and Verizon).

    As a result, there is no longer local ownership over these key businesses in most markets, and the executives running local markets are effectively branch managers. Even where local firms survived, they did so largely by becoming larger national or global entities themselves. There is now, therefore, less overlap between the interests of business leadership and community economic growth; the nationalization of industry weakened the linkage between personal success and community success for local civic leadership.

    This broken link is exacerbated by the imbalance it created in the mindset of local business leadership. In the past, the business leadership was made up of a significant number of executives of operational-type businesses, such as banks and utilities, whose successes were tied closely to the success of the local market. Today, however, the businesses that continue to operate at the local level are primarily transactional businesses, including law firms (which are currently in early-stage consolidation), construction firms, architects, developers, and the “business” of politics. There are significant differences between operational and transactional businesses and their relationships to the community. While banks make money on the spread between what they pay for funding and what they charge for loans, lawyers, by contrast, get paid by the hour for work on specific matters. Bankers are making money while they are playing golf in the afternoon. Lawyers are only making money on the golf course if they are closing deals. Transactional business leaders’ interests are less closely aligned with the success of their communities.

    Lawyers and other local transactional business leaders always have been very influential, but there are no longer as many powerful bankers and other operating industry executives to balance their perspective. This imbalance has led to a transactional growth mindset among local leaders, which leads to a theory of change for the local economies that favors real estate development. The change from an operational to a transactional mindset, in other words, has introduced an additional bias in favor of publicly subsidized real estate projects as a strategy for growth. These projects satisfy the needs of a large segment of the transactional leadership class of the community, as well as the politicians who love cranes and ribbon cuttings. More broadly, real estate development is now seen as economic development.

    To be sure, major downtown development-type real estate projects, such as stadiums, malls, and convention centers, long have been popular for cities and may even be seen as populist projects. Mayors are under pressure to be seen as taking action to create jobs and growth, and, as this type of land development is within local control, it always will retain some popularity. Increasingly, however, these projects appear to be more pure play cronyism, with enormous subsidies bringing dubious public benefit. Cincinnati’s NFL stadium deal, for example, was described by The Wall Street Journal in a news (not editorial) item as “one of the worst professional sports deals ever struck by a local government.”3

    Identification of local elites with global, rather than local, interests

    In addition to weakening the link between the success of business leaders and that of their broader communities, the consolidation and globalization we’ve seen in many industries has resulted in a new affinity between the local elite and those who hold similar positions throughout the world. As business leaders and other elites are no longer as invested in their communities and have fewer economic ties to them, they identify primarily with their global class and have more loyalty to their global brethren in other places than to those who live in the same local region.

    Saskia Sassen, a pioneer in research on what are now called “global cities,” identified this trend in her description of the bifurcation of these regions. The global city, in this view, is a kind of city within a city. Richard Longworth at the Chicago Council on Global Affairs noted a similar trend: “Globalization is disconnecting a city from its hinterland.”4 The global city of the Chicago Loop and North Side, for example, exists in an almost parallel universe to those left behind in the South and West Sides.

    The term “elite” may seem inherently pejorative, but all systems have a group of leaders and agenda setters. At the local level, the elite includes prominent business, political, civic, academic, religious, and philanthropic leadership, as well as members of the media and cultural communities. The most educated strata of the community, or, more broadly, the upper middle class, also may be included. This group has best adapted to new economic realities and represents roughly the top 10 percent to15 percent of most communities, though higher in the largest urban centers.

    While this elite group is now more disconnected from the rest of a community, attracting and retaining this stratum is now often seen as critical to a region’s success. Richard Florida’s “creative class” theory maintains the importance of this group to local economic growth. Similarly, CEOs for Cities, an urbanist organization, released a report called “The Young and the Restless,” which suggests that the youth portion of this group is fickle, demanding, and highly mobile. A failure to cater to their desires, the report indicates, might harm a city’s economic future severely.5 This phenomenon is the human capital side of Canon’s description of the city as an economic entity.

    In this worldview, servicing the needs of the community’s elite and attracting more people like them is paramount to a particularly desired form of economic success. This strategy is not necessarily rooted in elitism or snobbery. Rather, communities facing enormous pressure from the STEEP forces above are looking to replicate models of success and finding their models in places like New York and San Francisco. While gentrification has been criticized, one can point to plenty of places where it has happened successfully. Meanwhile, there is little track record of success turning around non-elite portions of post-industrial cities. No wonder, then, that cities look to strategies that appear to offer the prospect of success, with the added benefit of some glamour, instead of going against the grain and trying to tackle problems that are much harder and lack obvious solutions.

    The consequence of this worldview, however, is that local leadership prefers to implement policies that show that their city belongs in the global club, rather than focusing on primarily local concerns. The priorities of the global community are set in the world’s major cities, including London, New York, San Francisco, Paris, and Hong Kong, among many others. These communities are very different from workaday American cities. It’s difficult to see how the same policies would suit such diverse places as Los Angeles, Buffalo, Oklahoma City, and Portland equally. While there is a clear need to spend more money on transit in New York City, for example, spending large sums to attempt to retrofit smaller and entirely auto-oriented cities to transit makes little sense.

    Furthermore, these major cities have, to some extent, market-making power, at least to a far greater degree than smaller localities do. A place like New York, for example, can implement the tactics that Canon says even Chicago cannot. It is no surprise that New York has far higher taxes than Chicago does, since New York has more marketplace leverage.

    Following a global, rather than a local, piper works well in many cases. For example, most local tech startups around the country are following the same script that appears to be effective, including open collaboration, co-working, meetups and events, angel investors, local venture capital funds, and local marketing groups. Similarly, aspirational locals opening top-quality coffee shops and microbreweries legitimately enhance their communities.

    This strategy can cause problems, however, as smaller cities may see quite different results when they try to prove their global bona fides by implementing the policies and priorities of global cities, especially those related to economic regulation and those that do not align with local needs. For example, America’s coastal cities are adopting very high minimum wages, and local progressives in cities with far less leverage than San Francisco often want to implement the same policy. Furthermore, it should be noted that global cities themselves are not without challenges, including growing inequality, which is an enormous problem in these places. In Chicago, we saw the juxtaposition of the opening of a gorgeous Riverwalk downtown on a Memorial Day weekend in which fifty-six people were shot and twelve of them killed.6

    Perhaps the greatest disconnect between the elites’ concerns and the localities’ needs is in the area of climate change. The quintessential global problem, climate change is particularly ill-suited to be addressed at the local level. No city alone could make a material impact on climate change, even if it eliminated all of its carbon emissions. Nonetheless, climate change is a core concern of the global class, and the fact that this issue drives policy and regulatory mandates in many cities is a powerful illustration of city elites’ global identification. These policies don’t align well with many smaller cities’ weak market power, and, more importantly, these smaller cities are poorly positioned to thrive under these policies.

    Even the global cities, in fact, have very particular economic structures and participate in specific global networks. Although globalization has produced a type of surface homogeneity among cities, Sassen points out that each city is truly unique. Similarly, Berkeley economist Enrico Moretti has identified a “great divergence” between cities.7 America’s cities are said to all look basically the same, but there are many different typologies, and each place has its own particular characteristics.

    Ultimately, the identification of community elites with global communities rather than local communities leads policymakers to imitate other localities’ efforts instead of thinking about the unique policy priorities for a particular city that are based on its own indigenous history, economy, culture, demographics, and geography. Civic policy at the local level is dominated by “school solutions” that promote the same characteristics everywhere, often as a way of signaling that a city belongs in the “club.” While companies try very hard to convince their audiences that they are different and better than other companies in their industries,8 most cities try to look exactly the same as other cities that are considered cool, including offering bike lanes, coffee shops, microbreweries, a creative class, a food scene, and a startup culture. Even most cluster analysis seems to produce primarily a collection of the same five basic focus areas in every region (high tech, life sciences, green industry, advanced manufacturing, and logistics). Instead, local thinking should play a critical role in policy setting. Copying some good attributes can be helpful, but it’s hard to be successful with a collection of borrowed ideas. Cities need locally tailored policies and unique, indigenous thinking based on the cities’ singular histories, economies, cultures, demographics, and geographies.

    How to think about local entrepreneurship and economic growth

    In light of all these factors, it is unsurprising that economic results have been meager in the aggregate, but good in select high-end sectors. To improve results throughout the country, I propose that local governments should apply the guidelines listed below to their economic development policies.

    1. Local civic priorities should favor building a successful and inclusive local economy, including entrepreneurship, over global concerns and real estate development.
    2. Policies should be made considering the totality of the environmental context (STEEP).
    3. Policies should be oriented toward areas in which local governments can have the most impact, given the contextual constraints that have been identified.
    4. Policies should be designed to fit each city’s unique situation.

    Because cities are all distinct, there is no one-size-fits-all solution. Some focus areas, however, do appear to be broadly applicable. For example, local communities can’t do much to affect global trade policy, but they largely can control local regulations and zoning. Reducing red tape is frequently discussed, but seldom accomplished to any significant degree. Rather than solely focusing on cutting regulations, local governments should make sure the operations of the regulatory structure are clear, predictable, transparent in their operations (not politicized), and timely. The most important factor of production in almost any business is management time and attention; owners and managers want to be able to get through compliance quickly so that they can focus on—or even simply start—their businesses.

    Local governments also are directly responsible for delivering an array of basic and critical services, including parks, libraries, policing, and streets, among many others. Getting these basics right throughout a city or region, rather than simply having a few select world-class districts, is important to inclusive success. These core services provide the basic platform on which businesses operate and are the actual business of local government. They must be performed well.

    There may be other appropriate actions, depending on each city’s particular local needs and opportunities. The key is to determine what policies and actions to undertake with a high priority on inclusive economic success for the local community based on where the best opportunities are for local actors to make a difference.

    The most important shift that needs to occur in cities is one of mindset. The civic elite and upper middle class of our cities need to see their communities as the places where they live, not see themselves primarily as part of a community of their peers in other cities and around the world. They must ask themselves the oldest questions: Who is my brother? Who is my neighbor? And, local leadership needs to see all of the people of their community, not just the upscale portion of them, as those to whom they owe first allegiance.

    Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

    Endnotes

    1. Canon, Ramsin. “Entrepreneur-in-Chief: The New Model City.” Gapers Block. January 4, 2013.
    2. Federal Deposit Insurance Corporation. 2012. FDIC Community Banking Study.
    3. Albergotti, Reed, and Cameron McWhirter. “A Stadium’s Costly Legacy Throws Taxpayers for a Loss.” The Wall Street Journal, July 12, 2011.
    4. Longworth, Richard. Caught in the Middle: America’s Heartland in the Age of Globalism.
    5. Coletta, Carol, and Joseph Cortright. “Wanted: The Young and Restless.” The Washington Post, February 13, 2006.
    6. http://www.chicagotribune.com.html. http://chicago.curbed.com.php.
    7. Moretti, Enrico. The New Geography of Jobs.
    8. Apple, for example, once had an ad campaign called “Think Different.”

    Photo by caruba

  • Your City Is Not the Next Silicon Valley

    “No man needs sympathy because he has to work, because he has a burden to carry,” began Theodore Roosevelt, the U.S. president from 1901 to 1910. “Far and away the best prize that life offers is the chance to work hard at work worth doing.”

    No doubt, during Roosevelt’s time there was much work to do. In 1910, for example, nearly 40% of the country was still employed in agriculture. The percent of workers in industry—or manufacturing, construction, and mining—was at 30% and rising, driven by the revving of the Industrial Revolution.

    So, 70% of the country’s workforce made a living through labor. They made food to eat and the steel, railroads, cars, bridges, and buildings that modernized America.

    Cleveland was a prime benefactor. The manufacturing sector alone employed nearly 307,000 Clevelanders by 1967.

    But things changed. Labor-intensive industries matured, which ultimately means taking less people to produce more output. The percentage of the American labor force employed in agriculture stands at 2%, down from nearly 70% in 1840. This doesn’t mean we eat less food, but that technological advances have made the food sector ultra-efficient.

    Industry has been experiencing the same forces. Twenty percent of Americans are employed in manufacturing, mining, and construction. In the manufacturing sector, the national percentage is 8%, with Cleveland at 12%—down from 21% in 1990. Again, this doesn’t mean we don’t manufacture things— manufacturing output is at an all-time high nationally—it’s just that we need fewer people to produce more goods.

    Okay, so where do people work? The simple answer is services, or those sectors that make up the economy outside of agriculture and industry. Think legal, marketing, business, technology, education, healthcare, and hospitality. For instance, 20% of the nation worked in services in 1840. By 1960 that number was over 50%, before reaching nearly 80% by 2010.

    These numbers illustrate a shift in the U.S. economy over time, or from goods producing to service providing. To a large extent, these services are based on the production of ideas.

    Writing in the Harvard Business Review, the University of Toronto’s Roger Martin dubs this change the “rise of the talent economy”. Martin notes that in the 1960s, 72% of the top 50 U.S. companies owed their wealth to “the control and exploitation of natural resources.” Today, however, only 10% of the nation’s top companies are industry-based. Instead, over 50% of America’s companies are talent-based, such as Google, Apple, and Microsoft.

    “Over the past 50 years the U.S. economy has shifted decisively from financing the exploitation of natural resources to making the most of human talent,” writes Martin.

    Enter Silicon Valley. As Pittsburgh was to steel and Detroit to cars, Silicon Valley has been to the talent economy, particularly technology. It was there that the top minds clustered to design new-age circuits and microprocessors in the 1950s and 60s. It was also there that the best software engineers went to birth the internet, search engine, and social media in the 1990s and 2000s.

    On the backs of this talent came the wealth, not only the venture capital that has continually acted to “water” the region’s innovation, but also the rising wages of the workers. In fact, in Santa Clara, C.A., the county seat of Silicon Valley, the average salaried employee makes over $103,000 annually, approximately double that of Cuyahoga County employees and the U.S. workforce as a whole.

    The successes of Silicon Valley have led many regions to devise their own strategy to be a technology hub. Simply, there existed an “old” economy, so how does a region transition into the “new” economy, primarily one embodied by the high-end services and start-up culture of Northern California?

    Often, the tactics are rudimentary, like branding a part of your region as “Silicon X” so as to attract the components of a tech cluster. For instance, Philadelphia has “Philicon Valley” and New York has “Silicon Alley”, whereas New Orleans has “Silicon Bayou” and Portland has “Silicon Forest”. There’s “Silicon Swamp” in Gainesville, “Silicon Slopes” in Utah, “Silicon Harbor” in Charleston, and a variant of “Silicon Prairie” in Dallas, Chicago, Omaha, and Jackson Hole, Wyoming.

    Then, once you brand a part of your region “Silicon X”, the next step is to get the story out. A recent piece in Charleston Magazine entitled “The Rise of Silicon Harbor” is illustrative on this front. The author opens the piece by explaining that in Charleston there are “three local tech companies, all within three miles of each other”. The author then quotes a media outlet that states Charleston’s “Silicon Harbor is on its way to becoming the East Coast counterpart to California’s Silicon Valley”.

    This idea that your region can become the “next Silicon Valley”, well, its clickbait for online journalism—if only because folks wantto believe their hometown is the place of the future.

    For example, a recent Huffington Post piece hints “You Might Be Living in the Next Silicon Valley”. “Could Detroit become the next Silicon Valley?” echoes the industry magazine CIO. Meanwhile, a NewYorker piece is titled “How Utah Became the Next Silicon Valley”, while an Oklahoma story is headlined “Vision proposal aims at Tulsa being the next Silicon Valley”.

    Still, if everywhere is the next Silicon Valley, then nowhere is the next Silicon Valley. That’s the reality, and it’s important for cities to grasp it so they can plan their economic futures properly.

    “When it comes to tech, nobody can simply create the next Silicon Valley,” explains Aaron Renn, a Senior Fellow at the Manhattan Institute.

    “Just because a place has a number of startups doesn’t mean it’s destined to be a Silicon Valley,” Renn continued. “By all means celebrate a growing tech industry, but don’t get carried away.”

    But the bigger issue for regions looking for their economic future in Silicon Valley’s past is whether or not that’s even a sound strategy in the first place. Specifically, the tech economy is also a maturing, prone to the same job contractions, offshoring, and wage declines that hallmarked deindustrialization.

    According to data compiled by the Institute for Strategy and Competitiveness, four out of the top five tech clusters in the United States lost jobs from 1998 to 2013. San Jose, CA, the metropolitan area comprising Silicon Valley, led the way in contraction, going from nearly 160,000 tech jobs in 1998 to fewer than 74,000 in 2013—a decline of 54%. Telling, automotive employment in Detroit declined by less over the same time period, at 32%.

    These figures are in line with a new study out of Oxford University that found that while technology start- ups often create a lot of wealth, they are not good at creating many jobs. The study found that only 0.5% of the American workforce in 2010 were employed in industries that did not exist in 2000.

    “What I think the Oxford study is saying is that you’re not getting the kind of job growth from these kind of high-tech, high-growth, high-profitability startups that you had in the past,” said economist Jim Pethokoukis in the industry magazine Re/code.

    Why? A primary culprit is that tech jobs are becoming automated, just like farm and factory jobs before it. Specifically, tech companies over the last 15 years don’t need to hire as many people as they did in the 90’s because the software — loosely described as machines — is doing the work.

    For Jim Russell, the economic development blogger at Pacific Standard, the aging of the tech industry— Russell uses the term “tech convergence”—has echoes in the decline of industry. Russell discusses his life growing up on the run from macroeconomics, going from Erie, PA, to Schenectady, NY, to Vermont as his father, a General Electric engineer, tried to keep ahead of the wave of contractions.

    “He had an uncanny knack for moving our family just before the layoffs hit,” said Russell. “We were always racing to stay ahead of the economic restructuring.”

    Russell, whose wife is in tech sales, is experiencing the same game of cat and mouse today.

    “The tech industry enjoyed divergence until the end of the 1990s,” he’d note, explaining there were “fatter” times in emerging tech hubs like Boulder—where they’d lived.

    “But then the bubble burst,” Russell explained, “resulting in massive layoffs. Good friends were out of work.”

    Today, his family lives in Northern Virginia. That’s because it makes no economic sense for firms to house tech sales in Silicon Valley. This is partly due to the exorbitant cost of living in Northern California. But it is also due to the emergence of cloud computing, which has pushed tech everywhere— meaning tech hubs are increasingly nowhere.

    This maturation of tech has Russell wondering “whether Silicon Valley is the next Detroit”.

    Does this mean technology is no longer integral in regional economic growth? No. It just means the tech industry is changing. Detailing this change can both sharpen, if not make more realistic, a regional innovation strategy.

    According to the Manhattan Institute’s Aaron Renn, the issues boils down to this: “Do you have proprietary industry to marry to tech?”

    What Renn is getting at is the fact that tech in itself is a tool. It is by and large circuitry that allows access to information. But information is not knowledge. To give an example, information is the medical textbook, while knowledge is the application of information to become a heart surgeon. In other words, in what fields of applied knowledge can technology be tied to so as to further a given regional industry?

    Most recently, tech has been tied to the entertainment or leisure industry. “Silicon Valley started with tech for the sake of tech: making computers, search engines, and software,” says Cleveland technologist Eamon Johnson. “Now it’s 20-something dudes making solutions to replace what their mom did for them at home…laundry, food, rides around town, and recommendations on where to eat.”

    According to Johnson, the coming evolution of innovation is to use the next generation of computing power to go beyond tech’s capacity to distract or consume.

    “But techies need industry experts to give them problems so solutions can be worked on,” he says.

    This exactly what is happening in Cleveland with healthcare. Cleveland observes, treats, and innovates within the field human health like few other regions worldwide. As a result, the field of medical technology, or medtech, is gaining some traction in the region.

    This is evidenced by IBM’s recent acquisition of the Cleveland Clinic-spinoff Explorys, which is a “big data” health analytics firm. The company, based in Cleveland’s University Circle, is expanding its Cleveland office, perfecting its processes of how the region’s elite health “know-how” can be further mined through technology—thus creating more knowledge, and then more health innovation.

