New Geography

Category: Economics

  • Prairie Populism Goes Bust As Obama’s Democrats Lose The Empty Quarter

    Along Phillips Avenue, the main street of Sioux Falls, South Dakota, the local theater’s marquee is a tribute to the late Senator and 1972 presidential candidate George McGovern, who was buried last month, and is still regarded as a hero by many here. But with McGovern gone, it seems that the Democratic tradition of decent populism he epitomized was being interred along with him.

    In his landmark 1981 book, The Nine Nations of North America, Joel Garreau deemed the vast region stretching from the southern Plains well past the Canadian border The Empty Quarter. Along with the western strip of the neighboring Bread Basket that stretches up from central Texas through the Dakotas, the Quarter—covering much of the nation’s land and home to many of its vital natural resources—is in open revolt against the Democratic Party, threatening the last remnants of prairie populism.

    Although long conservative and GOP leaning, the Empty Quarter—containing Nevada, Utah, Wyoming, Idaho, Montana, and most of Alaska, along with inland California and Washington and parts of Colorado, New Mexico, and Oregon—has a proud progressive tradition as well. Over the past half-century, many of the Democratic Party’s most respected leaders —McGovern, Senator Majority Leaders Mike Mansfield of Montana and Tom Daschle of South Dakota, and powerful figures like North Dakota’s Byron Dorgan and Kent Conrad—have represented the Plains.

    The tradition is still revered there, but today’s Democrats are becoming an endangered species    as the party has become ever more distinctly urban, culturally secular and minority dominated.

    While Obama lost most of the Quarter in 2008, this year polls show that he’s likely to be crushed there, despite the booming economy in many of the states. Obama’s popularity has dropped more in North Dakota, which has the nation’s lowest unemployment rate, than any other state.

    Amidst the growing anti-Obama tide, progressive Democrats in most of the Quarter have been increasingly marginalized, both by their own party and by voters.  In the past two years, Republicans picked up a Senate and House seat in North Dakota, and look likely to pick up another this year,  along with a Senate seat in Nebraska,  and quite possibly another in Montana.  They are also poised to claim the only remaining Democratic House seat in Utah, if Mia Love’s lead over Rep. Jim Matheson holds up.

    By the end of this election, it’s possible that only two classic Prairie Democrats—South Dakota’s Tim Johnson and Montana’s Max Baucus—will remain in the Senate, where they once formed a powerful caucus. The Plains states, plus Alaska, account for 50 Congressional seats and an equal number of electoral votes—more than Florida, North Carolina and New Hampshire combined.

    Why has this occurred? One problem, notes former Daschle top economic aide Paul Batcheller, lies with the “nationalization” of the Democratic Party—and its transformation from an alliance of geographic diverse regions to a compendium of narrow special-interest groups, so that under Obama, the Democratic Party has essentially become the expression of urban-dwellers, greens and minorities, along with public employees.

    This, says Batcheller, has “made it easier for Republicans to paint Democrats as in cahoots with the likes of Ted Kennedy, Nancy Pelosi, etcetera.  And because politics has always been fairly civil here, having those coastal boogeymen to use has made it easier to paint Prairie Dems as having gotten Potomac Fever.”

    He also points to “changes in the media”—especially cable TV—that have made it more difficult for grassroots Democrats to make their case for their own interests, outside of the increasingly polarized national debate.  At the same time, Obama’s policies—focused largely on constituents in dense coastal cities—have widened the gap between the Plains and the Democrats.  It is increasingly difficult to be a successful Prairie progressive when that means striking out consistently against the very industries, from large-scale agriculture to fossil fuels, at the center of these economies.

    At the same time, the failings of Democratic big states, most notably California and Illinois, are not exactly advertisements for the virtues of modern progressivism. Particularly galling, notes Mike Huether, the mayor of Sioux Falls, have been the huge deficits and expanded welfare spending associated with the Obama Administration.

    “This is a fiscally conservative place, we don’t like deficits,” notes Huether, a lifelong Democrat whose city of 156,000 operates with a fiscal surplus. “People here want self-sufficiency. They are happy to give a hand up but they see that as short term and that’s it.”

    And the region’s self-sufficiency is an increasingly important part of our national debate, especially about energy independence. Although often dismissed as a land of rubes and low-end jobs, a study of the Plains  I conducted with the Praxis Strategy Group and Texas Tech University found that, overall, it has outperformed the rest of the country in virtually every critical economic measurement from job creation and wage growth to expansion of GDP.

    The area has also thrived demographically, with population growth well above the national average. Most of this has taken place in the region’s flourishing urban centers, from Ft. Worth and Midland, Texas to Sioux Falls, Bismarck, Fargo, Oklahoma City and Omaha. This growth includes migration from still de-populating smaller towns in the region, but increasingly includes migrants from the coastal areas as well as immigrants.

    More people now arrive in Oklahoma City from Los Angeles than the other way around.   And these arrivals are hardly poor Okies pushed back unwillingly; the Plains cities have become magnets for educated people. Over the past decade, the number of people with BAs in Sioux Falls has grown by almost 60 percent; Bismarck and Fargo saw growth of over 50 percent, while Oklahoma City, Omaha and Lubbock enjoyed forty percent increases. In contrast, the educated population of San Francisco grew at 20 percent and that of New York by 24 percent.

    Any coastal denizen who spends time in these cities may be surprised by the tolerance and lack of bible-thumping one encounters there. Social issues, notes Mayor Huether, have never been drivers in the Plains as they have been in parts of the Deep South. A quiet Nordic spirituality prevails here, rather than evangelical enthusiasm; people and politicians generally do not wear their faith on their sleeves. The real issue in the Plains centers around the future of the economy, and how best to bolster family and community; the Obama program, with its interest-group agendas, simply does not translate well in this environment.

    Ultimately, the red tide sweeping over the Plains is bad news, not simply for Democrats but for the country, part of the trend noted by Batcheller in which moderating regional forces within both parties—New England Republicans and Blue Dog Democrats—are losing ground.

    Prairie Democrats are crucial for ensuring that producers tangible staples—food, fiber and energy—have a space within their party’s tent, along with the big-city coastal consumers of those resources. Never mind the conservative cliché: If Democrats lose their remaining hold on the Plains, the nation’s parties will truly be split between makers and takers.

    This region is likely to become more important over the coming decades, providing much of the food needed for world markets as well as significant share of our new domestic energy. Its manufacturing, technology and service industries are also growing rapidly, integrating the area more into the national and global economies.

    Batcheller, among others, believe that the Plains Democrats may not become extinct, but their future will be limited in the increasingly polarized, and nationalized, political order. On the local level, particularly on key infrastructure projects like Lewis and Clark water project  that is being built to meet the needs of Sioux Falls and its environs, Republicans and Democrats are largely in agreement. Neither tea-party extremists nor greens can block progress towards widely accepted local infrastructure goals.

    One can only hope that the Prairie Democrats manage to survive. They have  contributed a unique brand of civically minded, decent social democracy that added much to the national debate. Egalitarian in intent, their brand of aspirational liberalism, fully content and compatible with notions of individual achievement and hard work, offers an alternative to the “know nothing” extremism increasingly dominant in both parties. This tradition of progressive decency could be sorely missed in the years ahead.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared at The Daily Beast.

    Sioux Falls photo by Jon Platek..

  • The Rise of the Great Plains: Regional Opportunity in the 21st Century

    This is the introduction to a new report on the future of the American Great Plains released today by Texas Tech University (TTU). The report was authored by Joel Kotkin; Delore Zimmerman, Mark Schill, and Matthew Leiphon of Praxis Strategy Group; and Kevin Mulligan of TTU. Visit TTU’s page to download the full report, read the online version, or to check out the interactive online atlas of the region containing economic, demographic, and geographic data.

    For much of the past century, the vast expanse known as the Great Plains has been largely written off as a bit player on the American stage. As the nation has urbanized, and turned increasingly into a service and technology-based economy, the semi-arid area between the Mississippi Valley and the Rockies has been described as little more than a mistaken misadventure best left undone.

    Much of the media portray the Great Plains as a desiccated, lost world of emptying towns, meth labs, and Native Americans about to reclaim a place best left to the forces of nature. “Much of North Dakota has a ghostly feel to it," wrote Tim Egan in the New York Times in 2006. This picture of the region has been a consistent theme in media coverage for much of the past few decades.

    In a call for a reversal of national policy that had for two centuries promoted growth, two New Jersey academics, Frank J. Popper and Deborah Popper, proposed that Washington accelerate the depopulation of the Plains and create “the ultimate national park.” They suggested the government return the land and communities to a “buffalo commons,” claiming that development of The Plains constitutes, “the largest, longest-running agricultural and environmental miscalculation in American history.” They predicted the region will “become almost totally depopulated.”

    Our research shows that the Great Plains, far from dying, is in the midst of a historic recovery. While the area we have studied encompasses portions of thirteen states, our focus here is on ten core locations: North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Texas, New Mexico, Colorado, Wyoming, and Montana.

    Rather than decline, over the past decade the area has surpassed the national norms in everything from population increase to income and job growth. After generations of net out-migration, the entire region now enjoys a net in-migration from other states, as well as increased immigration from around the world. Remarkably, for an area long suffering from aging, the bulk of this new migration consists largely of younger families and their offspring.

    No less striking has been a rapid improvement in the region’s economy. Paced by strong growth in agriculture, manufacturing and energy — as well as a growing tech sector — the Great Plains now boasts the lowest unemployment rate of any region. North Dakota, South Dakota and Nebraska are the only states with a jobless rate of around 4 percent; Kansas, Montana, Oklahoma and Texas all have unemployment rates below the national average.

    A map of areas with the most rapid job growth over the past decade and through the Great Recession would show a swath of prosperity extending across the high plains of Texas to the Canada/North Dakota border. Rises in wage income during the past ten years follow a similar pattern. The Plains now boasts some of the healthiest economies in terms of job growth and unemployment on the North American continent.

    Of course, this tide of prosperity has not lifted all boats. Large areas have been left behind — rural small towns, deserted mining settlements, Native American reservations — and continue to suffer widespread poverty, low wages and, in many cases, demographic decline.

    In addition, the region faces formidable environmental and infrastructural challenges. Most prominent is the continuing issue of adequate water supplies, particularly in the southern plains. The large-scale increase in both farming and fossil fuel production, particularly the use of hydraulic fracking, could, if not approached carefully, exacerbate this situation in the not so distant future.

