New Geography

Category: Economics

  • The Cities Winning The Battle For Information Jobs 2014

    In the town of Verona on the rural fringes of Madison, Wisc., there’s a Google-like campus that houses one of the country’s most rapidly growing tech companies, and one of the least well known. Founded in 1979, the medical software maker Epic has grown to employ 6,800 people, most of whom work at its 5.5 million-square-foot headquarters complex, which sprawls over 800 acres of what was farmland until the early 1990s.

    Despite annual revenue estimated at $1.5 billion, the company is congenitally publicity shy, a characteristic associated with its founder and CEO, Judy Faulkner. Yet in its quiet, unassuming way, Epic is emblematic of the expansion of the information industry in the Madison area. Employment in the metropolitan area’s information sector is up 28% since 2008, among the fastest growth in the country over that period. This has occurred despite the city’s reputation for left-wing, often anti-business politics—a culture that its left-leaning mayor (and Epic booster), Paul Soglin, describes as “76 square miles surrounded by reality.”

    To come up with our list of the cities with the fastest-growing information sectors, we zeroed in on the 55 metropolitan statistical areas that have at least 10,000 information jobs, which includes software, publishing, broadcasting and telecommunications services. We used the same methodology as for our overall ranking of the Best Cities for Jobs: we ranked the MSAs based on job growth in the sector over the long-term (2002-13), mid-term (2008-13) and the last two years, as well as recent momentum.

    View the Best Cities for Information Jobs 2014 List

    Our top 10 is dominated by large metro areas renowned as tech hubs – Madison, at No. 5,  is the smallest by far. In first place is Silicon Valley — San Jose-Sunnyvale-Santa Clara — followed by San Francisco-San Mateo-Redwood City, which together employ over 110,000 information workers. Both have been primary winners in the latest high-tech bubble. Since 2008 information employment is up 23% in San Jose and 27% in San Francisco.

    They’re followed by Boston-Cambridge-Quincy in third place, and Austin-Round Rock-San Marcos, Texas in fourth. The foundation built in previous tech booms — including venture capital, educational institutions, corporate headquarters, and skilled workers — has helped many of the strongest tech regions become even more so this go around.

    But there are some surprising places on our list, including a few Sun Belt metro areas that were hard hit in the housing bust. Take Atlanta-Sandy Springs-Marietta, Ga., which ranks sixth on our list, with a 7.7% expansion in information employment since 2010. Less expensive than the West Coast hotbeds or Boston, Atlanta could be emerging as a player in the sector. Last year General Motors opened a software facility in suburban Roswell, with plans to create over 1,000 new jobs.

    Phoenix-Mesa-Glendale, Ariz., ranks ninth with 11% growth in information employment since 2008. In 2013, the metro area added as many information jobs, roughly 2,000, as the Bay Area, according to an Arizona State University study.

    The Big Players

    Historically, information jobs have clustered in the nation’s largest metropolitan areas. Los Angeles still leads the nation with 201,000 information jobs, while New York is No. 2 with 182,000.

    Yet the fortunes of the biggest players appear to be changing. New York ranks a respectable 13th on our list of the fastest-growing cities for information jobs, with a 7.7% expansion since 2008. This reflects not only the growth of the city’s relatively small tech sector but also its robust film, television and media industries. Los Angeles-Long Beach-Santa Ana, however, has not fared nearly so well, ranking a middling 27th, on our list. This reflects, in part, the erosion of the region’s once dominant entertainment industry. This is particularly true of feature films, where production has dropped 50% from 1996 levels. Since 2000, L.A. has lost 9,000 entertainment industry jobs, leaving it with 132,000.

    With tech companies such as Apple and Google targeting content, and the massive shift of readers over to the web, the preeminence of New York and Los Angeles could continue to erode over time.

    This shift can be seen in the growing forays of the Valley into film and television production through companies such as Netflix and Google’s YouTube, as well as in the already longstanding decline of the music industry — undermined by both legal and illegal forms of music distribution online.

    Information Jobs Set To Disperse

    For New York, a more worrisome development is the massive decline of newspaper, magazine and book industry employment. At a time when Google alone reaps more advertising revenues than the entire newspaper business, it’s not surprising that media growth is shifting toward the Left Coast. Since 2001, the book publishing industry, dominated by New York, has contracted nationally by 17,000 jobs. Newspapers lost 190,000 positions and magazines 50,000 in that same span. But internet publishing, dominated by the Bay Area, expanded by 77,000 jobs during the same window.

    In many ways, the recent tech boom, with its emphasis on social media, has been a blessing to high-cost areas such as Silicon Valley, San Francisco and even New York. Yet at the same time, as we have seen in our other jobs lists, the information sector is expanding most rapidly in some fairly unexpected places. Some of the fastest growers on a percentage basis are still minor players– Janesville, Wisc., Lansing, Mich., and Flint Mich. –  and are tied largely to the up and downs of the manufacturing sector.

    But some, like Madison, are heading toward critical mass. Provo-Orem, Utah, for example, with some 9,800 information jobs, did not make the 10,000 job cut for our list, but should soon given its 21% growth since 2008. Others are in regions just outside the main information hubs, including Santa Barbara-Santa Maria-Goleta, north of Los Angeles, and San Luis Obispo, south of San Jose, as well as Bridgeport-Stamford-Norwalk, north of New York, and Durham-Chapel Hill, N.C., just outside Raleigh-Cary. There has also been rapid information job growth in Huntsville, Ala., a tech center that built up around NASA, and Baton Rouge, La., which has benefited from growth in energy and manufacturing along the lower Mississippi.

    Ultimately, price pressures, particularly on housing, are likely to feed growth in some of these emerging regions. In this way, what is happening in Madison foreshadows the growth of a whole series of new information hotbeds. These may not challenge Silicon Valley, New York or Hollywood in the near future, but they are likely to make their presence known as information jobs continue to spread to fast-growing and more affordable regions.

    View the Best Cities for Information Jobs 2014 List

    This story originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

    Madison, Wisconsin photo by Patrick43470.

  • Taking a Back Seat to Texas

    The most important news recently to hit Southern California did not involve the heinous Donald Sterling, but Toyota’s decision to pull its U.S. headquarters out of the Los Angeles region in favor of greater Dallas. This is part of an ongoing process of disinvestment in the L.A. region, particularly among industrially related companies, that could presage a further weakening of the state’s middle class economy.

    The Toyota decision also reflects the continued erosion of California’s historic economic diversity, which provided both stability and a wide variety of jobs to the state’s workers. We have seen this in the collapse of our once-burgeoning fossil-fuel energy industry, capped this year by the announced departure from Los Angeles of the headquarters of Occidental Petroleum. Blessed with huge fossil fuel reserves, California once stood as one of the global centers of the energy industry. Now, with the exception of Chevron, which is shifting more operations out of state, all the major oil companies are gone, converting California from a state of energy producers to energy consumers, and, in the process, sending billions of dollars to Texas, Canada and elsewhere for natural gas and oil that could have been produced here.

    As did the oil industry, the auto industry, and, particularly, its Asian contingent, came to Southern California for good reasons. Some had to do with proximity to the largest port complex in North America, as well as the cultural comfort associated with the large Asian communities here. Back in the 1980s, the expansion of firms like Honda, Toyota and Nissan seemed to epitomize the unique appeal of the L.A. region – and California – to Asian companies. Today, only Honda retains its headquarters in Los Angeles (Nissan left in 2005), while Korean carmakers Hyundai and Kia make their U.S. homes in Orange County.

    Retaining these last outposts will be critical, as Southern California struggles to retain its once-promising role as a true global city. With the exception of the entertainment industry – itself shifting more production out of town – our region is devolving toward marginality, largely as a tourist and celebrity haven.

    Still, I’m concerned less about the region’s reputation than about the economic trajectory of its middle and working classes. The Toyota relocation from Torrance will eliminate 3,000 or more generally high-wage jobs, something that usually accompanies the presence of headquarters operations. It will cost the region, most particularly, the South Bay, an important corporate citizen, as, over time, the carmaker will likely shift its philanthropic emphasis toward Texas and its various manufacturing sectors.

    Perhaps more disturbing are the fundamental reasons behind the Toyota move. According to Toyota’s U.S. chief, James Lentz, they weren’t even courted by Texas, which has fattened itself on California’s less-competitive business climate.

    Some of Toyota’s reasoning is geographical. The port link is less essential now since close to three-quarters of Toyota’s vehicles sold in the U.S. are built here, up from 58 percent in 2008. At the same time, the growth of the “Third Coast” ports – Houston, Mobile, Ala., New Orleans and Tampa, Fla. – buoyed by the widening of the Panama Canal, makes it increasingly easy to ship components or cars in and out of the central U.S.

