New Geography

Category: Economics

  • Will Obama Play his Aces?

    With the stock market hitting new highs, and unemployment easing, albeit slightly, President Obama can now seize his moment. After spending four years blaming George W. Bush for his lousy hand, the president now sits at the table with three strong aces among his cards.

    The key question is: Will he play them?

    One reason he might not is that most of his good hand stems primarily not from his stewardship but America’s economic and demographic kismet. In fact, this resurgence is primarily not taking the "green," urban and high-tech form, as preferred by most coastal Democrats, but stems largely from the productive forces being unleashed in the nation’s largely red heartland.

    But Barack Obama is president, and if the country resurges on his watch, he will get much of the credit. This country, for all its problems, is naturally blessed, with both human and physical resources. It is beginning to both pull away from laggard Europe and Japan and seems far more well-positioned to compete with China than most observers believe. The choice for the president is whether to ride this resurgence, or throw it away as incompatible with his political agenda.

    This dichotomy starts with energy, the thing most propelling the real, as opposed to the paper, economy. The current energy boom is taking place in a manner precisely what Obama and, certainly, many of his strongest backers, least likely would have preferred. In his first term, Obama charted a path on energy typical of the university faculty lounge. His departing energy secretary, Steven Chu, embraced the idea that Americans used fossil fuels irresponsibly, comparing them to teenagers. He liked forcing higher costs for energy while using our tax dollars to subsidize often-dodgy renewable schemes.

    Yet, history, as is often the case, played out quite differently than the expected script. Rather than being required to accept enforced scarcity, Americans, largely due to new drilling techniques and advanced technology for identifying previously undiscovered fields, now are on the cusp of a massive energy boom. This has changed the country’s trade and economic prospects immeasurably. Since 2009, the industry, according to the consultancy EMSI, has added some 430,000 jobs, in contrast to the much subsidized "green" energy industry, which has suffered a spate of embarrassing failures.

    Energy employment

    One problem for the president: The big winners to date have come from outside the coastal strips whose residents constitute his base. Over the past decade, Texas alone has added 180,000 mostly highly paid energy-related jobs. Oklahoma added 40,000, and the Intermountain West well over 30,000. In what could be a persuasive case, Pennsylvania, a blue state with a hunger for jobs, has joined the party; the original center of the U.S. energy industry is now enjoying a resurgence.

    In contrast, energy-rich California, despite the nation’s third-highest unemployment rate, has chosen to stand largely on the sidelines, creating a mere 20,000 such energy-related jobs. The same can be said about New York, which so far has chosen to follow the lead of celebrity "fracktivists" and is refusing to exploit its rich natural gas resources. Yet even in California, some normally progressive voices, such as former longtime Los Angeles Times columnist Tim Rutten, suggest that, in order "to jump-start" its economy, the state ought to climb on the energy bandwagon.

    To be a successful president, Obama can embrace this growth while maintaining his green bona fides. As the environmentalists at the Breakthrough Institute have noted, America’s recent remarkable progress in reducing greenhouse gases primarily is not the result of the sort of green technologies financed by the president’s venture-capitalist friends and embraced by his media allies. Instead, it has been overwhelmingly the result of the gradual replacement of coal usage with natural gas.

    Embracing gas – not only to generate electricity but also for transportation – serves both Obama’s interest and the country’s long-term interest. But his task is made more perilous by his efforts to appease his urban, green constituency, once strongly supportive of natural gas, but now decisively against it. Two contrarian environmentalists, an increasingly endangered species, have labeled the celebrity-driven protesters of hydraulic fracturing drilling techniques as "fracktivists for global warming."

    Some observers, such as former Al Gore aide Morley Winograd, suggest that Obama’s appointment of Ernie Moniz as energy secretary will bolster the notion that the president has shifted towards "pragmatic idealism" on energy. Obama may still be reluctant to allow much drilling in publicly held land but he could countenance a negotiated reasonable solution to the contentious issue of fracking.

    High-flying farming

    Energy is only one, albeit the most dramatically apparent, ace in the presidential hand. Another is agriculture, which is on a historic tear. This has been led, particularly in the Great Plains and the Midwest, by a boom in agriculture exports: The U.S. exported a record $135 billion in 2011, with a net favorable trade balance of $47 billion, the highest in nominal dollars since the 1980s.

    What accounts for this boom? One driver is growing markets in the developing world – notably, China, which consumes almost 60 percent of the world’s soybean exports and 40 percent of its cotton. The Great Plains Corridor, in particular, produces both these crops in abundance, which is one reason for its increased share of U.S. exports.

    Most farmers and farm communities – outside of some who might ship to lovocore (eat local) restaurants – tilt conservative, but the exports of this sector drive growth in services and even technology. Farming today is increasingly tied to science, and that includes efforts to reduce the use of fertilizers and water. Cities from Omaha, Neb., to Kansas City to New Orleans all benefit from agricultural trade.

    Cars come back

    The last of Obama’s aces comes from manufacturing, whose resurgence has been among the most surprising developments of the past five years. Some of this is tied to the energy boom, which is boosting industry along the Gulf Coast, with its burgeoning petrochemical complex. By itself, the expansion of energy – particularly cheap and plentiful natural gas – will create, according to a recent PricewaterhouseCoopers study, more than 1 million industrial jobs nationwide.

    But more politically important for the president is the resurgence of the U.S. auto industry. Whatever one thinks of how the GM and Chrysler bailouts were conducted, the return to profitability in Detroit represents a big win for Obama and may be one of the reasons for his surprisingly strong electoral showing in the industrial Great Lakes. In comparison with Europe and, increasingly, even China, American manufacturers are showing great resiliency and growing competitive strength.

    Yet, even here Obama needs to be careful. What a recent Boston Consulting Group report described as the incipient "reallocation of global manufacturing" will primarily benefit lower-cost, nonunion red states such as South Carolina, Alabama and Tennessee. This is where most new investment from German, Japanese and Korean firms is going. Yet, if this growth continues, Obama is helping his core constituencies, notably African-Americans, who now can see the prospect of higher-wage employment with benefits.

    Ultimately, as the former Gore aide Winograd suggests, how Obama plays these cards may well determine the success of his tenure.

    He could choose to throw out his trump cards in a gesture to placate his gentry funding base, urban progressives and his most devoted media claque. Or he could, like most great politicians, choose, instead, to play the great hand providence has provided him, irrespective of his core supporters, thereby all but assuring his stature as one of the more successful presidents in recent history.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Barack Obama photo by Bigstock.

  • CEO Bonuses: Who Pays the Price?

    Because so many chief executives of failed or mediocre companies have walked away with millions in bonuses and swag bags, both Switzerland and the European Union recently voted to put a cap on corporate bonuses, limiting them to a small multiple of base salary. What prompted the acceptance of the “Minder Initiative”—named after the independent parliamentarian who sponsored the referendum — is a string of stunning business losses that had no affect on the bonuses paid to the sitting executives.

    Swissair went bankrupt in 2001, although not before it could pay out a $10 million bonus to its grounded chairman. The chief executive of the Swiss pharmaceutical giant, Novartis, was recently offered a $78 million sendoff. The Swiss bank, UBS AG, appears regularly in the headlines as the poster-child of bad loans ($40 billion absorbed by the government), LIBOR rate rigging ($1.5 billion in fines), and other dim practices (a so-called rogue trader lost $2.3 billion in London), although the losses are never enough to drain the bonus pool.

    The architect that turned the once-staid UBS into an off-track betting parlor, chairman Marcel Ospel, regularly paid himself CHF (Swiss Francs) 24 million in annual salary, something that Swiss voters had in mind, along with the Novartis proposal, when casting their votes with Minder. After the vote, UBS quietly offered an incoming executive a $28 million sign-on bonus — something the law, when enacted, will prohibit.

    In the US, corporate activists and some regulators want shareholders to have a “say on pay” of the top CEOs, or for Congress to tax away paycheck windfalls. So far, most reforms have been non-binding.

    Members of the business community, nevertheless, resent the intrusion of state or federal bureaucracies into their corner offices. In their minds, salaries are best left to compensation committees and captive boards of directors, which are free to rain money on a handful of senior executives, some of whom are chairmen of the same boards that dole out their pay.

    According to the latest estimate, Fortune 500 CEOs have to scrape by with compensation that averages $12 million a year and that is 380 times the pay of the average worker. In 1965, this ratio stood at 24 times and in 1990 it was 71 times.

    Meanwhile, real American wages have been declining since 1974, and per capita average income in the country is about $27,000, just above the poverty line of $21,000. The median income for American households is about $50,000 a year. The reason most American corporations reward senior management and stiff the rest of the work force is because many public companies are little different from banana republics.