    Inadequate infrastructure, particularly air connections, still leaves much of the area distressingly cut off from the larger urban economy. The area’s industrial economy and rich resources are subject to a lack of sufficient road, rail and port connections to markets around the world. Yet despite these challenges, we believe that three critical factors will propel the region’s future.

    First, with its vast resources, the Great Plains is in an excellent position to take advantage of worldwide increases in demand for food, fiber and fuel. This growth is driven primarily by markets overseas, particularly in the developing countries of east and south Asia, and Latin America.

    As these countries have added hundreds of millions of middle class consumers, the price and value of commodities has continued to rise and seem likely to remain strong, with some short-term market corrections, over time.

    Second, the rapid evolution and adoption of new technologies has enhanced the development of resources, notably oil and gas previously considered impractical to tap. At the same time, the internet and advanced communications have reduced many of the traditional barriers — economic, cultural and social — that have cut off rural regions from the rest of country and the world.

    Third, and perhaps most important, are demographic changes. The late Soichiro Honda once noted that “more important than gold or diamonds are people.” The reversal of outmigration in the region suggests that it is once again becoming attractive to people with ambition and talent. This is particularly true of the region’s leading cities — Omaha, Oklahoma City, Tulsa, Kansas City, Sioux Falls, Greeley, Wichita, Lubbock, and Dallas-Fort Worth — many of which now enjoy positive net migration not only from their own hinterlands, but from leading metropolitan areas such as Los Angeles, the San Francisco Bay Area, New York and Chicago. Of the 40 metropolitan areas in the region, 32 show positive average net domestic migration since 2008.

    Together these factors — resources, information technology and changing demographics — augur well for the future of the Great Plains. Once forlorn and seemingly soon-to-be abandoned, the Great Plains enters the 21st century with a prairie wind at its back.

    Visit TTU’s page to download the full report, read the online version, or to check out the interactive online atlas of the region containing economic, demographic, and geographic data.

    Praxis Strategy Group is an economic research, analysis, and strategic planning firm. Joel Kotkin is executive editor of NewGeography.com and author of The Next Hundred Million: America in 2050. Kevin Mulligan is Associate Professor of Geography at Texas Tech University and Director of TTU’s Center for Geospatial Technology.

  • Is College Worth It?

    Is college worth it? The question almost seems ludicrous on its face.  The unemployment rate for people with a college degree is only 4.2% versus 9.1% for people without a college degree and 13.0% for people with less than a high school education. In this economy, that should be an open and shut case.

    Yet in an uncertain world, many are questioning the value of college. There’s significant talk of a “higher education bubble.”  Skyrocketing tuition rates and the correspondingly high levels of student debt has driven a lot of this. Tuition has been rising at a much faster rate than inflation overall. Total student loan debt is now at $1 trillion. And unlike other forms of debt, student loans can’t be easily discharged in bankruptcy.

    In many ways college finance does mirror the housing bubble. You’ve got an asset everyone believes will only go up in value, a multi-party transaction, a situation where the seller of the product (the college) gets their money up front and so is indifferent   to the student’s ability to repay, third parties  insured against loss by the federal government, a non-transparent market where each student is in effect charged a unique price, young and unsophisticated consumers who are told they “have to get” a college degree, financial products without any income requirements, and even worse the asset (a degree) doesn’t have a secondary market.

    All of these factors create a situation ripe for exploitation and abuse. Indeed, it isn’t hard to see that the massive increases in tuition cost are heavily driven by the ability of students to get huge loans with few questions asked. And as with the housing crisis, outright fraud by educational institutions is likely more widespread than commonly believed.  The University of Illinois law school falsified its admissions data, for example, by inflating its students LSAT scores. The “cockroach theory” (if you see one, there’s probably a lot more you don’t see) suggests that this type of behavior is probably rampant.

    Students and their parents are starting to wise up to the game, and the amount of student loan debt they think appropriate is plummeting. For example, in 2011 only 21% of people felt $20,000 in college debt was too much. Just a year later that percentage increased to 42%. In 2008, 81% of adults thought a college degree was a good investment. In 2012 that had dropped to 57%.  That’s a stunning decline in the number of people who think college is worthwhile, though it might suggest that the problem is less with the value of a degree itself than in how much is paid for it. But there are anecdotes to suggest that some feel college (especially graduate school) isn’t worth what it used to be.

    Why is that? In part it is surely the economy. Though degreed adults as a whole have lower unemployment, youth unemployment and probably more important underemployment remains high for college grads. A shocking 53% of recent graduates are jobless or underemployed. This has fed through into popular culture, with student loan debt relief being part of the grab bag of demands made by the various “Occupy” movements.  When you graduate from college with huge, non-dischargeable debts, and you can’t find a job, particularly in your chosen field, you no doubt complain loudly about this to your friends.

    But there’s also good reason to believe college is worth less today in many cases. Back in the 1980s and 90s the value of college was clear. Manufacturing was in decline. If you didn’t have a degree, you would probably struggle. In contrast, a college degree was like a golden ticket to success.

    Today, in the age of globalization, it’s not so simple. Those without degrees are still hurting, but so are plenty of people with degrees. The emerging new separation is not between those with degrees and without, but those in jobs that are subject to international competition (tradeable) vs. those that aren’t (non-tradeable). High skill, white collar workers like computer programmers suddenly found themselves in competition with much lower paid people in places like India. This upended that entire job market.  Today you might be better off as an ironworker or welder whose job has to be done on site than as an accounting manager whose entire department can be sent to the Philippines. A college degree is no longer a guaranteed passport to prosperity.

    Also, today’s technology driven world is changing so rapidly that skills learned in college can prove obsolete by graduation.  At the same time, open source frameworks and cloud computing have dropped the cost of starting a tech business to almost literally zero. In the dot com era, it took millions of dollars to buy servers and database licenses if you wanted to start a company. Today anybody can start a technology business in his bedroom.

    So if you’ve got a good idea, why wait around for graduation to get started? The role models here are Bill Gates and Mark Zuckerberg, who dropped out of Harvard but both got rich starting companies.  This dropping out of college to start companies is actively being encouraged by some folks like Peter Thiel, who is actually paying people to do it.

    What these modern day Timothy Learys overlook is what Bill Gates and Mark Zuckerberg already had in common. Namely, they had already gotten in to Harvard. If you make it to Harvard, you already probably come from a privileged background. Thus you’ve got a family safety net in place if things go south. Those from working class backgrounds aren’t so lucky. Indeed, I’m struck that many suggesting that college isn’t the answer are presently an upper-middle class or better situations.

    For a limited number of people, dropping out of or skipping school to start a business might make sense. But trend setters may manage to convince a significant numbers of kids from marginal backgrounds to forgo the college education —perhaps in a needed skill — that would provide necessary credentials and culturally acclimate them to the new economy world. Many of those kids don’t have a family cushion to fall back on.  For them, turn on, tune in, drop out is not the answer.

    The real answer isn’t to skip education, but to be more judicious about the decisions being made. Racking up large amounts of debt probably isn’t the right answer. The marketing promises of especially for-profit colleges should be heavily discounted. For some, getting education through going into a skilled trade may be a good choice. College majors that don’t deliver skills in demand in the marketplace or that aren’t considered valuable credentials by employers ought to be scrutinized. But getting an education remains one of the single best decisions any person can make.

    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.

    Graduation photo by Bigstock.

  • CERF’s Economic Policy Plan

    Here at California Lutheran University’s Center for Economic Research and Forecasting, we think that each presidential candidate does have an economic plan. But it is a bit difficult to discern the policy under all the campaign noise. Then there is the problem of the truth. When out of office, each party claims to be the protector of the public purse. Each accuses the other of running deficits, and both are right about this. Except for a brief respite at the end of the 1990s, deficit spending has been the norm since the 1974 oil crisis. Of course, the current administration has embraced deficit spending with unprecedented enthusiasm.

    We think the Democrats’ plan is to increase spending and increase taxes, particularly on “The Rich,” anyone making more money than you. We think the Republicans’ plan is to cut taxes for everyone and cut spending that goes to anyone but you.

    These plans won’t work.

    To our Democratic friends, we say: You can’t tax and spend your way to prosperity. Governments may be different than people, but they still cannot avoid a budget constraint. The tax and spend policy eventually leads to Spain or Greece. Besides, the government is taking that money from someone. We haven’t seen anything to suggest that, at current spending levels, the government can more productively employ the money than the person they are taking it from.

    To our Republican friends, we say: You can’t cut the budget enough to fix it, and cutting taxes won’t fix either the economy or the budget. The deficit is about 10 percent of gross domestic product. That’s about the sum of defense and social security spending. We know you are not ready to get rid of every soldier and kick Granny out onto the street.

    Unfortunately, there is not enough fat and waste to argue that efficiency is the solution. The deficit is just too big. Besides, democracies are extremely poor at cutting government spending; witness Europe. We also saw what happened in Wisconsin when the state budget was cut a trivial amount when compared to ten percent of gross product.

    The problem is that hard government costs, non-transfers, are just too small to allow the cuts of the size that would be required to eliminate the budget. Transfer payments would have to be cut, but each transfer payment comes with a constituency. Those constituencies will doom spending cuts.

    Since your plans won’t work, we’ve come up with our own:

    Spending: Total government spending (federal, state, and local) in the United States represents about 37 percent of gross domestic product. It is actually a bit higher than what we saw in World War II. We believe that at this level, government spending is hurting growth. So, government, measured as this percentage, needs to become smaller.

    We can’t cut government spending significantly. We can stop its growth. We propose capping real per-capita spending at current levels. This would allow budget growth due to inflation and population growth. No one loses anything. So, while larger-government proponents would object to the plan, the lack of losers would minimize resistance.

    Once spending was capped, we recommend some compositional changes that would improve economic outcomes. Because this would create losers, there would be resistance. However, for every dollar reallocated, there is also a winner. The political outcome is uncertain.

    Our recommended changes would reallocate government funds away from uses that retard or distort economic growth. This would help minimize future budget challenges, and it would increase economic growth. Still, these changes are not as important as capping spending.

    Our first change would be to eliminate all subsidies in the budget. These include subsidies for businesses, farms, and consumers. Government’s place is to provide the environment for economic growth, not pick the winners or losers. There is abundant evidence that government is not better at market decisions than are market participants. Let the markets work.