    These kind of developments are important. Medtech is still a frontier industry, and it fits in well with Cleveland’s area of specialization. So there’s plenty of room for a first mover advantage if the region can gets its medtech playbook right.

    Now, is medtech cool? Well that depends on your definition of “cool”. "You can work for a cool tech company with a texting app," said Explorys’ Charlie Lougheed to the Plain Dealer recently. "Or you can work for a company that improves health for millions of people."

    Returning to Teddy Roosevelt: that is a lot of work, and a lot of work worth doing.

    Richey Piiparinen is a Senior Research Associate who leads the Center for Population Dynamics at the Levin College of Urban Affairs at Cleveland State University. His work focuses on regional economic development and urban revitalization.

  • Now They Get It: Health, Class, and Economic Restructuring

    In the past few months, many commentators have responded to a recent study that shows increasing death rates among middle-aged white Americans. Some have suggested that the increase is the consequence of material poverty resulting from economic restructuring and the neoliberal agenda over the last several decades.

    Globalization, trade liberalization, deregulation, privatization, and reductions in the welfare state have not only led to downsizing in many industries, they have also reduced wages and benefits, contributing to growing economic inequality. The nature of many jobs has also changed. Work has been intensified, hours have become increasingly irregular, and workers face anxieties about the loss of their jobs and electronic monitoring of their work. These changes leave workers feeling vulnerable and stressed, and that together with anti-union laws and poorly enforced labor laws limit their ability to fight back. As someone who taught courses in Occupational Safety and Health for many years, I am all too aware that these workplace stresses and the limits of workers’ agency are associated with increases in cardiovascular disease, physical and mental disorders, and acute injuries. In other words, while research has focused on increasing mortality rates, changes in work also contribute to increased health problems, which may, in turn, explain the increases in alcoholism and drug abuse that Anne Case and Angus Deaton see as key factors in the rising death rates.

    Workplace stress and insecurity are among the “hidden injuries of class” that compound material poverty. As people adapt to changes in and the loss of work, they become more isolated, and, too often, lose their sense of community and self worth. Worse, they internalize insecurity, blaming themselves for problems at work or for not being able to find a decent job or support their families. That people blame themselves should not surprise us, given the persistent ideal of the American Dream, which promises that individual effort will pay off in upward mobility. No wonder people who have lost jobs or who are working hard but still struggling economically see their challenges as a moral failure or character flaw.

    For anyone who has studied the social costs of deindustrialization, none of this is news. In the 1980s, Harvey Brenner determined that for every one percent increase in unemployment there were 650 homicides, 3300 admissions to state mental hospitals, 500 deaths by cirrhosis of the liver, 20,000 deaths by suicide. Other studies focused on displaced workers in the late twentieth century showed increases in incarceration, insomnia, headaches, smoking, child and spousal abuse and stomach disorders, not to mention suicide and drug and alcohol abuse. In many ways, the current research shows not a new trend but rather the long-term impact of economic restructuring and neoliberalism on workers’ lives.

    What is new is that these patterns no longer seem to apply primarily to the working class. While Case and Deaton note that poorer and less-educated white people had even higher mortality rates, their study suggests that the pattern also applies to the middle class. This may be what most surprised commentators, for whom the report offered dramatic evidence of an important change in American culture. As Paul Krugman suggested, “We’ve seen this kind of thing in other times and places – for example, in the plunging life expectancy that afflicted Russia after the fall of Communism. But it is a shock to see it, even in an attenuated form, in America.” Krugman and others asked how this could happen. In an interview with Vox, Deaton commented that the middle-aged white people in his study had “lost the narrative of their lives.” While this certainly applies for many in the working class, as Sherry Linkon noted in November, it is also true for growing numbers of middle-class Americans who may have been even more invested in the American Dream.

    Also new is the racial pattern. In the 1970s and 80s, death rates for African Americans rose, but in recent decades, they have fallen as the rates for whites have risen. Andrew Cherlin suggests that the difference could be explained by people’s perceptions of how they are doing compared with others like them. As Cherlin writes, “It’s likely that many non-college-educated whites are comparing themselves to a generation that had more opportunities than they have, whereas many blacks and Hispanics are comparing themselves to a generation that had fewer opportunities.” Put simply, if white working-class people see themselves as losing ground, they may be more likely to consider suicide or engage in self-destructive behaviors.

    The impact of economic restructuring on material poverty and health has a long history. In the last 40 years, increases in poverty and the declines in the health of the working class were rationalized as “acceptable” losses associated with major economic change. But what has changed is the demographic landscape. No longer are mortality and morbidity issues associated primarily with the working-class and African Americans. Now, job loss and economic insecurity are impacting the middle class and whites.

    I’m reminded of an old adage: when poverty comes in the door, love goes out the window. As middle-class whites increasingly experience the kind of economic insecurity that became normal for so many working-class people years ago, some are losing not just love but also their health and even their lives.

    This essay was first published by the Working-Class Perspectives blog, which offers weekly commentaries on current issues related to working-class people and communities.

    John Russo is a visiting fellow at Kalmanovitz Initiative for Labor and Working Poor at Georgetown University and at the Metropolitan Institute at Virginia Tech. He is the co-author with Sherry Linkon of Steeltown U.S.A.: Work and Memory in Youngstown (8th printing).

  • Spreading the Wealth: Decentralization, Infrastructure, and Shared Prosperity

    This essay is part of a new report from the Center for Opportunity Urbanism called “America’s Housing Crisis.” The report contains several essays about the future of housing from various perspectives. Follow this link to download the full report (pdf).

    The public’s preference and the views of the social and intellectual elite has never been greater.

    Journalists, urban and environmental activists and politicians tend to share a vision of a future in which generations-old trends toward the decentralization and dispersal of both production and population are reversed. In this view, densification will replace sprawl, and mass transit will grow in importance relative to personal automobile use, as Americans in growing numbers abandon suburban houses for smaller apartments and condos in mid- density and high-density cities.

    “The New American Dream is Living in a City, Not Owning a House  in the Suburbs,” Time recently declared. The Atlantic agrees: “More Americans Moving to Cities, Reversing the Suburban Exodus.” As for the preferred housing type, the Smithsonian informs us: “Micro Apartments are the Future of Urban Living.” In this world-view, even farming will be brought “back to the city” with the emergence of vertical urban farms. “The Future of Agriculture May be Up” according to The Wall Street Journal. National Geographic predicts that “we may soon be munching on skyscraper scallions and avenue arugula.”

    In this dense city-centric world view, not only will cities feed themselves—in reality a practical and economic impossibility—but also there’s virtually nothing density cannot do, from calming the climate to raising (U.S. national productivity. “Double a city’s population and its productivity goes up 130 percent” asserts MIT News.

    In the depopulated hinterland between downtowns, sleek high-speed trains will whiz past rows of elegant white windmills or gleaming solar panels. Economies of scale and large- scale manufacturing will be replaced  by high-tech localism and the rebirth of walkable dense neighborhoods.

    Each wave of technological innovation since the early industrial revolution has inspired hopes that an economy of small-scale producers and small local markets and walkable, village- like communities can be preserved or recreated, using the most advanced technology available at the time. In 1812, in a letter to General Thaddeus Kosciusko, Thomas Jefferson wrote of his hope that industrial technology could be reconciled with a society of small farmers: “We have reduced the large and expensive machinery for most things to the compass of a private family, and every family of any size is now getting machines on a small scale for their household purposes.” In the early years of the twentieth century, Lewis Mumford hoped that electrification would permit a reversal of the trends toward large- scale corporations and utilities and infrastructure grids and a renaissance of community life and pedestrian cities.

    The third industrial revolution based on information technology has produced its own variants of this utopia, with Alvin and Heidi Toffler predicting “the electronic cottage.” With these earlier utopias, today’s techno-urbanism shares the same social ideal, a society in which production and population are reconcentrated and re-localized in dense communities, which may take the form of the low-rise pedestrian cities of the New Urbanists or Green and “sustainable” skyscraper downtowns. The persistence of this vision, in ever-changing forms, suggests that its appeal must be explained in terms of nostalgia for the less far- flung, less centralized, smaller-scale communities of the agrarian era and the early industrial period.

    Something like this vision of the future American landscape has achieved the status of a near-consensus in the mainstream press about the alleged return to the city and the impending demise of the suburbs. But the story is wrong in every detail. In reality, the American people are not abandoning low-density housing for crowded and expensive urban cores, nor are they likely to do so in the future.

    In fact, the immediate and likely mid-term future will look, in many ways, much like the recent past. Factories, farms and office parks will continue to be dispersed through suburbs, exurbs and the countryside. Information technology will consume ever more electricity, most of which, for the foreseeable future, will come from conventional utilities using fossil fuels, not from renewables like wind and solar power. The aging of the population and the growth of low- paying personal service jobs will increase the importance to the service-sector working class of personal automobile  use in employment. Self-driving cars and trucks, along with telecommuting, may reinforce this trend and produce further decentralization of work, housing, shopping and recreation. The robocar, not the passenger train, should be the icon of the transportation future.

    TECHNOLOGY AND DECENTRALIZATION

    For generations, successive technologies have dispersed production and population even as they have radically reduced transportation, energy and land costs. The increasing speed and flexibility permitted by innovative modes of transportation, from the canal to the railroad to the automobile, truck and airplane, have slashed freight and commuter costs while allowing production facilities and residences to spread out. The decentralization of work, shopping and dwelling has been enabled by the long distance transmission of energy and increasingly cheap, sophisticated and reliable telecommunications grids.