    More troubling still is the logic, both on the part of Nissan and Toyota, linking headquarters operations – with their marketing, design and tech-oriented jobs – closer to their industrial facilities in the south and Midwest. Toyota, for example, has a large truck plant in San Antonio as well as auto assembly plants throughout the mid-South. Honda, now the last major Japanese carmaker with a Southern California headquarters, last year also moved a number of executives from Torrance to Columbus, Ohio, closer to the company’s prime Marysville, Ohio, production hub.

    This pattern contradicts the notion, popular in both the Jerry Brown and Arnold Schwarzenegger administrations, that California’s massive loss of industrial jobs over the past decade can be offset by the creative industries, notably Hollywood and Silicon Valley. Since 2010, California has managed to miss out on a considerable industrial boom that has boosted economies from the Rust Belt states to the Great Plains and the Southeast. Los Angeles and Orange counties, the epicenter of the state’s industrial economy, have actually lost jobs. Since 2000, one-third of the state’s industrial employment base, 600,000 jobs, has disappeared, a rate of loss 13 percent worse than the rest of the country.

    But, the prevailing notion in California’s ruling circles seems to be, if you have Google and Facebook, who needs dirty, energy-consuming factories or corporate operations filled with middle managers? Silicon Valley crony capitalists and urban developers who support our political class, and are willing participants in various subsidized green energyschemes, have little interest in traditional manufacturing, regardless the damage inflicted on blue-collar workers, whom progressives are happy to subsidize (and thus gain their unending support) outside the labor force or keep severely underemployed.

    The deindustrialization of California was one reason behind the withdrawal of both Nissan and Toyota. Each automaker has established strong manufacturing operations in the mid-South and wanted to integrate technology, production, sales, marketing and design as a way to keep an edge in the competitive global industry. An area that seems determined to let its industrial base wither is not likely to attract companies whose basic business is building things.

    What is too rarely understood is the link between production skills and high-end jobs. The Toyota jobs that are leaving L.A. County are largely white-collar and skilled. Toyota engineers will be headed to Texas, and many also to Michigan, where, despite the travails of the past few decades, the engineering base is already very deep – roughly twice as strong per capita as formerly engineer-rich Los Angeles.

    This link between manufacturing and higher-end technical jobs is rarely appreciated among our political class. As President Clinton’s Board of Economic Advisors Chairman Laura D’Andrea Tyson points out, manufacturing is only about 11 percent of gross domestic product, but it employs the majority of the nation’s scientists and engineers, and accounts for 68 percent of business research and development spending, which, in turn, accounts for about 70 percent of total R&D spending.

    Of course, neither Jerry Brown nor any other reigning political figure would cavalierly dismiss manufacturing jobs, or even those at a major port. Yet, as we move toward ever-higher energy prices – likely aggravated by California’s “cap and trade” regime against global warming – industrial firms seem increasingly reluctant, at least without massive subsidies, to move to or expand in California. And, contrary to arguments offered in Sacramento, and reflected in much of the media, there are never going to be enough “green” jobs to make up the difference.

    Indeed, even Elon Musk, head of electric-car maker Tesla, though a primary beneficiary of California crony capitalism, is not considering the state for a proposed $5 billion battery plant, which would employ upward of 6,500.

    In its nonresponse to the Toyota move, the Governor’s Office stressed the state’s role as the epicenter of the “new electric, zero-emission and self-driving” vehicle industry. Nevertheless, even as devout a “green” company as Tesla will likely locate its battery factory in Nevada, Arizona, New Mexico or Texas. California, reportsgreentechmedia.com “didn’t make the short list because of the potential for regulatory and environmental delays.”

    For a state that has built its future vision on “green” industry, this is both ironic and tragic. It may not bother the Legislature, whose welfare state is now being propped up by windfall tech profits, but it leaves many localities outside the Silicon Valley exposed to more job and company losses. Think of Torrance Mayor Frank Scotto, who concedes the struggle to keep companies around is becoming ever more difficult. “A company can easily see where it would benefit by relocating someplace else,” Scotto said.

    Even so, it is unlikely that Toyota’s leaving will impact the state’s leftward political trajectory. After all, if the New York Times regularly describes the California economy – fattened by stock market and real estate gains of the very rich – as “booming,” why should Gov. Brown, about to run for re-election, say otherwise, proclaiming to anyone who will listen that “California is back.”

    True, California may not be in a Depression, as some conservatives contend, but it’s hardly accurate to proclaim the Golden State as back from the brink. But, if having among the country’s highest unemployment rates, the worst poverty levels, based on living costs, and being home to one-third of all U.S. welfare recipients can’t persuade the gentry about California’s true condition, Toyota’s move certainly won’t.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo: Toyota Corolla by Paulo Keller

  • Reversing American Decline

    Across broad ideological lines, Americans now foresee a dismal, downwardly mobile future for the country’s middle and working classes. While previous generations generally did far better than their predecessors, those in the current one, outside the very rich, are locked in a struggle to carve out the economic opportunities and access to property that had become accepted norms here over the past century.

    This deep-seated social change raises a profound dilemma for business: Either the private sector must find a way to boost economic opportunity, or political pressure seems likely to impose policies that will order redistribution from above. It is doubtful the majority of Americans will continue to support an economic system that seems to benefit only a relative few. Looking at our unequal landscape, one journalist recently asked: “Are the bread riots finally coming?”

    By 2020, according to the Economic Policy Institute, almost 30% of American workers are expected to hold low-wage jobs, with earnings that would put them below the poverty line to support a family of four. The combination of high debt and low wages has some projections suggesting millennials may have to work until their early 70s.

    But our new pessimism and widening class divide stems not only from the concentration of wealth and power, but from the persistence of weak economic growth.

    Neo-populist groups on the left and the right have risen to employ political pressure to try and assure a decent quality of life. Ideologically robust liberals, like New York Mayor Bill de Blasio, have emerged as national symbols of a movement in which cities have pushed strong moves like a $15 minimum wage (Seattle) and benefits for workers. Ironically, these are often the same places where wealth is most intensely concentrated and where the middle class has shrunk as a newly dominant, Obama-aligned Clerisy of public employee unions, government officials, academics and artists has gained the preponderance of political power.

    The same sense of limited opportunity that drives the new progressives also motivates the popularity of libertarian and Tea Party activism on the right. Instead of state intervention, these groups have been attracted to the notion that removing barriers to economic growth will increase social mobility more effectively than redistribution by political fiat.

    But these economic arguments that could generate more widespread support have been married with increasingly unpopular, often backward-looking social agendas that have allowed the Clerisy to portray them as fringe movements.

    This has allowed Obama, de Blasio and others shape a new conversation centered on inequality, rather than growth. Oddly enough, it’s a model that relies on Europe’s example even as the continent’s own economic prospects appear dismal, and mainstream political parties there are registering their lowest levels of popular support in decades.

    Though it can help some in the short run, there is little reason to think that more redistribution by the state would improve material conditions over the long term for our working and middle classes, let alone expand them. Rather, it might end up expanding our underclass of technological obsolete and economically superfluous dependents. The 50-year War on Poverty, for example, has achieved few gains since the 1960s despite fortunes spent. Instead, the only significant gains in poverty reduction, at least among those working, have come when both the economy and the job market expand, as they did during the Reagan and Clinton eras.

    Clearly, as both those Presidents recognized, the best antidote to poverty remains a robust job market.

    Yet even this progress has not helped the poorest of the poor, many of whom are marginally, if at all, connected to the workplace. Since 1980, the percentage of people living in “deep poverty”-with an income 50% below the official poverty line — has expanded dramatically. Despite now spending $750 billion annually on welfare programs, up 30% since 2008, a record 46 million Americans were in poverty in 2012.

    It is possible that, as Franklin Roosevelt warned, a system of unearned payments, no matter how well intended, can serve as “a narcotic, a subtle destroyer of the human spirit” and reduce incentives for recipients to better their own lives.

    The activist welfare-based philosophy, following the European model, would likely include not only historically poor populations, but part-time workers, perpetual students, and service employees living hand to mouth, who can make ends meet largely only if taxpayers underwrite their housing, transportation and other necessities. This trend towards an expansive welfare regime could be bolstered by our falling rates of labor participation — now at its lowest level in at least 25 years, and showing no signs of an immediate turnaround.