    This is not to say that we would eliminate the safety net. Modern economies need a safety net, one that provides a socially approved standard of living while maintaining incentives for productive work. We would let recipients decide how best to allocate their funds.

    We would also raise the retirement age. Official retirement ages have failed to keep up with advances in life expectancy and health. The result is that we are losing, in some cases, forcing out, incredible amounts of human capital. Given the economy and the demographics, we need that human capital working for us.

    Finally, we would concede defeat on the War on Drugs. No doubt, drugs impose a heavy price on users, their families, and society. The impacts are tragic. However, the War On Drugs has failed to eliminate drug use. It’s not even clear if the war has reduced drug use. Drugs are not only readily available, it’s easier for a high school student to obtain drugs than alcohol.

    The costs of prohibition, even if partially effective, are high. The costs include higher crime rates, gangs, prisons, direct police costs, and the costs of police being diverted from more productive uses. If we were to take all the resources currently spent on the War on Drugs and use those funds to provide education, counseling, and treatment the economic costs of drug use would go down.

    Taxes: Our recommended changes to the tax code would increase revenues and improve economic outcomes. So called “spending in the tax code” reduces government revenues and creates effectively distortionary subsidies. We need to get rid of this, for all the same reasons that we need to get rid of subsidies in the budget. We would eliminate all tax deductions, including individuals’ mortgage deductions and employers’ healthcare deductions.

    We would keep existing individual income-tax rates, neither lowering marginal tax rates nor increasing marginal tax rates. However, we would eliminate the differential tax rates that capital gains and dividends enjoy. That is, we would tax dividends and capital gains as ordinary income.

    Taxing dividends and capital gains would allow us to eliminate corporate taxes, removing the double taxation of capital, putting capital and income taxes on an equal footing. By taxing capital and labor at the same rate, we would eliminate distortions and improve economic outcomes.

    Economic Policy: If real per-capita spending is fixed, the only way to reduce government’s share of the economy is to have real per-capita economic growth. While real per-capita economic growth has been the norm since the industrial revolution, achieving it has been a problem in the past few years. Policy has been part of the problem. Fixing the policy will result in an immediate robust recovery.

    Most people would not suspect that immigration policy is the first policy we would change. Specifically, we would initiate a massive increase in legal immigrations. The benefits would be far-reaching and immediate. An increase in population would drive up housing prices. This would restore Americans’ balance sheets by offsetting the losses from the bust. It would immediately increase activity in the construction sector and in all sectors that benefit from increased home construction.

    There would be other benefits. Legal immigrants are educated risk takers with a lot to gain. Far from taking jobs from Americans, they create new businesses at higher rates than the domestically born. The talents, creativity, and drive they would bring would hit all sectors like a power drink.

    By itself, changing immigration policy would change our economy’s trajectory in a dramatic way, but there is more that could be done. Removing all trade barriers is an obvious option, but decreasing regulation offers the most gains after changing immigration policy.

    Bad regulation is a bipartisan activity. Sarbanes-Oxley and Dodd-Frank are two of the worst regulations to come along. They need to be repealed.

    Sarbanes-Oxley, passed under George Bush, fixed a problem that did not exist. It was passed in response to the Enron scandal, even though everyone involved went to jail under pre-existing law. It imposes a huge and unnecessary burden to small business in particular.

    Dodd-Frank was passed in response to the 2008 financial crises, but it does nothing to prevent another crises. In fact, it imposes huge costs to financial institutions, even as it enshrines the concept of too-big-to-fail into law, guaranteeing another crisis. It needs to be repealed, and too-big-to-fail needs to be addressed directly.

    Finally, we would require a cost-benefit analysis of all existing and proposed legislation. Those provisions that failed the analysis would be rejected or repealed.

    That’s CERF’s proposed economic policy. It would result in an immediately robust economy. It would change lives, especially the lives of young people just entering the workforce. We put it out in the hopes that it advances our national economic debate.

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

    Flickr photo by s_falkow

  • Thoughts on Chicago’s Tech Scene

    I’ve said before that I don’t think Chicago is well positioned to become some type of dominant tech hub, but should only seek to get its “fair share” of tech. However, as the third largest city in America, Chicago’s fair share on tech is still pretty darn big. If you look at what’s been happening in the city the last couple of years, I think you’d have to have to say it’s something real. Built in Chicago lists 1145 companies in its inventory, and that’s definitely something. I’ll give a bit of a mea culpa by admitting that the tech community has done better than I probably thought it would a couple years ago, though I still stand behind the statement I made at the beginning of the paragraph.

    Part of what has happened in Chicago is the general decentralization of technology in America. It used to be that tech in America was heavily concentrated in the Bay Area and Boston. In an era when pretty much literally anybody can start a company, you simply don’t need to be in any particular place to be successful these days.

    Mark Suster made this point in his Tech Crunch post, 12 Tips To Building A Successful Startup Community Where You Live:

    I would point out that these days there are really talented tech developers and teams everywhere. And I really mean everywhere. Ever play Zynga’s “Words with Friends” or any of their “with Friends” games? Didn’t come out of the SF facility. It came from an amazing small startup in McKinney, Texas (30 miles North of Dallas) called NewToy, which they acquired.

    Think the next big startup can’t come from Dallas? Think again. Angry Birds? From startup Rovio in Finland.

    Think USV is only invested around Union Square in NYC? How about in the last 12 months deals were announced with Dwolla (Iowa) and Pollenware (Kansas City). I met the Pollenware team myself – they were KILLER.

    In this environment, it’s possible for lots of cities to find success. This is why places like New York and Chicago have been table to reboot their tech ambitions, and why some of those hot startups Suster mentioned are in smaller Midwest cities. Strong tech/startup scenes have been emerging all over the country. Being a startup hub isn’t what it used to be in terms of joining a highly exclusive club.

    This is a case where there aren’t of necessity winners and losers. It isn’t like the Midwest can have just one tech center, for example, and thus the battle for Chicago is to be the winner, while everyone else gets to be a loser. The good news here is that Chicago can win and other places can win too. This might be one economic change that really can start rebranding a region.

    Not only has there been legitimate strength in the Chicago tech community of late, it is also starting to get some good press. For example, just this week the New York Times ran a story on tech businesses moving into the Merchandise Mart. (An unfortunate subtext of this piece appears to be a serious decline in Chicago’s vaunted design community, however). This is one of a number of positive pieces that have appeared recently.

    The city has really put on the full court press for tech, with Mayor Rahm Emanuel in effect making it the signature economic development cluster of his administration. I cannot think of any other sector of the economy in which Emanuel has so put his personal imprimatur. He has repeatedly stood up to endorse Chicago tech and its ambitions, and I think it’s fair to say he’s got a lot riding on it being successful – and not just successful, but an outsized success compared to peer cities.

    Rahm has also put city action behind the marketing. For example, making an open data push, and also the recent broadband deployment initiative to underserved areas.

    The trendlines certainly appear positive for Chicago at this point, but I want to highlight a few areas I find lacking and/or risky to the future.

    The Booster Club Society

    I’ll lead off a video from last year’s Chicago Ideas Week. This is JB Pritzker’s keynote at the Midwest Entrepreneur’s Summit. (If the video doesn’t display for you, click here).

    This is a pretty good talk, but thinking about it a bit, a few things jumped out at me.

    First, this is a talk in the finest tradition of “the sun is always shining on Chicago.” I’ve noted many times that under the Daley administration there was in effect a gag rule against saying anything that could be construed as even slightly negative about the city. I’ve noticed a change in that under Emanuel, but there’s one big exception, and that’s the tech sector. In Chicago tech pretty much everybody is pretty much 100% on the rails of the marketing message all of the time.

    Listening to this, you’d think Chicago basically is tech nirvana, with the exception of a central gathering place for techies, something that Pritzker conveniently has a plan to create. Strong as Chicago may be, I can’t believe everything could possibly be this rosy. Similar sentiments from various members of the tech community are prominently on display in pretty much every article out there.

    There’s nothing wrong with being a champion for your city, but when you become too much the booster club society, it’s not healthy. A little more paranoia and a little less spin would probably do the city good. Chicagoans would clearly recognize the excess earnestness that characterizes such rhetoric if they saw it in another city – I see it all over the place, as all kinds of cities make the case for why they too are one of the next great tech hubs by closing ranks and presenting a unified, totally positive marketing front to the outside world – so I’d suggest they think about how they’d evaluate the statements they make if those same statements were being made by boosters of another place like say Kansas City.

    Here’s another example. Announcing some additional protected bike lanes, Rahm Emanuel had this to say:

    It’s part of a planned bike lane network that Mayor Rahm Emanuel on Sunday said will help Chicago to attract and keep high tech companies and their workers who favor bicycles.

    “By next year I believe the city of Chicago will lead the country in protected bike lanes and dedicated bike lanes, and it will be the bike friendliest city in the country,” Emanuel said Sunday at Malcolm X College.

    “It will help us recruit the type of people that have been leaving for the coast. They will now come to the city of Chicago. The type of companies that have been leaving for the coast will stay in the city of Chicago.”

    I like protected bike lanes. I applaud Chicago’s protected bike lane program. But this is a bit over the top. I got unsolicited email from as far away as the West Coast mocking this.

    I think Emanuel’s media savvy and willingness to sell Chicago is a big plus for the city. But he has had a tendency to sometimes step over the line and make extravagant statements that just don’t pass the sniff test. I think this comes from his days in Washington where that sort of thing is expected, understood, and discounted by everyone. It’s just the way the game is played there. But for mayors there’s a different standard of judgement. Yes, everyone expects you to make the aggressive case for your city. But mayoral statements that seem un-moored from reality – like the various claims that have been made about crime and shootings, for example – end up calling into question the truth of everything else you say. This in my view is a danger for Rahm or anyone else who has been overly steeped in Beltway style communications.

    So I would suggest that Chicago continue to be aggressive on marketing, but tone down some of the orgasmic rhetoric and take care that they don’t end up believing too much of their own press. This can be a fine line to walk. I hope that in private at least the city’s tech community has a huge punch list of things that need to be better they are actively working on.

    Better Tech Media

    Another aspect of Pritzker’s talk that jumped out at me immediately at the time he gave it (I attended the event), was his failure to mention that Chicago already had a very successful version of his own 1871 incubator called Tech Nexus. Tech Nexus is a self-described “clubhouse” for Chicago’s tech community, a co-working space, and an incubator (ranked one of the top ten in the United States by Forbes) that has served over 100 companies. Tech Nexus also hosts tons of meetups and other events, and through the affiliated Illinois Technology Association has been an instrumental booster of the Chicago tech scene the last few years.