    Since the beginning of the industrial era, each new form of travel—the train, the automobile or truck and the airplane—has permitted higher speeds. From 1800 to the present, personal mobility in the U.S. has grown at an average of 2.7 percent per year with a doubling time of 25 years. Higher speeds allow longer commutes or business trips in the same amount of time. This has resulted in the expansion of urban areas to take advantage of cheaper land for the kind of housing people prefer, largely single family, and the simultaneous decline in their overall density. One study notes that the automobile has allowed cities to grow as much as fifty times larger than the typical pre-modern pedestrian city, which was limited to an area of 20 square kilometers. Today’s advocates of urban “densification” frequently denounce the automobile as the source of so-called “sprawl.” But the trend toward urban deconcentration began with the first industrial revolution, based on steam power. Rather than build urban mass transit around smoke-spewing locomotives, many cities built horse-car lines, something which was not practical until industrial technology made iron or steel rails cheap. In many places these were later replaced by electric trolleys or subways (early horse-drawn railways using wooden tracks had been limited to mines). The growth of suburbs began with horse-drawn omnibuses, trolleys, subways and commuter rail. The “pedestrian cities” of 1900, idealized by many of today’s urban planners, in fact were more dispersed than compact pre-industrial villages and cities.

    Nor has it ever been the case in the industrial era that production facilities have been situated for the convenience of existing city residents, as an alternative to moving workers to production sites. Mills grew up first along the fall lines of streams and rivers, where falling water could be tapped for energy. When coal-powered steam engines replaced waterpower, factory towns tended to be located near coal seams, as in the British Midlands, the Ruhr, and Pittsburgh, or else along rivers or canals with access to barge-borne coal. Mill towns and factory towns alike tended to grow up around the production facilities, which began as “greenfield” sites, to use modern terminology.

    The second industrial revolution, based on the electric motor and the internal combustion engine, accelerated the decentralization of manufacturing in the U.S. and other advanced industrial countries. Electric wiring and motorized power tools allowed large, flat, horizontal factories to replace earlier vertical factories in which waterwheels or steam engines had driven machinery on multiple floors by means of ropes and pulleys. To save money, the new factories were located on cheap land, which only later became dense as residences and
    amenities for workers grew up around them, as in Detroit. Trucks enabled factories to be located far from both waterways and rail lines, and personal car ownership allowed workers to live in less crowded conditions at greater distances from where they worked.

    Paradoxically, passenger air travel, by creating truly national corporations on a continental scale whose facilities could be visited by managers in a single day, allowed the centralization of functions in high-rise office buildings in a few headquarters cities, like New York City, and to a lesser extent, Chicago and, more recently, Los Angeles, Houston, Dallas and Atlanta. Satellite technology and the worldwide Web have enabled the further centralization of supervision over multinational corporations and global supply chains. The error of all too many modern urbanists is a failure to understand that the managerial and financial functions of such dense urban cores depend for their existence on supply chains and consumer markets in lower- density areas across the United States and the world. Only a small number of cities can specialize in these functions in the national and world economies, and these “global cities” like New York and Tokyo and Frankfurt cannot serve as models for most metro areas.

    THE FUTURE OF PRODUCTION

    Will the trend toward the decentralization of production and housing be reversed in the twenty-first century?

    Although their contribution to national employment is dwindling because of automation and offshoring, traded sector industries such as manufacturing, energy, mining and agriculture remain important parts of an advanced economy, because of their multiplier effects and upstream and downstream linkages. According to the Bureau of Economic Analysis, every dollar in final sales of a manufactured good is responsible for $1.34 in input from other economic sectors, while a dollar of retail trade generates only 55 cents and a dollar of wholesale trade only 58 cents. These industries, by their nature, tend to locate their facilities in low-density areas and need extensive, state-of-the-art infrastructures to connect them with national and global suppliers and businesses and consumer markets with minimum friction and cost.

    The decentralization enabled by trucks and cars and buses has converted the monocentric city of the railroad and canal era into what William Bogart, following Jean Gottmann, has called the polycentric city—a blob-like metro area with multiple smaller retail, office and recreation centers. For a while some older urban cores became specialized downtown business districts, housing the headquarters of firms whose factories, warehouses or back offices were located where land or labor or both were cheaper, in suburbs, small towns, and other states or other countries. But as headquarters have moved to suburban office parks and exurban campuses, many downtowns have reinvented themselves again as “playground cities” based around amenities enjoyed by a residential population of the rich and young professionals before marriage, as well as transient populations of tourists.

    Production has moved back to its historic home, the countryside or the outskirts of town. The migration of production out of the city has been accelerated by municipal policies that penalize productive enterprises because of their side effects of traffic, waste or pollution. The real estate
    interest in gentrification—turning former warehouses into lofts for affluent members of the gentry class or restaurants or offices for fashionable social media startups—has seized on this transformation, and in some places, with favorable economic results.

    The mainstream press frequently publishes breathless articles about the alleged rise of urban agriculture— sometimes accompanied by striking illustrations of skyscrapers full of hydroponic gardens or covered with what appears to be kudzu. Most of these stories quote a single activist, Dickson Despommier, a retired professor of microbiology at Columbia University’s School of Public Health. Many articles convey Despommier’s claims about the alleged superiority of indoor, climate- controlled farming in big cities without raising any objections.

    The most obvious objection is the price of land. Even if greenhouses and, in time, synthetic food laboratories were to contribute more to the diet of people in advanced industrial nations like the U.S., and even if consumers insisted on fresh food from nearby, most of these structures would be located on the periphery of expensive cities in low-rise suburbs or exurbs, to minimize the contribution of rent to the price. No matter what technology might be used, food grown in Manhattan will always be an expensive luxury because of land rent alone.

    Nor is most manufacturing ever likely to return to densely-populated, expensive urban areas. The automation of factories is reducing the manufacturing workforce worldwide, even in China. As labor costs decline in importance as a factor in location, more firms may choose to site increasingly-robotic factories near consumer markets and supply chains. And rapid prototyping and other advances that enable customization and short production runs may reduce the benefit that large factories enjoy over smaller operations.

    But high-tech home production of most appliances and high-tech versions of the village blacksmith will probably remain in the realm of science fiction. Economies of scale will probably continue to characterize even advanced manufacturing, to some degree. Most important of all, high rents, combined with municipal regulations, will make cities unattractive as sites for major factories, as distinct from small-scale artisanal shops. Neither agriculture nor large-scale manufacturing are likely to return to cities with high rents and property prices.

    BERMUDA TRIANGLE URBANISM

    What about service sector jobs? As automation leads manufacturing and other productive sectors to shed labor, the greatest growth in absolute employment is found in domestic service sector jobs in health, education, retail, government and other industries that cannot easily be outsourced or automated. The Bureau of Labor Statistics (BLS) projects that in 2022 “services-providing” jobs will account for 80.9 percent of new U.S. jobs.

    According to one influential view, the “new economy” is a post-material “knowledge economy” or “information economy” in which the production of immaterial goods and services is more important than material goods and traditional services. Adherents of this school often treat the most important activities in a modern economy as tech and financial services. This school of thought holds that U.S. productivity would be increased if more people were
    added to a few U.S. metro areas that specialize in tech and finance, with help from “densification” policies such as transit-oriented development.

    According to Chang Tai-Hsieh of the University of Chicago and Enrico Moretti of the University of California, Berkeley, the U.S. could be more productive if more workers could move from less productive cities to more productive cities, which they identify as, among others, San Francisco, San Jose, New York, Boston, and Seattle. They criticize land-use restrictions which prevent more high-rise apartments and high-rise office buildings to house the hordes who allegedly would boost their own productivity, and the nation’s as well, by moving from Bakersfield to San Jose. In short, massive densification would produce huge gains in productivity.

    In all of this there is a grain of truth—but only a very small grain. It is true that, in certain industries, there are genuine agglomeration effects, leading to the dominance of one locale in that field, at least for a while: Silicon Valley for tech, Wall Street for finance, Detroit for automobiles, Hollywood for entertainment. These locations brought together workers, firms, capital, infrastructure and flourishing social networks facilitating the exchange of ideas. If you want to be a country music singer, it was a good idea to move from Tulsa, Oklahoma to Nashville in the old days and to Branson today.

    But even these productivity effects  are limited to particular industries with particular skill sets. You are more likely  to improve your productivity and success as a country music singer if you move from Tulsa to Branson—but not if you move from Tulsa to Silicon Valley or Wall Street. Moretti and Hsieh admit: “The assumption of inter-industry mobility is clearly false in the short run. For example,
    it would be hard to relocate a Detroit car manufacturing worker to a San Francisco high tech firm overnight. On the other hand, the assumption is more plausible in the long run, as workers skills—especially the skills of new workers entering the labor market—can adjust."

    In spite of this concession to reality, Moretti and Hsieh argue for the mass relocation of much of the U.S. workforce to San Francisco, San Jose, New York and a few other big cities. As Timothy B. Lee notes in Vox:

    Hsieh and Moretti envision the New York metropolitan area becoming 9 times its current size, meaning that more than half the country would live there. The Austin metropolitan area would quadruple in size, as would the San Francisco Bay Area. Half the cities in America would lose 80 percent or more of their population. The population of Flint, MI, would shrink from 102,000 people to fewer than 2000.

    This might be called Bermuda Triangle urbanism. Certain metro areas are like the Bermuda Triangle and other legendary zones in which the laws of nature are supposed to operate differently than everywhere else. These metro areas have the unique property of magically raising the productivity of human beings of all skill sets who cross an invisible force field into them.

    Hsieh and Moretti argue that their favored coastal metro areas could rival Southern metro areas in growth by adopting the less restrictive land policies characteristic of growing Southern and Southwestern cities:

    We find that three quarters of aggregate U.S. growth between 1964 and 2009 was due to growth
    in Southern US cites and a group of 19 other cities. Although labor productivity and labor demand grew most rapidly in New York, San Francisco, and San Jose thanks to a concentration of human capital intensive industries like high tech and finance, growth in these three cities had limited benefits for the U.S. as a whole. The reason is that the main effect of the fast productivity growth in New York, San Francisco, and San Jose was an increase in local housing prices and local wages, not in employment. In the presence of strong labor demand, tight housing supply constraints effectively limited employment growth in these cities. In contrast, the housing supply was relatively elastic in Southern cities.Therefore, TFP growth in these  cities had a modest effect on housing prices and wages and a large effect on local employment.