    And the European model shows little evidence of the benefits of redistribution given the persistently high rates of unemployment, particularly among the young, across most of the EU; indeed much of the continent’s youth are widely described as a “lost generation.” Pervasive inequality and limited social mobility have been well-documented in larger European countries, including France, which has one of the world’s most evolved welfare states. It is even true in Scandinavia, often held up as the ultimate exemplar of egalitarianism, but where the gap between the wealthy and other classes have increased in Sweden four times more rapidly than in the United States over the past 15 years.

    To be sure, progressive, or even ostensibly socialist approaches can ameliorate the worst impact of economic decline on lower-income people. But under left-wing governments — Socialists in France, New Labour in Britain and the Obama Administration in the U.S. — class chasms have increased markedly under leaders who insist their policies will reduce inequality. Much the same has occurred in countries with more conservative approaches.

    In the absence of a focus on growing economies more rapidly and broadly, both political philosophies fall short.

    But maintaining the prospect of upward mobility is central to the very idea of America. For generations, the surplus working class populations of the world have flocked here in search of opportunities unavailable in their home countries. In contrast, there remain few places for America’s aspirational classes to go.

    Fortunately, the capitalist system, particularly under democratic control, allows for the possibility of reform. Take Great Britain, the homeland of the industrial revolution. In response to mass poverty and serious public health challenges during the 19th century, social reform movements led by the clergy and a rising professional class organized to address the most obvious defects caused by economic change. It is one of history’s great ironies that at the very time that Karl Marx was composing Das Kapital in the library at the British museum, life was rapidly improving for the British working class. Far from having “exhausted its resources” and precipitating all-out class war, the inequality so evident in mid-19th Century Britain began to narrow through natural economic forces and the growing power of working-class organizations. The working-class revolution in Britain, which Friedrich Engels insisted “must come,” never did.

    Similarly, the Depression, brought on by what Keynes called “a crisis of abundance,” was addressed more by measures to spur mass demand than relying on redistribution. The New Deal, and then the Second World War, expanded government support for public works, education and housing, as well as infrastructure and research and development. Programs enacted then and after the war also encouraged widespread property ownership.

    This state expansion was generally aimed at increasing economic opportunity-for example, by developing technologies that could stimulate new industrial sectors, new firms, and create new wealth. Today’s, on the other hand, is simply transferring income from one group to another.

    Whatever criticisms can be made of mid-century America, during this period the nation transformed what had been a strongly unequal country into one where the blessings of prosperity were more broadly shared. In the 1950s, the bottom 90% held two-thirds of the wealth here. Today they barely claim half.

    Sparking beneficial economic growth requires a shift in priorities, and thus presents a challenge to the new class order dominated by Wall Street, the tech oligarchy and their partners in the Clerisy. It is not enough merely to blame the so-called 1%, but to shift the benefits of growth away from the current hegemons, notably in the very narrow finance and high-tech sectors, and towards those involved in a broad array of productive enterprise.

    The American economy’s capacity for renewal remains much greater than widely believed. Rather than a permanent condition of slow growth, the United States could be on the cusp of another period of broad-based expansion, spurred in part by its rapidly growing natural gas and oil production — a once-in-a-lifetime opportunity as cheap and abundant natural gas is luring investment from manufacturers from Europe and Asia, and providing good-paying American jobs.

    This, along with growth in manufacturing, could spark better times for the middle class, as would the re-igniting of single-family home construction.

    If America really wants to confront its growing class divide, it needs to spark such broad-based economic growth, rather than simply feathering the nests of the already rich, privileged and well-connected.

    This story originally appeared at New York Daily News..

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Unemployed photo by BigStockPhoto.com.

  • Connecting Citizens to Economic Opportunity

    I recently received an email from the folks behind the Meetings of the Minds conference asking if I’d participate in a group blogging event they were doing by writing a post on the topic of “How can cities better connect all their residents to economic opportunity?” As this is a topic I personally care quite a bit about, I was happy to do so. They will be linking to responses to other people’s answers should you be interested.

    Firstly, what is economic opportunity? Simply put, I’ll define it as a) a job, b) a better job, or c) an opportunity to start a business. There are a number of possible avenues one could suggest for making one of these outcomes more likely: better education, better transportation, migration assistance (which I’ve written about before), and more.

    But many of those are difficult to implement, uncertain in their result, long term to realize benefits, and require money that we don’t have. That doesn’t mean we shouldn’t tackle them, but I can’t help but ask: what can we do that would be relatively fast to implement, provide jobs and entrepreneurship opportunities where people already are (particularly those who are lacking a decent job today), and which has a relatively high likelihood of payoff?

    In my view overwhelmingly the number one thing we can do that fits this is to pare back the local regulatory burden on small business. I say local because affecting federal or state regulations involves making change at levels of government that are hard to move. Local regulations are mostly within the control of local political leaders. Changing them doesn’t require spending a lot of money. In fact, eliminating regulations might actually save the government money. Change a regulation and it’s changed immediately, and without a lag. It seems intuitive that lighter touch regulation would help small businesses launch and thus have some benefit.

    There always are possibilities of unforeseen problems, of course, which should be watched for. And actually, significant improvement can be made without implementing some “anything goes” environment. The goal isn’t necessarily to have low standards. Rather, we can have high standards. But they have to operate objectively, transparently, and predictably, and in a timely fashion. And they have to be things businesses can realistically be expected to do without seeking special exemptions.

    Why focus on small businesses? Because starting a small business is fastest path to the middle class in many of our cities today, cities that are often places where the middle class is getting killed. As the NYT recently put it, the King can’t even afford Queens anymore. What we’re seeing in cities is a bifurcated economy with lots of high end jobs and lots of low end service class jobs, but shrinking middle class employment prospects. Major large scale manufacturers aren’t coming back, so the idea of traditional work at the plant is largely gone.

    So what’s left in the middle? There are basically three things: 1) government employment (which is shrinking because we’re in a fiscal squeeze 2) skilled trades (a viable path more people probably should follow, but sometimes with its own limits such as having a connection to get you into the union) 3) start a business to create your own opportunity.

    Regulatory change is targeted right at #3. Let’s make it easy for people to start businesses and support the best path to the middle class we have. And also the best path to creating traditional employment in city neighborhoods where high end banks and internet companies and such aren’t setting up shop. Many of these neighborhoods have seen their job base obliterated. By reducing the barriers to entry and success in business, we are helping people create their own jobs – and maybe to create jobs for others down the road.

    There’s only one major challenge to local small business regulatory relief – political will. Change isn’t necessarily financially difficult, it’s politically difficult. But how many mayors are championing small business? Next to none. Compare how much effort big city mayors put into improving their business climate for traditional small businesses vs. say select segments like tech, and you see right away where the priorities are.

    The stories of the insane difficulties small businesses have to go through in places like New York, Chicago, and San Francisco are incredible and widely known but rarely feature in the urbanist discourse unless it’s a hip establishment like a frozen custard stand, a high end shared kitchen, etc. When even a guy like Matthew Yglesias experiences pain trying to set up his one man shop, imagine how hard it must be for everybody else? We have no clue what lower income, minority, and immigrant entrepreneurs must be going through to pursue their dream of starting a business.

    What we need is for America’s mayors to stand up and make it a priority to start whacking away at this stuff. Waive fees for the first year for most permits (easy to do by charging in arrears). So many small businesses don’t even make it a year. Let’s give them at least that long to survive before we start socking them. Create a single point of contact for permit checklists and safe harbor protections for businesses that do what this office tells them. A true one stop shop would be best, but that’s likely harder than we think given the different agencies involved, but why not start by at least having someone who authoritatively tells you want agencies you do need to talk to and which permits you do need? Price permits at the cost of administering the permitting and compliance system. Hold management accountable for timely actioning. Use electronic forms wherever possible. The list goes on.

    Part of this is simply resisting the urge to pile on one regulation after the next. For example, a recent urbanist darling is banning plastic bags. The impact on the environment will be almost precisely zero, but it’s just one more thing businesses have to deal with. As Rhode Island Builder’s Association Executive Director John Marcantonio put it, “It’s not one specific regulation, it’s death by a thousand paper cuts.” Before adding on a new regulation, we should be sure there’s an absolute, bona fide need to. Because if we don’t, then over time we’ll accrete an absolute mess that makes it way too difficult to do things we actually want people to do.

    I’d go so far as to that that if you’re a mayor who isn’t putting a serious focus on improving the regulatory climate for small business, you’re not serious about retaining or building a middle class and stopping the development of a two tier economy. Especially in big cities this is a huge, well known need. There’s no excuse for mayors of either conservative or progressive bents not putting a major push behind making it happen.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile, where this piece originally appeared.