    In theory, the shareholders elect the board, and the board watches their interests, a mandate that includes signing off on the top salaries. In practice, shareholders, even big ones, have little say in who is put on the board, especially if the CEO is also chairman. In those cases, board members serve at the whim of the same CEO. Often such an approval rating depends on voting the prince a big salary, along with big bonuses and stock options.

    Under the new Swiss law and other corporate reform proposals, shareholders are given the right to approve the top pay packages in a company. This sounds democratic enough, except that most corporate proxy votes turn out results that would be familiar to commissars in the Soviet Union.

    One reason is that many mutual and pension funds, which own the large positions in many public companies, are required by charter to vote with management or, if they disagree, to sell the positions. It’s unusual for a large institutional shareholder to both hold on to a position and vote against management. So letting shareholders approve top compensation will not keep managers from pocketing $50 million pay envelopes.

    The usual justification for multimillion-dollar rewards is that the company has performed well “in the market” or “exceeded the budget forecasts.” Of course, meeting such a benchmark explains a bonus of $250,000, not necessarily one of $20 million. Yes, the CEO has responsibilities and “duties of care,” but if the board were to auction off the position of CEO in most companies, it’s likely that they would find many qualified takers for $1 million a year.

    The truism about salaries—“You don’t get what you deserve; you get what you negotiate”—does not apply to the C-suite, which gets what the board is dumb enough to give away almost blindly. They go along with the lavish payouts based on similar compensation paid by competitors.

    Because of this mutual-remuneration self-congratulatory circle, salaries have skyrocketed, even if stock prices have remained flat or plummeted. General Electric’s CEO has earned $54 million in the past five years, while the company’s stock went from $37 to $7 and back up to $23 a share. As the Death of Salesman line goes, “No man only needs a little salary.”

    Ex-Treasury Secretary Robert Rubin pulled down $126 million from 1999 to 2009 as a top Citigroup senior executive, but when it went bust said that he had no responsibility for the bank’s creditworthiness. He confessed, “My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today.” But he didn’t give back any of the money. Rubin’s boss, Charles Prince, left the chairmanship of Citi with about $80 million in his pockets, even though the company went to the wall the moment he was out the door.

    The goal should not be just to limit CEO pay, but to increase average wages and salaries, and think of increasing the dividend, especially in companies eager to throw millions at the boss. Stock options and profit sharing could be allocated equally to all employees, and not simply reserved as corner-suite perks.

    Likewise, cumulative voting of board directors allows smaller blocks of shareholders to elect a representative (you put all of your votes on one candidate).

    Many top CEOs live in a bubble of private jets and pillowed suites, and are accountable to only a handful of cronies—certainly not the vote of the employees or the shareholders. They thrive in the cozy confines of oligopoly — think of a golf club lounge — in which a corporation’s success is due only to the top managers, not to the shareholders’ capital or to the workers.

    Why not have a companywide plebiscite on the chief executive every two years? The Greeks knew that war was too important to be left to the generals, and had their soldiers elect them.

    Employees, pensioners and shareholders all ought to have seats at the table. The Chinese garment workers in sweat shops who stitch together all those sailor suits that are sold at vast markups might be less inclined to pay Ralph Lauren $66 million a year than the board in New York would.

    Minder’s law and its clones in the EU or, were legislation to come about, in the US, won’t solve the problem on their own. Rather than passing legislation that sounds good in the headlines (The Economist: “Fixing the Fat Cats”) but achieves little reform at the office, the most significant recovery for the ransoms paid to many senior executives would be to overhaul how boards of directors are established and operated — to make them legally accountable for the company’s performance and representative of all stakeholders, including the work force. Keep in mind that when salesman Willy Loman asked for a golden parachute, he only needed fifty dollars “to set his table.”

    Flickr photo by World Affairs Council of Philadelphia: Former Citigroup Director and executive Robert Rubin. Is that the size of his bonus?

    Matthew Stevenson, a contributing editor of Harper’s Magazine, is the author of Remembering the Twentieth Century Limited, a collection of historical travel essays. His next book is Whistle-Stopping America.

  • Marissa Mayer’s Misstep And The Unstoppable Rise Of Telecommuting

    Marissa Mayer’s pronunciamento banning home-based work at Yahoo reflects a great dilemma facing companies and our country over the coming decade. Forget for a minute the amazing hubris of a rich, glamorous CEO, with a nursery specially built next to her office, ordering less well-compensated parents to trudge back to the office, leaving their less important offspring in daycare or in the hands of nannies.

    The real issue is how we deal with three concerns: the promotion of families; humane methods to reduce greenhouse gases; and, finally, how to expand the geography of work and opportunity.

    For parents, particularly women, telecommuting provides a golden opportunity to balance the challenges of child-raising with those of work. Working at home, full or part-time, shrinks the number of hours wasted commuting and allows greater flexibility that is often critical to maintaining a family. In a country with a deteriorating fertility rate, and ever greater strains on those trying to raise children, telecommuting offers, at least for some, a way to remain in the labor force without cheating the next generation.

    Equally important, as the online universe expands, telecommuting allows us to reduce carbon emissions and energy use without forcing people to live in dense communities that most Americans, particularly in their adult years, clearly do not prefer. Greens, planners and many pundits seem anxious to force people to live in crowded housing close to buses and trains, yet rarely mention that it’s infinitely more eco-friendly to not commute at all.

    Finally there’s the often ignored issue of geography. If you force people to work in daily commuting distance from Yahoo’s Palo Alto headquarters, you are essentially telling them to live in a region where housing is among the most expensive in the nation. For anyone under 40 who does not have wealthy parents, a large amount of dot-com stock or recently robbed a bank, it’s almost impossible to buy a single-family home or spacious townhouse in the Valley, even in the only modestly attractive parts.

    So what’s the beef with the expansion of telecommuting? The conventional explanation usually revolves around the notion that putting employees together every day together generates greater innovation. See the New Yorker’s James Surowiecki for a good summary of this argument.

    That’s really not too surprising, since one of the last rationales for many without large financial resources to put up with big city home prices and taxes lies in the idea that, as the great economic royalist Michael Bloomberg maintains, you have to be located in “the intellectual capital of the world” to be successful. Natural allies of the anti-telecommuting crowd include urban land speculators and developers, who prefer that the “talent” remain chained to their particular locations and not wander off to the awful periphery.

    There are clearly advantages in face-to-face contact, particularly for younger people and top-echelon executives, who may be more effective minding the store if they hang around the office. But for most employees productivity actually rises with telecommuting.

    This is confirmed by broad studies such as one by the consultancy Workshifting that found, on average, a 27 percent rise in productivity among telecommuting employees. Over two thirds of the employers surveyed reported higher productivity among home-based employees, including British Telecom, Dow Chemical, American Express and Compaq.

    One of the best examples of telecommuting advantages can be seen at the high-tech company Cisco, which in contrast to Mayer’s assertion, has found telecommuters are effective at communicating and collaborating. It has also improved employee retention and also saved $277 million by allowing its employees to telecommute.

    Other companies reporting positive results, particularly in terms of retaining employees, from telecommuting, include IBM and Best Buy.

    Equally critical, notes a study by Global Workplace Analytics, are the tremendous environmental savings. Half-time telecommuting could reduce carbon emissions by over 51 million metric tons a year — the equivalent of taking all of greater New York’s commuters off the road. Additional carbon footprint savings will come from reduced office energy consumption, roadway repairs, urban heating, office construction, business travel and paper usage (as electronic documents replace paper). Traffic jams idle away almost 3 billion gallons of gas a year and accounts for 26 million extra tons of greenhouse gases.

    But perhaps most relevant, whatever its merits, telecommuting and home-based work seems to be the inevitable wave of the future, whether corporate managers like it or not. Working at home grew faster percentage-wise than any other mode of work access in the United States between 2000 and 2010. In that decade, the country added some 1.7 million telecommuters, almost twice the much ballyhooed increase of 900,000 transit riders.

    This tends to be more true in places like Silicon Valley, where workers are computer savvy and housing costs are onerous. Between 2005 and 2009, the Valley workforce grew by less than 10 percent but the telecommuting population increased by almost 130 percent. Tech-oriented places like Austin, Portland, Denver, San Diego, San Francisco and Seattle all rank among the cities with the highest percentage of people working at home.

    As workers become more familiar with technology, these trends should accelerate. A survey by the Information Technology Association of America found that 36 percent of respondents would choose telecommuting over a pay raise. These preferences appear to be even greater among millennial generation workers, who, according to a Pew study, tend to seek a “balance” between work and life. Global Workplace Analytics suggests this means they will be more attracted to flexible work throughout their careers , particularly as they start families.