    Advocates of “densification” have seized on Hsieh’s and Moretti’s work to argue for crowding more people into San Francisco and Manhattan by adding skyscrapers, legalizing micro-apartments and squeezing tiny houses into existing suburbs.xxvii But this ignores the fact that the growth of Southern and Southwestern cities has been driven in large part by the desire of middle-class and working-class Americans, as well as affluent Americans, to spend less while enjoying bigger homes and yards. According to demographer Wendell Cox, Census data shows that of the 51 metropolitan areas with more than 1 million residents, only three—Boston, Providence, and Oklahoma City—saw their core cities grow faster than their suburbs. (And both Boston and Providence grew slowly; their suburbs just grew more slowly. Oklahoma City, meanwhile, built suburban residences on the plentiful undeveloped land within city limits.)”. Similar preferences manifestly exist among younger generations of Americans. Between 2000–2011, the number of Americans aged 20–29 increased twenty times as much as the increase of their cohort in central business districts. To accommodate this desire for inexpensive space Southern and Southwestern cities have expanded horizontally, not vertically.

    To their credit, Hsieh and Moretti acknowledge that transportation systems, by enabling longer commutes, can allow more people to live in a metro area that remains relatively low in density. But even here they play to the prejudices of the coastal and campus intelligentsia, by endorsing high-speed rail: “An alternative is the development of public transportation that link local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of high speed train currently under construction in California is to connect low-wage cities in California’s Central Valley—Sacramento, Stockton, Modesto, Fresno—to high productivity jobs in the San Francisco Bay Area.”

    Hsieh and Moretti ignore how high-growth Southern cities—their putative models—actually grew. Cities in the South and Southwest in the last half century have expanded thanks to cars and trucks on adequate systems of streets and highways, and near-universal personal automobile ownership, not on the basis of a pre-automobile infrastructure of trains and trolleys and subways. People have moved there—and this appears to be true of educated workers—precisely not to live in high density and expensive areas.

    The link between densification and productivity does not exist even in the so-called “knowledge economy” of the tech sector. Even the intellectual labor of R&D tends to be done in the low-density environments of university and corporate campuses like those of Silicon Valley, Austin and the Research Triangle. The expensive downtowns of skyscraper cities increasingly are home to rentiers with residual financial claims on the products of innovation, including investors and former innovators, rather than individuals and groups engaged in important technological innovation themselves.

    THE NEW LANDSCAPE OF EMPLOYMENT

    Access to cars for personal use will become more, not less, important for  the majority of the American workforce in the decades ahead, thanks to the shifting composition of the workforce and the spatial deconcentration of service sector jobs. While better-paying service sector jobs like those in finance, law and business and professional services may remain downtown in corporate headquarters, an increasing number of lower-wage jobs involving personal care will be found in lower-rent suburbs and exurbs within metro areas. Particularly important among these will be jobs caring for the elderly, either at hospitals and medical centers and nursing homes, or in the homes of the elderly themselves. Between 2002 and 2022, health care and social assistance will have created more jobs than any other sector, growing from 9.5 percent of employment to 13.6 percent.

    Overwhelming numbers of American seniors say they wish to stay in their homes as long as they can. Given the expense of residenial care, elderly Americans will try to remain home with the help not only of technology but also of personal services provided in their homes. These services, many of them paying modestly, will provide employment for nurses, health aides, food delivers, shoppers, drivers, and others providing in-home care or help. Because their clients will be dispersed through metro areas, personal vehicle ownership or access to a car will be a necessity for most of these in-home care-givers. And because few of these jobs are likely to pay well, members of the new service sector working class will economize on expenditures by living in low-cost neighborhoods and shopping at discount stores and dining in affordable restaurants that are located in low- density areas and do not pass on high rents to their customers.

    What we are witnessing is the emergence of something not too dissimilar to European cities with gentrified downtowns becoming centers of high-status spending and employment while poverty is decentralized through the suburbs, particularly those in the inner ring while newer suburbs and exurbs generally do better.xxxiv This reversal of the mid-twentieth century pattern of downtown poverty and suburban affluence poses particular challenges to low-income workers without access to cars in suburbs and exurbs. Researchers at the Brookings Institute, studying data from hundreds of transit providers in numerous metro areas, discovered that, on average, workers reliant on mass transit cannot reach 70 percent of the jobs in their area in less than 90 minutes. Workers in low-income suburbs were even worse off. Only 22 percent of potential metro area jobs for which they were eligible were accessible in less than an hour and a half one way by means of mass transit.

    According to a study of two federal pilot programs operated by the Department of Housing and Urban Development, Moving to Opportunity for Fair Housing and Welfare to Work vouchers, poor participants with cars lived in better neighborhoods and greater employment opportunities. Low-income workers who received Moving to Opportunity Vouchers were twice as likely to get jobs and four times as likely to stay employed. Even when mass transit is available it tends to consume more time than commuting by car. Another study, showing the superior outcomes available to poor people with access to private vehicles, concluded: “If we were most interested in increasing the mobility of the poor, we would subsidize car ownership.”

    ROBOCARS VS. RAILROADS

    In his 2011 State of the Union address, President Barack Obama declared:  “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail. This could allow you to go places in half the time it takes to travel  by car. For some trips, it will be faster than flying—without the pat-down.” This vision was encouraged by maps showing an imaginary continental network of high-speed passenger rail.

    But the president’s high-speed rail initiative soon collided with reality. In 2011, the Obama administration proposed spending $53 billion on high- speed rail in the next six years. But from 2009-2014 the federal government has spent only $11 billion on high-speed rail. Governors in a number of states have blocked their states from accepting federal high-speed rail grants, for fear of escalating costs. California’s high speed rail project has been plagued by lawsuits and dwindling public support. Amtrak’s Acela, instead of travelling between New York and Washington in only 90 minutes as a true high-speed train might, takes nearly three hours to cover the distance. It would take a quarter century and an estimated expenditure of $150 billion to turn the Washington-to-New York route into a true high-speed rail route.

    The fetishization by many opinion leaders of fixed-rail technology as a futuristic symbol is puzzling. Passenger trains, like passenger blimps, are an anachronistic technology. Most passenger rail in the U.S. was rendered obsolete by the development of automobiles and airlines in the last century. A nonstop cross-country flight in the U.S. usually takes no more than six or seven hours from airport to airport. Even if high- speed rail could compete on some routes, the number of destinations would be far smaller than those accessible by high- speed air. The displacement of passenger rail by air travel and automobile travel in the U.S. has led railroads to return to their original mission from the days of horse-drawn trams and canals—the efficient overland movement of freight.

    The only part of the U.S. where inter-city passenger rail is significant is the Amtrak corridor through the Northeastern megalopolis from Washington, D.C. to Boston. But tickets are expensive, in spite of federal subsidies. In recent years, inter-city bus services have competed with Amtrak along its own route, with much cheaper tickets and only slightly longer travel time. Inter-city bus companies like Bolt have been able to lure away professional- class travelers with amenities superior  to those that Amtrak offers for a  fraction of the price. A 2013 comparison of Amtrak and bus service in a number of routes across the nation concluded that “the cost of providing scheduled motorcoach service is significantly lower than the cost of providing Amtrak train service. The cost difference ranges from a low of $17 per passenger (Washington, DC to Lynchburg, VA) to a high of more than $400 per passenger (San Antonio, TX to El Paso, TX).”

    What about intra-city rail transit? Outside of a few dense urban areas  like New York City, the future of fixed- rail seems bleak, notwithstanding the enthusiasm of urban planners for “light rail” transit projects, which have replaced skyscrapers and Seattle-style space needle towers as icons of progress and prestige  in the imaginations of local boosters. As the technology of self-driving cars advances and regulatory systems adapt, the price of rides in robotaxis compared to subway fare will plummet because taxi fares need no longer support a human worker, only maintenance and energy costs and a modest profit. Single-mode, point-to-point travel will always be more flexible and efficient than fixed- rail transit which requires parts of the journey to be undertaken by foot, bicycle, or automobile, including taxi travel. In most American cities, buses and taxis and personal cars rendered trolley systems obsolete by the mid-twentieth century. By the mid-twenty-first century, except in a few cities or a few routes like airports to convention/hotel centers, robotaxis may put subways and light trail out of business.

    Will robotaxis replace personal cars altogether? Many urbanist opponents of personal automobile ownership hope that fleets of robotaxis will roam the suburbs as well as dense urban centers, permitting suburbanites to dispense with garages and perhaps allowing “densification” of suburban neighborhoods, with houses built right up to the street. Like most fantasies of orthodox urbanism, this is unrealistic. Even if the costs of robotaxis fall radically, it is hard to imagine suburbanites repeatedly calling taxis during the day for different trips—to work and back, to drop off and pick up children and school, to go shopping and  to go out to a restaurant for dinner. In the suburbs, if not in dense urban centers, garages are likely to remain—and they will house the family robocar.

    What is more, the family robocar, like its human-operated predecessors— the station wagon and the minivan and the SUV—will be large enough to accommodate groups of people or large quantities of groceries or other purchases on occasion. And like today’s cars, it will be designed to operate both in cities and on highways. Visions in which individuals on a daily basis now choose tiny one-or-two passenger self-driving cars to commute and now rent spacious robot vans by the hour to go shopping are unlikely to be realized be realized if waiting times make it inconvenient to summon rental vehicles in low-density neighborhoods, as opposed to dense urban cores.

    To the extent that the automation of automobiles and trucks reduces accidents, safety considerations as an incentive to purchase large, heavy vehicles may diminish, and there may be a trend toward somewhat lighter and smaller cars. Still, it is reasonable to predict that fully self-driving cars and trucks will broadly resemble today’s human-operated vehicles, if only because the spatial demands imposed by the dimensions of passengers and freight will remain the same. The street and highway infrastructure of tomorrow is also likely to be more or less the same for self-driving vehicles in the future as for today’s cars and trucks, although fixed signals like painted stripes may give way to virtual signals permitting more flexible road use.

    Reflecting the anti-automobile bias of the gentry intelligentsia, the American press has trumpeted a recent finding that between 2007 and 2012 the number of households without a vehicle increased. But the increase was negligible, from 8.7 percent to 9.2 percent.xli Seventy-five percent of Americans drive to work, while ten percent commute to work by means of carpooling, a number that may have been enlarged by the hardships imposed by the Great Recession.