    Self employment photo by BigStockPhoto.com.

  • The Best Small And Midsize Cities For Jobs 2014

    In the classic television show “The Honeymooners,” many jokes were wrung out of bus driver Ralph Cramden’s membership in the International Brotherhood of Loyal Raccoons, headquartered in Bismarck, North Dakota. When Ralph mentioned in one episode to his wife, Alice, that among the privileges is that they could be buried at the “Raccoon National Cemetery” in Bismarck, Alice’s reply was that it made her not know “if I want to live or die.”

    That’s worth a chuckle, but perhaps it’s time to reconsider Bismarck, which ranked first out of the 398 metro areas we considered for our annual roundup of The Best Cities For Jobs. A metro area of 120,000 located in the country’s fastest-growing state and near the vast Bakken oil fields, the number of jobs in Bismarck is up 3% over the last year and a sizzling 32.4% since 2002. You might not want to be buried there, but at least you can get a job before that.

    Bismarck’s growth, although remarkable, is mirrored in many smaller places. When we look at economic growth in America, we tend to focus on large metropolitan areas (we draw the bar at 5 million people and up). However over 40% of Americans live outside these big cities and their much more populous suburbs, notes demographer Wendell Cox. They reside in smaller cities and towns, the destination of choice for many of the domestic migrants fleeing the largest metropolitan areas for the better part of the last decade.

    View the Best Cities for Jobs 2014 List

    These places are often seen by pundits as economic backwaters, but in fact small and mid-sized metro areas take up 16 of the top 20 spots of our overall list of The Best Cities For Jobs. For the most part, it is the smaller markets with under 150,000 jobs that are growing the fastest, but several mid-sized cities (between 150,000 and 450,000 nonfarm jobs) also are outperforming, including Boulder, Colo., which ranks first on our medium-sized cities list, and Provo-Orem, Utah, which ranks second. These areas are as varied as America. Some fit the resource-dominated archetype often associated with smaller cities and towns but others are driven by industry and even tech growth.

    The Energy Hubs

    As we saw with our large cities list, metro areas that are connected to the energy economy have been peak performers. Beyond Bismarck, our list of the Best Small Cities For Jobs includes Greeley (fifth) and Ft. Collins (17th), both located near the oilfields of northern Colorado; and near the west Texas oilfields, the cities of Midland (sixth), San Angelo (11th), Odessa (15th) and Lubbock (16th).

    Energy jobs pay an average of about $80,000 a year according to BLS data. But this wealth is not only for geologists or those with oil stains on the hands. The money brought into these communities has also sparked strong growth in such fields as manufacturing, construction and business services in virtually all these towns. In Midland, for example, natural resources and construction employment has surged 50% since 2008, but wholesale trade, manufacturing, business and financial services have also expanded strongly.

    Manufacturing Comeback Cities

    Plenty of old industrial cities are at the bottom of the 240 MSAs we ranked for our small cities list, including 238th place Danville, Ill., which has lost 6% of its jobs since 2008, and second from last, Michigan City-La Porte, Ind., where employment has dropped 6.8% over the same span. But some of the highest fliers are also industrial towns. This includes second-ranked Elkhart-Goshen, Ind., which rose a remarkable 63 places from last year on our list, and from 233rd back in 2010. The recreational vehicle manufacturing hub suffered steep job losses during the Recession, but industrial employment has risen 24% since 2010.

    Like energy, industrial jobs tend to pay more than most, and have a strong effect on other sectors. Since 2010 in the Elkhart-Goshen area, employment in wholesale trade and business services has expanded at double-digit percentage paces, while retail employment has shot up a healthy 7.4%. In Grand Rapids-Wyoming, Mich., which ranks third on our list of the Best Midsize Cities For Jobs, manufacturing employment is up almost 14.7% since 2010 while job growth has also been strong in medical services, education, and business services. Grand Rapids has 4.9% more jobs now than in 2002, a far sight better than larger industrial metro areas like Detroit, where employment has declined 16.2% over the same period.

    But most of the comeback industrial towns are not in the Midwest but the Southeast, which has gotten the bulk of new investment from foreign automakers and steelmakers. This includes Auburn-Opelika, Ala., No. 7 on our small cities list, where there has been a surge in employment by auto parts suppliers. The home of 25,000-studentAuburn University, it has also seen strong growth in business services and hospitality. Two South Carolina metro areas, Anderson (12th) and Spartanburg (13th), have also benefited from the industrial resurgence in the region.

    College Towns

    We may be approaching the end of a “higher education bubble,” as Glenn Reynolds and others have suggested, but at least for now many college towns in the Midwest, the southeast and the Intermountain West continue to show strong job growth.

    In Columbia, Mo., home to the 35,000-student University of Missouri, employment has expanded 9.7% since 2008 and 4% in 2013, placing it third on our small cities list. In ninth-place College Station, Texas, the presence of Texas A&M (56,000 students) has sparked growth in the information and business services sectors, in which employment has expanded 18.2% and 14.2%, respectively, since 2008, while leisure and hospitality employment is up 29.5% over the same period. Higher education has continued to be a strong and growing industry for these small towns, although its long-term sustainability may be hampered by a lethargic economy and burgeoning student debt.

    Places For The Rich And Famous

    In this most unequal of recoveries, some of the biggest winners are cities that cater to the rich and aging baby boomers. People over 55 control upward of three-quarters of the country’s wealth and more than half all discretionary dollars. And unlike the millennials and Xers who follow them, this generation has generally profited more from the recent jump in equity and property prices.

    Fourth on our small cities list is St. George in scenic southwestern Utah, a fast-growing community for retirees, where employment shot up 5.38% in 2013. Naples-Marco Island, Fla. (eighth), long a major lure to northern snowbirds, is home to a fast-growing economy built around hospitality and construction. Napa, Calif. (18th), has emerged as a major beneficiary of spending by wealthy retirees from the booming San Francisco Bay Area.

    The Future For Smaller Cities

    Big city mayors are wont to proclaim that they’re on the cutting edge of economic life. Big cities are where “the action is,” Atlanta’s Karim Reed said at a recent confab in Chicago. But as our roundup of the cities with the strongest employment growth shows, many of the hottest economies in the country are in places that most urbanistas would write off as the boondocks. Some of them, may only do well as long the energy and agriculture booms continue, but many other will benefit as boomers continue to seek out comfortable, less congested, and often less expensive, places to retire. These smaller places may also benefit as millennials start seeking to buy homes and raise families. And with the expansion of communication technology, they may find it increasingly easy to perform sophisticated work from smaller places. America’s economy may still remain dominated by its giant metro areas, but it would be inaccurate to discount the role of smaller places in the evolving American economy.

    View the Best Cities for Jobs 2014 List

    This story originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

    Boulder, CO photo by Phil Armitage.

  • Are States an Anachronism?

    Obviously states aren’t going anywhere anytime soon, but a number of folks have suggested that state’s aren’t just obsolete, they are downright pernicious in their effects on local economies.

    One principal exponent of this point of view is Richard Longworth, who has written about it extensively in his book “Caught in the Middle” and elsewhere. Here’s what he has to say on the topic:

    In the global era, states are simply too weak and too divided to provide for the welfare of their citizens…The reason is a deep, intractable problem. Midwestern states make no sense as units of government. Most Midwestern states don’t really hang together – politically, economically, or socially. In truth, these states and their governments are incompetent to deal with twenty-first century problems because of their history, rooted in the eighteenth and nineteenth centuries.

    Longworth expounds upon this to identify a series of specific issues, which I’ll put into my own terms.

    1. States do not represent communities of interest. With some exceptions, states consist of cities, rural areas, and regions that have very distinct histories, geographies, economies, and and event cultures. As a result, it is incredibly difficult for legislators and leaders from various parts of the state to find common cause.

    Here’s how Longworth describes Illinois:

    Illinois, like Indiana, is three states, and for the same reasons. The southern third, again south of I-70, is a satellite of the South – more give to conservative religions, gun racks in pickup trucks, and a deeply conservative Republicanism….Most of the rest of the state is called Downstate to differentiate it from Chicago, even though some of it, such as Rockford, is actually north of the city. It is an unfocused place…what unites this heterogeneous region is a dislike of the third region, Chicago. Chicago dominates Illinois – politically and economically…If the rest of Illinois obsesses about Chicago, Chicago gives the impression – an accurate one, in fact – of never thinking about the rest of Illinois.