    Other trends, including the huge expansion in self employment in the U.S., promise to accelerate telecommuting in years ahead. The ranks of independent contractors have grown by 1 million since 2005, according to George Mason University economist Jeffrey Eisenach. One in five work in such fields as management, business services or finance, where the percentage of people working for themselves rose from 28 percent to 40 percent between 2005 and 2010. Many others work in fields like energy, mining, real estate or construction. Altogether there are now as many as 10 million such independent workers, constituting upwards of 7.6 percent of the national labor force and over $626 billion in income.

    This trend will be further accelerated not only by millennials but increasingly by the other big growth demographic, aging boomers. The self-employment rate for adults 55 and older is 16.4 percent, according to the Bureau of Labor Statistics, well above the 10.4 percent rate of self-employment for the total labor force. From 2007 to 2008, the latest data available, new businesses launched by 55- to 64-year-olds grew 16 percent, an increase that was faster than that of any other group, according to the Kauffman Foundation. All told, Boomers in that age group started approximately 10,000 new businesses a month.

    Many of these older entrepreneurs are likely to work out of their homes, which many now own outright. In fact, over time, according to Workplace Analytics, upward of half the American workforce could eventually telecommute. Ultimately the issue of whether managers of office developers like this trend is beside the point. Smart managers who learn how to adjust to this path will flourish. Those who do not, like Marissa Mayer, are standing against a historical wave that is likely to prove too powerful for any company or CEO to overcome.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared at Forbes.com.

    Photo by By Rae Allen, "My portable home office on the back deck"

  • Postmodernity: Will Another Bite from the Apple Help?

    The visionary evangelical zeal of Steve Jobs lured me from my   cozy philosophical pursuits at Barry University in south Florida to the frenetic gyrations of 1980s Silicon Valley. Jobs’ incantations held me spellbound with his revelation of an Information Revolution that would not only democratize the entire world, but would inevitably and infallibly take a bite out of every apple that stood in the way of humanity’s own paradise.

    I would later come to dub this techno-omnipotence "Her Highness Technology." After the Dot Com Dot Bomb of March 2000, however, I came to refer to the whole Valley scene as just "sillyConValley." Now, let’s fast forward some thirteen years to 2013 and see what’s up…

    iPads that take dictation! Location-based services that guide you to the nearest Italian restaurant! And soon, we are promised, human-computer interfaces that respond to your needs even before you speak, tap, or click. With all this going on it would only be natural to expect that the priesthood of the high-tech self-proclaimed digital Mecca of Silicon Valley   would surely devise a host of dazzling techno-wizardries to conquer whatever ills are ailing America, all the way from here to Eternity. To question the omnipotence of Her Highness Technology or her saving graces would be a matter of heresy against new age orthodoxy. Even so, I am willing to stick my neck out and risk excommunication from Techno-Paradise and do just that. Why not?  

    So, not discounting the remarkable accomplishments of the past hundred years, there are some nagging developments that would seem to signal that we are approaching some kind of tipping point—where three steps forward over here are confounded by three steps backward over there. Have a look, now, at some social, economic and political illustrations where even the most glittering technologies failed to deliver the expected end results. 

    Jobs Crisis or Jobs’ Crisis?

    Her Highness Technology has been performing more and more of the work that we used to do. This was once the chief selling point for the industrial revolution: washer plus dryer equals more leisure time for everyone. But now our labor-saving fantasies are turning into a daily nightmare for millions of lately obsoleted workers. In China, they’re even replacing—note "replacing," not helping—waiters with robots. Can it be that Steve Jobs’ revolution is now contributing to a Jobs Crisis?

    For sure, major innovations like Jobs’ Apple II and Macintosh once created a plethora of breathtaking career opportunities, along with personal empowerment. Perhaps another such game changer might come along. But absent that, new technologies will likely extend the trend of the last ten years: creating splendid career opportunities for fewer and fewer while diminishing job opportunities for more and more.

    Looking forward, most advanced technologies like AI, quantum computing, and nanotech robotics are sure to put more and more professional, skilled, and semi-skilled people out of work. Their only hope might be to merge themselves with their technology, as presently being prototyped in Alzheimer’s patients and military volunteers.  Make way for "Homo Sapiens 2.0?"

    Global Democracy or Ersatz Democracy?

    Working as a manager at Xerox LiveWorks during the rise of the Internet, I uncritically promoted Steve Jobs’ utopian vision of electronic democracy. All my fellow engineers, on the other hand, ardently insisted "Forget about it!" Computerized balloting, they warned, is 180 degrees out of phase with old-fashioned paper balloting. Why? While paper ballot processing is transparent to anyone who can count, computerized ballot processing is transparent to no one except the software proprietor. To be authentic, however, democracy requires a transparent ballot process.  

    Since its implementation, opaque computerized elections have yielded the widest discrepancies ever between the "official count" and many exit polls—historically the most accurate predictor of who actually won the election. While technology is not inherently anti-democratic, it is not inherently democratic either; and just because we can computerize anything does not mean we must computerize everything.

    On the bright side of computerization, social media do represent a potential force for democratization by enabling peoples’ movements across national, religious, and racial boundaries, and with a speed and facility never before thought possible. How about global consumer unions that patronize only those vendors that meet published standards of acceptance? Every time you shop, you’re voting: that’s effective participative democracy.

    Education crisis: "No amount of technology will make a dent."—Steve Jobs

    In 1996, when asked what should be done about education’s gradual slide into mediocrity, technology evangelist Jobs cautioned "What’s wrong with education cannot be fixed with technology…The problems are sociopolitical." And he’s right.

    For thousands of years Egyptian mathematicians, Greek philosophers, Roman architects and British engineers solved complex geometry problems, were literate in multiple languages, built durable bridges and aqueducts, and designed powerful internal combustion engines—with not much more than "paper and pencil" or a slide rule. Today, after thirty years of computerization and the Internet, our high school graduates can barely compose a complete sentence in their native language and don’t even know why we celebrate the Fourth of July. The problem is not technical. It has to do with basic human nature and the need for discipline, focus, integrity and commitment—traditionally the stuff of good parenting. (Hint: Less time twittering equals more time for studying.)

    Computerized Government: Digital Deliverance or Digital Disaster?

    When I arrived in Silicon Valley in the mid-1980s California had a strong billion state surplus and was the ninth largest economy in the world. By 2004, after computerizing the government, the state had accumulated a $22 billion debt. Apparently, all the $billions they had put into computers, databases, servers, web applications, and middleware was not able to offset the mismanagement of state budgeting, population growth, and a rapidly globalizing (and digitizing) economy.

    And the feds? Well, since digitizing the entire government under Clinton and Bush, federal debt has only gotten much worse. Why? Because balanced budgeting is not so much a technical problem; it’s mostly a matter of good arithmetic and basic integrity. For example, following computerization, we saw Rumsfeld report $2.3 trillion unaccounted for in Pentagon spending.   Before digitized "friction-free capitalism" (Bill Gates, The Road Ahead) a loss that stupendous was not only unthinkable, it was not even technically possible!

    US Trade Deficit

    This is largely a matter of importing more than we export, or consuming more than we produce—a likely result of globalization and too much offshoring of manufacturing. SCM (supply chain management) and other high-tech e-commerce software have only greased the rails for US corporations to outsource and offshore more operations, which ultimately translates to increased imports. While the US continues to lead the world in arms and pharmaceuticals exports, our leading imports are now those things everybody needs for everyday life.   Americans must either go back to manufacturing real products for everyday consumption, or shrink consumption—or both. New technology exports won’t help much, since after invention and productization most of the operations are soon offshored.

    Maybe Biting the Apple Never was the Way to Paradise

    The US was once a world leader in manufacturing, exports, agriculture, education and trade surplus—all without iPads, laptops, social media, cell phones, high-speed computer trading, or computerized derivatives. And also without ponderous debt or a jobs crisis.

    Of course, only a Luddite would reject all mechanized or computerized technology. It is equally true that only an overreaching religious zealot would tenaciously hold to the credo: "Her Highness Technology Über Alles!" Even Steve Jobs backed off of that one.

    Technology is very good at solving many problems. Transforming human nature is not one of them. People still cheat, steal, lie, shade the truth in their favor, betray, enslave, bomb, torture, and murder—only now it’s at light speed. This wanton behavior has been going on since Adam bit the apple and lost paradise. Can technology rehabilitate the human situation? While transhumanists insist "Yes", history emphatically says "No."   

