New Geography

Category: Economics

  • The Real Winners Of The Global Economy: The Material Boys

    Something strange happened on the road to our much-celebrated post-industrial utopia. The real winners of the global economy have turned out to be not the creative types or the data junkies, but the material boys: countries, states and companies that have perfected the art of physical production in agriculture, energy and, remarkably, manufacturing.

    The strongest economies of the high-income world (Norway, Canada, Australia, some Persian Gulf countries) produce oil and gas, coal, industrial minerals or food for the expanding global marketplace. The greatest success story, China, has based its rise largely on manufacturing. Brazil has been powered by a trifecta of higher energy production, a strong industrial sector and the highest volume of agricultural exports after the United States.

    Things are really looking up for the material boys here in North America. Over the past decade, the strongest regional economies (as measured by GDP, job and wage growth) have overwhelmingly been those that produces material goods. This includes large swaths of the Great Plains, the Gulf Coast and the Intermountain West, three regions that, as I point out in a recent Manhattan Institute study, have withstood the great recession far better than the rest of the country.

    Today virtually all the “material boy” states now boast unemployment well below the national average; the lowest are the Dakotas, Wyoming and Nebraska. Texas, the biggest of the U.S. material boys, boasts an unemployment rate around 6%, well below California (nearly 10%) and New York (8%). One key reason: While Texas has created over 180,000 generally well-paid energy jobs over the past decade, California, with abundant energy reserves, has generated barely one-tenth as many. New York, despite ample potential in impoverished upstate areas, largely has disdained developing its energy sector.

    These realities contrast greatly with the conventional wisdom that with the rise of the information age, the application of “brains” to abstract concepts, images and media would come to trump the “brawn” of producers, a thesis advanced influentially in 1973 by Daniel Bell in The Coming of Post Industrial Society. More recently Thomas Friedman has cited the East Asian countries such as Taiwan and Japan as suggesting that a lack of natural resources actually sparks innovation and economic health, while too great a concentration generally hinders progress.

    So how is it that the rubes, with their grease-stained hands, reeking of the smell of manure or chemical fertilizers, have outperformed the darlings of the information age? The answer lies largely in the forces that are reshaping the world. This includes, most portentously, rising demand for fuel, food and fiber in developing countries, notably in East Asia and Latin America.

    In the past commodity-based economies suffered frequent cyclical recessions whenever a handful of wealthy consuming countries — the EU, Japan and North America — experienced a recession or slow growth. Now a set of new consumers are fuelling strong demand even when high-income countries tank; this is keeping prices up far more reliably than in the past. Of course, a major global economic catastrophe, or some new breakthrough in energy or agricultural technology, could bring prices down precipitously, but for the most part demographic trends seem likely to favor commodity producers over the coming decade or two.

    Arguably the biggest surprise has been the United States’ strong advantages in the resource race. America has a far richer endowment of raw materials than its primary competitors, including the European Union, India, China and Japan. Only the Russian Federation is equally well-endowed: The Siberian periphery that was first conquered in the great period of Russian expansion between the 16th and mid-19th centuries remains one of the greatest resource regions on the planet and the base of that country’s economy.

    Agriculture is perhaps the least appreciated of the new drivers of the U.S. economy. Farm exports have been surging; in 2011 the U.S. exported a record $135 billion worth of agricultural goods, with a net favorable balance of $47 billion, the highest in nominal dollars since the 1980s.What accounts for this boom? One key driver is China, which consumes almost 60% of the world’s soybean exports and 40% of its cotton.

    Perhaps even more transformative has been the energy boom, largely sparked by new technologies such as fracking and deepwater drilling. This has transformed the Great Plains alone into the world’s 14th largest oil producer, roughly on a par with Nigeria and Norway. Unless stopped by regulatory constraints, this expansion may only be in its infancy. We can expect large increases in production not only in North Dakota; Texas’ Eagle Ford shale oil is expected to quintuple its daily production by 2014 . New finds in the Wattenberg Field north of Denver alone could contain more than a billion barrels of recoverable oil and natural gas, essentially matching the huge Eagle Ford or the Bakken Field in western North Dakota. Another find, the Green River formation in Wyoming, could contain an astounding 1.4 trillion barrels of oil shale.

    The energy revolution already has been transformative in the material states. Between 2010 and 2011, according to an analysis by EMSI, all six of the fastest-growing job classifications were related to energy development. Since 2009 the industry, according to EMSI, has added some 430,000 jobs, with the largest share going to Texas, Oklahoma, and Pennsylvania.

    Perhaps even more important, the expansion of the energy sector is galvanizing manufacturing, hitherto the weakest link in the material boy economy. The energy boom could create more than a million industrial jobs nationwide over the decade both to supply the industry and as a result of lower energy costs, according to a recent PricewaterhouseCoopers study.This new industrial economy is already evident in those parts of the country embracing the energy revolution, notably Texas, Oklahoma, Louisiana, Pennsylvania, and Ohio.

    Some see the rise of the material boys as just another “bubble” soon to collapse. Derek Thompson at the Atlantic suggests that the North Dakota boom may have already crested. And to be sure, labor and infrastructure limits may slow the rate of growth compared to past years, but projections by JPMorgan Chase suggest that North Dakota will continue to enjoy GDP growth two to three times the national average for the next few years. And as for the labor shortages, help is also on the way; North Dakota now boasts the highest rate of domestic in-migration in the country.

    To be sure, the material boys will face real challenges in the years ahead. The need to train skilled blue-collar workers — something the country has neglected for generations — presents a major challenge in places like Louisiana and Texas, where education levels remain below the national average, as well as the more literate but less populous Dakotas. Infrastructure needs like pipelines and electrical transmission lines will become more evident as production increases.

    But even the most effete coastal denizens should appreciate what the rise of the “material boys” means for America’s future. The growth of basic industries also creates demand for high-end business services — everything from architects and investment bankers to data-miners, advertising, and public relations firms — concentrated in such places as San Francisco, Seattle, New York, and Boston.

    But clearly the biggest beneficiaries will be the cities of the commodity belt, starting with Houston, the epicenter of the energy industry, as well as Oklahoma City, Dallas-Ft. Worth, Omaha, Salt Lake City and Denver. Rapid growth is even evident in smaller places in the Dakotas such as Sioux Falls, Bismarck, and Fargo.

    Most importantly, the rise of the material boys expands the nation’s geography of opportunity in ways rarely imagined just a decade ago. It is a process that all Americans should appreciate and encourage.

    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 Forbes.

    Welder photo by Bigstock.

  • The Age of Bernanke

    To many presidential idolaters, this era will be known as the Age of Obama. But, in reality, we live in what may best be called the Age of Bernanke. Essentially, Obamaism increasingly serves as a front for the big-money interests who benefit from the Federal Reserve’s largesse and interest rate policies; progressive rhetoric serves as the beard for royalist results.

    Overall, the impacts of ultralow interest rate, cash-machine policies of Fed Chairman Ben Bernanke trump everything else. The presidential stimulus was, at best, modestly effectively, and certainly did little to turn around the fortunes of most Americans or spark much economic growth. Unemployment remains stuck at around 8 percent and 8.5 million workers have exited the labor force.

    But the Bernanke policies have succeeded in reshaping the economic landscape in ways that, while good for the plutocracy and Wall Street, are not particularly positive for the vast majority of Americans.

    Economic Losers

    Many of the biggest losers in the Bernanke era are key Democratic constituencies, such as minorities and the young, who have seen their opportunities dim under the Bernanke regime. The cruelest cuts have been to the poor, whose numbers have surged by more than 2.6 million under a president who has promised relentlessly to reduce poverty.

    Things, of course, have not too great for the middle-age and middle-class – more of them now supporting both aging parents and underemployed children. Median income in America is down 8 percent from 2007, and dropping. Things, in reality, are not getting better for anyone but the most affluent.

    A particular loser has been small business. As we enter the sixth year since the onset of the Great Recession, and nearly four years after the "recovery" officially began, small business remains in a largely defensive mode. Critically, start-up rates are well below those than following previous downturns in 1976 and 1983. The number of startup jobs per 1000 – a key source of job growth in the past – over the past four years is down a full 30 percent from the Bush and Clinton eras. New firms – those five years or younger – now account for less than 8 percent of all companies, down from 12 percent to 13 percent in the early 1980s, another period following a deep recession.

    With demand and growth still weak, small business enters the new year with among the lowest expectations of any large economic sector. As Gallup points out, one in five small companies expects to lower its 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.