    Additionally, I might add my observation that this creates a situation where the policies which are right for one area may be wrong for another. Since it is the nature of governments to promote uniform rules, this often leaves one or even all regions of a state with suboptimal rules. In fairness, there are are often some types of flexibility, such as that provided by different classes of cities. But important macro policies remain one size fits all.

    Consider Illinois. It’s a combination of a global city core in Chicago, a Rust Belt hinterland, and a southern fringe region. State policy is set by the Chicago elite as a general rule, and predictably it follows a big city, global city favorable model: strong home rule powers for large municipalities, a high tax/high service type model, strong public sector unions, etc. This pretty much works for Chicago, but for downstate it puts their communities in a major economic vice since they don’t benefit from global city friendly policies and are competing against other places that have optimized in other ways.

    Indiana being one example. It is pretty much the opposite. Its largest city region is only about 25% of the state’s population, meaning Indiana is dominated by rural and small city constituencies. As a result, Indiana has optimized for a “Wal-Mart” strategy such as through its low-service/low-tax approach, weak environmental rules, and very weak (I’d argue nearly non-existent) home rule powers for even its largest municipalities. This is great if you are a small manufacturing city trying to beat out Ohio, Michigan, and Illinois for low wage manufacturing and distribution jobs (which sounds bad but is realistically the best short term play these places have). But it’s pretty terrible if you are Indianapolis and trying to fight to have a place in the global economy, attract choice talent, build biotech and high tech business clusters, etc.

    2. Arbitrary state lines encourage senseless border wars. With limited exceptions, the major cities of the Midwest (and often elsewhere around the country) were founded on major bodies of water like rivers, lakes, or an ocean. These were often boundaries of states, thus major cities are frequently at the edge, not the center of states. This means not infrequently you find multi-state metro areas, which creates structural conflicts of interest. The logical economic unit is the metro area, but it matters from a local fiscal point of view (i.e., the ability to collect income, sales, and property taxes) where particular businesses locate. Thus we frequently see the case where localities spend tons of money on incentives simply to get businesses to relocate within the same metro area. You can have bidding wars without multiple states (such as neighboring suburbs competing over a Wal-Mart), but these seldom involve major state level incentives.

    Longworth again summed this up masterfully in a recent blog post called “The Wars Between the States” where he documents the incentives being doled out to convince companies to move back and forth across the state border in the Kansas City metro area:

    It would seem impossible for Midwestern states to get any sillier and more irrelevant, but they’re trying. In a time of continuing recession and joblessness, with crunching budget problems, failing schools, crumbling infrastructure and no real future in sight, these states have decided to solve their problems by stealing jobs from each other.

    The most recent example is the so-called “border war” between Kansas and Missouri, as the two states compete to see how much money they can throw at businesses to move from one state to the other. The focus of this war is Kansas City — both the Kansas one and the Missouri one, basically a single urban area divided not only by an invisible line down the middle of a street but by a mindless hostility that keeps its two parts from working together.
    …
    Competition with “Europe, India, China and the rest of the world” has nothing to do with this juvenile job-raiding. In fact, this “border war” keeps Missouri and Kansas from competing globally — indeed, robs them of the tools they need to compete globally. Some rational thought shows why. It’s precisely these states’ inability to compete globally that causes them to declare war on the folks next door. In a global economy, Kansas and Missouri aren’t competing with each other, any more than Illinois, Indiana and Wisconsin are competing with each other. The real competition is 10,000 miles away and all Midwesterners know that we’re losing it.

    [ Update 5/5/2014: It looks like Missouri and Kansas may be about to declare a truce in their border war ]

    3. Many state capitals are small, isolated, and cut off from knowledge about the global 21st century economy. In some states the state capital is a large city that is well-connected to the global economy – Atlanta, Indianapolis, St. Paul, and Nashville come to mind. But often state capitals were selected because they were in the geographic center of the state, not because they were major centers in their own right. Some, like Indianapolis, managed to grow into major cities. But many others did not. Think Springfield, Jefferson City, Frankfort, etc. This means that the state capital of many states is not very large, and often not very plugged into the global conversation. Longworth again captures the implications of this:

    There is another reason why state governments are botching the economic needs of their states. Some 150 to 200 years ago, state capitals were picked not for economic reasons, but for geographic ones. Many of them remain in this isolated irrelevance today, far from the real action of any of the territories they are meant to govern…In this era of globalization, with overnight shipping and instant communications, this shouldn’t make any difference. In fact, it does. Global cities such as Chicago depend on face-to-face contact, and isolated state capitals live out of earshot of this conversation. The winds of globalization are transforming state economies and generating new thinking about state futures, but the news takes a long time to get to the state houses and legislatures.

    4. Metro areas are the engines of the modern economy, but the rules for municipal and regional governance are set by states, and often in a manner that is directly contrary to urban interests. In this Longworth channels the Brookings Institution, which has tirelessly documented the importance of metro area economies to the nation as well as all the ways states, frequently controlled by non-urban legislators who are actively fearful of cities, have often imposed enormous burdens on those metro areas by tying them down with a morass of Lilliputian rules. Again Longworth:

    States set the boundaries of urban jurisdictions and decide whether or how they can merge. They tell cities who they can tax and how, whether this helps cities or not. State governments help finance local infrastructure and dictate, from miles away, how that money is spent. State priorities on education and workforce programs leave city residents incompetent to deal with the global job market. Highway funds go to rural areas, not to cities that need them more; job creation money goes to wealthy areas, not to the core of battered cities.

    Some urban regions have more or less given up any hope that their state will ever change or be a positive partner, such as Kansas City, as Longworth notes:

    When the Greater Kansas City Community Foundation issued a report on the city’s future, it pretty much told the state to get out of the way. “Nations and states still matter,” it said. “They particularly can do their cities harm. But cities have to take the lead. San Diego did not become San Diego by looking to Sacramento, not Seattle to Olympia.” When the authors talked about Sacramento and Olympia, one felt their really meant Jefferson City.

    I’d probably go even further than Longworth. I think that historically states imposed rules on cities deliberately designed to hobble their growth. For example, the laws that restricted branch banking in most states until recently had the effect of keeping big city banks from buying up rural and small town banks around the state. The end game of course is that when deregulation occurred, the banks in most big cities were so small because of these rules, they were easy prey to out of state acquirers. Thus most states saw basically their entire indigenous banking industry swallowed up.

    Also, states seem to more or less treat their urban regions like ATM machines. Every study I’ve seen documents how, contrary to popular belief, cities actually are net exporters of tax dollars to their state government. Marion County, Indiana for example (Indianapolis), sends a net of about $400 million a year to the state – enough to cover the entire public safety budget of the city.

    I actually don’t have a problem with some redistribution as cities are generally economic engines and more efficient to boot, so they should be expected to be donors at some level. On the other hand, when states proceed to starve those cities of the critical funds they need stay healthy and strip them of the powers they need to manage their own affairs, this is like sticking a knife in the golden goose.

    Again I can use Indianapolis as an example. As part of a tax reform package the state took over all operating educational funding for K-12. So far so good. But they also imposed a funding formula that severely disadvantaged growing suburban districts by denying them equal per pupil funding. The net result was a major funding problem for the best suburban Indianapolis districts like Carmel, Fishers, etc. Many of these districts had to go to referendums to raise local taxes to make up the difference (which was no doubt the state’s plan all along – it simply outsourced the unpleasantries of a tax increase to localities). Here is a state that claims it wants to be in the biotech business, the high tech business, etc, yet it singles out the school districts where the labor force you are trying to attract for those industries is likely to live for outsized cuts. That hardly seems like a winning strategy.

    Indiana also keeps its cities on a tight leash, with some of the weakest home rule powers around. Indianapolis basically can’t do much without legislative approval (a transit referendum, for example, will require specific legislative authorization). And the legislature seems to like it that way. Indiana’s property tax caps, which I support generally from a percentage of assessment perspective, include a lot of poorly advertised gotchas. For example, regardless of assessed value, the total tax levy can only grow at a rate equal to the average personal income growth over the last six years. I’ll caveat this by saying I haven’t studied this in detail and thus may be a bit off base, but the levy cap appears to be a de facto spending cap at current levels regardless in growth of tax base. This may be ok for some, but not others that are growing say their commercial office space base at a rapid clip and need to expand infrastructure and services to support it.

    Clearly many of these policies have no real benefit to the Indianapolis region, which is more or less being asked to be the economic engine of the state and finance state government without being given the tools to do that job property.

    The list goes on but that should give you a flavor. Similar things occur around the country.