    The quandaries of post-modern—some say posthuman—civilization are not essentially technical in nature and do not fit neatly into a technical solution. The errant human condition and its predicament is essentially spiritual in nature and calls for a spiritual remedy—one ordered under a combination of proven virtues and a serious dose of transcendent Wisdom. Without this, all the science, technology and bitten apples in the whole universe are more likely to lead us to Kidron Valley than back to Eden. 

    Rob Argento is a senior technical writer and project leader with a background in aerospace engineering and some 18 years in Silicon Valley with Oracle, Xerox, Microsoft, and Sony. His broad industry experience includes NASA, e-commerce, US Navy, Biotech, and PC Games. He has degrees in physics and theological studies.

    Shanghai photo by flickr user acaben

  • U.S. Could be Courting Trouble in Europe

    One of the most fascinating aspects of Barack Obama’s presidency stems not so much from his racial background, but his status as America’s first clearly post-European, anti-colonialist leader. Yet, after announcing his historic "pivot" to vibrant Asia, the president, the son of an anti-British Kenyan activist, recently announced as his latest foreign policy initiative an economic alliance with, of all places, a declining, and increasingly decadent, Europe.

    Some analysts, such as Walter Russell Mead, suggest the possible "ratting out" of the new Asia focus could constitute "a mistake of historic proportions." In East Asia, leaders, from Vietnam and Singapore to Japan, have been counting on a strong U.S. presence to ward off Chinese hegemony in the region. The idea of a reduced naval presence and a weakening commitment to allies would undermine our influence in this increasingly critical economic region.

    At the same time, the president’s desire to integrate our economies more closely to that of Europe reflects a longtime prejudice within the Democratic Party favorable to the old Continent. The notion of a new trade tie to the European Union set longtime Eastern policy types, such as former Bill Clinton aide and onetime Woodrow Wilson School head Anne-Marie Slaughter into rhapsodies about an emerging new "Atlantic Century." Vice President Joe Biden, for his part, told a recent Munich security conference that Europe represents "the cornerstone of our engagement with the rest of the world."

    This is delusional, to say the least. Republicans have their faults, but at least they know how to tell historic time. In contrast, largely Democratic Europhiles simply want to relive the glorious past, and consume a legacy of affluence. And to be sure, generally it’s more pleasant to attend – as long as someone is paying the bill – a conference in London, Paris or Zurich than Beijing, Mumbai or Mexico City. Europe, as we know from the debates over compensation of EU bureaucrats, knows how to treat functionaries with the comfort to which they easily can become accustomed.

    Pumping for greater Euro-ties seems almost insane under current conditions. The Continent’s unemployment rate, nearly 12 percent among the 17 EU member countries, is already at record levels, and its younger generation suffers unemployment approaching 30 percent or higher in at least five EU countries, including Greece, Spain and France. In Portugal, 2 percent of the population has migrated just in the past two years, not only to Northern Europe but, amazingly, also to Portugal’s booming former African colonies.

    This does not seem to be setting up the prime conditions for Ms. Slaughter’s imagined new "Atlantic Century." Although North America retains the resources, demographics and innovative culture to compete with Asia and other rising powers, Europe is in a notably downward trajectory. Its share of the world economy has plummeted from nearly 40 percent in 1900 to 27 percent today and continues to shrink rapidly. By 2050, not only the United States, but China and the rest of the developing world, according to the European Commission, will have surpassed the total of the 27 countries in the EU.

    One has to be a cockeyed optimist not to see that the long-term prognosis, even without the current euro crisis, is not good. Manufacturing, long a Continental bastion, is weak and falling behind that of the U.S. as well as Asia. German engineering may still be first-class, but much of the production and design will be moving to Mexico, the U.S., Latin America and Asia.

    Energy may prove a particular vulnerability. Although the region has shale and other energy resources, greens are far more powerful in Europe than in America and hostile to the hydraulic fracking that has created the current U.S. boom in oil and gas. The combination of radical green policies favoring expensive, often unreliable renewables, as well the shuttering of the Continent’s once-strong nuclear industries, are creating both high prices and wobbly reliability of electricity supplies. (Ironically, the reluctance to maintain nuclear power and oppose fracking for natural gas has led to a rise in greenhouse gas emissions and even some increased use of coal.) Tulane’s Eric Smith suggests many of Germany’s manufacturing powers are intensifying efforts to shift operations, notably to the southern United States, for cheap electricity and lower overall costs.

    Demographics, however, may be Europe’s weakest suit. Although East Asia is now experiencing low fertility, Europe has been demographically stagnant for at least a generation longer. By 2050, Europe’s workforce is expected to decline by 25 percent from 2000 levels; the U.S. is expected to see expansion of upward of 40 percent.

    This phenomenon threatens Europe’s lone serious economic power, Germany. The country now produces fewer children than in 1900. Given the expansive welfare state, the fiscal burdens being faced in Germany and other EU countries will dwarf those of the United States; by 2050 Germany will have nearly twice as many retirees per active worker as America.

    Yet remarkably, for all its manifest failings, Europe remains a Mecca and role model for many American progressives, like Ms. Slaughter. The past decade has seen the publication of a spate of books, such as Jeremy Rifkin’s "The European Dream" and Steven Hill’s "Europe’s Promise," that see Europe’s regulation state and "soft power" an alluring alternative to America. Some hail the EU as the prototype of a benign "new kind of empire" based on culture and pacifism.

    If so, it’s an empire rapidly hurtling into its dotage. The great European historian Walter Lacquer has pointed out that such optimism about the Continent becoming "united and prosperous" is likely "misplaced." In policy terms, for the U.S. to follow Europe’s model is an almost sure recipe for our own decline. Even the usually pro-free-trade Wall Street Journal is concerned that any attempt to "harmonize" American policies with those of the "European model" will simply expand government power and bureaucratic hegemony.

    To be sure, there remain parts of Europe, particularly in the Northern rim, that are doing better. These countries – the Netherlands, Scandinavia and Germany – have enacted significant labor market reforms, retain some strong industries and have tried to be responsible fiscally. If they broke off from the EU and set up a modern-day Hanseatic League, it may make sense for us to embrace stronger ties with them. But that can’t be said of an alliance with the weak sisters of the EU’s southern and eastern fringes, or even dirigiste state-dominated France.

    In reality, the EU will never become a giant Sweden. Scandinavia possesses a unique history, shaped by massive outmigration in the past century and a largely homogeneous population; many of these countries possess great natural resources, such as oil, iron ore or hydroelectricity. In contrast, the eastern edge of the zone contains some of the most depopulating parts of the planet, as people seek opportunities in the more economically viable North. The comic political economy of Italy, the political violence of Greece and the mass disenchantment of Spain presage a European future that contrasts greatly with the relative prosperity and order of the North.

    None of this suggests that, if the political strings are not wound too tight, that a free-trading arrangement with Europe may prove useful. But if an agreement becomes a wedge for accelerating the adoption of Euro-style policies, it could allow us to squander an opportunity to maintain our pre-eminence in the post-colonial, and post-European-centered, world.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

  • Richard Florida Concedes the Limits of the Creative Class

    Among the most pervasive, and arguably pernicious, notions of the past decade has been that the “creative class” of the skilled, educated and hip would remake and revive American cities. The idea, packaged and peddled by consultant Richard Florida, had been that unlike spending public money to court Wall Street fat cats, corporate executives or other traditional elites, paying to appeal to the creative would truly trickle down, generating a widespread urban revival.

    Urbanists, journalists, and academics—not to mention big-city developers— were easily persuaded that shelling out to court “the hip and cool” would benefit everyone else, too. And Florida himself has prospered through books, articles, lectures, and university positions that have helped promote his ideas and brand and grow his Creative Class Group’s impressive client list, which in addition to big corporations and developers has included cities as diverse as Detroit and El Paso, Cleveland and Seattle.

    Well, oops.

    Florida himself, in his role as an editor at The Atlantic, admitted last month what his critics, including myself, have said for a decade: that the benefits of appealing to the creative class accrue largely to its members—and do little to make anyone else any better off. The rewards of the “creative class” strategy, he notes, “flow disproportionately to more highly-skilled knowledge, professional and creative workers,” since the wage increases that blue-collar and lower-skilled workers see “disappear when their higher housing costs are taken into account.” His reasonable and fairly brave, if belated, takeaway: “On close inspection, talent clustering provides little in the way of trickle-down benefits.”

    One group certain to be flustered by this new perspective will be many of the cities who have signed up and spent hard cash over the years to follow Florida’s prescription of focusing on those things—encouraging the arts and entertainment, building bike paths, welcoming minorities and gays—that would attract young college-educated workers. In his thesis, the model cities of the future are precisely those, such as San Francisco and Seattle, that have become hubs of highly educated migrants, technology, and high-end business services.

