New Geography

Category: Economics

  • The Cities Where A Paycheck Stretches The Furthest

    When we think of places with high salaries, big metro areas like New York, Los Angeles or San Francisco are usually the first to spring to mind. Or cities with the biggest concentrations of educated workers, such as Boston.

    But wages are just one part of the equation — high prices in those East and West Coast cities mean the fat paychecks aren’t necessarily getting the locals ahead. When cost of living is factored in, most of the places that boast the highest effective pay turn out to be in the less celebrated and less expensive middle part of the country. My colleague Mark Schill of Praxis Strategy Group and I looked at the average annual wages in the nation’s 51 largest metropolitan statistical areas and adjusted incomes by the cost of living. The results were surprising and revealing.

    In first place is Houston, where the average annual wage in 2011 was $59,838, eighth highest in the nation. What puts Houston at the top of the list is the region’s relatively low cost of living, which includes such things as consumer prices and services, utilities and transportation costs and, most importantly, housing prices: The ratio of the median home price to median annual household income in Houston is only 2.9, remarkably low for such a dynamic urban region; in San Francisco a house goes for 6.7 times the median local household income. Adjusted for cost of living, the average Houston wage of $59,838 is worth $66,933, tops in the nation.

    Most of the rest of the top 10 are relatively buoyant economies with relatively low costs of living. These include Dallas-Fort Worth (fifth), Charlotte, N.C. (sixth), Cincinnati (seventh), Austin, Texas (eighth), and Columbus, Ohio (10th). These areas all also have housing affordability rates below 3.0 except for Austin, which clocks in at 3.5. Similar  situations down the list include such mid-sized cities as  Nashville, (11th), St.Louis (12th), Pittsburgh, (13th), Denver (15th) and New Orleans (16th).

    One major surprise is the metro area in third place: Detroit-Warren-Livonia, Mich. This can be explained by the relatively high wages paid in the resurgent auto industry and, as we have reported earlier, a huge surge in well-paying STEM (science, technology, engineering and math-related) jobs. Combine this with some of the most affordable housing in the nation and sizable reductions in unemployment — down 5% in Michigan over the past two years, the largest such drop in the nation. This longtime sad sack region has reason to feel hopeful.

    Only two expensive metro areas made our top 10 list. One is Silicon Valley (San Jose-Sunnyvale-Santa Clara), where the average annual wage last year of $92,556, the highest in the nation, makes up for its high costs, which includes the worst housing affordability among the 51 metro areas we considered: housing prices are nearly 7 times the local median income. Adjusted for cost of living, that $92,556 paycheck is worth $61,581, placing the Valley second on our list.

    In ninth place is Seattle, which placed first on our lists of the cities leading the way in manufacturing and STEM employment growth. Housing costs, while high, are far less than in most coastal California or northeast metropolitan areas.

    What about the places we usually associate with high wages and success? The high pay is offset by exceedingly high costs. Brain-rich Boston has the fifth-highest income of America’s largest metro areas but its high housing and other costs drive it down to 32nd on our list. San Francisco ranks third in average pay at just under $70,000, some $20,000 below San Jose, but has equally high costs. As a result, the metro area ranks a meager 39th on our list.

    Much the same can be said about New York which, like San Francisco, is home to many of the richest Americans and best-paying jobs. The average paycheck clocks in at $69,029, fourth-highest in the country, but high costs, particularly for housing, eat up much of the locals’ pay: adjusted for cost of living, the average salary is worth $44,605. As a result, the Big Apple and its environs rank only 41st on our list.

    Long associated with glitz and glitter, Los Angeles does particularly poorly, coming in 46th on our list. The L.A. metro area may include Beverly Hills, Hollywood and Malibu, but it also is home to South-Central Los Angeles, East L.A. and small, struggling industrial cities surrounding downtown. The relatively modest average paycheck of $55,000 annually, 12th on our list, is eaten up by a cost of living that is well above the national average. This creates an unpleasant reality for many non-celebrity Angelenos.

    Many of the metro areas that rank highly on our list have enjoyed rapid population growth and strong domestic in-migration. Houston, Dallas-Fort Worth, and Austin all have been among the leaders the nation in both domestic migration and overall growth both in the last decade and so far in this one. In the past year, for example, Dallas led the nation with 40,000 net migrants while Austin’s population growth, 4 percent, was the highest rate among the large metropolitan areas.

    In contrast, many of the cities toward the bottom of our list — notably the Los Angeles and New York areas — have led the country in domestic outmigration. Between 2000 and 2009, the nation’s cultural capitals lost a total of over 3 million people to other parts of the country. Although migration has slowed in the recession, the pattern has continued since 2010.

    And how about the future? Income and salary growth has been so tepid recently that few large cities can claim to have made big gains over the past five years; there has been continued volatility as some regions that did worst in the past decade — for example San Francisco — pick up steam. Unfortunately any growth in such highly regulated areas also tends to increase costs rapidly, particularly for housing. In California, this is made much worse by both soaring taxes and a regulatory regime that drives up costs faster than income games.

    Similarly these high prices seem to have the effect of driving out middle-class workers; places like New York, Los Angeles and San Francisco have extraordinary concentrations of both rich and poor workers but fewer in the middle. As we pointed out in our annual job and STEM rankings, many technology, manufacturing and business service jobs are heading not to the hotspots but more to the central part of the country.

    Over time, it seems clear that, for the most part, the best prospects for the future lie in places that both experience income and employment gains but remain relatively affordable. These include some cities that didn’t crack the top 10 of our list but appear to be gaining ground, such as Nashville, Pittsburgh, St. Louis, San Antonio and New Orleans, a once beleaguered city that has experienced the nation’s fastest per capita personal income growth since 2005.

    Maintaining affordability and a wide range of high-paying jobs many not be as glamorous a metric for success as the number of hip web startups or the concentration of educated people. But over time it is likely to be about as good a guide to future prospects as we have.

    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.

    Houston photo by BigStockPhoto.com.

     

    Note: The table below was updated with 2012 data, so it may not match the narrative above discussing 2011 data. Contact Mark Schill at mark@praxissg.com.