    This decline of small-business sentiment constitutes arguably the biggest reason for our poor job-creation numbers. If small business had come out of the recession maintaining just the rate of start-ups generated in 2007, notes McKinsey, the U.S. economy would today have almost 2.5 million more jobs than it does.

    Smaller Banks

    One source for this decline lies in the difficulties faced by smaller community banks, which tend to be those most likely to lend to entrepreneurial firms. Jeff Ball, chairman-elect of the California Bankers Association and founder of Whittier-based Friendly Hills Bank, suggests the Fed’s policies – as well as growing regulatory policies – has led to an unprecedented concentration of financial assets in the hands of a few large "too big to fail banks" while the number of smaller community banks has been shrinking.

    "Everywhere you turn there’s a ‘gotcha’ from the regulators," Ball notes. "The big banks can deal with the regulations far more easily than the community banks. And because some banks are perceived as ‘too big to fail,’ there’s easier access to credit, and they are perceived to be better to invest in."

    So, who have been the big winners in the Age of Bernanke? The very people who were supposed to be the bête noires of the age of Obama: the large financial institutions. In 2013, the top four banks controlled more than 40 percent of the credit markets in the top 10 states, up by 10 percent from 2009 and roughly twice their share in 2000. At the same time, since the passage of the Dodd-Frank financial regulations, there are some 330 fewer small banks. Under the current regime, the oligopolization of the credit markets will continue apace, as much, or even more, than if Mitt Romney had won the presidency.

    Higher Profits

    Under these circumstances, it’s not surprising that large financial institutions and hedge fund have enjoyed close-to-record profits under Obama. This fall, for example, Wells Fargo and JP Morgan announced record profit. And despite widespread condemnation their executives have continued to enjoy outsized compensation, often greater than under George W. President Bush.

    Unlike smaller firms, or the middle class, the big financial institutions have feasted like pigs at the trough, with the six largest banks borrowing almost a half-trillion dollars from Uncle Ben Bernanke’s printing press. While millions of Americans have lost homes and much of their net worth, there has been not a single high-level prosecution by the Obama administration of the grandees of the very financial giants at the heart of the mass misery.

    Even the nascent housing recovery – which could create wealth for the middle class – appears largely to be creating opportunities for wealthy investors. In California, as well as other hard-hit real estate markets, such as in Florida, Arizona and Nevada, private investors constitute a large portion of buyers. The big private-equity firm Blackstone recently announced plans to buy $100 million in homes every week.

    These wildly divergent results between the hoi polloi and the financial elites do not seem to bother our "organizer in chief," particularly with re-election behind him. Instead, the Bernanke regime seems to be cementing a strong alliance of convenience between the government sector – which needs low interest rates to keep funding itself – and those with the easiest access to cheap money.

    Some observers, such as former Clinton Administration advisor Bill Galston, suggest we could see the emergence of a closer political alliance between big business and the public sector interests. Democrats, he suggests, have a natural alliance with larger firms, not only in the financial industry, while small-business lobbies remain "a building-block of the Republican base."

    New Corporatism

    This new corporatism that is becoming an integral part of the supposedly middle-class oriented Democratic Party. Close Obama advisers, like disgraced investment banker and political fixer Steven Rattner, Obama’s czar for the auto bailout, justify collusional capitalism, both in China and in America’s "too big to fail" regime.

    The reality remains that, rhetoric aside, corporate cronyism remains at the core of this administration and, sadly, the once-proudly populist Democratic Party. After his confirmation, we can expect former Citigroup profiteer Jacob Lew to follow Treasury Secretary Timothy Geithner, working along with Bernanke, to make sure the big Wall Street firms continue to thrive – even if the rest of us don’t.

    All this is reminiscent of something out of the declining days of the Roman Empire. The masses get bread (food stamps) and circuses, with virtually all of Hollywood and much of the media ready to perform on cue. The majority, losers in the Bernanke economy, lack the will and, maybe, the attention span to realize what is happening to them.

    "The Roman people are dying and laughing," the fifth-century Christian writer Salvian wrote. Like America today, entertainment-mad Rome suffered from a declining middle class, mass poverty and domination by a few wealthy patricians, propped up by a compliant government. Unless Americans of both left and right wake up to reality, our civilization could suffer a similar inexorable decline in the Age or Bernanke.

    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.

  • Gentrification and its Discontents: Cleveland Needs to Go Beyond Being Creatively Classed

    “Indeed, we have the know-how, but we do not have the know-why, nor the know-what-for”—Erich Fromm, social psychologist.

    The question of how you “become” as a city has been weighing on me lately. Is it enough to get people back into the emptiness? Is it enough to pretty the derelict? I mean, is the trajectory of Cleveland’s success simply a collection of micro-everythings, start-ups, and occupancy rates? That is, is Cleveland’s reward simply the benefit of being creatively classed?

    I hope not. It won’t work. Here is why.

    The problem with most city revitalization these days relates to its playbook: there are the investors who have the capital, and then the political power from which finance flows. Here, money not only talks, it builds, with investors’ wishes transcribed in how a city looks, feels, and functions. That said, the main interest of the investors is to make money, and so people are seen as consumers as opposed to citizens. Consumers that fill up real estate space. Consumers that salivate over tastes. Consumers of art and design, with the attraction to beauty meant to establish a “vibrancy for profit” mindset as opposed to experiencing beauty for the value of beauty’s sake. Come to think of it, the creative class is really just the consumer class, just like the rest of us. Yet they are anointed in status by city makers because they are thought to have more spending power than their working- and service-class counterparts.

    “Follow the creative community, and property values will rise,” states one recent article in a real estate publication. “You have given real estate developers the playbook”, echoes Albert Ratner, head of Cleveland-based Forest City, on his reading of “The Rise of the Creative Class”. The motivations, as such, are quite blatant.

    Now, why is this a problem?

    Because developers have extraordinary amounts of pull in directing where finances goes (this is particularly true in Cleveland), which means investment can get skewed to a select demographic. As such, the gap between the haves and have not’s grows and the geographic disparities begin to cement social inequities into the city’s fabric. Cracks then show: drug use, murders, alienation and disenfranchisement, growing pockets of continued disinvestment, and it won’t stop because research has consistently shown that inequity is an endless source of social ills. The only thing left to do is to compartmentalize our shadows, with “bad” kept in places away from the spots of our “hope”. This is not unique to Cleveland or to this era. It is just the way things have been, which leads me to wonder if Cleveland’s recent comeback is just a carousel in which progress is simply rearranging the broken deckchairs.

    But while the future is uncertain, failure need not be inevitable. Yet what can be done in Cleveland and other Rust Belt cities to ensure we don’t waste our opportunity? Unfortunately, little outside of a radical shift in how cities think about themselves, particularly as it relates to the notion of “revitalization”.

    This is where the concept of “Rust Belt Chic” comes in, which—when it is boiled down—is really just a process of collectively “knowing thyself” (an in depth description of Rust Belt Chic economic development will be delineated in a subsequent post). Specifically, by becoming aware of who we are as “Cleveland” we know who we are not, or more exactly: what we don’t need to be. This is important as it relieves the temptation of Cleveland trying to copy some other city’s so-called success which, in the end, is counterproductive, as such efforts—like the historic Columbia Building demolition for a Vegas-style “look”—ultimately eliminates those things like history and architecture which ties us together.

    columbia building

    The historic Columbia Building being demolished. Courtesy of the Cleveland Kid.

    This is all to say that Cleveland need not be “brochured” for the so-called creative class. That is simply objectifying your city as a product as opposed to a people, which is crude, and such posturing and posing is hardly Cleveland, besides.

    Instead, a hammering down of who we are in our process of becoming is needed. We are Clevelanders. We care and fight for this city, endlessly. We swear, shake hands, bleed, heal, work, fight, and pray—all in an environment molded more so by the reality of Mickey Rourke than the donning of Ashton Kutcher. And so while repopulating the core is needed, we also must engage in building the productive capacity of people as opposed to simply relying on a capacity to spend. Specifically, squeezing out price per sq. feet at the expense of community fabric is not true economic growth. It is mountains turned to coal.

    I cannot emphasize enough how important community development is to Cleveland’s future. For as creative classification goes main stream, more and more cities will begin looking and feeling the same, and more and more cities will be turned to products to be gobbled up by those with stars in their eyes. But this kind of thing is not for everyone, or even for most. It is for a slice, a finicky slice. And so I gather creative classification will go the way of the fad, like all styles do. Some cities will be stuck left to look at the cartoon tattoos that dot their body, while the people left longing will decompress to find something a little more real.