    That plan, though, has been less than successful in many of the old rust belt cities that once made up much of his client base. Perhaps even more galling to these cities, Florida has turned decidedly negative in his outlook on many of those cities—now looking remarkably gullible—that once made up much of his client base.

    The most risible example of this may have been former Michigan Jennifer Granholm’s “cool cities” campaign of the mid-oughts, that sought to cultivate the “creative class” by subsidizing the arts in Detroit and across the state. It didn’t exactly work. “You can put mag wheels on a Gremlin,” comments one long-time Michigan observer. “but that doesn’t make it a Mustang.”

    Alec MacGillis, writing at The American Prospect in 2009, noted that after collecting large fees from down-at-the-heels burgs like Cleveland, Toledo, Hartford, Rochester, and Elmira, New York over the years, Florida himself asserted that we can’t “stop the decline of some places” and urged the country to focus instead on his high-ranked “creative” enclaves. “So, got that, Rust Belt denizens?” MacGillis noted wryly in a follow-up story last year at the New Republic. Pack your bags for Boulder and Raleigh-Durham and Fairfax County. Oh, and thanks again for the check.”

    One key constituency advocating “creative class” oriented development has been the grandees of urban real estate. Albert Ratner of Cleveland-based Forest City Enterprises, a major urban developer with a taste for subsidies, in New York and elsewhere, suggests Florida’s ideas provides the “playbook for developers.”

    For Rust Belt cities, notes Cleveland’s Richey Piiparinen, following the “creative class” meme has not only meant wasted money, but wasted effort and misdirection. Burning money trying to become “cooler” ends up looking something like the metropolitan equivalent to a midlife crisis.

    It would have been far more sensible, Piiparinen suggests, for such areas to emphasize their intrinsic advantages, such as affordable housing, a deep historic legacy tied to a concentration of specific skills as well as a strategic location. He urges them to cultivate their essentially Rust-Belt authenticity rather than chase standard issue coolness promoted by big developers like Forest City. Focusing on attracting the “hip cool” single set, Piiparinen maintains, simply sets places like Cleveland up for failure.

    Geography of Hip Coolness

    Perhaps the best that can be said about the creative-class idea is that it follows a real, if overhyped, phenomenon: the movement of young, largely single, childless and sometimes gay people into urban neighborhoods. This Soho-ization—the transformation of older, often industrial urban areas into hip enclaves—is evident in scores of cities. It can legitimately can be credited for boosting real estate values from Williamsburg, Brooklyn, Wicker Park in Chicago and Belltown in Seattle to Portland’s Pearl District as well as much of San Francisco.

    Yet this footprint of such “cool” districts that appeal to largely childless, young urbanistas in the core is far smaller in most cities than commonly reported. Between 2000 and 2010, notes demographer Wendell Cox, the urban core areas of the 51 largest metropolitan areas—within two miles of the city’s center—added a total of 206,000 residents. But the surrounding rings, between two and five miles from the core, actually lost 272,000. In contrast to those small gains and losses, the suburban areas—between 10 and 20 miles from the center —experienced a growth of roughly 15 million people.

    The smallness of the potentially “hip” core is particularly pronounced in Rust Belt cities such as Cleveland and St. Louis, where these core districts are rarely home to more than 1 or 2 percent of the city’s shrinking population. Yet the subsidy money for developers is often justified in the name of “reviving” the entire city, most of which has continued to deteriorate.

    Nor has this dynamic changed since the onset of the Great Recession, as urban boosters such as Aaron Ehrenhalt have suggested. Ehrenhalt, citing the perceived preferences of millennials, envisions an urban future where more reject the suburban life, in part as a reaction to the wreckage of the last housing bust. To Ehrenhalt, places like downtown Chicago are emerging as the modern-day version of early-20th-century Vienna, central cores that attracted the elites while the working class and middle class dullards regress to the suburbs. Yet in reality, an examination of data between 2011 and 2012 by Jed Kolko at Trulia found despite a spike in downtown residents, population losses continue in surrounding close-in urban neighborhoods, while the fastest growth has continued to be located further out in the periphery.

    Class Politics in the “Creative Age”

    Investments in “cool” districts may well appeal to some young professionals, particularly before they get married and have children. But overall, as Florida himself now admits, it has done little overall for the urban middle class, much less the working class or the poor.

    Indeed in many ways the Floridian focus on industries like entertainment, software, and social media creates a distorted set of economic priorities. The creatives, after all, generally don’t work in factories or warehouses. So why assist these industries? Instead the trend is to declare good-paying blue collar professions a product of the past. If you can’t find work in deindustrialized Michigan, suggests Salon’s Ray Fisman, one can collect “ more than a few crumbs” by joining the service class and serving food, cutting hair or grass in creative capitals like San Francisco or Austin.

    These limitations of the “hip cool” strategy to drive broad-based economic growth have been evident for years. Conservative critics, such as the Manhattan Institute’s Steve Malanga have pointed out that many creative-class havens often underperform economically compared to their less hip counterparts. More liberal academic analysts have denounced the idea as “ exacerbating inequality and exclusion.” One particularly sharp critic, the University of British Columbia’s Jamie Peck see it as little more than a neo-liberal recipe of “biscotti and circuses.”

    Urban thinker Aaron Renn puts it in political terms: “the creative class doesn’t have much in the way of coattails.”

    Why Hipness Can’t Save New York

    The sad truth is that even in the more plausible “creative class” cities such as New York and San Francisco, the emphasis on “hip cool” and high-end service industries has corresponded with a decline in their middle class and a growing gap between rich and poor. Washington D.C. and San Francisco, perennial poster children for “cool cities,” also have among the highest percentages of poverty of any major urban center—roughly 20 percent—once cost of living is figured in.

    Nowhere are the limitations of coolness more evident than in New York, our country’s cultural capital and now one of Florida’s three residences, along with Toronto and Miami Beach. Manhattan suffers by far the highest level of inequality among the country’s 25 most populous counties, a gap between rich and poor that’s the widest it’s been in a decade. New York’s wealthiest one percent earns a third of the entire city’s personal income—almost twice the proportion for the rest of the country.

    This geography of inequality is now extending to the outer boroughs. In nouveau hipster and increasingly expensive Brooklyn, nearly a quarter of people live below the poverty line. While artisanal cheese shops and bars that double as flower shops serve the hipsters, one in four Brooklynites receives food stamps. New York has seen the nation’s biggest rise in homelessness; the number of children sleeping in the shelters of Mike Bloomberg’s “luxury city” has risen 22 percent in the past year.

    The Issue of Race

    On paper, the “creative class” theory worships at the altar of diversity. “The great thing about cities,” Florida told NPR last year, “is they’re diverse. There’s diverse people in them.” Yet even leaving aside their lack of economic diversity, the exemplars of “hip cool” world, notes urban analyst Renn, tend to be vanilla cities with relatively small minority populations. San Francisco, Portland and Seattle are becoming whiter and less ethnically diverse as the rest of the country, and particularly the suburbs, rapidly diversify.

    Creatives may espouse politically correct views, but the effect of Florida’s policy approach, notes Tulane sociologist Richard Campanella, often undermine ethnic communities. As they enter the city, creatives push up rents, displacing local stores and residents. In his own neighborhood of Bywater, in New Orleans, the black population declined by 64 percent between 2000 and 2010, while the white population increased by 22 percent.

    In the process, Campanella notes, much of what made the neighborhood unique has been lost as the creatives replace the local culture with the increasingly predictable, and portable, “hip cool” trendy restaurants, offering beet-filled ravioli instead of fried okra, and organic markets. The “unique” amenities you find now, even in New Orleans, he reports, are much what you’d expect in any other hipster paradise, be it Portland, Seattle, Burlington, Vermont or Williamsburg.

    Families and the Future

    Campanella also suggests another byproduct of hipster gentrification: a dearth of families. Ten years ago his increasingly “creative class” neighborhood of Bywater was family oriented. Now, it’s “a kiddie wilderness.” In 2000, 968 youngsters lived in the district. Just 10 years later, the number had dropped by 70 percent, to 285. When his son was born in 2012, it was the first post-Katrina birth on his street, the sole child on a block that had 11 when he first arrived from Mississippi in 2000.

    Unsurprisingly, there’s not much emphasis about families in Florida’s work, in part because his basic theory puts focuses largely on groups like singles, childless young professionals and gays. He largely discounts suburbs, generally the nation’s nurseries, as outdated for the “creative age” and considers homeownership and single family houses, also vastly preferred by families, as fundamentally passé.