    Personal care use may well expand, thanks to self-driving cars. The annual cost of upkeep of roads may increase, and it may be necessary to expand road capacity, if the automation of the automobile increases traffic by allowing the elderly and unescorted children to travel without having to drive or be driven by another person.

    Flying as well as driving is on the verge of being transformed by robotics. The Federal Aviation Administration (FAA) may soon adopt regulations that permit the use of drones in the U.S. by civilian business.xliii The potential impact on industries and business models can only be imagined. Restaurant-to-door pizza delivery by drone is probably not in the cards any time soon. The most likely applications of commercial drones are in air freight transportation, warehousing, agriculture and photography, among other industries.

    Meanwhile, increasing automation may make passenger air travel safer. It might also enable the rise of “air taxis”—small aircraft which can pick up passengers on a flexible basis, along the lines of the “free flight” envisioned by a recent NASA study.

    ENERGY IN THE INFORMATION AGE: MYTH VS. REALITY

    Like popular visions of a future American landscape based on urban density and mass transit, perceptions about the information technology and energy infrastructure of the future are equally at odds with reality.

    The ICT (Information and Communications Technology) ecosystem is being transformed by a number of trends: the mobile internet, cloud computing, big data, the “internet of things” and “the industrial internet.” All of these trends together will translate into increased demand for both electricity and reliable wireless communications.

    Because much of the infrastructure supporting ICT is not visible—fiber optic cable, remote data centers, wireless towers—it is easy for the users of modern technology to imagine that it consumes less energy and materials than old- fashioned appliances, and to believe that information-based industries somehow exist in cyberspace rather than the material world. But the alleged virtual reality of cyberspace is grounded in physical infrastructure.

    Unlike windmills and high-speed trains, data centers are not part of the popular iconography of the imagined future. Indeed, for security reasons, many data centers are hidden from public view in nondescript buildings in remote complexes. The result, as a New York  Times report notes, is the illusion that information exists in an immaterial world: “The complexity of a basic transaction is a mystery to most users: Sending a message with photographs to a neighbor could involve a trip through hundreds or thousands of miles of Internet conduits
    and multiple data centers before the e-mail arrives across the street.”

    In spite of their effective invisibility, data centers are the backbone of the digital economy. As these nodes in national and global communications networks grow in importance, they consume more energy. A modern data center uses 100 to 200 times more electricity per square foot than an office building.xlvi Some data centers consume as much energy as small towns. In 2013 U.S. data centers devoured enough kilowatt-hours of electricity—91 billion—to power twice the number of households in New York City.xlvii Gains in efficiency and productivity may be outstripped by increased demands made possible by falling prices.

    And energy-hungry data centers themselves represent only 20 percent of ICT electric consumption, with the rest dispersed among hand-held devices, PC’s and other technologies. As one study notes, “Cost and availability of electricity for the cloud is dominated by same realities as for society at large—obtaining electricity at the highest availability and lowest possible cost."

    Electricity to power increasingly sophisticated phones and computers and cloud computing centers as well as machine-to-machine communication and communication among self- driving vehicles will have to come from somewhere. Will the source be renewable energy? Many Americans have been persuaded that combating global warming will require a rapid—and relatively painless—transition from fossil fuels to renewables, identified in the popular imagination with wind power and solar energy. This vision is sometimes united with the idea of a “distributed” energy network, in which utilities buy
    much of their electricity from rooftop solar panels or electric cars.

    In reality, the reign of hydrocarbons in the energy mix is far from over. The U.S. Energy Information Administration predicts that in 2040 as much as 80 percent of primary energy consumption by fuel in the U.S. will originate with three fossil fuels—petroleum and other liquids (33 percent), natural gas (29 percent) and coal (18 percent). In their contribution to primary energy production, renewables are predicted to rise only from 8 percent  in 2013 to 10 percent in 2040. As a share of electricity generation by fuel, renewables are predicted to account for only 15–22 percent in 2040, roughly the same as nuclear energy. Most of the renewable category is accounted for by hydropower and wind; only minor contributions will be made even in the best case scenarios for 2040 by solar, geothermal, and biomass.

    FUTURE INFRASTRUCTURE: EVOLUTION, NOT REVOLUTION

    The conventional wisdom of  urban planners posits revolution, not evolution. It is widely assumed that the trend of decentralization of production, housing and shopping—a trend that has been reinforced by each new wave of technology, beginning with steam engines—will somehow be reversed in the near future, leading to the reconcentration not only of housing but also of much manufacturing and even “urban agriculture” in dense cities. And all of this is supposed to be accompanied by mass abandonment of personal automobile use for mass transit and a rapid transition from fossil fuels to renewable energy sources.

    As I have sought to demonstrate, none of these assumptions is plausible.
    The future American landscape will be characterized by evolution, not revolution. The desire to minimize costs will lead most businesses and households to avoid expensive, dense urban areas for low-density regions with cheaper land. According to Jed Kolko of Trulia, only one of the ten fastest-growing cities with more than 500,000 people, Seattle, is predominantly urban, while five—Austin, Fort Worth, Charlotte, San Antonio and Phoenix—are majority suburban.

    Roads and highways will be important, as increasingly autonomous cars and trucks and buses render fixed-rail passenger transit even more marginal than it is today for passenger transportation (rail will retain its utility for freight transportation in the U.S.).  Air travel will become more complex, with the addition to airliners of civilian drones and perhaps “air taxis” reshaping patterns of production, package delivery and commuting. Telecommuting and the gradual electrification of transport will make reliable electric grids all the more indispensable. And the displacement of coal by natural gas, and the evolution of a global market in natural gas, will necessitate more pipelines. Growing Internet usage will have to be matched by reliable high-speed connectivity via national and international grids and increasingly colossal data servers which, even if they are more efficient, will require immense quantities of energy for operation and cooling.

    Far from reducing the quality of life of the working class/middle class majority in an aging America, “sprawl” or decentralization, if properly carried out, can benefit both the providers and consumers of personal services. Personal service providers with access to cars have a much greater market for their services— particularly if highways or expressways enlarge the number of sites or homes that they can visit. At the same time, low-cost, low-density housing in suburbs, exurbs and small-towns makes it easier for the elderly to age in place. Emergent technologies such as telemedicine and autonomous vehicles may make suburban life much less challenging for the elderly who can no longer drive. The greatest beneficiaries of an automobile-based service economy may be the low-income elderly and their modestly-paid caregivers.

    This picture is at odds with the kind of urban futurism which envisions passenger trains whizzing past windmills and solar power panels on their way from one skyscraper metropolis to another. Certainly robocars, power lines, natural gas pipelines, and data centers are less striking and glamorous than fashionable icons of pop futurism like high-speed rail and imaginary farms inside skyscrapers. But a decentralized America built on the bones of high-capacity roads, power lines, pipelines, and airstrips can enjoy a growing economy while minimizing the de facto taxes imposed by congestion, high land prices, and other detritus of excessive density. The historic nexus among technology, decentralization and the quality of life, far from being rendered obsolete, is on the verge of being reinforced and renewed in the United States.

    This essay is part of a new report from the Center for Opportunity Urbanism called “America’s Housing Crisis.” The report contains several essays about the future of housing from various perspectives. Follow this link to download the full report (pdf).

    Michael Lind is the Policy Director of the Economic Growth Program at the New America Foundation in Washington, D.C., editor of New American Contract and its blog Value Added, and a columnist forSalon magazine. He is also the author of Land of Promise: An Economic History of the United States. Lind was a guest lecturer at Harvard Law School and has taught at Johns Hopkins and Virginia Tech. He has been an editor or staff writer at the New Yorker, Harper’s Magazine, the New Republic and the National Interest.

  • We Now Join the U.S. Class War Already in Progress

    Neither Trump nor Sanders started the nation’s current class war—the biggest fight over class since the New Deal—but both candidates, as different as they are, have benefited.

    Class is back. Arguably, for the first time since the New Deal, class is the dominant political issue. Virtually every candidate has tried appealing to class concerns, particularly those in the stressed middle and lower income groups. But the clear beneficiaries have been Trump on the right and Sanders on the left.

    Class has risen to prominence as the prospects for middle and working class Americans have declined. Even amidst a recovery, most Americans remain pessimistic about their future prospects, and, even more seriously, doubt a bright future (PDF) for the next generation. Most show little confidence in the federal government, although many look for succor from that very source.

    To understand class in America today, one has to look beyond such memes as “the one percent” or even the concept of “working families.” As Marx understood in the 19thcentury, classes are often fragmented, with even the rich and powerful divided by their economic interest and world view. In our complex 21st century politics, there’s a big divergence among everyone from the oligarchic classes to those who inhabit, or fear they will soon inhabit, the economic basement.

    The Fragmented Oligarchies—The Techies versus the Tangibles

    This confounding election stems, as much as anything, from the growing divisions among America’s business elite. These divisions have existed in some form in the past, but may never have been so gaping as today.

    On one side, we have the tangible industries—manufacturing, homebuilding, agriculture, logistics and especially energy—which often find themselves on the bad side of progressive regulation. Once these industries split their political contributions between the two major parties, but increasingly they are heading into the GOP camp.

    This is particularly notable in the energy industry. With progressives clamoring for the virtual destruction of the fossil fuel industry as soon as possible, executives feel compelled to back the GOP. They know that as the green movement ups its demands, their heads are on the collective chopping block. In 1990, energy firms gave almost as much to Democrats as Republicans; in 2014 they gave over three times as much to the GOP. Other tangible sectors, including agriculture, homebuilding and chemical manufacturing, which depends on cheap energy, seem also be leaning to the GOP.

    These corporate interests used to dominate fund-raising, but they are increasing out-gunned and out-spent by the rising tech and media sectors. This is where the big money is: In America , the media-tech sector in 2014 accounted for five of the top ten wealthiest people. And just this year, the fortune of the poster boy of social media, Mark Zuckerberg,exceeded that of the Koch brothers, the much demonized scions of the old economy.