    Then—if we do it right—people will turn to Cleveland not because we faked the place as attractive, but because Cleveland made an effort to turn to its people.

    This post originally appeared at Cool Cleveland.

    Richey Piiparinen is a writer and policy researcher based in Cleveland. He is co-editor of Rust Belt Chic: The Cleveland Anthology. Read more from him at his blog and at Rust Belt Chic.

    Lead photo: Don’t call him creative classed. A Cleveland artist, Mac, and his rooster, Morty.

  • America’s Growth Corridors: The Key to a National Revival – A New Report

    In the wake of the 2012 presidential election, some political commentators have written political obituaries of the "red" or conservative-leaning states, envisioning a brave new world dominated by fashionably blue bastions in the Northeast or California. But political fortunes are notoriously fickle, while economic trends tend to be more enduring.

    These trends point to a U.S. economic future dominated by four growth corridors that are generally less dense, more affordable, and markedly more conservative and pro-business: the Great Plains, the Intermountain West, the Third Coast (spanning the Gulf states from Texas to Florida), and the Southeastern industrial belt.

    Read or download the full report from the Manhattan Institute.

    Overall, these corridors account for 45% of the nation’s land mass and 30% of its population. Between 2001 and 2011, job growth in the Great Plains, the Intermountain West and the Third Coast was between 7% and 8%—nearly 10 times the job growth rate for the rest of the country. Only the Southeastern industrial belt tracked close to the national average.

    Historically, these regions were little more than resource colonies or low-wage labor sites for richer, more technically advanced areas. By promoting policies that encourage enterprise and spark economic growth, they’re catching up.

    Such policies have been pursued not only by Republicans but also by Democrats who don’t share their national party’s notion that business should serve as a cash cow to fund ever more expensive social-welfare, cultural or environmental programs. While California, Illinois, New York, Massachusetts and Minnesota have either enacted or pursued higher income taxes, many corridor states have no income taxes or are planning, like Kansas and Louisiana, to lower or even eliminate them.

    The result is that corridor states took 11 of the top 15 spots in Chief Executive magazine’s 2012 review of best state business climates. California, New York, Illinois and Massachusetts were at the bottom. The states of the old Confederacy boast 10 of the top 12 places for locating new plants, according to a recent 2012 study by Site Selection magazine.

    Energy, manufacturing and agriculture are playing a major role in the corridor states’ revival. The resurgence of fossil fuel–based energy, notably shale oil and natural gas, is especially important. Over the past decade, Texas alone has added 180,000 mostly high-paying energy-related jobs, Oklahoma another 40,000, and the Intermountain West well over 30,000. Energy-rich California, despite the nation’s third-highest unemployment rate, has created a mere 20,000 such jobs. In New York, meanwhile, Gov. Andrew Cuomo is still delaying a decision on hydraulic fracturing.

    Cheap U.S. natural gas has some envisioning the Mississippi River between New Orleans and Baton Rouge as an "American Ruhr." Much of this growth, notes Eric Smith, associate director of the Tulane Energy Institute, will be financed by German and other European firms that are reeling from electricity costs now three times higher than in places like Louisiana.

    Korean and Japanese firms are already swarming into South Carolina, Alabama and Tennessee. What the Boston Consulting Group calls a "reallocation of global manufacturing" is shifting production away from expensive East Asia and Europe and toward these lower-cost locales. The arrival of auto, steel and petrochemical plants—and, increasingly, the aerospace industry—reflects a critical shift for the Southeast, which historically depended on lower-wage industries such as textiles and furniture.

    Since 2000, the Intermountain West’s population has grown by 20%, the Third Coast’s by 14%, the long-depopulating Great Plains by over 14%, and the Southeast by 13%. Population in the rest of the U.S. has grown barely 7%. Last year, the largest net recipients of domestic migrants were Texas and Florida, which between them gained 150,000. The biggest losers? New York, New Jersey, Illinois and California.

    As a result, the corridors are home to most of America’s fastest-growing big cities, including Charlotte, Raleigh, Atlanta, Houston, Dallas, Salt Lake City, Oklahoma City and Denver. Critically for the economic and political future, the growth corridor seems particularly appealing to young families with children.

    Cities such as Raleigh, Charlotte, Austin, Dallas and Houston enjoy among the country’s fastest growth rates in the under-15 population. That demographic is on the wane in New York, Los Angeles, Chicago and San Francisco. Immigrants, too, flock to once-unfamiliar places like Nashville, Charlotte and Oklahoma City. Houston and Dallas already have more new immigrants per capita than Boston, Philadelphia, Seattle and Chicago.

    Coastal-city boosters suggest that what they lose in numbers they make up for in "quality" migration. "The Feet are moving south and west while the Brains are moving toward coastal cities," Derek Thompson wrote a few years ago in The Atlantic. Yet over the past decade, the number of people with bachelor’s degrees grew by a remarkable 50% in Austin and Charlotte and by over 30% in Tampa, Houston, Dallas and Atlanta—a far greater percentage growth rate than in San Francisco, Los Angeles, Chicago or New York.

    Raleigh, Austin, Denver and Salt Lake City have all become high-tech hubs. Charlotte is now the country’s second-largest financial center. Houston isn’t only the world’s energy capital but also boasts the world’s largest medical center and, along with Dallas, has become a major corporate and global transportation hub.

    The corridors’ growing success is a testament to the resiliency and adaptability of the American economy. It also challenges the established coastal states and cities to reconsider their current high-tax, high-regulation climates if they would like to join the growth party.

    Read or download the full report from the Manhattan Institute.

    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 first appeared in the Wall Street Journal.

  • Why The Red States Will Profit Most From More U.S. Immigration

    In recent years, the debate over immigration has been portrayed in large part as a battle between immigrant-tolerant blue states and regions and their less welcoming red counterparts. Yet increasingly, it appears that red states in the interior and the south may actually have more to gain from liberalized immigration than many blue state bastions.

    Indeed an analysis of foreign born population by demographer Wendell Cox reveals that the fastest growth in the numbers of newcomers are actually in cities (metropolitan areas) not usually seen as immigrant hubs. The fastest growth in population of foreign born residents–more than doubling over the decade was #1 Nashville, a place more traditionally linked to country music than ethnic diversity. Today besides the Grand Old Opry, the city also boasts the nation’s largest Kurdish population, and a thriving “Little Kurdistan,” as well as growing Mexican, Somali and other immigrant enclaves.

    Other cities are equally surprising, including #2 Birmingham, AL; #3 Indianapolis, IN; #4 Louisville, KY and#5 Charlotte, NC, all of which doubled their foreign born population between 2000 and 2011. Right behind them are #6 Richmond,VA, #7 Raleigh,NC , #8 Orlando, Fl, #9 Jacksonville,Fl and #10 Columbus, OH. All these states either voted for Mitt Romney last year or have state governments under Republican control. None easily fit the impression of liberally minded immigrant attracting bastions from only a decade ago.

    Although the New York metropolitan area still has the greatest numeric growth in immigrants since 2000, a net gain of more than 600,000, there’s no question that the momentum lies with these fast growing immigrant hubs.The reasons are not too difficult to fathom. In the modern global economy, migrants represent the veritable “canaries in the coalmine”. They go to economic opportunities are often the greatest, which often means thriving places like Nashville, Raleigh, Charlotte, Columbus or #11 Austin, TX. Housing prices and business climate also seem to be a factor here; all these areas have lower home prices relative to income than many traditional immigrant hubs.

    As a result, many immigrants are moving from their traditional “comfort zone” cities with historical larger immigrant populations — New York, Los Angeles, San Francisco and Chicago — to generally faster growing, more affordable cities.

    This is drastically reshaping the demographic future of the country. Over the past decade the increase in foreign born residents accounted for 44% of the nation’s overall population growth rate. With the U.S. birthrate heading downwards, at least for now, immigration represents perhaps the one way regions can boost their populations and energize their economies. It may be America’s biggest hope  as well in keeping Social Security and Medicare from collapse.

    Ironically, even as they migrate elsewhere, immigrants also may prove particularly critical in some of our older cities. Newcomers have been vital to maintaining population growth or at least fending off stagnation. Los Angeles, Miami, New York, Chicago and San Francisco metros have maintained enough growth among the foreign born to keep going negative due to significant losses in net domestic migration. Yet even among biggest metros the biggest growth has been among lower-cost, until fairly recently largely native-born, regions such as Houston, Dallas-Fort Worth and Atlanta.