    Indeed, the places that most attract “the creative class” are also the ones with the fewest families and children, led by San Francisco, Seattle, Manhattan, and rapidly gentrifying Washington, D.C. The very high prices per square foot, understandably celebrated by urban real estate boosters, have made it hard not only on the poor but on middle- and even upper-middle-class families. When you have children, you often have to let go of your bohemian fantasies; it’s hard to imagine being a parent in a place like San Francisco where there are a raging debates about the right of people to walk around naked.

    The Real Geography of Opportunity

    To be sure, the leading “creative class” cities have much to recommend them, and some of them, such as Portland and Boston, have registered impressive rises in their per capita income in recent years. But over the past decade, most “cool cities” have not been enjoying particularly strong employment or population growth; in the last decade, the populations of cities like Charlotte, Houston, Atlanta, and Nashville grew by 20 percent or more, at least four times as rapidly as New York, Los Angeles, San Francisco, or Chicago. This trend toward less dense, more affordable cities is as evident in the most recent census numbers than a decade.

    One reason for this: the fastest job growth has taken place in regions—Houston, Dallas, Oklahoma City, Omaha—whose economies are based not on “creative” industries but on less fashionable pursuits such as oil and gas, agriculture and manufacturing. Energy mecca Houston, for example, last year enjoyed the largest GDP growth of any major American city, easily outpacing “creative” urbanist favorites like Chicago, New York, San Francisco, or Boston. The other two top GDP gainers were Dallas-Fort Worth and, surprisingly, Detroit, largely as a result of the auto industry’s comeback.

    Of course, some these ascendant cities now are sprouting their own “hip” neighborhoods. But these regions also accommodate far faster growth in rapidly expanding, family-friendly suburbs and exurbs. Equally important, none, including “creative class” hotspots Raleigh and Austin, are dense, transit-centered places of the kind urbanists suggest create economic vibrancy and attract the largest number of migrations.

    In fact both Raleigh and Austin are both very low-density regions with only compact urban pockets surrounded by vast suburban communities. Take a walk in downtown Raleigh sometime; about five minutes from the densest central areas and you find yourself on tree-lined streets with nice single-family houses, essentially, older suburbs. Austin, too, is a relatively low-density place surrounded by the kind of suburban sprawl detested by Floridians; this is also the case with Charlotte, Atlanta, and other fast-growing cities.

    These facts, of course, are unlikely to interfere with the self-interested lobbying by large developers for subsidies for downtown development much less the defined prejudices of the urban-centric media. But contrary to the narrative espoused by Florida and other proponents of high-density cities, the predominant future urban form in America is emerging  (largely unrecognized to the media) elsewhere, in places less dense, economically diverse and, perhaps, just a bit less hip and cool.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the The Daily Beast.

    Seattle photo by Bigstock.

  • California Needs More Immigrants

    Southern California, just a few decades ago the fastest-growing region in the high-income world, is hitting a demographic tipping point. With a decade or more of domestic out-migration and a sharp fall in immigration, the region is morphing from a destination that attracts dreamers and builders into a place increasingly dominated by those born or bred here.

    To some demographers, this transition from a magnet for migrants to a more native-born population represents something of a boon. As for migrants, one USC demographer wrote that California acts like "a gold pan that sifts through aspiring talent and keeps the best." Our new steady state is a good thing, the argument goes, since it offers a respite from the travails of rapid growth. All we need to focus on is spending more money on schools, and, not surprisingly, universities, and everything will turn out alright.

    There may be some truth to all these points, but, historically, a decline in new migration also suggests something else: a picture oddly reminiscent of the kind of demographic stagnation long associated with places like Cleveland, Buffalo, N.Y., Pittsburgh and Detroit. A more native-dominated region may be both more socially stable but increasingly hidebound and lacking innovation.

    For cities, demographic stagnation is not a recipe for success. Over the past decade, notes demographer Wendell Cox, the Los Angeles-Orange County area has seen the fifth-highest growth in the percentage of locally born people in its population, among nation’s 51 largest metropolitan areas. The concern is not so much that people are leaving these places in droves; the real issue is that not enough new people, with new ideas and great ambition, are coming in.

    Already, notes economist Bill Watkins, large parts of the state, particularly along the coast, are evolving into "geriatric ghettos" populated by aging, often-affluent baby boomers. And, as for keeping the "best," the steady decline in California’s relative educational ranking, particularly in the younger cohorts, should convince us that we cannot reasonably rely on native-born residents to meet the challenges of the future.

    Domestic Outmigration

    Watkins also points out that California has been losing domestic migrants for 10 of the past 15 years. It’s been worse in this region; over the past decade the Los Angeles-Orange County area suffered the third-highest rate in the country of net outmigration, slightly above New York’s. Amazingly, on a per capita basis, people are leaving our sun-drenched metropolis more rapidly than from Rust Belt disaster areas such as Cleveland and Detroit.

    In recent decades, this shortfall has been more than made up by foreign immigration. But in a stunning reversal of the trends in past decades, the number of foreign-born in our region has started to stagnate. Indeed, over the most-recent decade, the Southland has experienced the slowest rate of growth in its foreign-born population of any major region in the country. Los Angeles-Orange County gained 110,000 immigrants over the decade, one-sixth as many as New York City and only a quarter as many as Houston. Our immigrant population has grown less than that of much smaller regions such as Minneapolis-St. Paul, Austin, Texas, Atlanta and Dallas-Fort Worth.

    These patterns suggest a dangerous shift in our demographic DNA and a decline in our historic archetype as one of the world’s most culturally and economically innovative regions. Throughout history, the movement of newcomers has accented the rise of great cities at their peak, from ancient Athens, Rome and Baghdad to early 20th century London, Berlin, New York and Chicago. Similarly, the ascendency of the great cities of modern Asia – from Tokyo to Shanghai to Hong Kong and Singapore – resulted from mass migration, usually from the countryside to the urban centers.

    Pioneering Migrants

    Southern California’s evolution into one of the world’s premier urban regions has been, for the most part, propelled by outsiders, people who came to this place in search of a better life. Starting in the 1880s, these tended to be other Americans, including Los Angeles Times publisher Harrison Gray Otis (Marietta, Ohio), and railway magnate Henry Huntington (Oneonta, N.Y.), and, later, Walt Disney (Kansas City, Mo.), Howard Ahmanson Sr. (Omaha, Neb.) and Dr. Jerry Buss (Kemmerer, Wyo.).

    For such newcomers – including James Irvine, a native of Ireland – Southern California provided an opportunity to create new things of every type. Everything distinctive developed in Southern California was created largely by outsiders. The creators of the movie business were mostly Jews from Eastern Europe, while the aerospace industry was largely populated by Midwestern emigres. Even the people who built our cities came from elsewhere. Consider Ahmanson, who funded much of it. Developers like Eli Broad, a native of Detroit, or Nathan Shapell, a holocaust survivor from Poland, built many of the region’s suburban communities.

    In recent decades, L.A.’s outsiders have come increasingly from abroad. Most have come from Mexico and Asia, but also from the Middle East, the former Soviet Union and, increasingly, Africa. Their influence is everywhere, from the food trucks to the ethnic malls, at the universities and in the music scene. A large number of the smaller banks in the region are tied to immigrant communities.

    Nowhere is the influence greater than in the entrepreneurial arena. In the 1980s and 1990s, when Los Angeles-Long Beach frequently led in new immigration, newcomers from abroad fueled the rise of industries from garments to international trade and food processing. They are the primary creators of our food truck culture and often the chefs and owners of our finest restaurants.

    Business Starters

    Simply put, immigrants provided the critical oxygen for our economy, which, as a group, they are still doing. Even in the midst of the recession, newcomers continued to form businesses at a record rate, while the start-up rate for native-born entrepreneurs declined. The immigrant share of new businesses, notes a Kauffman Foundation survey, more than doubled, from 13.4 percent in 1996 to 29.5 percent, in 2010.

    Nationally, immigrants are responsible for roughly a quarter of all high-tech start-ups. Asians, who constitute more than 40 percent of newcomers, now account for roughly 20 percent of tech workers, four times their percentage of the population.

    How much is this dynamism, which once blessed the Southland, is now heading to Houston, Dallas-Fort Worth or even Charlotte, N.C.? It seems likely that, without the economic push from the immigrants and their countries, the reinvention of our economy will be far slower. Southern California natives seem far less likely to take the risks, and create the new industries, the region desperately needs.

    Regaining our allure to newcomers is now arguably our biggest challenge. We have some fine assets, such as great weather, universities and a strong entrepreneurial legacy. Critically, despite the stagnant past decade, the Los Angeles-Orange County region still remains the second-largest repository of immigrants, at 4.4 million, behind only the greater New York area’s 5.5 million. Virtually any ethnic group can find schools, shops and banks tied to their home countries; for some, like Chinese, Vietnamese, Mexicans and Iranians, Southern California remains a critical ethnic bastion and beacon.