    Now Pritzker did mention them in passing in a long list of institutions he gave in the talk. But to claim Chicago lacked the central gathering place for tech until he, JB, rode to the rescue with 1871 is a) not true and b) pretty obviously a deliberate snub of Tech Nexus.

    I certainly don’t think everybody needs to be on the same page in a city’s tech community. I actually think that would be a weakness. I think it’s healthy to have different groups of people with different visions each pushing them. Building a space like 1871 is a positive. The more the merrier I say. But this type of talk smells to me like pretty much just a political power play in the Chicago tech community.

    Speaking of which, Pritzker may be a venture capitalist, but he’s also an heir to the Pritzker family fortune and one of the richest men in America. (Oh, the irony of having as the keynote speaker for your entrepreneurship conference a guy who inherited over a billion dollars – that tells you a lot about how Chicago works). The Pritzkers have long been power players in Chicago and a key part of what I’ve called the Nexus. So being on the executive committee of World Business Chicago is not so far a leap as he may have us believe. (I also wonder if perhaps Pritzker is the guy who convinced Emanuel to make the very risky move of piling all those chips on the tech square, as he’d appear to be one of the few guys with an interest who would have the clout to do it).

    My point here isn’t to bash JB Pritzker, but rather to wonder why no one is asking questions or talking about stuff like this in the press. There are lots of very rich guys with no doubt big egos involved Chicago tech. There’s bound to be lots of interesting politics and personality clashes and maneuverings going on behind the scenes. I want to be able to pop some popcorn and follow the drama. But it doesn’t get covered. I think the local media is basically out of their depth when it comes to covering Chicago tech.

    My believe is that Chicago needs a new, independent media source covering the local tech market. This would not be part of the marketing machine of Chicago tech, though like TechCrunch would of course be institutionally favorable to the industry, but instead would provide real, credible coverage of the what’s what and who’s who of the community. As Mark Suster said in the post I linked to earlier, “Local press matters.”

    In my review of Enrico Moretti’s book, I noted how he took a face value some mainstream media reports on how tech giants like Facebook were acquiring startups just to get their talent while shutting down the actual companies. He apparently didn’t read Gawker, which gave a fuller story. New York tech community also benefits from other sites, such as the irreverent Betabeat from the New York Observer. Suster mentions sites like GeekWire in Seattle and SoCalTech as well but I don’t know them personally so can’t say they’d be the models to replicate.

    In any event, I believe Chicago needs a first class tech media site. A site like Technori does a good job, but it strikes me more as a “how to” site than a media property. Chicago needs a someone asking tough questions, and looking at the people and politics around tech, not just the bits and the bytes. Because IMO the traditional Chicago media hasn’t really shown any interest in pursuing this.

    Why Digital?

    I’m also a bit puzzled as to why Chicago is leading its marketing with the digital/social media/consumer space. Obviously Groupon (which seems to be in the process of getting airbrushed out of the Chicago tech politburo photo) played a role in this. But this seems like a shaky place to stake a claim. I don’t see consumer type brands as Chicago’s strong suit, and the digital market seems weak in any case. Even juggernaut type companies like Facebook and Groupon have struggled financially. There’s a big question mark over the whole space. What’s more, it seems like lots of places, ranging from San Francisco to New York, are rushing to tell basically the same story in digital and are frankly ahead in the space.

    By contrast, Chicago has a long and successful history of business to business and information technology. Flip Filipowski’s Platinum Technology was a great example of this. These types of companies might not have the sexiest brands, but they deliver value and make money. What’s more, because of the support demands of corporate clients, these businesses often employ a material amount of highly skill, highly paid people, unlike most digital startups.

    Also, Chicago has been a major center of corporate IT for a long time. This is often not valued by the pure tech crowd, but is a huge source of value and good paying jobs. Terry Howerton (who runs TechNexus) said of State Farm:

    “State Farm has 12,000 employees in IT in Bloomington,” Howerton said. “I’m sure many of those employees are really smart people, but how innovative can you be with 12,000 IT workers in your bureaucratic corporate environment in an industry as historic as insurance?”

    Well, to start with, 12,000 IT employees is likely more than the total local employee count of every digital startup in Chicago combined. And that’s just one company. Howerton is the best advocate out there for a B2B vision for Chicago tech, but I would also add the IT part to the equation as well.

    Chicago’s IT shops have a long track record of innovation going back to before a lot today’s digital folks were even born. Walgreen’s Intercom system, for example, linked all their pharmacies nationwide together back in the 1980s so that you could get your prescription refilled anywhere you needed it. And they didn’t have today’s open systems and frameworks to make life easy. They had to use a proprietary satellite system and a specialized high volume, 24×7 uptime mainframe operating system called TPF (originally developed for airline reservations). I’m not sure most of today’s digital coders could figure out how to build and support a TPF application if their lives depended on it.

    Given Chicago’s heritage as a center for professional and business services, and corporate headquarters, I believe its natural strengths in technology are in B2B tech companies, technology consulting, and corporate IT. If you can get digital/consumer startups that’s great, but I wouldn’t make that the public face of the city. Instead, take all that corporate services mojo and embed it in tech.

    The Big Risk

    If you look at what I’ve written about changes so far, most of them are tweaks around the margins. They don’t indicate core weaknesses. Frankly they are sort of nit-picky. That should tell you something. As I said, I think the Chicago market has been doing well – better than I thought it would. I’m not even concerned about the so-called “developer drought” of which I’m extremely skeptical (see more here).

    But there’s one thing that is a clear risk to Chicago, one that could undo all its effors – and it’s one that the city can’t do anything about. That’s the risk of another tech crash.

    Technology is very cyclical. Every so often, Silicon Valley has had a major crash. I believe it is these crashes that have actually helped to keep the tech industry concentrated in its major hubs. That’s because when crashes come, industries retrench and reconsolidate. For example, Joel Kotkin has said that it was actually the 1980’s energy crash, the one that devastated Houston, that actually helped trigger the industry consolidation there. We’re seeing something similar in media, where financial pressure is consolidating it into NYC and to a somewhat lesser extent DC while secondary markets get wiped out.

    So too in tech. Think about the dot com era. Lots of cities had their startup dreams back then too, and it seemed like parts of the country outside the major hubs would be able to get their bite at the apple. Chicago had its “Silicon Prairie” and New York its “Silicon Alley.” All of them got blown up by the dot com crash. But Silicon Valley and Boston survived. Chicago and New York tech eventually came back, but it was on a totally new basis.

    There’s a tendency locally in Chicago to now talk about the flaws of the city’s tech ambitions in the Silicon Prairie days in contrast to how it now has its act together. The idea is that Silicon Prairie collapsed because people didn’t get along, or because they chased away their entrepreneurs, etc. But the reality is that it most likely collapsed simply because the market did, not because of flaws or mistakes. I’m not convinced there’s anything the city could have done to survive that shakeout. And if another crash hit, the same thing might easily happen all over again.

    We’re seeing the early part of the cycle repeat again today. We’ve had a frothy investment climate with a spread of tech around the country to a whole slew of me-too places. But as I said, the whole digital startup thing has questions marks. It’s not clear that there’s a lot of sustainable, cash generating businesses out there. Many of them (e.g. Groupon) are not even really tech companies. A lot of them are basically media type entities, and like much media in the world have more eyeballs than profits.

    Regardless of whether the digital wave crashes soon, another tech crash would appear to be inevitable at some point. If it happens at a time when Chicago hasn’t built some sort of a sustainable franchise, that would be bad. Right now, I don’t believe the Chicago tech scene as currently conceived would survive a major crash. I’m somewhat skeptical New York’s would either. That’s not because the city is doing anything wrong, but because of where it is in the maturity cycle.

    That is really the key weakness in the Chicago story. It’s not the fortress hub that Silicon Valley is. I believe it is benefiting from a general decentralization of tech along with a boom cycle investment climate. That can be very good for Chicago, but unless and until it can turn the corner into something that can survive the next big crash, there will continue to be a major question mark over its viability.

    This is what I find most interesting about Rahm’s all-in bet on tech. The last go round ended badly. There’s lots of reasons to believe Chicago can be a strong player in the current market, but the city doesn’t have intuitive structural advantages that would make it a slam dunk candidate to become a fortress hub in tech. The digital market is looking somewhat questionable, as the stock charts on Groupon and Facebook show. This was a risky bet. Not to say a bad one, but a risky one. That’s why I think it would be a very intriguing story to find out how it came to be.

    In the meantime, while we wait for the judgement of history, Chicago should enjoy where it’s at, build on the present success, and look to shore up those addressable areas of weakness around an excessive booster club mentality, the need for stronger media, and getting away from an overly digital based marketing approach to Chicago tech.

    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.

    Photo by Doug Siefken

  • How California Lost its Mojo

    The preferred story for California’s economy runs like this:

    In the beginning there was prosperity.  It started with gold.  Then, agriculture thrived in California’s climate.  Movies and entertainment came along in the early 20th Century.  In the 1930s there was migration from the Dust Bowl.  California became an industrial powerhouse in World War II.  Defense, aerospace, the world’s best higher education system, theme parks, entertainment, and tech combined to drive California’s post-war expansion.

    Then, in the evening of November 9th, 1989, the Berlin Wall came down.  On December 25, 1991, the Soviet Union was dissolved.  The Cold War was over.  America responded by cutting defense spending and called the savings the Peace Dividend.

    California paid that peace dividend.  A huge portion of California’s military industrial complex was destroyed.  The aerospace industry was downsized, never to come back.  Hundreds of thousands of well-paying manufacturing and engineering jobs were lost.

    The ever-resilient California bounced back though.  Tech, driven by an entrepreneurial culture and fed by California’s great universities drove California’s economy to new heights.

    Then, there was the dot.com bust.  A mild national recession was much more painful for a California dependent on its tech sector.  Eventually California recovered.  California’s tech sector and climate, aided by a housing boom, restored California’s prosperity.

    The housing boom was followed by a housing bust.  Again, California paid a high price, and unemployment skyrocketed to 30 percent above the national average.

    Today, California is recovering.  Its tech sector is once again bringing prosperity to the state.  Furthermore, California’s green legislation is providing the motivation for a brave new future of economic growth and environmental virtue.