    Metropolitan Pay per Job 2012 – Adjusted for Cost of Living
    MSA Name 2012 Avg. Annual Wage Unadj. Rank 2012 Adj Annual Wage Adj. Rank Rank Change
    Houston-Sugar Land-Baytown, TX $67,279 7 $75,256 1 6
    San Jose-Sunnyvale-Santa Clara, CA $107,515 1 $71,534 2 (1)
    Detroit-Warren-Livonia, MI $60,503 16 $64,571 3 13
    Dallas-Fort Worth-Arlington, TX $60,478 17 $62,867 4 13
    Austin-Round Rock-San Marcos, TX $58,103 19 $62,679 5 14
    Memphis, TN-MS-AR $53,069 36 $61,780 6 30
    Charlotte-Gastonia-Rock Hill, NC-SC $57,506 20 $61,636 7 13
    Atlanta-Sandy Springs-Marietta, GA $58,836 18 $60,844 8 10
    Seattle-Tacoma-Bellevue, WA $67,225 8 $60,237 9 (1)
    Cincinnati-Middletown, OH-KY-IN $54,683 26 $59,828 10 16
    Nashville-Davidson–Murfreesboro–Franklin, TN $53,928 30 $59,787 11 19
    Birmingham-Hoover, AL $52,773 37 $59,563 12 25
    St. Louis, MO-IL $54,112 29 $59,398 13 16
    Columbus, OH $53,634 33 $59,395 14 19
    Denver-Aurora-Broomfield, CO $62,021 11 $59,068 15 (4)
    Washington-Arlington-Alexandria, DC-VA-MD-WV $79,852 2 $58,672 16 (14)
    Chicago-Joliet-Naperville, IL-IN-WI $62,746 10 $58,477 17 (7)
    Pittsburgh, PA $55,004 24 $58,021 18 6
    New Orleans-Metairie-Kenner, LA $54,636 27 $57,151 19 8
    Salt Lake City, UT $53,901 31 $56,978 20 11
    Raleigh-Cary, NC $53,243 34 $56,762 21 13
    Milwaukee-Waukesha-West Allis, WI $55,434 22 $55,825 22 0
    Phoenix-Mesa-Glendale, AZ $53,835 32 $55,788 23 9
    Minneapolis-St. Paul-Bloomington, MN-WI $61,515 14 $55,645 24 (10)
    Oklahoma City, OK $50,641 42 $55,345 25 17
    Jacksonville, FL $51,763 40 $55,126 26 14
    Richmond, VA $55,065 23 $55,010 27 (4)
    Tampa-St. Petersburg-Clearwater, FL $50,462 43 $54,969 28 15
    Louisville/Jefferson County, KY-IN $50,385 44 $54,945 29 15
    Hartford-West Hartford-East Hartford, CT $67,826 6 $54,787 30 (24)
    Kansas City, MO-KS $54,378 28 $54,706 31 (3)
    Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $63,615 9 $54,372 32 (23)
    Cleveland-Elyria-Mentor, OH $54,701 25 $53,946 33 (8)
    Boston-Cambridge-Quincy, MA-NH $73,267 5 $53,363 34 (29)
    San Francisco-Oakland-Fremont, CA $79,137 3 $52,988 35 (32)
    San Antonio-New Braunfels, TX $49,219 47 $52,867 36 11
    Rochester, NY $51,798 39 $52,533 37 2
    Baltimore-Towson, MD $61,542 13 $51,759 38 (25)
    Buffalo-Niagara Falls, NY $50,013 46 $50,723 39 7
    Las Vegas-Paradise, NV $50,378 45 $50,328 40 5
    New York-Northern New Jersey-Long Island, NY-NJ-PA $77,640 4 $50,169 41 (37)
    Portland-Vancouver-Hillsboro, OR-WA $56,134 21 $49,414 42 (21)
    Virginia Beach-Norfolk-Newport News, VA-NC $51,693 41 $49,091 43 (2)
    Miami-Fort Lauderdale-Pompano Beach, FL $52,357 38 $48,012 44 (6)
    Orlando-Kissimmee-Sanford, FL $46,481 48 $47,771 45 3
    San Diego-Carlsbad-San Marcos, CA $61,149 15 $46,822 46 (31)
    Los Angeles-Long Beach-Santa Ana, CA $61,634 12 $46,411 47 (35)
    Providence-New Bedford-Fall River, RI-MA $53,071 35 $42,254 48 (13)
    Riverside-San Bernardino-Ontario, CA $46,084 49 $41,000 49 0
    Indianapolis-Carmel, IN $53,839 No data
    Sacramento–Arden-Arcade–Roseville, CA $59,200 No data
    2012 wage data: EMSI Class of Worker, 2012.3
    Cost of living data: C2ER

  • U.S. Desperately Needs a Strategy to Attract the Right Skilled Immigrants

    President Obama’s recent “do it myself” immigration reform plan, predictably dissed by conservatives and nativists, reveals just how clueless the nation’s leaders are about demographics. Monday’s Supreme Court ruling on Arizona’s immigration crackdown also broke down along predictable lines, with both parties claiming ideological victories.

    Yet the heated debates are missing the reality of immigration and its role in America’s future. In reality America needs more immigrants, but with a somewhat different mix.

    Rather than an issue of “values” or political sentiment, we need to look at immigration as a matter of arbitrage, a process by which rapidly aging countries bid for the skills and energies of newcomers to keep their economies afloat.

    Nowhere is this immigration arbitrage clearer than in the world’s most rapidly aging region, Europe. By 2050 the workforce there is expected to decline by as much as 25%. Yet this diminishing resource is now increasingly on the march as young Greeks, Italians and Portuguese flee to stronger economies in Europe’s Nordic belt and elsewhere. An estimated half million left Spain last year alone. Ireland, which in recent decades actually attracted new migrants, was exporting a thousand people a week last year. In recession-wracked Britain, a 2010 poll found nearly half of the population would like to move elsewhere.

    Germany, with its ultra-low birthrate and rapidly aging population, has emerged as a primary migration beacon. Germany needs about 200,000 new migrants ever year to keep its economic engine humming. For decades, newcomers from Turkey and other Islamic countries have flocked there, but this migration has failed to deliver much added value due to their general lack of skills and divergent cultural values. So the Germans — as they did back in the 1960s — look to harvest the diminishing pool of skilled workers from equally aging states on the EU’s southern periphery.

    But it’s not simply a matter of a one-way south to north flow. Other EU countries, such as Italy, are playing the immigration arbitrage game by importing young workers from rapidly depopulating southeastern Europe. Milan, for example, added 634,000 foreign residents in just eight years (2000 to 2008), the largest share from Romania, followed by Albania. Over the period, more than 80% of Lombardy’s growth has come as a result of international immigration.

    But immigration arbitrage is more than a simple numbers game. As Europe learned through its bitter experience with immigration from North Africa and the Middle East, importing populations without necessary skills and attitudes useful for the modern economy can produce unhappy results. The key issue is how to attract and select immigrants likely to contribute to the national well-being and economic competitiveness.