    The impact on these areas is likely to be profound over time. Urbanists like to speak about the “great inversion” of upper-class professionals to cities, but it’s really the immigrants who provide the demographic and economic momentum for our largest metros. This point may be missed because many times immigrants — unlike the much cherished (and much publicized) hip, cool, largely white professionals — often do not choose to live in the overpriced, crowded urban core (although some may have businesses there).

    Instead immigrants tend to cluster in the less dense, more affordable and spacious periphery, where their “American dream” of a single family house is often far more achievable. In Southern California, for example, decidedly exurban #25 San Bernardino Riverside added three times as many foreign born than long-time immigrant hub Los Angeles, despite having only one-third the total popoulation. Los Angeles actually recorded the smallest percentage growth in foreign born of any major U.S. metro.

    Over time, the immigrant impact may prove greatest in terms of economics. Immigrants, in a word, tend to be resilient, and opportunistic by nature. Although many immigrants and their offspring still lag behind economically, over time they appear to be integrating. Overall their rate of home ownership still lags that of native born Americans, but appears to have held up better since the recession.

    Nowhere is the impact greater than in the entrepreneurial sector. Between 1982 and 2007, the number of businesses owned by the primary immigrant groups, Asian Americans and Hispanics grew by 545% and 696% respectfully. In contrast businesses owned by whites grew by only 81%.

    Perhaps more important still, even in the midst of the recession, newcomers continued to form businesses at a record rate, even as those by native-born entrepreneurs declined. The immigrant share of all new businesses, notes Kauffman, more than doubled from from 13.4% in 1996 to 29.5% in 2010.

    Some emerging tech centers are particularly dependent on foreign born migration as evidenced by rapid growth in Raleigh, Austin and Columbus. Established tech centers like San Jose, San Francisco and Seattle also all have large foreign born populations. Overall immigrants are responsible for roughly a quarter of all high-tech start ups .

    Much of this can be attributed to Asians, who constitute over 40%of all newcomers andnow stand as the fastest growing immigrant group. They now account for roughly twenty percent of all tech workers, four times their percentage of the population.

    Yet these impacts will be felt well beyond the tech community. Professionals of all kinds are moving in record numbers from the riskier political environment and pollution of China, seeking places where they can use their skills most effectively. Immigrants also play an increasingly important role in such less tech oriented industries, from the garment, carpet and furniture industries as well as small scale retail enterprise.

    Newcomers also are playing a major role in the reviving housing market, particularly in places such as New York, Los Angeles, Miami, Phoenix and the Bay Area. A house that might seem outrageously overpriced to the average American family might seem rather a bargain if you are coming from Hong Kong, Beijing or Shanghai.

    It is likely that, if sensible reform is passed, these impacts will begin to extend to other parts of country — such as Cleveland, Milwaukee and Memphis — that still get very little new foreign immigration. Like Houston in the 1990s, these areas have affordable housing to attract newcomers and, with any resurgence of economic growth, could provide opportunities for up and coming immigrants. A decade ago, after all, who would have seen Nashville, the ultimate symbol of our country heritage, as a rising immigrant hub?

    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 Forbes.

    Photo by telwink

  • Failing Economies Shorten Lives

    A recent study has come up with some shocking news: life expectancy of the least educated white Americans, both men and women, is going down. White women without a high school diploma now live five years less on the average than they did 20 years ago: for white male dropouts, the decline is three years.

    This is a calamity matched only by the six-year decline in longevity among Russian men in the waning years of Communism there. But that decline, blamed on rampant alcoholism, has been mostly reversed.

    What’s going on here? No one really knows, but my bet is that the cause is economic — the collapse of the industrial, steady, low-wage jobs that once supported even the least-educated Americans. These people once were lower middle-class. Now they’re just poor, the losers in the global economy, increasingly cut off from jobs, a steady income and, not incidentally, decent health care.

    In a sense, we’ve been here before. What’s happening to this new white underclass is a repeat of what happened to the black American underclass in the wake of the collapse of urban industry. That destroyed economy hit inner-city blacks 30 years ago, with results that echo today. Now, it’s hitting whites, with results that mostly are yet to come.

    So far as I can see, blacks never experienced the severe dip in longevity afflicting low-income whites today. According to the Center for Disease Control, average life expectancy for black men dipped by a year or two between 1984 and 1989, largely due to HIV and homicides. But black life expectancy is still shockingly low — an average of 67.6 years for black men, as opposed to nearly 75 years for white men, according to a UCLA study. Black women live nearly 75 years on the average, but this is still five years less than the 80-year average for white women.  

    I wrote about this in my book, Caught in the Middle, on the impact of globalization on the Midwest. In a chapter entitled "Left Behind," I described the plight of urban blacks, the descendants of Southerners who came north in the Great Migration between 1915 and 1970, to escape Jim Crow laws down south and to find jobs in the booming factories of Chicago, Detroit and other cities. Since the ’60s, the departure of this industry destroyed jobs, mostly held by men, and stranded families in a familiar cycle of unemployment, bad schools, crime, drugs, single-parent households and, increasingly low life expectancy.

    More recently, this industrial collapse swept through the Midwest, hitting white workers and their communities as hard as black workers and towns. Most of all, the Midwesterners now being "left behind" are rural whites, a clan about as far from urban blacks as one can imagine but now sharing the same pathology  — poverty, bad health, reliance on government handouts, high dropout rates, drugs, down-home religions, broken families, empty futures.

    Charles Murray and other writers have remarked on this growing gap between rich and poor white Americans. Murray called them virtually separate nations, with radically different patterns of marriage, work habits, education, religion, politics, even diet and TV watching. Some of Murray’s past work is suspect — he once found whites genetically superior to blacks. But his latest book, Coming Apart,  argues that "our nation is coming apart at the seams — not ethnic seams, but the seams of class." My own reporting in the left-behind stretches of the industrial Midwest supports much of this.

    Murray doesn’t think economic distress has much to do with this. He’s wrong. The economic disasters that struck inner-city African Americans 30 years ago is happening again to whites, in both cause and effect. There’s no reason to think these effects will stop with the decline in longevity among the first-hit and the worst-hit.

    The latest longevity findings were in a study led by S. Jay Olshansky, a public health professor at the University of Illinois at Chicago. They showed that white female high school dropouts lived only 73.5 years on the average in 2008, down exactly five years from the 78.5 years they could expect in 1990. For white male dropouts, the drop was three years, from 70.5 years in 1990 to 67.5 years in 2008.

    In the same period, both black and Latino life expectancy rose at all levels of education.

    Other studies have shown vast differences in life expectancy between education levels, incomes, race and other factors. If the average white male dropout can expect to live only 67.5 years, white men with a college degree have an expectancy of 80.4 years, a 13-year gap. Those white women dropouts, with an expectancy of 73.5 years, are ten years behind white women with a college degree.

    It gets worse. A National Institutes of Health study reported that black men live on the average eighteen years less than Asian females. Some geographical differences take this to even greater extremes: Native American men in one impoverished area of South Dakota live only 58 years on the average, fully 33 years less than the 91 years expected by Asian females in Bergen County, N.J., a high-rent district just across the Hudson River from Manhattan.

    Genetics may have something to do with it. But not as much as economics and the fallout from economic differences. Poor people get less schooling, which leads to worse jobs, which leads to poorer lifestyles, which leads to stress, which leads to more smoking and drinking, which increases the chances of joblessness, which means no health insurance, all of which adds up to the kind of debilitating despair that never lengthened anyone’s life.

    Will life expectancy figures for whites begin to dip toward those of blacks? Possibly. The relatively short life expectancy for black men, for instance, is the result of two centuries of reduced life chances, in which the average man moved from slavery to sharecropping to a hard but relatively secure life on assembly lines, to unemployment when those lines closed, followed by several decades now of insecure employment, no health insurance, a vanishing role as the family breadwinner, bad diet and, increasingly, heavy drug use. White men in the Midwestern industrial belt enjoyed decades of economic stability, but for many of them, that’s gone now. The least educated were hit first, and the longevity statistics illustrate the result.