    To this list I’ll add one of my own, which has also been richly illustrated by Jim Russell. Namely,

    5. States can’t to much to help, but they can do a lot to hurt. A lot of the national debate seems to center on whether the “red state” or “blue state” model makes the most sense. But to a great extent, policy almost doesn’t matter. In Ohio, with one set of state policies, Columbus thrives while Cleveland struggles. Tennessee is a right to work state with no income tax, but Nashville booms while Memphis stagnates. Texas is doing great with its red state model, but Mississippi and Alabama not so much. And even within Texas, there are plenty of places that are hurting badly.

    While good policy can set the stage for growth, it can’t guarantee local economies will prosper. But bad policies can hurt regions that otherwise would thrive. Extremes of either the blue or red model seem to lead to problems. Witness California, for example, which seems to be holding up a sign to business saying, “Get lost.”

    This puts states in the difficult position of being almost being able to aspire at best to being a neutral influence on their own economy. But it’s easy for them to screw things up.

    This piece first appeared at The Urbanopihle on July 11, 2011.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile, where this piece originally appeared.

    States map image by Bigstock.

  • Stop Favoring Investors, Speculators over Middle Class

    I, like most members of the middle class, particularly in California, just paid a tax bill that seemed less like my fair share than a shakedown by the Mafia. Increasingly, for people who run small businesses or earn a decent income, the tax bite is becoming ever more like in Europe, with total bills in high-tax states like ours reaching upward of 40 percent. It’s like paying the bill for a big dinner without eating the food – we get hammered like Swedes but without the free education, health care and other benefits of a more conventional welfare state.

    Most galling is that, while the middle class has endured ever-higher taxes, those who have benefited most from the Bernanke-Obama “recovery” continue to get the biggest tax breaks. This is largely the investor class, who have been able to reap the benefits of the stock-market boom and, in some areas, including coastal California, the steep rise in real estate prices.

    Of course, the rich and corporations have all sorts of ways to avoid taxation – like offshore accounts – but the real class divider is capital gains. Today, long-term capital gains are taxed at the federal level at a maximum 20 percent, while the small-business owner, writer, consultant or professional, if they do relatively well, are stuck with income tax rates up to 39.6 percent, approaching twice that level.

    Generation gap

    Overall, you don’t have to be super-rich to be hit. The portion of the tax burden absorbed by the top 20 percent of earners has grown – a California family with an income of $150,000 would qualify – from 65 percent to 90 percent. Even worse off are younger families, which generally have less to invest and have been stuck with a tepid job market; from 2007-10, households of people under age 40 have seen their net worth drop, while older Americans have now recovered most of their losses from the economic downturn.

    In the past, this differential in tax rates often was furiously justified – usually by conservatives – as sparking investment and job creation that would benefit younger and poorer Americans. This argument is increasingly specious; the recent massive stock-market boom has been characterized by relatively low investment in plant and equipment, meager job growth and, by the way, ever-increasing inequality. In 2009, due largely to lower taxes on capital gains, the 400 highest-earners, with gross incomes above $200 million, paid an effective tax rate well below even those in the top 1 percent, which includes many small-business owners and professionals.

    Defenders of the tax break will also cite “democratic capitalism” and point out the fact that so many people depend on the stock market. But, in reality, stock market capitalism is becoming less democratic: Stock ownership has become more concentrated, with the percentage of adults Americans owning stock the lowest since 1999 and a full 13 points lower than in 2007.

    Depression-era inequality

    As the hard-pressed middle class has withdrawn from the market, due to mistrust or lack of resources, the very rich have been having a veritable feast. To be sure, the top 10 percent gained half of all reported income, but the top 1 percent accounted alone for halfof that. This is one reason why inequality is now greater than at any time since the Great Depression.

    Increasingly, then, the benefits of the plutocratic tax break are ever more thinly shared. I am sure we all are happy that when the 50 or so lucky insiders at WhatsApp collect their $19 billion from Facebook, they will pay taxes on that windfall at well below the rates paid by the salaried upper-middle class professional or small-business owner. Yet their product, although no doubt cool, is unlikely to produce many jobs, or even boost productivity.

    The biggest beneficiaries, besides the insiders, will be sellers of luxury homes and vehicles, and the high-end restaurants and shops in the already saturated, overpriced Silicon Valley market.

    Where’s the left?

    Clearly, something needs to change, and, ironically, one wonders where the class warriors of the Left are on this. They have become increasingly bold (or honest) in stating that we should continue raising taxes on the middle and upper-middle classes, as a recent New Republic piece suggests, but seem less than vehement about equalizing taxes on capital gains and other income.

    This may have something to do with the shift in backing for “progressive” causes coming from the very people – Wall Street traders, venture capitalists and tech executives – who benefit most from the capital gains scam. The confluence of big money and populist rhetoric is epitomized by New York’s powerful senior senator, Charles Schumer, who has made a career of both raising money from Wall Street financiers and defending preferential treatment for their outsized profits. Their growing power over the party of ever-expanding government leaves only one place to finance Democrats’ ambitious plans – the middle and upper-middle classes.

    I don’t hold all that much hope that reform will be pushed by most Republicans either, since they for far longer have been the party of accumulated wealth. But, as far as I can see, it is mainly conservatives, such as retiring Congressman Dave Camp, who seem ready to embrace the notion that taxes should be equalized between income and investment within the context of a flatter revenue system.

    SPotty support

    But too many Republicans remain in love with lower taxes on investment, with some conservatives placing a similar faith in the positive effects of low capital gains as progressives do on the need don hair shirts to reverse global warming. Rand Paul’s proposal for a flat tax addresses some of these ideas, although Paul still seems to think capital gains should be taxed at a lower rate than normal income. This proposal may be better than the current system, but progressives rightly predict it would not address the fundamental inequality in the tax code.

    All this is distressing, given that it is clearly time to reform the tax code to stop favoring investors and speculators over middle-income earners. This may prove the best way to slow the dangerous accumulation of financial assets by the few, notes author Charles Morris. He also adds that such reform could have many positive effects on the economy. Cutting the top 1 percent’s share of Americans’ total income to 14 percent or 15 percent, still higher than the pre-1980 norm, he calculates, could allow us to spend about $1 trillion for middle-class tax relief, relief for the poor, health care, education and infrastructure.

    The need to jettison the capital-gains advantage has also been endorsed by Larry Summers, former Treasury Secretary under President Clinton and a former Obama adviser. Even Bill Gross, the head of Newport Beach-based bond giant Pimco, has suggested that, given the perverse effects of the tax system, that capital gains income should now be taxed at the same rate as regular income. Gross admits his investors did not like the idea since such changes are not in their immediate financial interest.

    With some leading conservatives, business leaders and liberal economists on board, perhaps this is still an idea whose time has come. Clearly, the current tax regime is not working, having just created a shallow “recovery” largely enjoyed primarily by the very richest members of society. It is time for people on both right and left to admit that such a recovery is not socially sustainable or congruent with the fundamental notion of democracy. It is time to reform the tax code, so that it works not only for the rich and well-placed, but the rest of us, as well.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Wall Street bull photo by Bigstockphoto.com.

  • The Best Cities For Jobs 2014

    As the recovery from the Great Recession stretches into its fifth year, the locus of economic momentum has shifted. In the early years of the recession, the cities that created the most jobs — sometimes the only ones — were either government- or military-dominated (Washington, D.C.;  Kileen-Temple-Fort Hood, Texas), or were powered by the energy boom in Texas, Oklahoma and the northern Great Plains.

    Now the recovery has shifted to a new group of cities that have benefited from the boom on Wall Street and the parallel IPO surge in Silicon Valley — call them asset inflation cities. Last year the S&P 500 clocked its biggest rise since 1997, helped by aggressive monetary easing by the Federal Reserve and a return to the stock market by investors who had retreated to the sidelines after the financial crisis. The high times have brought on a surge in IPOs: 2013 was the busiest year for public offerings in over a decade, and the pace has if anything quickened this year, with healthcare and technology offerings leading the way. M&A has also surged, with some very impressive valuations in the tech sector, such as Facebook’s $19 billion purchase of 50-person What’s App. The biggest beneficiaries employment-wise: the Bay Area, Silicon Valley and New York City.

    View the Best Cities for Jobs 2014 List

    Our rankings are based on short-, medium- and long-term job creation, going back to 2002, and factor in momentum — whether growth is slowing or accelerating. So the top of our list includes both cities that have had the most striking comebacks since the Great Recession as well as those that have consistently created jobs over the long haul. We have compiled separate rankings for large cities (nonfarm employment over 450,000), which are our focus this week, as well as medium-size cities (between 150,000 and 450,000 nonfarm jobs) and small cities (less than 150,000 nonfarm jobs) in order to make the comparisons more relevant to each category. (For a detailed description of our methodology, click here.) Small cities, as a rule, show more volatility than their larger counterparts since the decision of one major business to expand or contract can have an enormous effect on a relatively tiny employment base. (Check back next week for our ranking of mid-size and small cities).