    And these new style oligarchs are, for the most part, much younger than their tangible industry rivals. Indeed, virtually all self-made billionaires under 40 are techies. And where once tech folk supported middle of the road candidates, there has been a steady “leftward” drift for the last 15 years. In 2000, the communications and electronics sector was basically even in its donations; by 2012, it was better than two to one Democratic. Microsoft, Apple, and Google—not to mention entertainment companies—all overwhelmingly lean to the Democrats with their donations.

    This shift has occurred as the tech industry has moved away from its roots in aerospace and manufacturing to software and media. This realignment has relieved Silicon Valley of many traditional concerns with labor, energy prices, and basic infrastructure. When you are moving bits and bytes instead of building machines and circuits, you have less pressing interest in maintaining roads and having access to cheap energy. When virtually all your employees have degrees from elite colleges, or are imported technocoolies from India, you worry less about the cost of living or managing unions.

    The Obama years have solidified these ties. Many former Obama aides now work for firms such as Uber, AirBnB, Google, Twitter, and Amazon. Tech also leans strongly towards cultural progressivism—support for gay marriage, abortion rights and unrestricted immigration—and sympathy for the administration’s initiatives on climate change. They are not too concerned about higher energy prices for the middle and working classes, or their negative impact on basi cindustries. Climate change politics not only allows Silicon Valley and its Wall Street supports to feel better about themselves. It has also allowedventure firms and tech companies to profiteer on subsidies.

    But class issues muck up this alliance of manna and idealism. Despite their hip and cool image, the tech oligarchs remain very much ruthless capitalists when it comes to preserving and expanding their wealth. Although Bernie Sanders rarely attacks the tech oligarchs directly, they recognize him as a threat. “They don’t like [Bernie] Sanders at all,” notes San Francisco-based researcher Greg Ferenstein, who has been polling internet company founders for an upcoming book. “He’s an egalitarian liberal,” Ferenstein explains. “These people are tech liberals. Equality is a non-issue in Silicon Valley.”

    Sanders seems not to get the memo—he prefers to demonize Wall Street—butThe Washington Post, owned by super-oligarch Jeff Bezos, has taken particular pains to cut the Vermont socialist down to size. No surprise here, given the controversy over labor relations at Amazon, which, unlike Facebook or Google, actually has to employ blue collar workers.

    Most gentry and “tech liberals” appear to be aligning their vessels with Hillary Clinton’s now listing “armada” of well-heeled tech, financial, and other cronies. Some of these same people have also donated quite generously to the ethically challenged Clinton Foundation.

    And what about Wall Street, the biggest and most deserving target for class rage? Of course, the masters of the universe don’t like Bernie, the one candidate sure to oppose their interests. They are more than ready for Hillary, who, as Sanders repeatedly points out, has been taking their money in gigantic gobs. Security firms, for example, are thelargest donors to Clinton’s super-pak, lagging behind only Jeb Bush in terms of money from this detested part of our economy.

    Yet the more Wall Street money dominates the race in both parties, the less voters seem willing to listen. Their GOP favorites have either lost or are on the way out, including Marco Rubio, who seemed poised to win Wall Street support with his confounding proposal—amidst concern with inequality and rapacious profiteering—advocating a zero capital gains rate. Unable to unite, they are now facing the real, unnerving possibility of Donald Trump or Ted Cruz as the party standard-bearer.

    The Divided Middle Orders: The Yeomanry vs. the Clerisy

    Big contributors may determine who stays in a race, and sometimes who wins, but most elections are settled by the middle class, which constitutes something close to half the population, and likely more of the electorate. Yet like the oligarchs, the middle class is also deeply divided between competing factions and interests.

    The largest section of the middle class consists of what I call the yeomanry. This includes some 28 million small business owners, many of whom employ one of more family members. Spread across a variety of fields, this sector constitutes the class most opposed to the Obama program. In fact, according to Gallup, in 2012 three-fifths of all small business owners opposed Obama’s policies.

    The reasons for this opposition are obvious. Progressive policies like higher minimum wages and stricter environmental and labor laws hit small businesses harder than bigger firms, which have the staff and resources to adapt to the regulatory vise. Once seen as the leading, creative edge of the economy, small business has not done well under Obama: for the first time in modern history, more firms (PDF) are going out of business than staying solvent.

    But there’s another, more ascendant part of the middle class—highly educated professionals, government workers, and teachers—who have done far better under President Obama. In 2012, professionals generally approved of his regime, according to Gallup,by a 52 to 43 percent margin. These voters have become a critical part of the democratic coalition; indeed eight of the nation’s ten wealthiest counties—including Westchester County in New York, Morris County in New Jersey, and Marin County in California—all went Democratic in 2012.

    These middle income workers increasingly do not work for the private economy; they occupy quasi-public jobs dependent on public dollars than private markets. Universities, a core Democratic constituency have been hiring like mad: between 1987 and 2011, they added 517,636 administrators and professional employees, or an average of 87 every working day.

    This educated and often well credentialed middle class tends towards progressive politics; in fact, university professors have become ever more leftist, outnumbering conservatives six to one. Indeed, those voters with advanced degrees were the only group of whites by education to support Obama in 2012.

    In modern America, these people serve largely as a clerisy, hectoring the public and instructing them how to live. A bigger state is not a threat to them, but a boon. No surprise that public unions and academics have emerged as among the largest and most loyal donors to Democrats.

    The Democratic race is a largely a battle over securing the loyalty this class. Clinton tends to dominate the already established clerisy—most notably the teachers unions and gay and feminist lobbies—and among older progressives. But the leaders are being deserted by the followers: Sanders won a decisive 56 percent of college educated primary voters in New Hampshire.

    The Lower Classes: The Precariat and the Traditional Lower Class

    More Americans see themselves as belonging to the lower classes today than ever in recent times. In 2000 some 63 of Americans, according to Gallup, considered themselves middle class, while only 33 percent identified as working or lower class. In 2015, only 51 percent of Americans call themselves middle class while the percentage identifying with the lower classes rose to 48 percent.

    The bulk of this population belongs to what some social scientists call the “precariat,” people who face diminished prospects of achieving middle class status—a good job, homeownership, some decent retirement. The precariat is made up of a broad variety of jobs that include adjunct professors, freelancers, substitute teachers—essentially any worker without long-term job stability. According to one estimate, at least one-third of the U.S. workforce falls into this category. By 2020, a separate study estimates, more than 40 percent of the Americans, or 60 million people, will be independent workers—freelancers, contractors, and temporary employees.

    This constituency—notably the white majority—is angry, and with good cause. Between 1998 and 2013, white Americans have seen declines in both their incomes and their life expectancy, with large spikes in suicide and fatalities related to alcohol and drug abuse.They have, as one writer notes, “lost the narrative of their lives,” while being widely regarded as a dying species by a media that views them with contempt and ridicule.

    In this sense, the flocking by stressed working class whites to the Trump banner—the New York billionaire won 45 percent of New Hampshire Republican voters who did not attend college—represents a blowback from an increasingly stressed group that tends to attend church less and follow less conventional morality, which is perhaps one reason they prefer the looser Trump to the bible thumping Cruz, not to mention the failing Ben Carson.

    Many Trump supporters are modern day “Reagan Democrats.” Half of Trump’s supporters, according to a YouGov survey, stopped their education in high school or before. Trump’s message appeals to these voters in part by preserving social security and other entitlements. He appeals to populist rather than the usual GOP free market sentiment, and decisively won all voters making under $50,000 a year. Tellingly, among Iowa Republican voters who called themselves “moderate or liberal,” Trump trounced Cruz, and duplicated the feat again in New Hampshire.

    Conservative intellectuals dismiss Trump as both too radical and not conservative enough. He offends pundits in both parties by pushing things verboten in polite circles, such as trade with China, which has been responsible for the bulk of U.S. manufacturing losses. He also has embraced curbs on immigration, something that rankles the established leaders in both parties.. “There’s a silent majority out there,” Trump says. “We’re tired of being pushed around, kicked around, and being led by stupid people.”

    But if older, white Trumpians reflect the precariat’s past, young people flocking to Sanders’s camp may represent its future. Sanders destroyed Clinton among those under 30, winning their votes in both the Iowa caucuses and New Hampshire by six to one. These young voters may differ from generally older and whiter Trump voters on many key issues, but they also face a precarious future and diminished prospects. Over the past 40 years, few groups (PDF) have seen their incomes drop more than people under 30.

    In a decade, these millennials will dominate our electorate and as early as 2024 outnumber boomers at the polls. They may be liberal on many social issues, but their primary concerns, like most Americans, are economic, notably jobs and college debt . Fully half, notes a recent Harvard study (PDF), already believe “the American dream” is dead.

    For many millennials, Clinton style incrementalism is less than enough. A recentyougov.com poll found some 36 percent of people 18 to 29 favor socialism compared to barely 39 percent for capitalism, making them a lot redder than earlier generations. No surprise that Sanders beat Clinton among younger voters. As one student, a Sanders backer, recently asked me, “Why should I support her. How is she going to make my life better?”

    Below the precariat lie the traditional lower classes. Almost 15 percent of Americans live in poverty (PDF), and the trend over time has gotten worse. More than 10 million millennials are outside the system, neither in the labor force or education. This is just the cutting edge of a bigger problem: a labor participation rate which is among the lowest in modern history.

    The low-income voters are helping both Trump and Sanders. The Vermont socialist won an astounding 70 percent of the votes among people making less than $30,000 a year. Trump’s largest margins were among both these voters and those making under $50,000 annually, who together accounted for 27 percent of GOP primary voters.

    Class as the New Defining Issue

    We are now experiencing a growth in class-based politics not seen since the New Deal. During the long period of generally sustained prosperity from the ’50s to 2007, class issues remained, but were increasingly subsumed by social issues—civil and gay rights, feminism, environment—that often cut across class lines. Democrats employed liberal social issues to build a wide-ranging coalition that spanned the ghettos and barrios as well as the elite neighborhoods of the big cities. Similarly, Republicans cobbled together their coalition by stressing conservative social ideas, free market economics, and a focus on national defense; this cemented the country club wing with the culturally conservative suburban and exurban masses.