    Richard Longworth is a Senior Fellow at The Chicago Council on Global Affairs. He is the author of Caught in the Middle: America’s Heartland in the Age of Globalism, now out in paperback (Bloomsbury USA). He writes at The Midwesterner: Blogging the Global Midwest, where this piece originally appeared.

  • U.S. Late to the Party on Latin America, Africa

    President Barack Obama’s proposed tilt of U.S. priorities toward the Pacific – and away from the historical link to Europe – represents one of the most encouraging aspects of his foreign policy. Although welcome, we should recognize that this shift comes about three decades too late and that it may miss the rising geopolitical centrality of sub-Saharan Africa and Latin America. The emergence of these longtime historically impoverished backwaters has been largely missed as American policy-makers and businesses are now obsessed with the challenges and opportunities posed by the emergence of China and, to a lesser extent, India. Sub-Saharan Africa, for example, over the past decade has produced six of the world’s 10 fastest-growing economies. Through 2011-15, according to the International Monetary Fund, seven of the fastest-growing countries will be African, and Africa as a whole will surpass the slowing growth rates in Asia, particularly China.

    This growth has caused the region’s poverty rates, still unacceptably high, to fall from 56.5 percent in 1990 to 47 percent today. Further growth will likely push poverty levels down further.

    Outgrowing U.S.

    With 600 million people, including a middle class of some 400 million, Latin America represents one of the world’s great growth markets. Over the past two years the growth rate in Latin America has been twice – and more in some countries – that in the United States, Europe and Japan. Latin America’s unemployment rate is reaching historic lows. A decade ago, it was 11 percent. Today it is 6.5 percent, well below levels in the U.S. or Europe.

    As in Africa, growth has worked to reduce Latin America’s historic high rate of poverty by 17 percent since 1990. Overall, Latin America’s combined gross domestic product is already larger than that of Russia and India combined – larger, in fact, than any nation or region besides the U.S., the E.U. and China.

    Demographic trends are likely to accelerate this process. Rapidly aging populations in Europe, Japan and East Asia threaten both workforce growth and fiscal stability. Today, people at least age 60 account for 13 percent of the population in China, 15 percent in east Asia, 32 percent in Japan and 22 percent in Europe, but barely one in 10 residents in Latin America; only 6 percent of Africa’s population is made up of seniors. By 2050, one-third of people in east Asia, Europe and China will be over 60, while Japan will pass 40 percent. In contrast, Latin America’s over-60 population will be 20 percent, and Africa’s half that.

    Indeed, over the next decade, Africa is slated to add more people than all of Asia, while Latin America’s growth will far exceed that of Europe, East Asia or North America. A surprising percentage of the residents in these regions will be middle class. From 2000-14, according to a McKinsey survey, the number of African households with annual incomes of at least $5,000 will grow from roughly 59 million to well over 106 million. Africa already has more middle-class households (defined as those with incomes of at least $20,000) than India.

    This demographic vibrancy is helping spark industrial growth, both for export and domestic consumption. Latin American countries, led by Brazil, have emerged as industrial centers while Mexico is rapidly replacing China as the preferred foreign manufacturing platform for American firms hailing from California to Texas. Manufacturing growth – particularly in textile and garments – has also begun to grow in parts of sub-Saharan Africa, following in many ways the patterns earlier seen in Japan, China, Southeast Asia and Bangladesh.

    Hunt for Resources

    But much of the importance of these regions lies with their enormous natural resources.

    Conventional wisdom in our chattering classes holds that, in the "information age," raw materials no longer represent an advantage for economic growth. Yet as the world’s population grows, and its middle class expands, there seems to be a cascading demand for raw materials, either for direct consumption or for use in manufactured goods. Energy consumption itself, according to the International Energy Agency, could rise as much as 50 percent by 2030, with more than 84 percent of that increase coming from fossil fuels.

    Increasingly the competition over Latin America and Africa reflects something of a reprise of what was once seen as "the great game," where European colonial powers struggled for control of resources and land masses in regions as diverse as Central Asia, Africa, South America and the Middle East. Today, this struggle includes many more protagonists, including Japan, Korea and, most powerfully, China, all of whom are targeting investments in the continent.

    One result has been growing interest in Africa, where foreign direct-investment projects grew by 27 percent in 2011 alone. American companies like Wal-mart and Google are expanding there, but much of the big investment comes from China. China’s former vice-minister of commerce, Wei Jianguo, recently told China Daily that Africa eventually will surpass the U.S. and the E.U. to become China’s largest trading partner. Last year, Latin America reaped a record $145 billion in FDI, an increasing share from China.

    Resource-hungry China has reason to focus on Africa and Latin America, which hold much of the world’s diminishing supply of not-yet-developed farmland, as well as tremendous reserves of precious minerals and energy. Africa, by current accounts, possesses 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 percent to 90 percent of the chromium and the platinum metal group.

    These supplies, notes a recent McKinsey report, may be grossly undercounted, since much of the continent has not been thoroughly explored. But, to date, Africa has a proven stock of $13 trillion to $14.5 trillion worth of energy resources (oil, coal, gas, uranium); South Africa alone is estimated to have $2.5 trillion in mineral wealth.

    Latin America, too, enjoys ample natural resources, to go with its rapidly developing industrial sector. Brazil is the world’s third-leading food exporter, and other Latin countries, such as Chile and Mexico, have been emerging as major producers of commodities.

    Latin America also seems well-positioned to benefit from the shift of world energy production from the Middle East and Russia to the Americas. Brazil has already made large strides in offshore oil development; possible future offshore oil finds in Mexico and Cuba create an energy boom through the entire Caribbean Basin.

    U.S. Needs to Shift

    Clearly, the rise of these two regions signals that we need to adjust our foreign policy priorities. American business is already becoming more engaged with these two continents; over the past decade trade growth there has more than tripled, compared with a doubling of trade with Asia and Europe. We need to move not only beyond our old strategic ties with Europe, and embroilment with the volatile Middle East, and look to engage in the places where our primary rivals, notably China, already see the future of the world economy.

    Will America, finally awakening from its European slumbers and no-win Middle Eastern involvements, get with the new program? It took three decades for the foreign policy establishment to acknowledge the reality of the Pacific era. Hopefully it won’t take nearly as long to acknowledge the growing influence of both our southern neighbors and emergent powerhouse that is Africa.

    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.

    World image by BigStockPhoto.com.

  • Blue States Double Down On Suicide Strategy

    Whatever President Obama proposes in his State of the Union for the economy, it is likely to fall victim to the predictable Washington gridlock. But a far more significant economic policy debate in America is taking place among the states, and the likely outcome may determine the country’s course in the post-Obama era.

    On one side are the blue states, who believe that higher taxes are not only just, but also the road to stronger economic growth. This is somewhat ironic, since, as we pointed out earlier, higher taxes on the “rich” would seem to hurt their economies more, given their high concentration of high-income earners. However, showing themselves to be gluttons for punishment, many of these states have decided to double down on high taxes, raising their rates to unprecedented levels.

    This cascade of higher income taxes started in 2011 when Illinois, arguably the big state with the weakest economy, and the lowest bond ratings, raised income taxes by 66% and business taxes by 46%. Over the past year several other Democratic state governments have pushed through income tax increases, notably California, which raised the tax rate on people with annual income over $1 million to 13.3%, the highest in the nation. And now it appears that Massachusetts and Minnesota are about to raise their taxes as well.

    This is happening at the same time that some red states — notably Kansas and Louisiana — are looking at lowering income tax rates by shifting to rely more on consumption or sales tax revenues. Some red states don’t have income taxes — notably Florida, Texas and Tennessee — and most of those who do are holding the line. Red state leaders, most notably Louisiana’s Bobby Jindal, are placing their bets on  expanding their economies, which would create new taxpayers, boost consumer spending and expand collections of sales taxes.

    The contrast with the blue states — not so much those who voted for Obama, but those controlled totally by Democrats — could not be clearer. They appear to have chosen an economic path that essentially penalizes their own middle and upper-middle class residents, believing that keeping up public spending, including on public employee pensions, represents the best way to boost their economy.

    Yet the gambit of raising state income taxes could not be coming at a worse time. The president’s adopted tax reforms have eliminated write-offs for state taxes for those individuals with incomes over $250,000 and families earning over $300,000. As a result, the affluent residents of these states — California, New York, New Jersey and Illinois alone count for 40% of these deductions nationally — now can expect to get whacked coming and going.