    Big Money, Big Gains

    Yet even among the largest metropolitan areas, shifts in the economy can have a dramatic impact. This is clearly the case with the two metro areas that top our list this year, first-place San Jose-Sunnyvale-Santa Clara, Calif. (aka Silicon Valley), where the number of jobs surged 4.3% last year, and San Francisco-San Mateo-Redwood City, where employment expanded 3.6%. Before the current tech boom, largely centered on social media companies, these metro areas were lagging badly. In 2010, San Jose ranked 47th on this list out of the 66 metro areas with more than 450,000 nonfarm jobs and San Francisco was 42nd.

    The information sector has driven this remarkable change in fortunes. Since 2008, the number of information jobs in the San Jose area has risen 37% to 60,800, while in San Francisco, employment in that category has grown 28% to 52,300 jobs. This has been accompanied by strong increases in such high-wage fields as professional and business services, where Silicon Valley has clocked 10% growth, and San Francisco twice that, adding 42,500 jobs, since 2008.

    The housing bubble helped to launch New York City from its doldrums a decade ago (it rose from 54th on our list of the Best Cities For Jobs in 2005 to 22th in 2008). In recent years, New York has been well served by Washington’s bailout of the financial sector, which accounts for roughly 15% of the metro area GDP — the Big Apple climbed to 10th place in our ranking in 2010 and to seventh this year. This is in good part a result of asset inflation; the number of finance jobs in New York has actually declined in recent years, but with a lot of extra spending money in the pockets of the city’s relatively high concentration of wealthy people, some jobs are being created. Most of the growth has been in hospitality, health and education and retail, fields that do not generally offer top salaries. New York City has also seen steady growth in information jobs — although at only a third the rate of Silicon Valley — as well as professional and business services.

    Bring On The Usual Suspects

    Many of the other metro areas at the top of our 2014 list have been adding jobs consistently over the past decade. Some are also beneficiaries of the high-tech boom, though mostly as a result of big West Coast companies deciding to site new offices in these attractive locations. In third place is perennial high-flyer Austin-Round Rock-San Marcos, Texas, where the number of jobs grew 4.1% last year, and 13.7% since 2008. Raleigh-Cary N.C. places fourth (3.9%/7.2% over the same time spans). These metro areas routinely attract people and companies from California and the Northeast with lower taxes and real estate costs that, on an income basis, are as much as half those in the asset-rich areas.

    Unlike the asset-based economies, which ebb and flow with the markets, these and the other usual suspects have a record of consistent growth not only in jobs but also population. This reflects the more blue-collar economic foundation of many of these cities, based on energy, manufacturing and logistics — sectors that tend to create higher-paid blue- and white-collar jobs. Growth has continued in these areas throughout all the changes in the economy, which has encouraged long-term migration and investment.

    Viewed over the last five years, for example, fifth-place Houston has expanded its total employment by 218,000 jobs, growing at the same rate as both the San Francisco and San Jose metro areas—an impressive feat given that it is almost 20 percent larger than the two Silicon Valley cities combined. But an arguably bigger difference can be seen in demographics. The Houston metro area’s population has grown over 50% faster since 2010 than the Bay Area regions, and roughly twice as fast as New York. Houston is on track this year to build more new housing units than the entire state of California. This combination of rapid population and job growth – the former itself a major source of jobs in construction and services — can be seen in places such as No. 6 Nashville-Franklin-Murfreesboro, Tenn.; No. 10 Denver-Aurora-Broomfield, Colo.; and No. 14 Charlotte-Gastonia-Round Hill, N.C.

    The Sun Belt Bounces Back

    Perhaps the biggest surprise on this year’s list is the resurgence of the Sun Belt metro areas that were hardest hit by the housing bust. Ever since, the Northeast-centric pundit class has been giddily predicting these cities’ demise. Strangled by high energy prices, cooked by record droughts, rejected by a new generation of urban-centric millennials, the Atlantic proclaimed this vast southern region to be where the American dream has gone to die.

    But the data show that many of these metro areas are in the midst of a powerful comeback. Take Orlando-Kissimmee, Fla., ranked eighth this year, up 23 places from last year. Similarly Phoenix has risen 17 places from last year to 22nd and is way up from its 51st place ranking in 2010.

    Perhaps even more surprising  is the resurgence of 17th-place Riverside-San Bernardino, Calif., which ranked near the bottom of the big city table at 63rd in 2010. Now foreclosures have dropped and job growth has picked up. In fact, the Inland Empire is now doing considerably better in job creation than Southern California’s older urban regions, including Los Angeles-Long Beach (37th), Santa Ana-Anaheim-Irvine (34th) and San Diego-Carlsbad-San Marcos (32nd).

    Bringing Up The Rear

    Many large cities continue to lag. Philadelphia, despite being close to New York and its considerable urban amenities, ranks 51st, with paltry 0.9% job growth since 2008. Not much better off, despite its connections to the Obama White House, is Chicago, which places 47th. Not only is the Windy City not adding many jobs (0.5% growth since 2008) but every county in the area, according to recent Census numbers, is losing migrants to other parts of the country.

    But Chicago is certainly doing better than the host of old industrial cities that continue to dominate the nether reaches of our survey. These include last-place Camden, N.J.; second to last Detroit-Livonia-Dearborn, Mich.; Cleveland-Elyria- Mentor, Ohio (62nd), Kansas City, Mo. (61st), Newark-Union, N.J. (60th), and St. Louis (59th). All these cities, apart from Kansas City, have occupied the bottom of our list for nearly a decade now, and seem unlikely to move up in the immediate future.

    View the Best Cities for Jobs 2014 List

    What’s Next

    It seems clear that as long as the tech and financial sectors retain their momentum, New York and the Bay Area should continue to fare well. But if asset growth slows, these areas could slip quickly.

    The Texas cities and the other usual suspects are probably a better bet to continue to generate new jobs, but they too face challenges. If the economy slows down energy prices will follow, hampering growth in energy meccas like Houston, Dallas and San Antonio. A surge in interest rates could undermine the comeback of the Sun Belt cities, which remain highly dependent on housing and construction-related economic activity.

    But overall, for reasons ranging from housing costs to business climate, we expect the usual suspects to remain high on our list of the best cities for jobs for years to come, in part due to their growing populations. What remains unknown is how the evolving industrial structure of the economy will affect the slower-growing cities along the coasts whose fortunes have tended to ebb and flow in recent years.

    This story originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

    Photo: Market Street, San Francisco by Wendell Cox.

  • Should Middle Class Abandon the American Dream?

    Over the past few years, particularly since the bursting of the housing bubble, there have been increasing calls for middle-class Americans to “scale down” from their beloved private homes and seek a more constrained existence. Among these voices recently was Michael Milken, for whom I have worked and have enormous respect. He suggested Americans would be better off not buying homes and living smaller, for the sake of their own economic situations, families and the environment.

    To some extent, the Great Recession has done much to make downsizing a reality, just as Milken and others propose. Homeownership in America, which peaked in 2002 at nearly 70 percent, dropped, according to the U.S. Census Bureau, to 65 percent in 2013, the lowest level in 15 years. Some of this may be seen as correcting the excesses of the housing bubble, but the trajectory suggests – and many analysts agree – that ownership may continue to fall in years ahead.

    The question now is, do we want Americans to abandon homeownership, leave the less-crowded periphery for congested areas, adopting the chock-a-block lifestyle much as many of their grandparents did? This poses an easier proposition for the ultrarich, who already live far larger than the average American and whose biggest real estate worry more likely involves which pied a terre or country house they want to purchase next.

    This is very different than the reality of the average middle-class family, whose concerns are more prosaic, such as finding room for home offices, deciding how few bathrooms a family can accommodate without armed conflict and if it is even feasible to afford the close-in communities their betters want them to inhabit.

    Unable to play the stock game on the scale of gain like those who invest in private equity, hedge funds or venture capital, for the middle classes the home remains the one place where they can gain equity and, perhaps more importantly, some sense of autonomy. For many, it is the only large investment they can afford, since at least it provides a place to live and offsets the rent that they would have to pay otherwise.

    The recovery has been sweet for the rich, in large part because they have the extra money to invest in stocks. They have 24 percent of their wealth in homes, compared with 40 percent for middle-income families.