    Almost everywhere in the world, there are shortages of skills ranging from construction to advanced engineering. Much of contemporary immigration to East Asia reflects the need for workers — largely from India, Bangladesh, Indonesia and Sri Lanka — to perform tasks considered “dirty, dangerous and difficult” (or 3-D).  Singapore and Hong Kong also have a bull market for high-end workers in order to maintain their increasingly financial and technology-oriented economies.

    But skills should not be conflated merely with university degrees. Education is no longer a guarantor of productivity; the degree, once a sign of distinction, has become a commodity. Many disciplines have little net positive economic impact. Few countries likely suffer shortages of post-modernist literature graduates, performance artists or lawyers.

    Opening the doors to undocumented high school graduates, many with no real marketable skills, as President Obama just did, may not have a great positive long-term effect on the economy. Perhaps it would be better if our immigration policies were less about politics, and ethnic constituencies, and more about gaining specific skills and abilities from other countries, including from Mexico’s growing ranks of educated and skilled workers.

    Some countries, such as Canada, Australia and Singapore, already have made major accommodations favoring skilled or entrepreneurial immigrants. The United States, to its great disadvantage, has been slow in this regard. In 2011 barely 13% of all American immigrants came as a result of employment-based preferences, down from 18% 20 years ago. Family reunification should remain a cornerstone of immigration but needs to give way substantially to a more skills-oriented policy.

    America’s approach is particularly baffling given our looming skills shortages. The reviving auto industry is already running short of craftspeople such as numerical machine tool operators. In fact, David Cole, chairman of the Center for Automotive Research, predicts that as the industry tries to hire upwards of 100,000 workers, they will start running out of people with the proper skills as early as next year.

    This shortage is also intense in many engineering and technically oriented fields. The Pittsburgh area alone has 1,500 engineering job openings. The Great Lakes Metro Coalition, covering 12 states, is advocating for a federal immigration policy focused on attracting highly skilled talent. Government and business leaders in economically healthy parts of the Great Plains, Texas and Utah now consider persistent skilled labor shortfalls — particularly in science and technical fields — as the greatest barrier to continued growth.

    Immigration policy should also look to bring in more entrepreneurs. As business start-ups overall have slowed, immigrants continue to launch new businesses. Today fully one-fifth of all American businesses are owned by immigrants, up from 12% two decade ago. Many of these are located in suburbs and small towns, where together a majority of immigrants see opportunities and a better quality of life.

    These qualitative distinctions may be lost on many in the pundit class. As a decline in Mexican immigration has driven overall immigration down below 2009 levels, the number of Asian newcomers is once again growing. Their share of annual new arrivals has risen over the past two years from 36% to 42%.

    Asians increasingly do not come for just economic opportunity — there’s often more of that at home — but to attain things almost impossible in their native countries  such as a single-family homes with a backyard and less congested, tree-shaded neighborhoods. For some, like migrants from China, political and religious freedom also is often a major attraction.

    This is good news for the future. As a Pew report recently pointed out, Asian immigrants tend to possess many of the characteristics this country sorely needs: a commitment to education, family and entrepreneurship. McKinsey suggests China and India will produce 184 million new college graduates over the next 10 years; this provides a vast pool of which the U.S. has only to pick up a small portion to boost its economy.

    This is not to argue for a policy based on ethnicity or geography. There are hard-working, skilled immigrants to be had from the poorest countries in Latin America or Africa. If you want to see this, go to any strip mall around Houston, Los Angeles or northern New Jersey.

    We need to target immigrants most likely to help our advanced industries, start businesses and families, and whose descendants will provide critical demographic vibrancy. There may soon be many such people looking to move from places like the Middle East, particularly Christians or liberal Muslims threatened by rising Islamism. There also should be policies to welcome restless young Europeans who may be seeking more opportunity elsewhere.

    The age of immigration arbitrage will require critical shifts in all advanced countries to provide many more openings for skilled immigrants and entrepreneurs. But ultimately the best way to attract these people lies in boosting the kind of economic growth and opportunity that can attract this most valuable resource to a country.

    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.

    Immigration rally photo by BigStockPhoto.com.

  • Despite Obama’s Policies, The Rust Belt’s Revival Could Save His Campaign

    Barack Obama’s political base always has been more “creative class” than working class—and his policies have favored that base, seeming to cater to energized issue and identity constituencies including African-Americans, Hispanics, gays, and greens, often at the expense of blue-collar workers.

    Yet improving conditions for those workers—particularly in the industrial heartland—could save his flagging presidency.

    The industrial zone’s four key states—Michigan, Ohio, Wisconsin, and Pennsylvania—constitute the most critically contested territory in this year’s contest. Fifty-four electoral votes are at play here, with Pennsylvania’s 20 votes alone equaling all those at stake in the much-ballyhooed battleground of the Intermountain West (Colorado, Nevada, and New Mexico).

    The Midwest is also home to the two states with the biggest drops in unemployment over the past two years. Michigan leads the way with an almost five percentage point drop, while Ohio comes in second with a nearly three–point decline. Other key Great Lakes battlegrounds—Wisconsin, Indiana and arguably Missouri—have also seen two-point drops in their unemployment numbers.

    “Rust Belt” no longer seems like a pejorative, as the northern industrial states now boast unemployment rates well below those in once-booming states including California, Nevada, Florida, and South Carolina.

    In the last two years the nation has added more than 400,000 manufacturing jobs, led by states in the upper Midwest. Between 2010 and 2011, Michigan led the nation by creating 25,000 new industrial jobs with a heady 5 percent growth rate second only to Oklahoma. Wisconsin came in second with 15,000 new positions, and a growth rate of more than 3 percent.

    These gains may not come to close to making up the losses suffered over the past decade, but the growth is encouraging. Manufacturing employment brings higher wages to regional economies. In the Cincinnati area, the average factory job pays $61,000 a year—$15,000 more than the city’s average wage. This creates an outsized impact on the rest of the economy, from housing and retail to demand for business services. There are already significant shortages of skilled workers such as welders and machinists.

    Midwestern employers are projecting an 18.5% jump—the largest of any region—in the number of college graduates that will be hired this year.

    The new industrial economy creates considerable demand for those who can fill STEM (science, technology, education, and mathematics related jobs). Between 2009 and 2011, Michigan enjoyed the second strongest rate of STEM growth in the nation, just behind Washington, D.C.