    So which strategy is likely to work best? Most conservatives would assert that the red state approach will prove more effective. But in the short run at least, the free-money policies of the Federal Reserve are supporting many blue-state economies. Plastering institutional investors with low-interest greenbacks raises the price of assets — notably stocks and real estate — creating high incomes for wealthy taxpayers that can then fill the coffers of these states.

    This particularly benefits New York, which depends heavily on Wall Street earnings. (Residents of New York City, which has a city-level income tax on top of high state rates, have the highest overall tax burden in the country.) States such as Massachusetts, Minnesota and even Illinois also have larger than average pockets of wealthy investors; if they do well, higher income taxes could, in the short run at least, bring substantial returns to their state coffers.

    Perhaps the most obvious short-term beneficiary of the new high-tax policy may be my adopted home state of California. Given the higher share of the tax burden borne by the wealthy, a rising stock market tends to send gushers of funds into state coffers, particularly when Silicon Valley is enjoying one of its periodic bubbles. Equally important, increases in real estate prices — up some 25% in Orange County alone — also drives up capital gains and income taxes. This growth is driven not by higher salaries for Californians but is largely investor driven. A remarkable one in three California home purchasers paid with cash in 2012, up from 27% from the previous year. Home prices are climbing rapidly in the Bay Area, where the economy is performing better, and could reach 2007 pre-crash levels within the next year or two, if the current tech bubble continues.

    In the short run, asset inflation combined with higher levels of taxation could solve California’s perennial budget problems, at least temporarily. The state is expected to move into surplus over the coming year. Gov. Jerry Brown sees this convergence as justification for his current “victory lap” in the state and national media. Brown, argues progressive analysts such as Harold Meyerson, has become very much the model of a modern blue state leader.

    Yet, in the longer run, it’s dubious that higher income taxes will make states like California any more competitive or stable fiscally. During the property bubble in the mid-2000s, California also balanced the budget; in 2007 Gov. Arnold Schwarzenegger started comparing the Golden State to ancient Athens and blithely initiated draconian laws on climate change as well as expansion of the social safety net. All things seemed possible until the bubble burst, and with it the windfall from a relative handful of taxpayers. As revenues fell, the state went through five years of huge deficits, a major loss of jobs and growing impoverishment.

    This is likely to happen again, once there’s a downturn in the housing or stock markets. In a sense  higher income taxes serve as an equivalent to what economist Suzanne Trimbath calls “fiscal crack.” For a short period there’s euphoria, as tax revenues flow in and the economy seems to recover. Yet the real problems, such as inadequate private-sector job growth, are never addressed, and as the high fades, the state again faces a loss of jobs and people.

    Perhaps most troubling, states with high income taxes tend to lose people, particularly in the middle class. Over the past 20 years the four biggest net losers of population were high tax states: California, New York, New Jersey and Illinois. Between them they lost roughly a net 8 million out-migrants. The two big net winners, Texas and Florida, had no such taxes, and most of the other big gainers were relatively low-tax states.

    Of course, not everyone is so concerned with income taxes. The ultra-wealthy like David Geffen seem gleeful to pay higher taxes, perhaps because this class, as Mitt Romney showed, have lots of ways to reduce their tax burdens, and after all, don’t have to worry about personal cash flow to keep the business going.

    But enthusiasm for higher taxes historically has been less marked among the much larger group who, although affluent, are far from billionaires. Between 2006 and 2009, California lost a net 45,000 taxpayers earning between $5 million and $300,000 a year, according to the State Department of Finance.

    To be sure, the outward movement slowed during the recession, but more recently the pattern has reasserted itself. Last year, all ten of the leading states gaining domestic migrants were low-tax states including five with no income tax: Texas, Florida, Tennessee, Washington and Nevada. In contrast high-tax New Jersey, New York, Illinois and California suffered the highest rates of out-migration.

    Given these realities, raising already high income taxes has to qualify as somewhat self-destructive over the long run. But so great are the pressures in the blue states to fund expansive welfare programs and public employee pensions that there’s little chance the rising tax tide will soon abate. Sadly, there’s no hotline that seems capable of persuading them to rethink their latest suicidal lurch.

    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.

    Income tax photo by Bigstock.

  • The Cities Winning The Battle For The Fastest Growing High-Wage Sector In The U.S.

    In an era in which many businesses that pay high wages have been shedding jobs, the wide-ranging employment category of professional, scientific and technical services has been a relatively stellar performer, expanding some 15% since 2001. In contrast, employment dropped over 20% in such lucrative fields as manufacturing and information-related businesses (media, telecom providers, software publishing) over the same period, and finance and wholesale trade experienced small declines.

    With an average annual wage nearing $90,000, this category — which includes computer consulting and technical services, accounting, engineering and scientific research, as well as legal, management and marketing services  — increasingly shapes the ability of regions to generate higher-wage jobs. In order to determine which metropolitan areas are doing best, Mark Schill of Praxis Strategy Group compiled rankings based on both long and short-term growth, as well as the extent and growth of each region’s business service economy compared to the national average.

    Notably absent from the top 10 are Chicago and the big metropolitan areas of the Northeast and California that have traditionally dominated high-end business services. The only exception is the third-ranked San Francisco-Oakland-Fremont metropolitan statistical area, which has logged 21% growth in this sector since 2001, while expanding the proportion of such jobs in the local economy to nearly twice the national average. Over the past year alone the region added 22,000 professional and business services jobs, which was more than a quarter of all new positions during that period.

    The continuing vitality of nearby Silicon Valley, and the region’s attraction to educated workers, have made the Bay Area easily the best performer of the nation’s mega-regions. Yet the other leaders on our list are generally smaller, growing metro areas whose expansions have been propelled by a rapid increase in employment in technology and professional management services. These include our top-ranked metro area, Austin-Round Rock-San Marcos, Texas, which enjoyed over 46% growth in employment in professional services since 2001;  fourth-place Raleigh-Durham, N.C.; and No. 5 Salt Lake City, Utah. These areas have enjoyed strong net-in migration of educated workers, and have poached companies from more expensive regions.

    More surprising still has been the rapid ascent of such unheralded regions as second-place Jacksonville, Fla., and Oklahoma City (sixth place). In Oklahoma City, where business and professional services employment has grown over 30% since 2001, progress can be traced to the city’s burgeoning energy sector.

    But some other areas on our list are benefiting from a hitherto unnoted shift of high-end services to lower-cost and often lower-density regions. Jacksonville may be the poster child for this. Over the past decade, the northern Florida metro area’s population has grown 20% to over 1.3 million, but business services employment has expanded nearly 50%, the biggest jump of any of the country’s 51 largest metropolitan areas. Once a business services backwater, the share of jobs in that sector in the local economy has rapidly climbed towards the national average. This growth has been driven by management consulting as well as computer and data center services, an area in which Jacksonville has enjoyed among the highest growth rates in the country. One major player is web.com, which employs 500 people at its headquarters in south Jacksonville.

    Other industries that rely on professional and business service providers have recently added jobs in the market, including BI-LO and Winn Dixie, which moved their combined headquarters  there, as did environmental services company Advanced Disposal. Financial giant Deutsche Bank has also  expanded in the area.

    Jerry Mallot, president of the local business development group Jaxusa Partnership, suggests that low costs, a high rate of housing affordability and Florida’s lack of income tax make Jacksonville attractive to companies seeking to expand or relocate. The state, according to a recent report from New Jersey-based www.BizCosts.com, is now home to five of the country’s least expensive and most pro-business cities. Jacksonville, Orlando, and Tampa also are all among the U.S. metro areas adding college-educated residents the fastest.

    Of course up-and-comers like Jacksonville, Charlotte, and Oklahoma City, and even Portland (10th place), still lack the critical mass of high-end business services of many of the larger, more established metropolitan areas. Some have continued to see strong growth in their professional services sectors. Not surprisingly, this includes greater Washington, D.C. (11th), with 26% growth since 2001, keyed by the expansion of government and the regulatory apparat in recent years. The share of professional services jobs in the local economy is two and a half times the national average, the highest concentration in the country.

    Yet many of America’s largest metro areas, including longtime business service bastions, have lagged well behind. New York, home to Wall Street and many leading consulting, legal and professional firms, ranks a mediocre 32nd out of the 51 largest metro areas, with relatively meager growth of 8.5%. The share of professional services jobs in the New York economy fell, as it did in Los Angeles-Long Beach-Santa Ana (36th) and Chicago-Joliet-Naperville (43rd). This suggest trouble ahead for the future.