    The story is true through the Peace Dividend.  California did pay a high price for the collapse of the Soviet Union.  California’s defense sector did begin a decline, and it never recovered.  But, defense recovered in other places, as the country expanded defense spending by 21 percent in the 2000s.  The United States has constantly been engaged in wars and conflicts for over a decade.  On a real-per-person basis, the United States is spending as much on defense as it has at any time since 1960. 

    But when it comes to the present, the narrative falls down.  Defense has rebounded, but not in California.  California’s defense sector is small and declining, not because of a permanently smaller U.S. defense sector, but because of something about California.

    California’s tech sector did boom after the collapse of California’s defense sector, but that doesn’t mean that California recovered.  In fact, much of California never recovered.  It’s the aggregation problem. 

    The 1990s’ recovery was largely a Bay Area recovery.  Los Angeles hardly saw any uptick in employment.  Here is a chart comparing Los Angeles County’s jobs growth rate with the San Jose Metropolitan Statistical Area (MSA): 

    San Jose probably had California’s fastest growing job market in the 1990s.  Los Angeles was not the states slowest.  Still, the differences are striking.

    A few years ago, a couple of my graduate students looked at California data from 1990 through 1999.  They divided California into two regions, the Bay Area and everywhere else.  The Bay Area was defined as Sonoma, Marin, Napa, Solano, Contra Costa, Alameda, Santa Clara, Santa Cruz, San Mateo, and San Francisco counties.  Using seven indicators of economic growth, they performed relatively simple statistical tests to see if the two geographies experienced similar economies.  The indicators were employment, wages, home prices, bank deposits, population growth, construction permits, and household income.

    By every measure except population growth, the Bay Area outperformed the rest of the state.  The exception was probably due to commuters to the Bay Area, given that region’s exceptionally high housing prices. 

    Some economists will tell you that California saw faster-than-national job growth from the mid 1990s until the great recession.  This is another aggregation problem.  The claim is technically true, but only in the sense that California had a higher proportion of the nation’s jobs in 2007 than it did in 1995.  If you look at annual data, you will see that California’s share of the nation’s jobs only grew from 1995 through 2002.  Since then, California’s share of United States jobs resumed its decline:

    In reality, California never recovered from the dot.com bust.  California, perhaps the best place on the planet to live, couldn’t keep up in a housing boom.  Something was wrong.

    California had lost its mojo. 

    Opportunity is now greater outside California than inside California.  For almost 150 years, California was as widely known for its opportunity as it was for its sunshine.  The combination was like a drug.  George Stoneman, an army officer destined to become California’s 15th governor, spoke for millions when he said "I will embrace the first opportunity to get to California and it is altogether probable that when once there I shall never again leave it." 

    They did come to California, and they made an amazing place.  Opportunity-driven migrants are different than other people.  They take big risks to leave everything they know for an uncertain future in a new place.  They are confident, bold, and brash.   California became just as confident, bold, and brash.  The Anglo-American novelist Taylor Caldwell spoke the truth when she said "If they can’t do it in California, it can’t be done anywhere."

    That was then.  Today, California can’t even rebuild an old Hotel.

    The Miramar Hotel is a partially-demolished eyesore beside the 101 Freeway in Montecito, just south of Santa Barbara.  The Hotel’s initial structure was built in 1889.  Over the years, it was expanded to a 29 structure luxury hotel and resort.  In September 2000 it was closed for renovations which were expected to take 18 months.  That was when the fighting started.  Community groups, neighbors, and governments all had their own idea of what the Miramar should be.  Two owners later, and after millions of dollars, the future to the Miramar is still uncertain.

    The Miramar Hotel is a case study of what is wrong with post-industrial California, precisely because it should have been easy, and because it is not unique.  Everything is hard to do in California.  The state that once moved rivers of water hundreds of miles across deserts and over or through mountain ranges can’t rebuild a hotel.

    The situation will get worse.  California has become the place people are leaving.  The following chart shows that for 20 years more people have left California for other states than came to California from other states:

    California’s population is still increasing because of births and international immigration. 

    Two decades of negative domestic migration has taken its toll.  Millions of risk-taking, confident, bold, and brash people have left California.  They took California’s mojo with them.

    That seems pretty clear when you look at some statistics:  California’s unemployment is way above the national average.  With only about 12 percent of the nation’s population, California has over 30 percent of the nation’s welfare recipients.  San Bernardino has the nation’s second highest poverty rate among cities over 200,000.

    Sometimes though, aggregated data can hide California’s weakness, and some, representing the always-present constituency for the status quo, use these data to deny that California’s future is any less golden. 

    Most recently, those representing the constituency for the status quo have used California’s aggregated jobs data to argue that all is well in California.  They argue that California’s tech sector is leading California to a new golden future.

    Year-over-year data confirm that, through August 2012, California gained jobs at a faster pace than the United States.  Once again, though, that growth is largely confined to one industry and one geography.  California’s tech sector is recovering, and amidst a generally weak recovery, it appears strong enough to generate pretty impressive aggregated results.  If we disaggregate California’s data, we will find that there is not just one California.  There is a rich and mostly coastal California, with a few smaller inland counties on the San Francisco-Lake Tahoe corridor.  Another California is very poor and mostly inland.

    Here’s a list of California’s poorest counties by poverty rate:

    County

    Poverty Rate

    Child Poverty Rate

    Rank

    Del Norte

    23.5

    30.6

    3

    Fresno

    26.8

    38.2

    1

    Imperial

    22.3

    31.8

    6

    Kern

    21.4

    30.3

    10

    Kings

    22.5

    29.7

    5

    Madera

    21.7

    31.7

    8

    Merced

    23.1

    31.4

    4

    Modoc

    21.9

    32.5

    7

    Siskiyou

    21.5

    30.7

    9

    Tulare

    33.6

    33.6

    2

    Here’s a list of California richest counties by poverty rate:

    County

    Poverty Rate

    Child Poverty Rate

    Rank

    Calaveras

    11.1

    18.3

    10

    Contra Costa

    9.3

    12.7

    4

    El Dorado

    9.4

    11.6

    5

    Marin

    9.2

    10.9

    3

    Mono

    10.8

    15

    8

    Napa

    10.7

    14.7

    7

    Placer

    9.1

    10.7

    2

    San Mateo

    7

    8.5

    1

    Santa Clara

    10.6

    13.3

    6

    Ventura

    11

    15.3

    9

    There are some big differences here.  The percentage of Fresno’s children living in poverty is four and half times the percentage of San Mateo children living in poverty.  In fact, the data for California’s poorest counties looks like third-world data.

    When disaggregated, the job-growth data shows the same story.  Through 2012’s second quarter, jobs in the San Jose MSA were up 3.6 percent on a year-over-year basis.  In Los Angeles, jobs were up only 1.1 percent, while in Sacramento they were up only 0.6 percent.  For comparison, U.S. jobs were up about 1.3 percent for the same time period.

    You can perform this analysis for all types of data.  When the data are disaggregated, the story is always the same.  It’s telling us that California needs to get its mojo back, and the current tech boom is likely not to be enough for its recovery.

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

    Unemployment photo by BigStockPhoto.com.

  • The Braking Of The BRICs

    For over a decade, conventional wisdom has held that the future of the world economy rests on the rise of the so-called BRIC countries: Brazil, Russia, India, China (and, in some cases, with the addition of an ‘S’ for South Africa). A concept coined by Goldman Sachs economist Jim O’Neill, the BRICs were widely touted as the building blocks of the “post-American world.”

    Such notions are particularly popular among intellectuals like India’s Brankaj Mishra, who sees world power shifting inexorably to “ascendant nations and peoples” — i.e. the BRICs — while “America’s retrenchment is inevitable.” Yet in reality, it is increasingly clear that the BRICs upward trajectory is slowing and many long-term trends suggest that their growth rates will continue to fall in the coming decades. Like other former “America-killers” such as Europe (1960s), Japan (1970s and 1980s) and the Asian Tigers (1990s), the BRIC countries appear to be unable to sustain the steady, inevitable progress projected by enthusiasts both at home and abroad.

    One sign can be seen in the equity markets. Between 2001 and 2007, BRIC stocks soared, more than doubling in China and rising 369% in Brazil and 499% in India. Faith in the destiny of the BRICs grew even more after the world financial crisis, which these economies seemed to shrug off.

    Yet more recently the edifice appears to have begun to erode, and in some cases, could well crumble. After rising almost fourfold from 2000 until the financial crisis, the BRICs’ stock-market value is at a three-year low.

    This decline has impacted numerous key BRIC companies such as Petroleo Brasileiro SA, Brazil’s state-controlled oil company. This year it fell to the world’s 39th-largest company by market value from the 10th-biggest in July 2011. China Construction Bank Corp. dropped to 20th from 12th while Rosneft, Russia’s largest oil producer, sank to 106th from 70th. Shares of ICICI Bank Ltd., India’s second-biggest lender, have lost 17% during the past year, compared with an average gain of 9% for global peers.

    Mutual funds that invest in BRIC equities, which recorded about $70 billion of inflows in the past decade, also have posted 16 straight weeks of withdrawals, losing a net $5.3 billion, EPFR Global data show.

    This reflects serious, deep-seated problems in these economies. Brazilian consumer defaults increased to a 30-month high in May, while prices for Russia’s oil exports have dropped about 10% this year. In India, the central bank unexpectedly left interest rates unchanged last month after inflation accelerated. A gauge of Chinese manufacturing compiled by the government fell to a seven-month low in June.

    The BRICS are learning — as the Japanese did before them — the meaning of gravity. With the dollar gaining value against the Brazilian real, Brazil could slip from the world’s sixth largest economy to seventh, overtaken again by the United Kingdom.

    BRIC countries are suffering, in part, because of the slowdown in the European Union and North America. Depressed levels of spending in these export markets devastates these economies, in part because their domestic markets are not yet wealthy enough to support strong growth on their own.

    Brazil has experienced a rampant property boom in recent years, with house prices in Rio trebling since 2008, and mortgage borrowing soaring. Reduced consumer demand could help drive the country’s economic growth rate to 2.2%, a pace more familiar in developed Western economies, and less than half the rate predicted by official government economists.

    India seems to be drifting into a political crisis and remains handicapped by its deep-seated culture of corruption and favoritism. Malnutrition has increased — and is higher than in most African countries — while the political system creaks and blocks reform.