    Much of what generated the heartland recovery—and much of what could slow or even reverse it—lies outside of the president’s control. But if the momentum holds through November, the political winds there will be at Obama’s back, helping him sell Great Lakes voters on the idea that the nation is moving in the right direction under his leadership. The key here lies with the revived auto industry.

    Obama’s “decision to rescue GM and Chrysler was exceedingly popular in auto manufacturing dependent states like Michigan and Ohio,” says former Michigan Democratic Party chair Morley Winograd. “The rise in manufacturing employment since has buoyed housing prices, boosted workers’ morale, and allowed Obama, in these states anyway, to be able to claim he delivered on the campaign’s promise of hope and change. "

    Mitt Romney is now effectively even in the polls in Michigan (one of his three “home” states), but he may have trouble explaining his opposition to the auto bailouts if the economic tide is rising.

    “Obama will win Michigan in a walk, “ predicts Winograd. “Outside of a nostalgic visit to his boyhood home, Romney won’t be seen in the state after Labor Day.”

    One state both candidates are sure to spend time in is Ohio, which has already emerged once again as a bellwether in the race.

    Rick Platt, an industrial development official in Newark, an industrial city of 50,000 in the central part of the state, sees the Ohio race as a struggle between “two narratives” about Obama.

    The first is the positive one, a reflection of industrial gains of more than 10,000 jobs last year and falling unemployment. The other narrative builds around fear over a second Obama term.

    Those concerns are especially pronounced in traditional swing regions like the Utica Shale in the eastern part of Ohio and the coal-producing swaths of western Pennsylvania (nearly half of the businesses in the booming gas and oil extraction field are based in the industrial heartland) that have long been resentful of Washington regulators. Business owners are concerned—as are many of their employees—that a second Obama term could mean the EPA shutting down the nascent natural gas boom that’s begun to generate both energy and high-wage industrial jobs. Some businesses have postponed investment due to uncertainty about the election and the prospect of aggressive regulation.

    “There’s a lot of things in play,” says Platt, who has been active in Republican politics. Not surprisingly, he credits much of the region’s recovery to the economic policy of Republican governors like John Kasich in Ohio, Michigan’s Rick Snyder, and Wisconsin’s Scott Walker—all states he notes that are lapping Illinois.  The Land of Lincoln, Obama’s Democrat-controlled home state, suffers the region’s highest unemployment rate and is competing with California for the nation’s worst credit rating. “It’s not clear right now which of the two narratives will win out.”

    The health of the manufacturing economy may prove even more important to the president’s reelection than the Dow Jones index. If industrial growth softens or goes into reverse—for instance, if Europe’s economic troubles cross the Atlantic—the Midwest will feel the effects first.

    And if the Rust Belt suffers, Obama’s path to a second term gets that much tougher.

    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 The Daily Beast.

    Oklahoma City photo by BigStockPhoto.com.

  • Thunder On The Great Plains: A Written-Off Region Enjoys Revival

    They may not win their first championship against Miami’s evil empire, but the Oklahoma City Thunder have helped to put a spotlight on what may well be the most surprising success story of 21st century America: the revival of the Great Plains. Once widely dismissed as the ultimate in flyover country, the Plains states have outperformed the national average for the past decade by virtually every key measure of vitality — from population, income and GDP growth to unemployment — and show no sign of slowing down.

    It’s a historic turnaround. For decades, the East Coast media has portrayed the vast region between Texas and the Dakotas as a desiccated landscape of emptying towns, meth labs and right-wing “clingers.” Just five years ago, The New York Times described the Plains as “not far from forsaken.”

    Many in the media and academia embraced Deborah and Frank Popper’s notion that the whole region should be abandoned for “a Buffalo commons.” The Great Plains, the East Coast academics concluded, represents “the largest, longest-running agricultural and environmental miscalculation in American history” and boldly predicted the area would “become almost totally depopulated.”

    Yet a funny thing happened on the way to oblivion. Rising commodity prices, the tapping of shale gas and oil formations and an unheralded shift of industry and people into the interior has propelled the Plains economy through the Great Recession.

    Since 2000, the Plains’ population has grown 14%, well above the national rate of 9%. This has been driven by migration from the coasts, particularly Southern California, to the region’s cities and towns. Contrary to perceptions of the area as a wind-swept old-age home, demographer Ali Modarres has found that the vast majority of the newcomers are between 20 and 35.

    Oklahoma City epitomizes these trends. Over the last decade, the city’s population expanded 14%, roughly three times as fast as the San Francisco area and more than four times the rate of growth of New York or Los Angeles. Between 2010 and 2011 OKC ranked 10th out of the nation’s 51 largest metropolitan areas in terms of rate of net growth.

    Nothing more reflects the changing fortunes of Oklahoma City than the strong net migration from many coastal communities, notably Los Angeles and Riverside, a historic reversal of the great “Okie” migration of the 1920s and 1930s. In the past decade, over 20,000 more Californians have migrated to Oklahoma than the other way around. OKC has even experienced a small net migration from the Heat’s South Florida stomping grounds.

    The city’s transformation from a cow town into an attractive, modern metropolis has been fueled by some $2 billion in public investment and over $5 billion in private investment, says Roy Williams, president of the Oklahoma City Chamber of Commerce. Besides the arena for the Thunder, the city has engineered a successful riverfront development known as Bricktown, fostered a growing arts scene and become more ethnically diverse, largely as a result of immigration from Mexico.

    This pattern of revived urbanization can be seen in other Plains cities. World-class art museums grace Ft. Worth’s Cultural District, and downtown in Omaha, Neb., has become a lively venue bristling with revelers on weekends. Even downtown Fargo, N.D., now boasts a boutique hotel, youth-oriented bars, interesting restaurants and a small, but vibrant arts scene.

    Great Plains cities are doing well, however, predominantly due to their strong record of economic growth. Over a decade in which most large metropolitan areas lost jobs, Ft. Worth, Dallas, Oklahoma City and Omaha have created employment. Unlike many Bush-era boom towns, such as Las Vegas, Riverside-San Bernardino, Calif., or the major Florida cities, the Plains did not hemorrhage jobs during the Great Recession.

    The Plains states enjoy some of the lowest unemployment rates in the country. There were seven states with unemployment of 5% or less in April; four are on the Plains: North Dakota, with the nation’s lowest jobless rate at 3%, South Dakota, Nebraska, Iowa and Oklahoma.

    This is partly due to a booming energy industry. As U.S. oil and gas production has surged over the past decade, the Plains’ share has grown from roughly a third to nearly 45%. The biggest two gainers, Texas and Oklahoma, together boosted their energy employment by 220,000.