    Chicago was among the few areas that actually lost employment in this generally fast-growing field. The other big losers include Detroit-Warren-Livonia, Mich. (39th) , despite a decent  pickup in the last two years as the auto industry has rebounded;  the Cleveland metro area (47th); Milwaukee-Waukesha-West Allis, Wisc. (49th); Birmingham-Hoover, Ala. (50th); and last-place Memphis.

    What do these trends tell us about the future of high-wage employment? Certainly size is not enough, nor even the possession of strong legacy in business service industries. The relative declines of our three largest metro areas — New York, Los Angeles and especially Chicago — alone tells us that. Chicago, which has touted itself as a capital of business expertise, now seems to be falling into the nether reaches long inhabited by older Rust Belt cities and Southern backwaters. Chicago leaders such as Mayor Rahm Emanuel needs to spent less time being possessed by what Time Out Chicago called a “world class city complex” and look into why, as urban analyst Aaron Renn suggests, the city’s vaunted global economy is not enough to produce enough high-wage jobs to sustain its vast surrounding region.

    At the same time, being small and affordable, while helpful, is also not sufficient for business services success, as the presence of a number of smaller metro areas at the bottom of the list suggests. But the strong performance of many mid-sized cities  – ranging from Austin, Raleigh and Salt Lake to less-heralded Jacksonville, Kansas City, Oklahoma City and Richmond — suggest that these jobs will likely continue to migrate to smaller, less costly and generally less dense urban regions.

    Once considered the natural domain of megacities and dense urban cores, high-wage business service jobs, largely due to technology, can increasingly be done anywhere. This suggests that the playing field for such positions, rather than concentrating, will become ever wider. As the struggle for good jobs intensifies in the years ahead, expect the competition between regions to get even greater.

    Professional, Technical, and Scientific Services in the Nation’s Largest Metropolitan Areas
    Rank   Index Score 2001 – 2012 Growth 2005 – 2012 Growth 2010 – 2012 Growth 2012 LQ 2001 – 2012 LQ Change 2012 Avg. Annual Wage
    1 Austin-Round Rock-San Marcos, TX 79.6 46.9% 38.8% 13.8% 1.43 5.9% $90,649
    2 Jacksonville, FL 79.1 50.2% 17.6% 8.4% 0.99 28.6% $72,913
    3 San Francisco-Oakland-Fremont, CA 67.2 21.4% 23.6% 12.9% 1.97 11.3% $120,442
    4 Raleigh-Cary, NC 63.5 34.5% 26.1% 10.8% 1.40 0.7% $81,025
    5 Salt Lake City, UT 63.3 33.4% 26.2% 9.8% 1.10 6.8% $76,341
    6 Oklahoma City, OK 59.9 31.1% 16.6% 11.0% 0.89 8.5% $62,374
    7 Kansas City, MO-KS 59.5 24.2% 17.6% 10.4% 1.24 10.7% $82,060
    8 Richmond, VA 57.7 28.9% 16.9% 8.2% 1.01 9.8% $82,184
    9 Charlotte-Gastonia-Rock Hill, NC-SC 56.1 29.9% 24.4% 6.3% 0.97 5.4% $81,171
    10 Portland-Vancouver-Hillsboro, OR-WA 55.1 24.6% 17.3% 10.2% 1.05 5.0% $73,601
    11 Washington-Arlington-Alexandria, DC-VA-MD-WV 55.1 26.1% 11.7% 3.5% 2.45 1.7% $119,460
    12 Riverside-San Bernardino-Ontario, CA 54.6 45.5% 3.1% 2.1% 0.58 11.5% $52,617
    13 Nashville-Davidson–Murfreesboro–Franklin, TN 52.8 31.7% 11.3% 5.6% 0.88 7.3% $81,189
    14 Buffalo-Niagara Falls, NY 52.4 22.7% 19.4% 5.2% 0.93 10.7% $64,449
    15 Atlanta-Sandy Springs-Marietta, GA 52.2 18.6% 14.4% 10.7% 1.30 3.2% $87,575
    16 Columbus, OH 51.9 23.4% 17.6% 5.8% 1.16 6.4% $81,027
    17 San Diego-Carlsbad-San Marcos, CA 50.9 24.7% 13.4% 3.4% 1.51 5.6% $98,390
    18 Sacramento–Arden-Arcade–Roseville, CA 50.3 29.6% 11.0% 1.1% 1.06 10.4% $81,973
    19 San Antonio-New Braunfels, TX 48.1 30.5% 13.2% 5.3% 0.80 0.0% $69,979
    20 Baltimore-Towson, MD 47.4 20.0% 8.4% 6.1% 1.34 3.9% $93,263
    21 Seattle-Tacoma-Bellevue, WA 47.1 18.3% 21.3% 6.6% 1.21 -1.6% $88,345
    22 Tampa-St. Petersburg-Clearwater, FL 46.7 18.7% 7.6% 5.0% 1.17 8.3% $72,087
    23 Boston-Cambridge-Quincy, MA-NH 44.8 10.5% 15.5% 7.6% 1.62 -1.8% $118,694
    24 Dallas-Fort Worth-Arlington, TX 44.6 20.1% 17.1% 5.4% 1.12 -2.6% $89,392
    25 Denver-Aurora-Broomfield, CO 44.2 14.3% 16.5% 5.5% 1.44 -1.4% $91,922
    26 Las Vegas-Paradise, NV 43.6 33.4% -1.1% 1.6% 0.74 4.2% $74,939
    27 Louisville/Jefferson County, KY-IN 41.8 16.4% 13.8% 4.7% 0.82 2.5% $65,664
    28 Cincinnati-Middletown, OH-KY-IN 41.3 13.3% 7.6% 7.8% 0.96 1.1% $71,259
    29 Orlando-Kissimmee-Sanford, FL 39.9 26.6% 0.0% 3.0% 0.98 -2.0% $72,368
    30 Houston-Sugar Land-Baytown, TX 39.0 20.4% 15.0% 4.1% 1.15 -10.2% $101,352
    31 New Orleans-Metairie-Kenner, LA 38.8 6.0% 11.8% 2.5% 0.97 10.2% $78,866
    32 New York-Northern New Jersey-Long Island, NY-NJ-PA 37.5 8.5% 9.8% 7.1% 1.36 -6.2% $110,211
    33 Indianapolis-Carmel, IN 36.2 17.2% 10.6% 1.9% 0.85 -2.3% $76,393
    34 San Jose-Sunnyvale-Santa Clara, CA 35.4 -5.5% 13.7% 7.9% 2.10 -9.1% $143,640
    35 Pittsburgh, PA 35.0 6.8% 10.0% 6.4% 1.06 -4.5% $81,614
    36 Los Angeles-Long Beach-Santa Ana, CA 34.8 7.8% 4.3% 5.6% 1.22 -3.2% $89,157
    37 Minneapolis-St. Paul-Bloomington, MN-WI 32.2 4.5% 7.1% 7.8% 1.04 -8.0% $89,476
    38 Miami-Fort Lauderdale-Pompano Beach, FL 31.9 10.5% 0.4% 3.5% 1.13 -4.2% $76,567
    39 Detroit-Warren-Livonia, MI 31.6 -6.4% -2.1% 10.5% 1.48 -3.3% $87,909
    40 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 30.8 6.0% 1.0% 4.2% 1.27 -5.2% $100,423
    41 Rochester, NY 30.3 5.8% 0.7% 6.7% 0.83 -4.6% $65,787
    42 Phoenix-Mesa-Glendale, AZ 28.5 12.9% 1.3% 2.4% 0.92 -8.9% $77,201
    43 Chicago-Joliet-Naperville, IL-IN-WI 25.6 -2.1% 2.3% 5.8% 1.20 -9.8% $97,746
    44 St. Louis, MO-IL 25.5 1.0% 0.9% 4.2% 0.93 -6.1% $77,086
    45 Hartford-West Hartford-East Hartford, CT 25.1 2.9% 3.9% 2.5% 0.91 -7.1% $84,846
    46 Virginia Beach-Norfolk-Newport News, VA-NC 24.5 7.4% 1.1% -1.3% 0.89 -4.3% $71,609
    47 Cleveland-Elyria-Mentor, OH 19.9 -6.5% -3.3% 5.0% 0.92 -8.0% $75,584
    48 Providence-New Bedford-Fall River, RI-MA 19.8 4.4% -3.3% -2.2% 0.72 -4.0% $68,834
    49 Milwaukee-Waukesha-West Allis, WI 15.8 -5.0% -5.1% 2.3% 0.81 -10.0% $76,264
    50 Birmingham-Hoover, AL 4.2 -9.2% -7.8% -2.8% 0.84 -17.6% $75,561
    51 Memphis, TN-MS-AR 2.2 -8.2% -11.6% -2.2% 0.52 -17.5% $63,943

     

    Analysis by Mark Schill, Praxis Strategy Group
    Data Source: EMSI 2012.4 Class of Worker – QCEW Employees, Non-QCEW Employees & Self-Employed 

    The LQ (location quotient) figure in the table above is the local share of jobs that are professional, technical, and scientific services (PSVS) divided by the national share of jobs that are PSVS. A concentration of 1.0 indicates that a region has the same concentration of PSVS as the nation.