    This is one reason why credit default swaps suggest India is already a bigger investment risk than emerging markets such as Vietnam and more than double the risk of Brazil, Russia, China and South Africa. India may also lose its investment-grade credit rating as Prime Minister Manmohan Singh’s administration struggles to curb a record trade deficit, a budget shortfall that exceeded targets and fighting within the ruling coalition, Standard & Poor’s and Fitch Ratings said last month.

    In the short run, things are likely to get worse in India; S&P recently cut its forecast for growth in 2012 to 5.5% from 6.5%. Inflation running at 10% is sending investors fleeing from the rupee in favor of the dollar’s safety. Growth in industrial production fell from 9.7% in 2010 to 4.8% in 2011. The pace has slowed further in 2012.

    BRIC member Russia, as Rodney Dangerfield would have put it, is no bargain either. The crippling problem Russia faces is an economy dependent on oil for 75% of its export income. In 2008 oil was 5% of Russia’s GDP; now it’s 12.5%.

    As in India, corruption is pervasive, sparking political unrest against Vladimir Putin’s neo-czarist regime. Investment and retail has slowed down. At the same time Russia faces one of the steepest demographic declines on the planet, spurred by unusually low lifespans among males, with excessive drinking a prime contributor. Russia has lost nearly 10 million people since the collapse of the former Soviet Union. By 2050, the population could fall to as low as 126 million from 142 million in 2010. President Vladimir Putin has identified the demographic crisis as Russia’s “most urgent problem.”

    Due to its one-child policy, China, too, faces the prospect of demographic decline. The U.S. Census Bureau estimates that China’s population will peak in 2026, and will then age faster than any country in the world besides Japan. Its rapid urbanization, expansion of education, and rising housing costs all will contribute to this process. Most of the world’s decline in children and young workers between 15 and 19 will take place in China during the balance of the century.

    But China’s most pressing problems are more immediate. With exports slowing, China’s GDP growth has decelerated from 10.9% in 2010 to 9.5% in 2011. It is estimated by S&P to be 7.5% in 2012. China’s economic growth is set to slow for the ninth consecutive quarter. Schisms within the Communist Party, and growing labor and other unrest, make the Middle Kingdom somewhat less the inevitable replacement power to the U.S. that many have assumed.

    South Africa is also pressed by political and economic problems.The economy is slowing down to a very un-BRIC like 2.7% growth rate. This is well below the heady 4% plus of 2011. And, as in China and India, instability, as seen in the recent, violent work stoppage of 26,000 workers at platinum mines, could further hurt growth.

    With unemployment roughly at 25%, South Africa will hard pressed to remain an investment star in the years ahead.

    So what now? Well, we can expect financial speculators, like Goldman Sachs, to keep trolling for the next thing. Wall Street’s most influential player recently coined a new term — MIST — to cover their new favorites: Mexico, Indonesia, South Korea and Turkey. One can only imagine how long this fixation will last, given the problems these countries face with either political violence and demographic decline, and in the case of Turkey both.

    Of course, brokers hawking investments will continue to look for new places of opportunity. But as we are learning from the experience with the BRICS, not all emerging economies maintain their upward trajectory. Sometimes it might make more sense ,even given our inept political parties, to look at opportunities closer to home, where constitutional protections, a large domestic market and a diversified economy may provide better long-run prospects.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in Forbes.

    BRIC country map by Filipe Menegaz.

  • Top Cities for Engineers Based on Actual vs. Expected Wages

    EMSI recently developed a methodology for calculating expected wages for occupations by region. The analysis is aimed at helping us better understand what regional earnings should be given the performance of a set of standardized occupations that are ubiquitous, stable, and diverse across the US economy. It’s a bit like the consumer price index, just for occupations.

    Read more about that here.

    To illustrate how enlightening this can be, we produced a high-level summary for architecture and engineering occupations (SOC 17) to see what cities rank above and below where you might expect. In this case, we limited our analysis to metros with greater than 190,000 jobs. Also note, we are using 2011 wages in this model, and most of the occupations in the group are related to engineering.

    Looking for a job?

    The top six MSAs on our list are the cities (190,000+ jobs) with the highest actual-to-expected ratios in that nation. They are therefore good regions for jobseekers and employees because of the higher-than-expected wages. Also notice how these are cities you might not expect (e.g., San Francisco and Seattle aren’t on the list). Why? Well, the wages in those cities are good, but there is more competition (in the form of talent), the cost of living is quite high, and the other occupations in the region are also pretty high-paying. The regions we have listed here have architecture and engineering jobs that are paid substantially higher than what we would predict given the local economy.

    1. Augusta-Richmond MSA

    Right off the bat, the model gives us some data that we might not have expected. The Augusta-Richmond MSA, which is spread between the Georgia-South Carolina border, has the highest actual-to-expected ratio (1.15). Based upon our analysis of a set of standardized occupations, we expect that architecture and engineering occupations would make $34.29 per hour (average earnings for all occupations in this category) in this MSA. In reality, wages are just about $5.00 per hour more ($39.36), which is significant.

    This means that the Augusta-Richmond MSA has the highest national earnings for architecture and engineering given the conditions in the local economy. This also makes Augusta-Richmond the second-highest paying region for these jobs among cities where wages are higher than we would expect. This MSA also has the highest percent job growth since 2009, which might be a prime factor contributing to the higher-than-expected wages. High local demand means that companies have to pay more to get the workers they want. This region also has a concentration of architecture and engineering workers above the national average.

    Oddly enough, the labor market in this area has actually declined by 1% since 2009, which equals a loss of more than 3,000 jobs. Sectors like construction and education are still not doing very well.

    So what companies might we be talking about in Augusta-Richmond? After all, if you are considering a job as an engineer or architect, this seems like a good region to focus on. We searched through Equifax data, which is now part of our tools, and found that URS has a strong presence in the region. If you are not familiar, URS is on the list of top 500 largest companies in America. CH2M Hill, Ingersoll Rand, and John Deere also employ engineers in this area.

    2. Knoxville, Tenn.

    With an actual-to-expected ratio of 1.14, Knoxville is No. 2 on the list. Actual wages ($37.35 per hour) are $4.69 more than we would expect and, like Augusta-Richmond, we see good job growth since 2009. Also note that there are 2,000 more jobs in this region than Augusta-Richmond. In general, Knoxville’s economy is healthier than the top city in our list. Since 2009, the region has expanded by 4%, adding some 14,000 new jobs.

    A high demand for engineers in the region is also likely driving the wages up to levels higher than we would expect. A big factor here is Oak Ridge National Laboratory. URS also has a presence in Knoxville, as does Navarro Research, a big government contracting firm, and ABSG Consulting, a company that designs products and services for risk management.

    Obviously, people who focus on engineering and architecture would have many other employment opportunities with different types of companies, but these are just good examples of groups that employ engineers.

     

    3. Oklahoma City, Okla.

    The third city with better-than-expected wages for architecture and engineering occupations is Oklahoma City. Wages are $4.50 above where we would expect and job growth is strong (more than 10% since 2009). Also, with nearly 14,000 current jobs, OKC is a good spot for engineers to be looking.

    OKC is also demonstrating very healthy growth. Architecture and engineering gained 1,300 new jobs since 2009 and the overall economy grew by over 14,000 jobs. This is even better than our previous two cities.

    With companies like Interim Solutions for Government, OKC is a big city for government contracting. Firms like Northrop Grumman, CH2M Hill, Chesapeake Energy, Wyle, and Boeing also have a strong presence there.

     

    4. Baton Rogue, La.

    Unlike our previous three cities, Baton Rogue has experienced overall decline since 2009. Despite this, the actual-to-expected ratio is quite high (1.13) and wages are $4.32 per hour higher than we would expect.

    A more stagnant economy combined with a dip in total employment should result in a drop in wages in the coming years. It should also be noted that the region has more than 9,000 jobs in this sector and a relatively high concentration (when compared to the state and nation) for architecture and engineering jobs. However, the regional concentration is slipping more toward the national average and away from specialization. Basic summary: Wages are still pretty high, but the job market isn’t as good as Knoxville or Augusta-Richmond.

    Jacobs Engineering, Richard Design Services, and Stebbins Engineering have a presence in this region.

     

    5. Huntsville, Ala.

    Huntsville, which is fifth on our list, is the highest-paying metro region on the list. Despite that good news, architecture and engineering jobs have contracted by a surprising 8% since 2009, making it the second-worst city in terms of decline on this list. The regional labor market in general has contracted by 2% in that same period. The only occupation category to lose more jobs than architecture and engineering is production. Pretty much every engineering occupation — from aerospace, which is the largest engineering sector, to mechanical — lost jobs.

    As it stands, hourly wages for architecture and engineering occupations are still $5.00 higher than we would predict and even $5.00 higher than a place like the New York City MSA. So, if you can find an architecture or engineering job here, it’s likely going to be well-paying for the economy. Again, wages are high, but the labor market is pretty shaky.

    Huntsville is pretty well known for aerospace and defense (companies like Northrop Grumman, Raytheon and Lockheed Martin) and the Cummings Research Park.

     

    6. Ogden-Clearfield, Utah

    Ogden, Utah, is ranked sixth for cities where actual architecture and engineering wages are higher than expected and is the only non-Southern city in the top six. Current pay stands at $36.48 per hour, which is $4.00 greater than we would expect ($32.54).

    Ogden is also the smallest city in our top six. Despite its size, architecture and engineering jobs play a big role in the regional economy. We can say this because, next to military occupations, architecture and engineering jobs have the second-highest concentration in Ogden relative to the national average.

    Since 2009, there really hasn’t been any job growth, however. And the local economy has only increased by 2%, so it might be a tough area to find a job right now. As far as employers go, the Air Force has a strong presence as well as Northrop Grumman, General Dynamics, and General Atomics.

    Where Actual < Expected

    So now we reverse the perspective a bit. In our previous analysis, we looked at the top six cities where architecture and engineering occupations make more than we would expect. Now we will look at the top six (or bottom six, depending on how you want to think about it) cities where pay for architecture and engineering is below what you would expect. These might be good targets for employers who are looking for lower-wage areas.

    1. Milwaukee-Waukesha-West Allis, Wisc.

    Expected wages for architecture and engineering occupations in Milwaukee are $36.69 per hour. In reality, the average is more like $32.81, which is $3.88 below what we would expect. There also hasn’t been much job growth (in percent terms) for either engineering or the general economy.

    There are 16,000 jobs in the region, and if you are employer looking to hire or relocate, Milwaukee might be a good target. Wages are a bit lower than we would expect, so workers might move jobs for slightly higher offers, and there is a fairly large pool of workers. Milwaukee is the second largest city on this list.