    But the Great Plains’ economic dynamism extends well beyond energy. The region’s farms and ranches cover an area exceeding 500 million acres,or over 790,000 square miles — larger than Mexico — and account for roughly a quarter of the nation’s agricultural production. These farms have benefited from the long-term increase in food commodity prices — notably wheat, corn, soybeans — and record exports. Since 2007 the Plains share of food shipments abroad has surged from 20% to nearly 25%.

    At the same time, the region’s industrial sector, notes research by Praxis Strategy Group’s Mark Schill, has withstood the recession better than the rest of the nation. Never a center of unionized mass manufacturing, the region has become a location of choice for expanding industries, in part due to low costs, cheap energy and a favorable regulatory environment.

    They know all about this in Oklahoma . Last year the Sooner State led the nation in industrial growth. One major coup: a large Boeing facility moved last year from California to OKC. The Dakotas and Nebraska also sit in the top ranks of producers of new industrial jobs. Since 2007, the Plains states have boosted their share of U.S. manufactured good from 19% to 21%.

    More surprising still has been the region’s surge in employment in jobs related to science, technology, engineering and math. This has been spearheaded, of course, by Texas, but most other Plains states — North Dakota, South Dakota, Oklahoma — also have enjoyed well above average tech job growth. North Dakota, remarkably, now boasts the second-highest percentage of people 25 to 44 with a post-secondary education, behind only Massachusetts; it also has one of the highest rates of high-tech startups in the nation.

    Given their generally strong state budgets, the Plains states have continued to pour more resources per capita into university-related research than their counterparts elsewhere. North Dakota ranks number one here, but South Dakota, Oklahoma, Kansas, Montana and Texas all rank in the top 10.

    None of this suggests that the Plains are ready to bid for primacy as high-tech centers with California or Massachusetts, or Ohio and Michigan as the country’s industrial bastions. For all their improved amenities, Omaha, Ft. Worth or Oklahoma City seem unlikely to surpass New York City as the nation’s cultural, restaurant or financial capital in our lifetimes.

    Yet it seems clear that the region, long dismissed as irrelevant, will play a much larger role in the nation’s economic future. Like the young Thunder, the people of the Plains now have a prairie wind at their back.

    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.

    Oklahoma City photo by BigStockPhoto.com.

  • Historic Heritage of the Rust Belt

    I’ve been spending a lot of time in Ravenna recently. No, not the town in Italy with its early Christian buildings and glittering mosaics. I mean Ravenna, Ohio, a small industrial city of some 12,000 people near Akron. 

    Along with Akron and Cleveland, Ravenna flourished as an industrial center in the early 20th century.  In recent decades, however, its economy, like most of northeastern Ohio’s, has been sluggish at best, and the town hasn’t changed much physically for many years except for occasional demolitions at the center and new subdivisions at the periphery. News from Ravenna rarely makes it even into the Cleveland papers. It is certainly not known for its architecture.  It has some perfectly good late 19th and early 20th century houses and commercial buildings, but none of these is likely to draw tourists.

    One of the very few really remarkable things about Ravenna is a 150-foot high flagpole erected in 1893.  Almost absurdly high for the scale of the city, it is a fascinating product of late 19th century American engineering ingenuity and vernacular design as well as a reflection of patriotism and civic pride. Standing right in the center of the city, it is arguably the most notable monument not just of Ravenna but for miles around.

    Unfortunately, township trustees now plan to demolish it.


    Image:  Ravenna flagpole viewed from East Main Street, Ravenna Ohio.  Photo by Tom Riddle, 2012

    The battle over the Ravenna flagpole says a good deal about the fate of the great manufacturing belt that stretches along the southern edge of the Great Lakes. Once one of the greatest manufacturing regions of the world, it has struggled mightily since World War II as aging infrastructure, obsolete industrial facilities, a gap in educational attainment, and non-competitive wages have left it fighting to find its place in the late 20th, not to mention the 21st century economy.

    In many ways Ravenna is a microcosm of the larger region.  In Ravenna, as throughout the region, economic stagnation has taken a toll on the city’s built environment. Main Street has vacant storefronts and empty lots where stores used to stand. Some of the housing stock has started to deteriorate. 

    The biggest change in Ravenna, as in most Rust Belt cities, though, has been the transformation in the industrial landscape. In city after city from Duluth, Minnesota, to Rochester, New York, icons of American industry have vanished. The Homestead Steel works outside Pittsburgh has been largely demolished, replaced by a shopping mall. The same fate has befallen the LTV Steel plant in Cleveland and the great Western Electric complex on the boundary between Chicago and Cicero.


    Image:  Hawthorne Works Shopping Center in front of remaining tower of the Western Electric Hawthorne Works in Cicero Illinois

    Some of this demolition was necessary, even welcome, since many of these factories were located amidst densely populated neighborhoods and constituted a logistical and environmental nightmare. But much of the demolition has been motivated primarily by a desire to remove from sight embarrassing reminders of a previous era. Demolishing the factory, city fathers figure, better allows potential buyers of the site to appreciate a wonderful riverside location or proximity to downtown and the endless opportunities to build something new. 

    What has replaced those grand temples of industry, however, has usually been underwhelming, with late 19th century brick loft buildings reduced to rubble to make way for cheap one-story strip malls that neither employ a lot of workers nor generate a lot of tax revenue. The old urban identity has been destroyed, but there has been very little to take its place. 

    The process is akin to the efforts of men and women of a certain age who resort  to plastic surgery, hair implants and clothes more appropriate for a younger generation. These cosmetic efforts rarely fool anyone.  In fact, what they most clearly convey is a loss of confidence.  

    Fortunately there is a growing awareness that wholesale demolition of industrial fabric does not necessarily   prepare cities for their post-industrial future. This movement to save industrial heritage came into its own first in Britain, not surprisingly, since Britain was the cradle of the Industrial Revolution. For decades now important eighteenth and early nineteenth century industrial sites have been preserved, often as historic sites and tourist destinations.


    Image: Ironbridge in Coalbrookdale, Shropshire, England, named a World Heritage Site in 1986

    A similar thing has happened in the United States.


    Image:  Pawtucket, Rhode Island, Slater Mill, started 1793, now a National Historic Landmark.

     

     Old loft buildings have become residential condominiums, even in some rather unlikely places.

    Image: River Mill Condominiums along the Fox River in Oshkosh, Wisconsin, opened in 1986 in a building constructed for the Paine Lumber Company


    Image: Quaker Square, Akron, a hotel developed in 1980 in concrete silos built by the Quaker Oats Company in the 1930s and now owned by the University of Akron.