    Shift Focus

    In this process, immigration reform could prove helpful, although most attention has been paid to legalizing undocumented immigrants already in the country. This may well be justified on moral ground but, in some ways, that debate is fighting the last war, as the flow of illegal immigration from Mexico has slowed, and may even be reversing. Legal immigration from Mexico also has declined markedly in recent years.

    A far more strategic concern would be easing the flow of Asian immigrants, who, according to a recent Pew study, are generally better educated and affluent than other newcomers. Asian immigrants are also more likely to start business; a 2012 Kauffman study notes that close to 40 percent of immigrant entrepreneurs come from India or China. We should be looking to capture all such skilled and entrepreneurial newcomers, from any country and, hopefully, also from within this country.

    To accomplish this we need to convince prospective migrants that this region, for all its faults, deserves to become, once again, a preferred destination for ambitious outsiders. It’s a task that our local leaders, both in the business world and government, need to take seriously, rather than take comfort in the prospect of a more stable, and fundamentally stagnant, demographic future.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Photo by telwink

  • The Value of a Liberal Arts Education in Landing a Job

    North Carolina Gov. Pat McCrory made waves when he said on syndicated radio that he wants to encourage the funding of four-year programs that align with the job market — not those, like gender studies, that do little to help a graduate’s employment prospects.

    This was covered in a pointed column for The Wall Street Journal by Jane Shaw, the president of the John William Pope Center of Higher Education Policy in Raleigh, N.C. Shaw supports McCrory’s attempt to roil the higher education establishment and get students — heaven forbid — thinking about job prospects when they pick a major:

    Referring specifically to North Carolina’s 16-campus state university system, Mr. McCrory wondered if state funding incentives should encourage areas of study that align with the job market. Other disciplines, such as gender studies, Mr. McCrory said, might be subsidized less. The funding formula, he said perhaps a bit indelicately, should not be based on the number of “butts in seats, but how many of those butts can get jobs.”

    The education establishment immediately went bonkers. The pundits piled on. But Mr. McCrory raised a legitimate concern. And the solution he proposed, sketchy as it is at this stage, is not a bad one.

    The truth is: Elite universities, such as the University of North Carolina at Chapel Hill, are doing a disservice when they lead students into majors with few, if any, job prospects. Stating such truths doesn’t mean you’re antagonistic to the liberal arts.

    This discussion — and the one we contributed to last year after Viriginia Postrel’s column for Bloomberg — got us thinking: just how valuable is a liberal arts education in landing a job and contributing in the business world? Because EMSI works with so many community and technical colleges, we’re all for matching educational programs to in-demand fields. (In fact, we’ve developed a tool, Career Coach, that does just that.) For schools that specialize in offering associate’s and certificate programs, data-driven program assessment makes sense — and it helps students, colleges, and the regions that colleges serve.

    But what about universities like the University of North Carolina, which McCrory chose to use an example? It’s much trickier to link gender studies, history, or some other liberal arts degree to an actual career. But these graduates — in theory — are getting a more well-rounded education than they would get at a vocational school, and they should have the critical thinking, analytical, and writing skills valuable in the marketplace.

    Or do they?

    In criticizing American higher education institutions, Shaw writes, “Many liberal-arts graduates, even from the best schools, aren’t getting jobs in large part because they didn’t learn much in school. They can’t write or speak well or intelligently analyze what they read.” If this is the case, these students are bound to get a poor education regardless of what they major in.

    However, as Postrel mentioned in her column last year, the students who flow into well-regarded schools and the majors that result in well-paying jobs, like some STEM degrees, “have the aptitudes, attitudes, values and interests that draw them to those fields (which themselves vary greatly in content and current job prospects).” And as Anthony Carnevale at Georgetown showed in a study last year, the unemployment rate for graduates of certain scientific or technical fields isn’t any better, and sometimes it’s worse, than the rate for graduates who major in education or the humanities (see above chart).

    We looked at completions data from the National Center for Education Statistics to get a sense of the top educational programs for graduates from 2003 to 2011 among all award levels. First, here’s the top 10 programs in the U.S. Liberal arts comes in second — just under 50,000 completions short of business administration — while psychology, cosmetology, and general studies are also hugely popular.

    But what’s striking is to look at the same chart for North Carolina. Notice the huge growth in liberal arts degrees — from 4,111 in 2003 to 8,778 in 2011. And since the recession, the rate of students graduating in liberal arts fields has picked up, not slowed down like you might think.

    Based on this data, perhaps McCrory has a point. North Carolina has far outpaced the nation in terms of the proportion of liberal arts degree it awards. But the real question in this debate is, what kind of education are these students getting? If it’s as lousy as Shaw depicts, and if they’re not aggressively pursuing internships and other career-advancing opportunities while in school, many of these graduates are in for a tough time no matter what.

    Joshua Wright is an editor at EMSI, an Idaho-based economics firm that provides data and analysis to workforce boards, economic development agencies, higher education institutions, and the private sector. He manages the EMSI blog and is a freelance journalist. Contact him here.

    Lead illustration by Mark Beauchamp.

  • Wall Street’s Hollow Boom: With Small Business And Startups Lagging, Job Recovery Unlikely

    On Wall Street, even as layoffs mount, the upper echelons are clinking champagne glasses for good reason. The stock market is hitting new highs, propelled largely by Bernanke dollars and strong corporate profits. Big financial institutions like Wells Fargo and JPMorgan have announced record profits.

    But on Main Street, for the most part, the mood is far more subdued. Big business may be flourishing, but small business is still in recession. The number of startup jobs per 1,000 Americans over the past four years fell a full 30% below the levels of the Bush and Clinton eras. The Ewing Marion Kauffman Foundation, a nonprofit that studies startups, estimates that the rate of new business formation in the U.S. has fallen to a record low. The number of startups in 2011 was lower than in 1994, when the economy was smaller, as was the workforce and population.

    According to the BLS, smaller firms accounted for two thirds of all net jobs added between 1992 and 2007, a figure much cited by small business advocates. (This is hotly disputed by labor-backed economists, who have traditionally downplayed entrepreneurial ventures since they are not amenable to organizing.)

    But whatever the actual percentages, the weakness of smaller, and particularly newer firms, is one key reason for our current, persistent job shortfall. This time around, as a recent Brookings study reveals, larger businesses came out of the recovery stronger, not their beleaguered smaller counterparts.

    Big businesses often drive the economy but newer, smaller ones, historically, have created the jobs. If the U.S. had come out of the recession maintaining the same rate of startup formation as in 2007, notes McKinsey, we would today have almost 2.5 million more jobs.

    The problem is that in many ways, the recession never ended for small business. The reductions in small business employment during the fourth quarter of 2008 and in 2009 were the largest ever recorded in the history of the National Federation of Independent Business data series. And now, as we enter the sixth year since the onset of the Great Recession, more than four years after the “recovery” officially began, small business remains in a largely defensive mode. Hiring and startup rates have been far less dynamic than in the aftermath of the downturns of 1976 and 1983.

    Since big companies largely have recovered, and government employment has grown, at least at the federal level, clearly the real problem lies with the poor performance of smaller, and most critically newer, firms. In the past, young businesses bailed out the economy and spurred innovation. Yet today fewer than 8% of U.S. companies are five years old or younger, down from between 12% and 13% in the early 1980s, another period following a deep recession.

    It’s difficult to predict a rapid turnaround. In sharp contrast to the Fed-inspired boomlet on Wall Street, Gallup polling has found that one in five small firms expect to drop their employee count, one in three expect to decrease capital spending and almost as many expect to be in more severe cash flow troubles by the end of the year.

    Why is this small business recession persisting? The causes are diverse. Certainly the prospect of Obamacare scares some smaller firms, who lack the resources of larger companies to deal with the new health regime. This is leading some to reduce full-time staff to avoid new mandates. In states such as California, New York, Massachusetts, Minnesota and Illinois, higher taxes on incomes directly threatens the cash flow of smaller firms.

    Another source of trouble could be the decline of community banks, which traditionally have focused on smaller businesses. New regulations and Federal Reserve giveaways to “too big to fail” financial institutions have fostered an unprecedented concentration of financial assets in the hands of a few banks. In 2013 the top four banks controlled over 40% of the credit markets in the top 10 states, up 10% from 2009 and roughly twice their share in 2000. At the same time, since the passage of Dodd-Frank, there are some 330 fewer small banks. In the four years following June 2007, the volume of business loans under $1 million fell 13%.