    In terms of employment, Siemens and Johnson Controls have a presence in the region.

     

    2. Columbus, Ohio

    Architecture and engineering jobs in Columbus have contracted by 3% while the rest of the economy has actually increased by 3.4%. Actual hourly wages ($32.26) are similar to Milwaukee and are $4.00 below what we would expect.

    The basic story: Columbus appears to have a rapidly decreasing share of engineering jobs. In three short years, the region’s location quotient — a measure of concentration — for architecture and engineering jobs dropped from .93 to .85 (1.0 is the national average). So what is driving this region’s growth? The healthy sectors appear to be health care and computer-related jobs.

    If you’re an engineer looking for work in Columbus or you’re thinking of setting up a shop there, note that the region seems to be de-specializing in the architecture and engineering occupation sector. One notable engineering group in the Columbus area is the Honda R&D group. Again, if you are an employer looking for underpaid engineers, Columbus could be a good target.

     

    3. New York-Northern New Jersey-Long Island

    The expansive New York City MSA, which covers half of New Jersey, is third on our list of metros where wages are below what we would expect. The NYC MSA has 92,500 architecture and engineering jobs, with average pay about $5.00 per hour below what we would expect given the economy. There hasn’t been job growth either. Since 2009, architecture and engineering jobs have contracted by 1% in an economy that grew by 2%.

    Another important statistic: The NYC MSA is pretty far below the national average when it comes to the concentration of engineering jobs. This means that even though the region has nearly 100,000 jobs, it is actually below what we would expect for a region of its size.

    Finally, the NYC MSA has the highest expected wage (nearly $45 per hour) on our list, which isn’t surprising (note: Huntsville’s actual wage is in this range). In reality, the actual wage for the NYC metro area is much closer to what is seen in metros like Augusta-Richmond or Oklahoma City.

    The number of well-known companies in this region are more numerous than we can include. For now, here are three to consider: Foster Wheeler, Hazen and Sawyer, and Syska Hennessy.

    4. Lakeland-Winter Haven, Fla.

    Next we jump from the largest city to the smallest in terms of architecture and engineering employment. The economy of Lakeland-Winter Haven has about 210,000 jobs total and only 1,900 jobs related to architecture and engineering. In addition, since 2009, the economy has increased by 1% while architecture and engineering jobs have contracted by 9%. This means that the metro area, which has a very low concentration of engineering jobs, is quickly losing the architecture and engineering base it has. Not surprisingly, wages are $3.50 per hour below what we would expect.

    Furthermore, the average wage for architects and engineers in Lakeland-Winter Haven is the lowest on our list. Wages in Hunstville are a whopping $17.71 greater than Lakeland-Winter Haven. If you are an employer looking for underpaid engineers, this region is a good target. Lockheed Martin, DCR Services, and AMEC have a presence in the region.

    5. Trenton-Ewing, NJ

    When it comes to cities with actual-to-expected wages lower than we would expect, Trenton, N.J., is second-to-last on the list. Actual wages are $38.61 per hour, which is $5.19 below the expected level of $43.80.

    There are 4,000 architecture and engineering jobs in this economy, which, given its total workforce of 247,000, means it has a architecture and engineering workforce similar to the national average for its size. This is another region where the economy has had 1% growth, but fairly significant decline (-5%) in architecture and engineering occupations since 2009. If you are an employer looking for engineers who might be a bit footloose, the Trenton area could be worth checking out.

    RMJM, URS, and Raytheon are located in this region.

     

    6. Fayetteville-Springdale-Rogers, AR-MO

    So now we reach the bottom. The city with the lowest actual-to-expected ratio (.85) in the nation for engineering and architecture jobs is Fayetteville-Springdale-Rogers, a MSA in northwest Arkansas and southwest Missouri. This region has the unique distinction of having architecture and engineering wages that are nearly $6.00 per hour below what we would expect for the economy. Fayetteville is also about $12 an hour below places like Oklahoma City, Augusta-Richmond, and New York City — and $17 below Huntsville.

    Furthermore, this metro has the second-fewest jobs on our list. As of 2012, there are about 223,000 jobs in the economy and just 2,475 are related to architecture and engineering. This means that the Fayetteville area has a concentration very similar to Lakeland-Winter Haven and the New York MSA — far below the national average.

    Oddly enough, this is also the only region with an actual-to-expected ratio below 1.0 that had some growth (a modest 1.2%). The rest of the regional economy grew by 5% since 2009, making it the fastest-growing region for our lower-cost cities. Wages should jump a bit if these trends continue. Again, this would be a good region for employers to target workers because of the relatively low wages.

    Some of the top regional employers are Walmart, the Benchmark Group, Cisco, and Oracle.

    Further Information & Observations

    So, if you’re curious, here is a look at architecture and engineering occupations. Most of them are engineering jobs that have grown at a rate consistent with the national economy (2% growth since 2009).

    SOC Code Description 2009 Jobs 2012 Jobs Change % Change Median Hourly Wage
    Source: QCEW Employees, Non-QCEW Employees & Self-Employed – EMSI 2012.3 Class of Worker BETA
    17-1010 Architects, Except Naval 140,119 130,859 (9,260) (7%) $32.20
    17-1020 Surveyors, Cartographers, and Photogrammetrists 56,884 55,873 (1,011) (2%) $27.02
    17-2010 Aerospace Engineers 84,304 86,455 2,151 3% $49.54
    17-2020 Agricultural Engineers 3,429 3,551 122 4% $37.04
    17-2030 Biomedical Engineers 16,062 19,387 3,325 21% $40.43
    17-2040 Chemical Engineers 28,311 29,003 692 2% $44.86
    17-2050 Civil Engineers 270,999 269,908 (1,091) 0% $37.18
    17-2060 Computer Hardware Engineers 75,483 78,174 2,691 4% $46.76
    17-2070 Electrical and Electronics Engineers 300,133 302,289 2,156 1% $42.85
    17-2080 Environmental Engineers 49,868 51,953 2,085 4% $38.07
    17-2110 Industrial Engineers, Including Health and Safety 234,314 245,694 11,380 5% $37.38
    17-2120 Marine Engineers and Naval Architects 6,849 7,158 309 5% $41.17
    17-2130 Materials Engineers 22,979 24,540 1,561 7% $40.78
    17-2140 Mechanical Engineers 239,935 253,033 13,098 5% $38.28
    17-2150 Mining and Geological Engineers, Including Mining Safety Engineers 7,662 8,087 425 6% $40.11
    17-2160 Nuclear Engineers 21,776 22,847 1,071 5% $48.44
    17-2170 Petroleum Engineers 32,187 37,513 5,326 17% $59.25
    17-2190 Miscellaneous Engineers 139,248 145,169 5,921 4% $43.29
    17-3010 Drafters 218,065 207,185 (10,880) (5%) $23.72
    17-3020 Engineering Technicians, Except Drafters 449,601 459,529 9,928 2% $25.72
    17-3030 Surveying and Mapping Technicians 54,551 51,896 (2,655) (5%) $19.39
    Total 2,452,759 2,490,105 37,346 0.02 35.56

    Drafters and architects have taken the biggest hit nationally. Surveyors and surveying/mapping tech haven’t fared too well either. Otherwise, engineers are doing pretty well. Biomedical engineers have grown by 21% and petroleum engineers have grown by 17% since 2009.

    If you are interested in finding a good spot to be an engineer, we suggest taking a look at the Augusta-Richmond area, the metro region with the highest actual-to-expected ratio in the nation. Architecture and engineering occupations in Augusta-Georgia make nearly $40 per hour, which is the third highest on this list and on par with the wages seen in the NYC MSA. To put that in perspective, if you want to work as an engineer in the NYC MSA and live in a place like Long Island, where the average home price is $815,000, the dollar isn’t going to stretch quite as far as it would in a place like Augusta, Ga., where the average home price is $163,000.

    Other top cities to consider based on the actual-to-expected ratio are Knoxville and Oklahoma City. Both have strong labor markets, a decent amount of jobs, and wages quite a bit above what we would expect.

    In general, cities in the South seem to be pretty competitive for architecture and engineering wages. Ogden was our only non-Southern city to have wages higher than we would expect. This could indicate that there is more of a scarcity of good talent in these regions, which should drive the price up. Baton Rouge and Huntsville have shakier labor markets, but the pay tends to be good if you have a job there.

    Cities that tend to demonstrate underpay for engineering are spread about a bit more. Two are in the New York/New Jersey area (NYC MSA and Trenton MSA), two are more Southern (Lakeland-Winter Haven and the Fayetteville-Springdale-Rogers MSA), and two are in the Rust Belt (Columbus and Milwaukee). This could be due to labor markets that are more unstable and therefore slightly saturated with engineers.

    Finally, if employers are complaining about skills shortage in cities where the actual pay is far below the expected, chances are they are not willing to pay enough. To put it in perspective: If you are an employer in Milwaukee that is looking for engineers and are only willing to pay $32 per hour, you will likely find a limited pool of candidates. This might prompt you think there’s a skills shortage. Before you jump to that conclusion, try raising the hourly wage to $36 or higher and you will likely see a lot more interested engineers flocking in your direction.

    Data and analysis from this report came from Analyst, EMSI’s web-based labor market tool. Please contact Rob Sentz (rob@economicmodeling.com) if you have questions or comments. Follow us @desktopecon. Read more about our wage estimating process here.

    Illustration by Mark Beauchamp.

  • Where Do You Live?

    I recently moved to Providence, Rhode Island, where I live in the town of West Warwick. I’ve been learning the place more and soaking in New England culture (and seafood). This area has a Rust Belt type profile: declining population, post-industrial economic landscape, high unemployment, etc. So I’ve been trying to get a handle on conditions and think a bit about what the opportunities are.

    I have been really struck by the way people here seem to think about their geographic identity. All of us have various layers of identity. Some of these are more primary than others. But let’s consider three possibilities in trying to answer the basic question “Where do you live?” Those are your state, your metro, or your town. Which of these forms the most important basis of identity?

    My observation so far is that most people here think of themselves first as Rhode Islanders, and secondly as residents of their town. Providence, possibly because at 178,000 people it’s fairly small, is sort of seen as just another town. (Southern Massachusetts is maybe seen as a type of Canadian province with its own collection of towns).