    The preservation of the industrial landscape that cannot be easily reused has been more problematic.   Even so, there has been a movement to preserve some of the most important examples both as testimony to the industrial heritage of their regions and as a way of showcasing the regions in which they are located, providing amenities for the citizens and attracting tourists.

    Germany has been a leader in this movement. The Voelklinger Huette outside Saarbrucken preserves an entire complex intact as a monument to the industrial heritage of the area.  Even more spectacular has been the transformation of large pieces of the Ruhrgebiet, the heart of Germany’s pre-World War II heavy industry, into a set of imaginative parks, museums and other institutions.


    Voelklingen Huette (Voelklingen Iron Works) near Saarbrucken, Germany. A UNESCO World Heritage site and museum.


    Duisburg Nord Landschaftspark (landscape park) in Duisburg, Germany, a coal and steel plant transformed into a public park according to designs done in 1991 by architect Peter Latz who retained as many of the old structures as possible.

    Of course, the Ravenna flagpole lacks the grandeur or the historical significance of these places. But it is an important historic relic in its own right and arguably as important for Ravenna as the great industrial complex at Duisburg is to the Ruhrgebiet.

    Erected in 1893 by the Van Dorn Iron Works of Cleveland, the flagpole was one of at least four similar or identical structures erected in the northeast of the United States. It appears that only the one at Palmyra, New York, still stands. Recently refurbished, the Palmyra pole seems to have been built as a mast for displaying banners of political candidates. 


    Image:  Post card of Main Street Ravenna showing the flagpole in front of the courthouse.


    Image:  Palmyra, New York, flagpole, fabricated, like the Ravenna pole, by the Van Dorn Iron Works of Cleveland. It has been recently restored.

    These flagpoles reflect late 19th century American engineering ingenuity. Earlier poles had usually been of wood. They frequently snapped in high winds and had to be replaced. When the Ravennans needed to replace their pole they used a new and improved technology available to them.

    The technology, involving the use of latticed steel boxes, was developed for the railroad and construction industry. The individual elements were not new. Steel had been replacing wrought and cast iron for a number of years. Truss bridges and other constructions using similar structural technologies had been well developed earlier in the century. Inexpensive steel and the techniques of constructing large structures out of it using rivets rather than bolts, however, was new. The technology was ideally suited to the construction of large structures of all kinds, notably bridges.

     

    The same qualities of strength and light weight that made it ideal for bridges also made it perfect for towers. All over Europe and America engineers used latticed towers not just for flagpoles, for but lighthouses, look-out stations, electric light towers and a host of other uses.


    Image:  Electric Light Tower, constructed in 1881 at the corner of Market and Santa Clara streets in San Jose, California to house arc lights intended to illuminate downtown.  It collapsed in December 1915.

     
    Image: A surviving “Moonlight Tower” in Austin, Texas.  Manufactured by the Fort Wayne Electrical Company for use in Detroit, 31 of the towers were purchased from the city of Detroit and re-erected in Austin.  In 1970 the remaining 17 towers were listed on the National Register of Historic Places. The city spent $1.3 million to dismantle and restore these towers in the early 1990s.  



    Image: Villingen, Germany, Aussichtsturm (Observation Tower) 1888. This 30 meter high tower, erected on a hill outside the village of Villingen, provided views over the surrounding countryside as far as the Alps.

    The grandest example of this structural technique is, of course, the Eiffel Tower, built for the Paris exposition of 1889. Although larger in scale than any of the other examples, it used many of the same materials and construction methods as the Ravenna flagpole. Initially heavily criticized by much of the artistic elite of the day as being essentially useless and much too big, the Eiffel Tower soon came to symbolize Paris to the world. No one would imagine demolishing it today.


    Image:  Paris, Eiffel Tower built for the 1889 Exposition. It reaches a height of  1015 feet using latticed steel elements and rivets similar to those used on the Ravenna flagpole

    The Ravenna pole, erected four years later was built as a monument to national pride and an affirmation of the place of the city of Ravenna in the larger American republic. The pole also had a more local significance. It would allow Ravennans for once to greatly outstrip their neighbors and rivals in Kent, 10 miles to the west. In fact, at the time of its completion, the pole must have been one of the taller flagpoles in America and one of the taller structures anywhere outside the largest cities.  Of course, by now it has been dwarfed, particularly in the last couple of decades when a new battle for flagpole superlatives has broken out, curiously enough this time in some of the most out-of-the-way corners of the globe.

    National Flagpole at Baku, Azerbaijan, at 545 ft. flagpole, briefly the world’s highest flagpole before being eclipsed by one in Tajikistan. Both were built by a company in San Diego.

    Even if now dwarfed by flagpoles in Azerbaijan, North Korea, and Tajikistan, the Ravenna flagpole still reflects the pride of a struggling industrial city. It has required periodic maintenance and has gotten into the news occasionally when some inebriated citizen has tried to climb it. However, for most Ravennans it has come to be so much taken for granted that citizens were stunned when they heard that the  Trustees of the Township of Ravenna, the body that has jurisdiction, decided that it was a legal liability, a drain on township resources and should be demolished. In response, a group of local citizens has stepped in and is fighting to maintain the pole, raising money toward its repair and trying to see if ownership can be transferred to a governmental entity or group of entities willing to maintain it.

    In one way, this is a fight about intangibles like local pride, patriotism, a desire to maintain historic heritage and a sense of place. Some people write off these sentiments as mere nostalgia. But preservation of this kind can have tangible consequences. No one is claiming that preserving the pole will generate vast new tourist revenues or solve basic economic problems. But the movement to save the flagpole rests on the notion that stewardship of historic heritage can play an important role in reminding everyone of the specific qualities of a place that made it successful in the past – and perhaps can be built upon to craft a better future.

    Robert Bruegmann is professor emeritus of Art history, Architecture and Urban Planning at the University of Illinois at Chicago.

  • No, It’s the Deniers who Are Wrong

    Dennis Meyers is the Principal Economist at California’s Department of Finance. He has recently published two parts of what is promised to be a four-part series titled The Declinists are Wrong. He intends to convince us of “the fundamental strength of the Golden State’s dynamic and vibrant economy.”

    I was going to wait until the entire series was complete before commenting, but part one and part two are so poorly argued that I feel compelled to respond now.

    In part one, Meyers argues that California’s economy is strong because it is big. He points out that California represents about 12 percent of the United States population and is the ninth largest economy in the world.

    This is, as Mr. Spock would say, highly illogical. It just doesn’t follow that just because you are big you will have a “dynamic and vibrant” economy. Instead, we have lots of counter examples. Great Britain was once large, wealthy, vigorous, and powerful. Not anymore.