    The chaos and constant surprises of this campaign represent the beginning of a new political era shaped largely by class. In November Trump hopes to ride the concerns of the white working class to victory in the rustbelt to overcome Hillary Clinton’s coastal edge. Close to 20 percent of Democrats, according to Mercury Analytics surveys, plan to support Trump as their champion. In the coming months, the donor class, politicians, and pundits will be forced to address the needs of Trump’s supporters, as well as those of Sanders’ youth precariat in ways mainstream politicians have avoided for years.

    As class politics reshape American politics, we are entering territory not explored for at least a half century. Our political culture is being rocked in ways few would have anticipated just a few months ago.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

    Photo by Max Goldberg from USA (Bernie @ ISU) [CC BY 2.0], via Wikimedia Commons

  • Education and Economic Growth

    It is an article of faith among California’s political class that insufficient higher educational opportunities are a constraint on California’s economic and job growth.  Just about every California economic development document includes a discussion of California’s desperate need for more college graduates.

    Unfortunately, the facts disagree with the faith.  California is educating far more people than it is creating jobs for them to take.  In the past 10 years, California’s public higher education system alone issued 2,455,421 degrees.  Over the same period, the state saw a net increase of only 1,136,642 jobs.

    That’s right.  California granted more than twice as many post-high-school degrees as net new jobs.

    We can quibble about the numbers, but the conclusion does not change. The number of degrees includes 871,922 community college degrees, including a conservative estimate of 94,000 in 2015, because data are not yet available.

    If we exclude community college degrees, California’s university and state college systems still granted 1,583,499 degrees, a much greater number than new jobs.  Some of those represent one person earning multiple degrees, but more than 28 percent of students would have to have earned multiple degrees for the number of college graduates to be less than the number of net new jobs.

    These numbers don’t include California’s private colleges and universities, of which there are many.  The University of Southern California, for example, granted 14,633 degrees in June 2015.

    You cannot escape the conclusion that California job growth lags the rate at which the state creates college degrees.  College graduates are a significant California export.

    Of course, not all of California’s new jobs require college degrees.  For example, almost 31 percent (351,926) of California’s net new jobs over the past 10 years were in the Leisure and Hospitality sector.  Very few of those jobs require a college degree.

    So, why is everybody saying that higher education is a constraint on California’s growth?

    Part of the reason is that education ranks with motherhood and “tolerance” on California’s pantheon of virtues, particularly among the highly educated political class, and education — notably the teachers’ unions — has a powerful lobby, perhaps the most powerful in California.

    Part of it is a poor understanding of statistics.  People observe that, on average, college graduates earn far more than non-graduates and conclude that education creates higher income, completely ignoring the self-selection bias: The lowest-ability student in your high school didn’t go to college, because he was the lowest-ability student. The highest-ability student went to college because she would have been bored beyond measure holding up a “slow” sign in a construction zone.  Repeat after me: correlation does not imply causation.

    Then, even after all this pumping out of graduates, there remain persistent shortages of qualified Californians to fill some jobs. Of course there are.  Nobody expects San Jose to produce all the geniuses that drive Silicon Valley’s innovation. Why should we expect them to all come from California?  These are very special jobs requiring very special skills. In this situation, large numbers work to employers’ advantage.  If the entire world is your source of these special workers, you have a much better chance of finding exactly who you need, or pay what you prefer.

    The forecasting industry is a big part of the problem. It is easy to find forecasts such as this Georgetown University report that says by 2020, a whopping 65 percent of all U.S. jobs will require post-secondary education. It is just as easy to find forecasts that robots will take away all of our jobs— including in the so-called “knowledge” sector.

    Long-term forecasts are extraordinarily unreliable. Long-run forecasts of necessary skill sets for future jobs are even more unreliable. They are completely dependent on assumptions that frequently prove wrong. Famously bad long-term forecasts include Time Magazine 1966 statement that “Remote shopping, while entirely feasible, will flop.” and Western Union rejecting the telephone in 1876 as having “… too many shortcomings to be seriously considered as a means of communication.”

    Forecasts of increasing demand for educated workers seems to be contrary to observation. Because of computers, a McDonalds’ worker doesn’t need to know how to make change, or the price of any product. All they need to know is what a product looks like and how to push a button.

    What we appear to be seeing is what my colleague Dan Hamilton calls a “hollowing out of the middle.”  Technology has increased demand for very-high-skilled people, as we see in the Silicon Valley, and it’s increased the demand for low-skilled people, as in the McDonalds example. It’s also reduced demand for many people in between, that is, the middle class.

    Focusing excessively on higher education creates problems while doing no good. It is ridiculous to attempt to give 65 percent of young people a college degree. You cannot achieve that goal without reducing the quality of the graduates, which reduces the value of the degree for the better students.  This would be repeating what California has done with high school diplomas. Graduation requirements have been reduced to the point that the degree is meaningless for almost all purposes. 

    Increasing supply at any educational level will not make new jobs appear; in fact, many of those workers are likely to go to where there are jobs and basic costs, particularly housing, are more reasonable.  A recent study by Cleveland State University documents the ongoing migration of educated Millennials from high-cost places with few opportunities to places with lower costs of living. 

    Yet rather than into look how to create better paying jobs across the board, the education lobby — including many now at universities — have a perfect motivation to support more spending on, well, they and their friends. If we did achieve a 65 percent college graduate rate, we’d hear the policy wonks calling for more advanced degrees.

    So, we ask, why we are creating so many more college graduates than jobs for college graduates?  I think it’s because we’ve promised our young people an education to match their abilities. That’s fair.  Government is providing a service for citizens. If it provides an educated workforce for Arizona and Texas, well that’s an unintended consequence.

    We also need to ask, why is California not creating jobs for our educated young people? That’s another discussion, with lots of reasons. But, creating more college graduates is not among the answers to that question. Focusing on it diverts energy and resources from the real challenges to California’s economic growth.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

  • MENA Economies: Trouble Ahead

    The economies of the Middle East and North Africa (MENA) are ill prepared for the coming population boom.

    War, terrorism, repression and poverty are all common features in much of today’s Middle East and North Africa (MENA). How are the region’s demographics changing in the next few decades? And what is the prognosis for improved living conditions?

    It is difficult to look at the UN 2015 report and believe that the future will play out as outlined by the numbers. Even under the UN’s ‘medium variant’, which assumes a steady decline in total fertility ratios (TFR = average children per woman), the projected population growth would add significant stress on nations that are ill prepared to feed, educate and provide the needed jobs of the future.

    Note in the first table that TFRs have been falling for decades and are expected to continue trending towards the 2.1 replacement level, or indeed lower in many cases. Except for Egypt, the North African countries are already near replacement and will dip lower by 2050. And all the Western Asia countries, with the notable exception of Iraq, will be near or below replacement by 2050.

    (click to enlarge.)

    Screen Shot 2016-01-08 at 9.54.57 AM

    Yet between now and 2050, the MENA population will still grow significantly. Every country will have more people by 2050 than today. Lebanon stands out as the sole exception but this is explained by the fact that its population recently bulged by 20% or more due to the influx of Syrian refugees. In due time, a number of these refugees will return to Syria or emigrate to a third country.

    (click to enlarge.)

    Screen Shot 2016-01-08 at 9.54.51 AM

    In thirty five short years, Egypt is seen adding 60 million people to its current 91 million. The people of Iraq, Yemen and Sudan would double and those of Somalia nearly triple. The relatively richer Iran and Turkey (technically not in the MENA region but added here for comparison) will grow more modestly, as will oil-rich Kuwait, Saudi Arabia, the UAE and Qatar. In all, there will be nearly 300 million more people in the MENA, a worrying prospect given the current condition of the region’s economies.

    (click to enlarge.)

    Screen Shot 2016-01-08 at 9.54.38 AM

    Under the right conditions, a growing population could be an encouraging sign and a potent contributor to economic growth. But these conditions include a falling dependency ratio (the number of children + elderly, divided by the number workers). In this case, as shown in the table, the dependency ratio is expected to rise in half the MENA countries. An encouraging sign is the fact that it will be falling in the countries with the fastest growing populations, though perhaps not sufficiently to create the opportunity for a strong demographic dividend.

    In Egypt for example, the DR would fall from 62.3 to 56.5, not a large decline. And in Iraq, it would go from 78.7 to a still high 63.7. Yemen and Syria stand out for faster declines in their DRs but these figures may be less reliable given the current turmoil they suffer.

    (click to enlarge.)

    Screen Shot 2016-01-08 at 9.54.21 AM

    The MENA region therefore faces a long-term challenge to absorb the large rise in its working-age populations. As shown in this table, there will be, within 35 years, 40 million more Egyptians and 30 million more Iraqis seeking employment and improved living standards. In the entire MENA, there would be 180 million more people of working age. Optimism dictates that from the current travails will emerge a model that meets the needs of these rising populations.

    Some economic figures

    Compared to the years 2001-05 and 2006-10, the most recent five year period has seen a marked slowdown in Egypt, Jordan, Oman, Lebanon and Qatar, and continued strong growth in Saudi Arabia, the UAE and Iraq (to the extent that these figures can be trusted). The IMF’s estimates for 2015 and 2016, shown in the table, may prove too optimistic if energy prices remain low.

    (click to enlarge.)

    Screen Shot 2016-01-12 at 5.21.32 PM

    Screen Shot 2016-01-12 at 5.19.25 PM

    Per capita GDP shows a clear divide between on one side the oil rich countries Saudi Arabia, Qatar, Kuwait and the UAE, and on the other side poor or mismanaged countries. In theory, Iraq’s and Libya’s oil wealth should position them to join the club of the wealthy. But with the price of oil down from over $100 per barrel in 2014 to about $30 today, there will be contraction in the GDP figures of the richer countries with repercussions across the entire MENA region.

    (Note: Per UN appellation and data in this article, State of Palestine encompasses the West Bank and Gaza.)

    Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master’s in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

    MENA country map by DanPMK – Own work adapted from Africa in the World (grey).svg by TUBS, CC BY-SA 3.0, .