    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.

  • Is Urbanism the New Trickle-Down Economics?

    The pejoratively named “trickle-down economics” was the idea that by giving tax breaks to the wealthy and big business, this would spur economic growth that would benefit those further down the ladder. I guess we all know how that worked out.

    But while progressives would clearly mock this policy, modern day urbanism often resembles nothing so much as trickle-down economics, though this time mostly advocated by those who would self-identify as being from the left. The idea is that through investments catering to the fickle and mobile educated elite and the high end businesses that employ and entertain them, cities can be rejuvenated in a way that somehow magically benefits everybody and is socially fair.

    Trickle down economics type policies failed both because while they contained a great deal of truth – tax rates do matter in economic development – they were a reductionist oversimplification, and perhaps more importantly were self-interested recommendations of the very class that would benefit from them. The tax breaks for the wealthy and big business were in fact the real goals, not primarily policies intended for socially beneficial consequences it was said would result from them.

    As it turns out, urbanism in its current form appears to suffer from the exact same problems, as Richard Florida has just documented in an article over at Atlantic Cities called “More Losers Than Winners in America’s New Economic Geography.”

    A key question remains: Who benefits and who loses from this talent clustering process? Does it confer broad benefits in the form of higher wages and salaries to workers across the board or do the benefits accrue mainly to smaller group of knowledge, technology, and professional workers?

    The University of California, Berkeley’s Enrico Moretti suggests a trickle-down effect, arguing that higher-skill regions benefit all workers by generating higher wages for all workers. Others contend that this new economic geography is at least partially to blame for rising economic inequality.
    ….
    I’ve been examining the winners and losers from this talent clustering process in ongoing research with Charlotta Mellander and our Martin Prosperity Institute team….Our main takeaway: On close inspection, talent clustering provides little in the way of trickle-down benefits. Its benefits flow disproportionately to more highly-skilled knowledge, professional and creative workers whose higher wages and salaries are more than sufficient to cover more expensive housing in these locations. While less-skilled service and blue-collar workers also earn more money in knowledge-based metros, those gains disappear once their higher housing costs are taken into account.

    In short, there’s no flow through to people who aren’t directly tapped into the knowledge economy itself. I might add that this probably does include a number of service sector workers like celebrity chefs and personal trainers who cater to the luxury end of services. But the majority of residents are missing out.

    To put it in political speak, the creative class doesn’t have much in the way of coattails.

    These findings also foot to the implications of Saskia Sassen’s global city theories, in which the global city functions of a region comprise a sort of “city within a city” which has little in common with the rest of the metro region as thus perhaps little impact on it. Indeed, we might even view the two economic geographies as being in conflict.

    Florida and Sassen are academics and so can’t necessarily be seen as advocates for the phenomena they describe. They are describing what is, not what should be. The question is, what have policy makers done with this information?

    As with the tax rate example, there really is an importance to attracting educated people to your city. College degree attainment explains almost everything about per capita income in a region. (Though as Florida notes, per capita values, as means, can be misleading and median is a better way to do analysis where it’s available).

    Have urbanists used this as a call to arms to put all of their energy into helping those left behind in the knowledge/creative class economy? No. Instead, urban advocates have gone the other direction, locking onto this in a reductionist way to develop a set of policies I call “Starbucks urbanism.” That is, the focus is on an exclusively high end, sanitized version of city life that caters to the needs of the elite with the claim that this will somehow “revitalize” the city if they are attracted there.

    As with trickle-down economics, this a) doesn’t work and b) is being promoted by the self-interested.

    Firstly, it doesn’t work because it more or less operates on the basis of displacement. So it might revitalize certain select districts, but only as physical geographies not human ones. This is exactly because of the phenomenon Florida identified: there are few trickle down benefits to be had. Also, this only works in a handful of districts or in cities that are so small that you can plausibly gentrify the entire thing. The area left behind in these places, as the in the violence stricken neighborhoods of Chicago that are making national news, receive virtually no benefit. And as Bill Frey of Brookings once said, “There aren’t enough yuppies to go around to save Detroit.” Thus only a comparatively small number of cities benefit from talent concentrations anyway. (Indeed, the notion of “concentration” is inherently a relative one).

    Secondly, and here I go beyond Florida’s article, urban advocates are a largely self-interested class. Everybody knows that a hedge fund plutocrat is looking out for number one and has a class interest, but if we were honest with ourselves, most of us probably do the same at some different level. For example, it’s easy to cry nepotism when a politician’s relative gets put on the payroll, but if a man gets his son on at the ironworkers union, it generally flies under the radar. I don’t claim to be exempt from this myself.

    The people most aggressively pushing urbanist policies like bike lanes, public art, high end mixed use developments, high tech startups, swank boutiques and restaurants, greening the city policies, etc. are disproportionately those who want to live that lifestyle themselves, or hope to someday. Like me in other words. The fact that you’re a Millennial who rides around to microbreweries on your fixie without necessarily having a high paying job yourself (yet) doesn’t matter. You are still advocating for your own preferred milieu, and that of others who think like yourself.

    I have observed that when challenged on this, urbanists grow indignant, talking about their commitment to the planet or how transit benefits the poor, etc. But ultimately as with the tax cut advocates, that’s just a self-justification. With some notable exceptions, you don’t see social justice and equity issues front and center in the urbanists discussions outside of old-school community organizing/activism circles, groups that are almost totally distinct from Atlantic Cities style urbanism.

    Most urbanists I know are quick to advocate tax increases for the 1% but fail to see how their own policies contribute to a widening of the income gap and class divide in their own cities. Even if they are genuinely motivated to help the entire civic commonwealth, hopefully they recognize that they at least have the same conflict of interest situation they would be quick to highlight in a businessman or politician.

    The answer isn’t to junk urbanism. Just as class warfare rhetoric that demonizes the wealthy and business and wants to tax the daylights out of them isn’t the solution to what ails our economy, neither is abandoning many of the principles of urbanism. After all, tax rates do matter for economic growth. Similarly, liveable streets and such are indeed very important to urban revitalization.

    What’s needed is a new orientation of these ideas so that we don’t end up with an explicitly elitist policy rationale and policy set that caters to the already privileged at the expense of the poor and middle classes of our cities. We need to be asking the question of what exactly we are doing to benefit the people without college degrees beyond assuring them that if we attract more people with college degrees everything will be looking up for them. We need to sell ideas like transit in a way that isn’t totally dependent on items like “enabling us to attract the talent we need for the 21st century economy.” If I read half as much about providing economic opportunity and facilitating upward social mobility for the poor and middle classes as I do about green this, that, or the other thing, we’d be getting somewhere. (Observe Robert Munson’s recent call to broaden the practical definition of green as one example of starting to think this way). I need to do this as much as anyone.

    It’s easy to see why people default to trickle-down type theories even beyond class interest. Both sets of prescriptions – tax cuts for the elite and urbanism for the elite – took place against a backdrop of globalization and deindustrialization that eviscerated the engines of traditional working and middle class prosperity. The answers to how to fix this core problem aren’t obvious. Richard Longworth recently put together a compilation of views on middle class malaise and it is sobering reading.

    In a sense, elite boosting policies have “worked” because they’ve successfully boosted the elite – a reasonably tractable problem in the new economy. But they’ve had few benefits to anyone else and have fueled huge class-based resentments that threaten civic cohesion. But just because the problem of opportunity for the poor and middle classes isn’t easy, doesn’t mean it doesn’t need to be solved. Indeed, rebuilding an engine of broad-based prosperity and upward mobility is the signature challenge of our age, and one to which urbanists should be encouraged to apply their fullest efforts.

    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.

    Chicago skyline photo by Bigstock.