    Closer to home, we have Detroit. In 1950, Detroit’s population was 1.85 million, and it was America’s fourth largest city. Today, Detroit has a population of only 713,777. Its once-vigorous economy is not even a shadow of its former self. Its government is unable to even keep the lights on. It turns out that the lights do go off before the last person leaves.

    In part two, Meyers argues the California is wealthy and this assures a prosperous future. This is, of course, the same logical fallacy as in part one. Detroit was also once one of America’s richest cities.

    Meyers makes another mistake: He talks about average incomes. When it comes to incomes, averaging hides California’s real story, which is its increasing inequality and increasing poverty. California has two of America’s poorest cities. Fresno, with a poverty rate of 30.2 percent, is the eighth poorest American city over 200,000 population. San Bernardino, in the same category, and with a poverty rate of 34.6 percent, is second only to Detroit.

    One of the denialists’ favorite tactics is to find a data point where California does pretty well, and then argue that the selected data point is a reason for the state to do well. Call this a selective data bias. Of course, expanding from the specific to the general is a logical fallacy. This dog is brown therefore all dogs are brown.

    Typically, venture capital is the selected data. A huge percentage of the nation’s venture capital is invested in California, no doubt about it. The problem is that the nation’s venture capital is not all that much. In 2011, California received 51 percent of the nation’s $28.76 billion venture capital net investment — $14.76 billion, which represents less than one percent of California’s almost $2 trillion economy. Almost all of it went to four counties in the Bay Area.

    Meyers takes selective data analysis to a new zenith. He digs through California’s jobs data to find small sectors that are generating jobs at a faster rate in California than nationwide. For example, California’s Computer and Electronic Production Sector (a sub-category of Durable Manufacturing) created jobs at a rate of 2.1 percent in 2010, compared to a national rate of 1.1 percent.

    That’s all well and good, but over the past 12 months, California has lost durable manufacturing jobs. The growth that Meyers cites has only slowed California’s manufacturing jobs losses. Slowing decline is welcome, but it’s not a sign of imminent prosperity.

    And he adds a nice touch discussing mining:

    “The one high-wage sector in which national job gains outpaced those in California was Mining, which includes oil and natural gas production. There are several regions, such as Texas, that are blessed with generous deposits of these resources which California lacks. This advantage also shows up in Engineering Services employment…. The presence of healthy oil and natural gas resources typically generates demand for engineering consulting services related to exploration and extraction.”

    That’s just wrong. California has abundant oil and natural gas resources. In fact, recent California discoveries are roughly equivalent to the proven reserves of Nigeria, the world’s 10th-largest oil producer. We’ve chosen not to extract them. We’ve also chosen to no longer exploit California’s vast mineral resources.

    Chris Thornberg, Beacon Economics founder and economist, recently came up with a novel argument to deny California’s decline. He says that since recent jobs data have been revised upward, “we are in full recovery mode and not looking back.” The problem here is that the jobs data were revised from terrible to merely dismal.

    Look at the data. Below are two charts summarizing changes in jobs since the pre-recession peak. The first is the United States. California is the second. Both are pretty discouraging. Four and half years after the recession, the US is still down almost 5 million jobs. This represents about a 3.5 percent net decline. California, down almost a million jobs, is even worse — down a net 6.2 percent.

    Job Changes From the Peak

    California has also seen slower-than-US job gains over the past year. It is worse than that, though. California has lost jobs in durable manufacturing, non-durable manufacturing, and in the other services category, labeled as Personal, Repair, & Maintenance Services in the table. By contrast, the US only saw job losses in one sector over the past year, the information and technology sector.

    The very recent news is worse. In March, the most recent month for which we have data, California lost jobs while the nation gained. And the number of declining sectors has expanded to include construction, durable and non-durable manufacturing, transportation, warehousing, utilities, education/health, and leisure/hospitality.

    The signs of California’s weaknesses are all around us. With about 12 percent of the US population, we have about a third of the nation’s welfare recipients. It tops the nation in teen unemployment. Domestic migration has been negative for about two decades, after a century-and-a-half of being the destination for people from all over America.

    California’s weakness is the result of California’s choices. It has chosen to be anti-oil and anti-gas, and to unilaterally implement the nation’s most restrictive environmental regulations. California has elected to impose the nation’s most restrictive regulatory regime on all businesses and an onerous tax system. In short, California has chosen to be anti-opportunity and to have a weak economy. The denialists have chosen not to see California’s decline.

    Flickr Photo by Steve Rhodes: Jobless not Hopeless, Ask for my resume – Chris Stewart, Union Square, San Francisco 2009

    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.

  • Enterprising States 2012: Beating the New Normal and Policies that Produce

    The following is an exerpt form a new report, Enterprising States, released this week by the U.S. Chamber of Commerce and National Chamber Foundation and written by Praxis Strategy Group and Joel Kotkin. Visit this site to download the full pdf version of the report, or check the interactive map to see how your state ranks in economic performance and in the five policy areas studied in the report. The full report include a case for the nation beating the "new normal" and lists of best-performing states by policy area, and an index to select the top 10 states likely to continue to grow.

    Troubled by economic stagnancy and high unemployment, many pundits and policy makers are referring to the U.S. economic malaise as the “new normal,” claiming that we have reached both technological and economic plateaus. To be sure, the relative weakness of the current recovery – arguably the weakest in contemporary history – does support the “new normal” thesis.

    Not everyone, or every state, accepts the notion of inevitable, slow growth and gradual decline. From the onset of the recession, some states have largely avoided the downturn. By the end of 2011, six states – North Dakota, Wyoming, Alaska, Utah, Texas, and Montana – showed more than 8% job growth over the past decade. Another 22 had shown some, although less robust, employment increases compared to 2001.

    More important still, nearly every state enjoyed some overall private-sector job growth between January 2011 and January 2012. Most critically, growth has spread to many states hardest hit by the recession, including Michigan, California, and Florida. The strongest job growth continued to take place in other states, notably Louisiana, Oklahoma, Texas, Utah, and North Dakota.

    The new geography of growth reflects many of the intrinsic strengths of the U.S. economy often missed by many policymakers and commentators. After a brief lapse, the country is already outperforming all its traditional high-income rivals in Europe, as well as Japan, as it has done for most of the past two decades. Key U.S. assets include surging agricultural and energy production, the general rebound in U.S.-based manufacturing, and unparalleled technological supremacy. The country remains attractive to both foreign investors and skilled immigrants.