    And, since the rich can afford to send their kids to elite schools, where degrees increasingly are the last ones to produce much value at the high end of the job market, to such people, the investment in education urged by Milken may seem like a good bet. Investing more in conventional education, however, is no panacea for many middle-class and working-class families, whose kids are often saddled with debt and attend the second-tier schools whose returns on income are far less attractive, say, than those who can send their kids to Harvard.

    This is not to say that many larger homes seem foolhardy investments. But there are many legitimate reasons why people may need larger spaces. Among the most prominent is the growing tendency for people to work at home – most metro areas have far more telecommuters than transit commuters – as well as the increasing numbers of multigenerational households, which, after falling for decades, have risen from 12 percent of total households to 16 percent since 1980.

    The phenomena of some among the rich calling for the middle class to scale back represents one of the least-attractive aspects of the current gentry liberal ascendency. In one remarkable piece, Dave Zahniser, writing for the LA Weekly, went to the homes of L.A.’s “smart growth” advocates, most of whom want ever more density and multifamily apartments as opposed to houses. And where did they live? Almost all in large houses, often in gated communities, far from any bus line. Zahnhiser’s headline captured the hypocrisy: “Do what we say, not what we do.”

    Cloaked in sensible rhetoric, the current drive to discourage middle-class homeownership really represents a kind of class warfare, albeit unacknowledged, waged by wealthy people upon the middle class, who, the wealthy suggest, should live smaller even as they indulge ever-expanding luxury. Talk about adding insult to injury: Middle-income groups have fared far worse during the recovery than the rich or, in relative terms, the poor.

    Some advocacy for middle-class downsizing is brazenly self-interested. The Wall Streetadvocates of a “rentership” society see a great opportunity for profit as Americans are deprived of their aspirations by the weak economy. As the dream of some autonomy fades, more families are forced to become renters in apartments or houses that such hedge funds as Blackstone have collected from distressed former owners.

    In the process, a huge portion of the population is being transformed from property owners to renting serfs; money that might have gone to building a family nest egg ends up paying the mortgages for the investor class. In this neofeudalist landscape, landlords replace owner-occupants, perhaps for as long as the next generation.

    “There is the possibility that Wall Street and the banks and the affluent 1 percent stand to gain the most from this,” said Jack McCabe, a real estate consultant based in Deerfield Beach, Fla. “Meanwhile, lower-income Americans will lose their opportunity for the American Dream of building wealth through owning a home.”

    Other wealthy folks – notably some in Hollywood and Silicon Valley – also support a California planning regime that makes difficult the purchasing and construction of family-size homes, largely as a means to reducing the dreaded human “carbon footprint.” Yet they, too, are often unconsciously hypocritical, as many of them live in palatial houses, and often fly on private jets, one of the quickest ways to boost one’s carbon emissions. Google’s top executives, among the most reliable allies of the middle-class-destroying green and urban-planner lobby, famously have a fleet of planes based at San Jose Airport.

    Others, like the environment magazine Grist, embrace a more idealistic vision of a new generation that rarely owns and doesn’t embrace conventional ambitions. They see the current millennial generation, facing limited economic prospects and high housing prices, as “a hero generation,” rejecting the material trap of suburban living and work that engulfed their parents.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • Silicon Valley’s Giants Are Just Gilded Age Tycoons in Techno-Utopian Clothes

    Silicon Valley’s biggest names—Google, Apple, Intel and Adobe—reached a settlement today in a contentious $3 billion anti-trust suit brought by workers who accused the tech giants of secretly colluding to not recruit each other’s employees. The workers won, but not much, receiving only a rumored $300 million, a small fraction of the billions the companies might have been forced to pay had they been found guilty in a trial verdict. 

    The criminality that the case exposed in the boardrooms the tech giants, including from revered figures like Steve Jobs who comes off as especially ruthless, should not be jarring to anyone familiar with Silicon Valley.  It may shock much of the media, who have generally genuflected towards these companies, and much of the public, that has been hoodwinked into thinking the Valley oligarchs represent a better kind of plutocrat—but the truth is they are a lot like the old robber barons.

    Starting in the 1980s, a mythology grew that the new tech entrepreneurs represented a new, progressive model that was not animated by conventional business thinking. In contrast to staid old east coast corporations, the new California firms were what futurist Alvin Toffler described as “third wave.” Often dressed in jeans, and not suits, they were seen as inherently less hierarchical and power-hungry as their industrial age predecessors.  

    Silicon Valley executives were not just about making money, but were trying, as they famously claimed, to “change the world.” One popularizing enthusiast, MIT’s Nicholas Negroponte, even suggested that “digital technology” could turn into “a natural force drawing people into greater world harmony.”

    This image has insulated the tech elite from the kind of opprobrium meted out to their rival capitalist icons in other, more traditional industries. In 2011, over 72 percent of Americans had positive feelings about the computer industry as opposed to a mere 30 percent for banking and 20 percent for oil and gas. Even during the occupy protests in 2012, few criticisms were hurled by the “screwed generation” at tech titans. Indeed, Steve Jobs, a .000001 per center worth $7 billion, the ferocious competitor who threatened “war” against Google if they did not cooperate in his wage fixing scheme, was openly mourned by protestors when news spread that he had passed away.

    But the collusion case amply proves what has been clear to those watching the industry: greed and the desire to control drives tech entrepreneurs as much as any other business group. The Valley is great at talking progressive but not so much in practice. In the very place where private opposition to gay marriage is enough to get a tech executive fired, the big firms have shown a very weak record of hiring minorities and women. And not surprisingly, firms also are notoriously skittish about revealing their diversity data. A San Jose Mercury report found that the numbers of Hispanics and African Americans employees in Silicon Valley tech companies, already far below their percentage in the population, has actually been declining in recent years. Hispanics, roughly one quarter of the local labor force, account for barely five percent of those working at the Valley’s ten largest companies. The share of women working at the big tech companies – despite the rise of high profile figures in management—has also showed declines.    

    In terms of dealing with “talent,” collusion is not the only way the Valley oligarchs work to keep wages down.  Another technique is the outsourcing of labor to lower paid foreign workers, the so called “techno-coolies.” The tech giants claim that they hire cheap workers overseas because of a critical shortage of skilled computer workers but that doesn’t hold up to serious scrutiny. A 2013 report from the labor-aligned Economic Policy Institute found that the country is producing 50% more IT professionals per year than are being employed. Tech firms, notes EPI, would rather hire “guest workers” who now account for one-third to one half of all new IT job holders, largely to maintain both a lower cost and a more pliant workforce.

    Some of this also reflects a preference for hiring younger employees at the expense of older software and engineering workers, many of whom own homes and have families in the area.  

     “I want to stress the importance of being young and technical,” Facebook’s CEO Mark Zuckerberg said at an event at Stanford University in 2007. “Young people are just smarter. Why are most chess masters under 30? I don’t know. Young people just have simpler lives. We may not own a car. We may not have family. Simplicity in life allows you to focus on what’s important.”

    Of course what’s really “important” to Zuckerberg, like moguls in any time and place, is maximizing profits and raking in money, both for themselves and their investors. The good news for the bosses has been that employees are rarely in the way.  Unlike the aerospace, autos or oil industries, the Valley has faced little pressure from organized labor, which has freed them to hire and fire at their preference.  Tech workers wages, on the other hand, have been restrained both by under the table agreements and the importation of “technocoolies.”

    Rather than being a beacon of a new progressive America, the Valley increasingly epitomizes the gaping class divisions that increasingly characterize contemporary America.  Employees at firms like Facebook and Google enjoy gourmet meals, childcare services, even complimentary house-cleaning to create, as one Google executive put it, “the happiest most productive workplace in the world.” Yet, the largely black and Hispanic lower-end service workers who clean their offices, or provide security, rarely receive health care or even the most basic retirement benefits. Not to mention the often miserable conditions in overseas factories, notably those of Apple.

    It’s critical to understand that the hiring restrictions exposed by Friday’s settlement, reflect only one part of the Valley’s faux progressiveness and real mendacity. These same companies have also been adept at circumventing user privacy and avoiding their tax obligations.

    One might excuse the hagiographies prepared by the Valley’s ever expanding legion of public relations professionals, and their media allies,  but the ugly reality remains. The  Silicon Valley tech firms tend to be  every bit as cutthroat and greedy as any capitalist enterprise before it. We need to finally see the tech moguls not as a superior form of oligarch, but as just the latest in long line whose overweening ambition sometimes needs to be restrained, not just celebrated.

    This story originally appeared at The Daily Beast.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.