    But perhaps most important has been the weak GDP growth that has kept consumer spending at a low level, a particularly rough condition for smaller, start-up businesses. A growing economy and marketplace is critical for newer firms; without a sustained economic expansion many will suffer or never even come into existence.

    Small business’ future is further obscured by political shifts. The Obama years have been golden for “crony” capitalists with good connections in Washington or in the various statehouses. As larger firms readjust to the realities of the Obama-Bernanke regime, they seem more willing to accommodate themselves, for example, to the new health care law, and also have better opportunities to feed off the federal trough; federal subsidies for renewable energy , for example, largely benefit bigger firms or well-heeled investors. Absent real tax reform, they also have less to fear from higher income taxes than smaller businesses, which are often sole proprietorships.

    The emerging alliance of the “bigs” — big business, government and labor — represents a return to a kind of dirigiste economy not well suited to smaller firms. Former Clinton Administration advisor Bill Galston openly urges Democrats to cement what he considers a a natural alliance with larger firms, including the financial industry, while denouncing small business lobbies as “a building-block of the Republican base.”

    In the long run, this new corporatism threatens not only small business — less able to lobby for itself and adjust to regulations than giant firms – it also also represents something of a threat to the very justification for a capitalist economy. Today large banks and big companies have public approval ratings down around 20%, according to Gallup. In contrast, small business has retained positive ratings of over 60%, as it has for decades. Another survey, conducted by Frank Magid and Associates, found large businesses approaching “the netherworld” inhabited by Congress — almost two-to-one unfavorable. Wall Street fared even worse. Small business, in contrast, was viewed positively 10 times as much as unfavorably.

    This is not just entrepreneurial romanticism. The notion of reasonably widespread entrepreneurial opportunity underpins basic faith in the free-market system. Small enterprises, and expanded business ownership, justify capitalism by showing it is still open to competition, and that anyone, however humble, can participate and gain from the system. “Wherever there is small business and freedom of trade,” noted V.I. Lenin, founder of the Soviet Union, “capitalism appears.”

    Without the innovative and job-creating potential of new small businesses, capitalism devolves into a fixed game dominated by big money and insider influence, as long portrayed by socialists, before Lenin and since. And, if the economic picture does not change soon, they will have been proven right, at least about that.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared at Forbes.com.

    Wall Street photo by flickr user Manu_H.

  • Should California Governor Jerry Brown Take a Victory Lap?

    "Memento Mori" – "Remember your mortality" – was whispered into the ears of Roman generals as they celebrated their great military triumphs. Someone should be whispering something similar in the ear of Gov. Jerry Brown, who has been quick to celebrate his tax and budget "triumph" and to denounce as "declinists" those who threaten to rain on the gubernatorial parade.

    Brown speaks about California’s "rendezvous with destiny" and the state’s "special destiny… more vibrant and more stunning in its boldness." His pitch certainly has persuaded much of the mainstream media to add their horns to the triumph.

    Yet right now, despite its many blessings, our state remains more on a collision course with mediocrity – at best– than with any such manifest destiny. California may not be a "death-spiral state" as some conservatives suggest, but Brown’s triumphs – the Proposition 30 tax increases, the marginalization of the GOP as well as his Democratic rivals – have been more political than substantial and have done little to address the state’s major long-term challenges.

    Let’s check this out. Unemployment remains the third-highest among the states; we still have one-third of the nation’s welfare recipients; the highest poverty rate in the country, with one in five of California’s diminishing ranks of children living in poverty, including more than a third of children in Fresno. Our education system, with new dollars or not, continues to fail young people and our economy.

    Critically, the three key elements typically invoked to promote the comeback meme – budget relief, the genius of Silicon Valley alchemists and "green" jobs – are themselves suspect. Even Brown, who suggested that we could create 500,000 jobs from his climate change agenda, isn’t speaking much about it. In California, and across the nation, "green jobs" have failed to materialize enough to offset the higher costs imposed on the rest of the economy, the high public subsidies and parade of failed ventures associated with these policies.

    Yet, Brown is so dogmatically loyal to this agenda that he remains committed to massive regulation of the economy, which is slowing growth. And he shows – despite his occasional bouts of fiscal sanity – no signs of backing away from his financially troubled bullet-train fantasy.

    If green economics are failing, can Silicon Valley bail out the state? Reporters anxious to celebrate our deep-blue state’s comeback almost always genuflect to the tech industry. They rarely bother to look at the fact that, even with considerable growth in the tech sector over the past two years, the valley has not even recovered the job levels of a decade ago.

    More troubling still, Silicon Valley is becoming less an exemplar of capitalism than the beneficiary of an insider game that relies on access to capital and contacts more than on innovation. It is also becoming increasingly dependent on government largesse: No one bet more on subsidized "green" companies than the venture-capital elite. Prospects are also dimming for social media, the valley’s latest signature industry. User interest in Facebook is slipping, notes Pew, and the industry now sees its next great opportunity, of all socially worthless things, in online gambling.

    Even under the best of circumstances, Silicon Valley is neither robust enough nor predisposed to help solve the state’s long-term fiscal challenges. In fact, the high-tech darlings of the progressives, such as Google and Apple, are turning out to be as adept in not paying taxes as are Mitt Romney or General Electric. For its part, Facebook now appears to have paid no income taxes at all last year.

    In fact, the only thing bailing out California is not growing tech firms, but the enormous legacy of wealth, including inherited wealth, that has built up in our state over the past 30 years. California is still rich in rich people, whose stock and real estate holdings are gaining value. As long as Uncle Ben’s printing press hands out free money, California could collect enough in state income taxes to perhaps balance its annual budget for a spell.

    None of this places, to say the least, California on a firm footing. So at the risk of engendering some gubernatorial ire, here’s my memento mori suggestions for restoring California’s promise. This starts with the assumption that the elements of a true revival exist and that, if Brown would shed some of his dogma, he may end up deserving his current plaudits.

    • Get real on the budget.Asset bubbles may rescue the state from annual budget woes, but the state’s long-term prospects remain cloudy, due largely to mounting government employee pension costs. Attempts to revise the game for new employees are not sufficient to scale the state’s mounting "wall of debt"; Californians per capita now owe almost five times as much to Wall Street as residents of our chief rival, Texas. Analyst Joe Matthews suggests we need more drastic fixes, such as cutting off retirees’ health benefits after they reach Medicare age.

    • Redirect the climate-change jihad. California can keep leading in conservation but needs to adopt a more pragmatic people-friendly approach, such as by encouraging telecommuting and energy-saving technologies. In contrast, the current high-density housing diktats and ultra-expensive "green" energy will force up prices for housing and electricity rates way out of proportion to national norms. This damages the middle and working class even if it won’t impinge on the lifestyles of Brown’s rich and famous friends.

    • Focus on basic industry. Tech and entertainment can never drive enough jobs or wealth to support this huge state. But California is blessed with the country’s richest soil and huge fossil-fuel reserves. These could bring in new revenue to the state and create new jobs for a broad number of Californians, particularly in the hard-pressed interior. Particularly critical is the state of the water system, which once again faces large cutbacks because of pressure from environmentalists. Brown has spoken in favor of a peripheral canal; solving the water problem may leave him with a greater legacy than the dodgy bullet train.

    • Reform the education system. More money alone won’t save the schools, but may be used only to prop up the pensions of teachers and administrators. Some kind of radical reform – perhaps school choice, vouchers, mass use of charters – must be the price of any increase in money to education. Brown has made some reformist noises with the University of California, but he remains tethered to the teachers unions on K-12 schools.

    • Invest in economically needed infrastructure. Besides the peripheral canal, Brown should look at expanding the state’s energy supply by permitting the construction of low-polluting, economically efficient gas-fired power plants. Rather than waste money on a "train to nowhere," he should be looking at fixing roads, bridges, ports – the sinews of a modern economy – and improving existing inter-city trains (and buses), particularly in high-volume corridors in the Bay Area/Sacramento and across Southern California.

    • Prioritize blue-collar opportunities. California’s greatest challenges lie with a widening class divide. Bolstering manufacturing, which is in a secular decline here, and restarting construction could create new opportunities for blue-collar workers. Port expansion would create lots of jobs in everything from warehousing to assembly and business services. This can be meshed with revitalized training programs for the skilled trades. In simple terms: California needs more skilled machinists, electricians and irrigation technicians and likely fewer marginally employable ethnic-studies or humanities grads from second- and third-tier schools.

    One can understand why our governor, at age 74, wants to enjoy his triumph. But to deserve the laurel wreath, he first needs to make the major changes that can bring this greatest of states back to its historic potential.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Jerry Brown photo by Bigstock.