    So what? you might ask. Unit recently I probably would have said that it doesn’t matter that much. But now I see that it has a profound effect on creating the lens through which people process the world. Here are some local implications.

    First, it leads people to exaggerate the uniqueness here. Rhode Island is geographically the smallest state, and also quite small in population. I heard people say that only in Rhode Island can you get pretty much every leader in the place to show up for a conference on the state’s economic future. If your worldview is the state, that may be true. But if your worldview is metro area, I think there are many similar sized regions that could pull this off. There are many things that appear unique if your lens is Rhode Island that are not if your lens is Metro Providence. It may be that there’s uniqueness in the small geography of Rhode Island from the standpoint of state policy, but if I may be so bold, this is hardly its strong suit. (But for a positive example of how this can work in a place like Rhode Island where it’s more difficult elsewhere, see the example of pension reform).

    Second, the economic geography of the new economy is metro regions. When you look state first, you are missing the bigger picture. If you doubt that the metro area is the primary economic unit, I suggest spending some time perusing material over at the Brookings Institution. States are more or less irrelevant economically, except that they can screw things up for the metro and non-metro regions they contain.

    Third, Providence is a bi-state metro area that includes Southern Massachusetts. You can also see Providence as an extended node in the Greater Boston economy. If you look primarily at the state, you miss this, or even see Massachusetts as the competition. You also lose about 60% of the population scale you have to work with.

    Fourth, when you look state first, your natural inclination is to compare yourself against other states. In Rhode Island’s case, there really aren’t many similar places, so the default is other New England states. On the other hand, one can imagine many similar Rust Belt type metros to compare Providence too. Places like Buffalo, Pittsburgh, and Cleveland come to mind. Of course these aren’t exactly the same, but they’ve been grappling with the legacy of de-industrialization seriously for a really long time. There have got to be many things that could be learned by studying and networking with these areas. There’s a lot of pan-Rust Belt discussion going on these days, but Providence isn’t part of it. This is part of that new economic geography of cities I was talking about.

    In short, I think treating state identity as primary has problems. Rhode Island is most certainly not the only place where this crops up, but it is noticeable here and perhaps more important here since the state is a subset of a metro geography instead of a superset.

    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.

    Downtown Providence photo by Bigstock.

  • Cooling Off: Why Creative California Could Look to Western New York

    Sometimes the stakes are bogus, sometimes the fast lane hits a fork.
    Sometimes southern California wants to be western New York
    –Lyrics from Dar Williams’ song “Sometimes California Wants to Be Western New York”.

    For long, making cultures and making people have been deemed outmoded. It is largely a knowledge economy. And since knowledge has been diverging into “spiky locales” known to be hotbeds of innovation, consider it a double whammy, as most of the relevant geographies are on the coast. The middle of the country is thus irrelevant if you care to survive. It is a man with a pitchfork in a sea of MacBook’s and iLife’s.

    For instance, in Edward Glaeser’s 2007 City Journal article he asks: “Can Buffalo Ever Come Back?” Glaeser answers quickly, “Probably not—and government should stop bribing people to stay there”.

    It’s true that many cities in the Rust Belt, Appalachia, Iron Range, Great Plains and the like have declined. Many people left. We all know why: jobs mostly, the weather a bit, or too damn depressing—the vacancy and all. We also know that the “flyover country’s” crème de la cream migrated to those gathering pools of talent like San Francisco, Boston, New York, Portland, and the Midwest’s own: Chicago. The reasons this was occurring was because (1) these places were “cool”, and (2) the cluster of talent created for innovation milieus because all the big brains colliding made big ideas, which made products not near the death of their life cycle like, for instance, iron or ovens.

    But suppose we are on the cusp of this divergence changing into a convergence of talent spreading back out into the heartland. In short, maybe these spiky locales are overheating, thus releasing “cool” elsewhere, not to mention the freedom to create. The following explains how and why this scenario could unfold.

    Allow me to digress for a moment to talk about the Second Law of Thermodynamics, and how it figuratively relates to the flow of capital. Consider it a working metaphor. Components of the Second Law state that whenever energy is out of equilibrium with its surroundings a natural potential exists to return a setting to equilibrium. For instance, if you bring a hot cup of coffee into a cold room, eventually the energetic tension between the cup and the room will dissipate as the heat leaves the coffee until there is thermodynamic equilibrium between the cup and the room. In many respects, I see the same energetic tension existing precariously between the spiky “have’s” of America and the Buffalo-like “have not’s”, with a subsequent resetting coming as talent and capital leak back into a convergent, equilibratory state.

    Now, what’s creating this tension, other than feeling sorry for Buffalo, Sioux City, etc.? Well, it’s part cultural, part social, and part economic. But all wholly real.

    First, the economic: as the GDP of spikiness goes up so does worker expense. For example, New York City’s cost of living is becoming unsustainable, even for knowledge laborers. From a recent Philadelphia Magazine article discussing a growing trend of New Yorkers moving (to) and commuting (from) Philly, the author notes:

    Those of us with young families, in the so-called creative class…were now high-status, poorly paid culture workers who could no longer afford to live in New York, especially with children. Things no longer seemed possible because they weren’t.

    This exodus is not a blip. For instance, the borough of Brooklyn has lost nearly a half-million people from 2001 to 2009. To that end, the “spikiness” in this case is the unsustainable nature of global city price points, with fewer and fewer folks able to hang on as expenses skyrocket toward the needle-head of the elite.

    What will this mean for the future of jobs? Blogger Jim Russell believes that demand for labor will follow the out-migrating labor supply, even for tech companies. The reasons for this are simple: an increasingly available talent pool in geographies lauded for hard work, and cost. From a Silicon Valley exec who headed to a beer and sausage city:

    “I was very skeptical five years ago that I would do a meaningful expansion in Milwaukee…But what I have found is the majority of talent we need in our company, we are able to acquire in that area.”

    Space is less expensive, it takes less time to find qualified employees in Milwaukee, and they stay with the company for longer than they would in California, [Edward] Jackson said.

    Tied closely to the economic pressures of spiky locales are the social costs. For example, Chicago, once a City of Broad Shoulders, had long ago ditched its industrial ethos and swagger to become the City of Slim Hips. In short, under Mayor Daley, Chicago went all in with global city development, which meant using public funds and incurring public debt to build a place to serve its growing global city clientele. The cost was high, though: crippling municipal debt, a situation no doubt aided by the fact that luring the elite did nothing for jobs, with the city having fewer total jobs in 2009 than it did in its blighted heyday of 1989. Said Richard Longworth:

    In other words, Chicago — the only old industrial city in the Midwest to transform itself into a global city, a big success story in the global rankings — still can’t provide as many jobs for its residents as the old sooty City of the Big Shoulders.

    And that social cost? It has to do with the effect of creating cities within cities, for as Chicago pumped money into its various beautification endeavors, disparity and poverty festered on its West and South sides. The consequence for the city—for anyone who has been paying attention—is one of the most violent summers in Chicago history, with 56 people shot in a recent three-day period alone. Naturally, violence does nothing to attract talent, with one study showing that for every homicide that occurs in a city, total population declines by 70 people. And while many cities do not rival Chicago’s spike in crime, disparity-driven tensions are deepening fast in spiky locales, thus fermenting the possibility of unrest and subsequent flight.

    But at least there are oodles of creativity in “hot and spiky” locales, right? Here, things get interesting.

    There exists a subtle yet growing tension in various creative-laden camps regarding the globalization of creativity which—when implemented as a product—is marketed as “cool”. It’s an old tension really, one between selling yourself and being yourself, and the predicament was spelled out nicely in a recent article by Justin Moyer entitled “Our Band Could Be Your Band–How the Brooklynization of culture killed regional music scenes”.

    In it, the author laments the dissolving regional sound of music in America that has arisen from a decades-long divergence of musical talent into Brooklyn. For Moyer, vanning to “regional music scenes” allowed for a distinct back and forth between one’s own sound and the sound of the other, with the ping pong in musical differentiation allowing for a betterment of one’s own sound as well as the sound of the other. You know, how creative escalation and interplay is supposed to work.

    But somewhere along the way this stopped. As was recently proved in a study detailed in Scientific Reports, everybody started to sound like everybody else. How does Brooklyn do this? What is Brooklyn exactly? Moyer explains, before venting:

    Brooklyn has a downside. Those who abandon their [regional music scene] to come to Brooklyn risk co-option by an aesthetic Borg. Things get mushy. There’s too much input, and there’s not a lot that’s not known…There aren’t many secrets. There are no mountains to go over.

    …There are many Brooklyns. Los Angeles is Brooklyn. Chicago is Brooklyn. Berlin and London are Brooklyn. Babylon was the Brooklyn of the ancient world. In the 1990s, Seattle was Brooklyn…

    Some Brooklyns aren’t even places. MySpace is Brooklyn. YouTube is Brooklyn. Facebook is Brooklyn. Spotify and iTunes are perversely, horribly, unapologetically, maddeningly Brooklyn.

    I’m against it.

    Moyer is on to something, and he has got good theory behind him; that is: diversity and differentiation drive creativity, be it in the political, social, cultural, or economic realm, whereas homogeneity cloaked in popularity does not. What’s more, creative destruction rarely occurs in places perceptibly intact—be it in Park Slope or posh Naples. It occurs where there is urgency, or where it is needed most. It occurs in places very broken, like Detroit. And so eventually the next wave of a new system can very likely be rippled out from places that have been saturating in the pieces. Said Atlantic writer Alexis Madrigal, who just finished touring the Rust Belt: “[T]here are a lot of places where the apocalypse has already happened”.

    Of course this is all very speculative at the moment. The winners are still seen as the winners and the losers still the losers. But the writing is on the wall: the future is in the seams, between the lights and monotone, loud-ass beats.

    Even Twitter creator Jack Dorsey thinks so. The Rust Belt native was in Detroit recently discussing how he gets his creative fix. Is it soaking in Silicon Valley with other visionaries? Not exactly. Rather, by taking the bus to work. Why? Dorsey states:

    “I actually see real things… That encourages me and gives me a stronger purpose, sense of purpose about what I want to change and how my work might apply to that change

    Hear that Buffalo? Don’t listen to your death sentence. You are becoming. Just like Dar Williams predicted.

    Richey Piiparinen is a writer and policy researcher based in Cleveland. He is co-editor of Rust Belt Chic: The Cleveland Anthology. This piece originally appeared at his blog.

    American Gothic statue in Chicago photo by flickr user GYLo.