    For the U.S. to be successful, this new geography of growth needs to extend across the 50 states and expand for long enough to significantly lower the high rate of unemployment. This will require something more than a single-sector focus. Attention must be paid to both basic and advanced industries since innovation and technology growth alone cannot turn around most regions and states. 

    More than anything, governments and business leaders need to appreciate how these sectors interact with each other. To be effective across all geographies, innovation must be applied to a broad array of industries, including but not limited to computers, media, and the Internet. Innovation and new technologies are also a means to unlock the productive potential of both mundane traditional industries and the service sector.

    States striving to do well in this environment face many barriers to fostering economic growth and creating jobs. These barriers include the high level of debt in many states; a growing skills mismatch between the workforce and the jobs available within a state; and outdated regulations and taxes that serve as barriers to free enterprise.

    Policies that Produce

    In the ebb and flow of the global economy, states can no longer rely solely on strategies of keeping costs low and providing incentives to attract footloose, commodity-based branch plants or offices. Instead, states must create the right business climate that allows companies and entrepreneurs to create 21st century jobs. 

    Dramatic changes in the scope and scale of the global economy have significantly altered the nature of foreign competition. Jobs are the new currency for leaders across the globe, and those who can create good jobs will own the future. With 95% of the world’s customers now living outside our borders, trade with other countries is a key part of our economy that will continue to be important long into the future. 

    Businesses need a highly skilled workforce – which includes many workers with certificates or two-year degrees – that is able to perform the jobs of a 21st century economy. States that are able to get students involved in the STEM fields – science, technology, engineering, and math – will be the most competitive. 

    Innovation, now the essential driving force for creating and sustaining economic opportunities, is much more multidisciplinary and global in scope than ever before. Innovation and market cycle times are much shorter and continue to accelerate. This makes it more important than ever that states provide the tools, support, and tax and regulatory environments for companies to continuously innovate without onerous delays and burdensome costs that put their entrepreneurs and businesses at a competitive disadvantage.

    Enterprising States 2012 takes an in-depth look at the specific priorities, policies and programs of the 50 states. Generally, the states fostering economic growth and creating jobs today – and those most likely to grow in the next decade – are defined by the following broad policy approaches:

    • Parlaying their natural resources and historically competitive industry sectors into 21st century job-creating opportunities
    • Paying attention to and addressing their competitive weaknesses
    • Supporting their companies’ business development efforts to reach an expanding global marketplace
    • Creating a fertile environment and workforce for a technology-based and innovation-driven economy
    • Investing in infrastructure – digitally and physically engineered – that meets the operating requirements of business and connects businesses to markets and customers
    • Getting government, academia, and the private sector to collaborate effectively to make sure that more new ideas developed by companies and in research labs scale up into industries
    • Taking steps to make existing firms more productive and innovative, creating an environment in which new firms can emerge and thrive
    • Maintaining an affordable cost of living for middle-skilled and middle-class employees
    • Promoting education, workforce development and entrepreneurial mentoring to continually fill the talent pipeline
    • Fostering an enterprise-friendly business environment by cleaning up the DURT (delays, uncertainty, regulations, and taxes), modernizing government, and fixing deficiencies in the market that inhibit private-sector investment and entrepreneurial activity.

    State policies and programs that most effectively promote job creation are rooted in market reality. This means building on the existing core industries and technological advantages of a state while pursuing opportunities in growing and emerging sectors. Building on and sustaining existing economic momentum remains a key means of guaranteeing success in the future.

    Huge increases in food exports, domestic energy investment, a revived manufacturing sector, a burgeoning tech sector, vital demographics, and increased investment from abroad create a strong base for long-term secular recovery of the U.S. economy. Rather than facing a dismal future of the new normal, we may actually be on the cusp of a recovery that could become one of America’s finest moments. The key to making this work, for the states and the nation, lies in policies that promote broad-based, long-term economic growth.

    Download the full report, or read the Enterprising States 2012 coverage at the National Chamber Foundation blog.

    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.

  • From California to Canberra, the Real Class War

    Just under a year before she crawled over Kevin Rudd to claim the Prime Minister’s office, Julia Gillard visited the United States in her then capacity as Australia’s Education Minister. Her stay in Los Angeles took in the Technical and Trades College, where she brushed up on the teaching of “green skills,” a subject close to her heart. “Here in Los Angeles," she told the media that day, “under the leadership of Governor Schwarzenegger, this is a state that is looking to the future; this is a state that is leading on climate change adaption; and this is a state that’s leading on green skills and I’ve seen that on display today at this college.”

    The date was 5 October 2009. As far as dud forecasts go, these platitudes don’t match Lincoln Steffens on the Soviet Union – “I’ve seen the future and it works” – but they’re bad enough. Today Schwarzenegger has gone, his reputation in tatters, and California, reduced to issuing IOU’s to pay its bills, teeters on the brink of bankruptcy.

    Australians have long seen California as a trend-setter, given the common Anglophone culture and semi-arid climate on the Pacific Rim. There’s also the shared love of motor car mobility and suburban independence, and a voracious appetite for tech and entertainment products pouring out of Hollywood and Silicon Valley. But these days the Golden State is just as likely to fill Australians with unease. They find themselves infected with a strain of the green-welfare-utopianism that brought California to its knees.  

    Sure, this doesn’t show up in official statistics; at least not yet. Gillard and Treasurer Wayne Swan never tire of reminding Australians they are “the envy of the world”: unemployment at 4.9 per cent, GDP growth of 3 percent (or more) this financial year, government debt to GDP ratio of just 23 percent and a projected budget surplus in 2013. In April, the IMF predicted that Australia would be the best performing advanced economy over the coming two years. The government and its allies in the elite media are hyper-vigilant about containing discussion of the nation’s affairs within this bounteous frame.

    It’s hard to reconcile Australia’s position with the plight of California, which routinely attracts phrases like “basket case.” Unemployment is running at around 11per cent, significantly above the national US average of 8.2 percent, and Governor Jerry Brown is struggling with an intractable budget deficit of around $US20 billion. Thousands of teachers and other public servants are being laid off, and revenue imposts are driving businesses to other states. One commentator went so far as to say “California’s situation is in some ways more worrisome than Greece’s,” since it represents 14 per cent of the American economy, while Greece only accounts for 2 per cent of the EU.

    But if any of this is supposed to make Australians feel good about their lot, it doesn’t. However benign the headline figures look, they’re in a restive mood. The Westpac-Melbourne Institute index of consumer sentiment continues to languish in negative territory, and the latest Roy Morgan Monthly Business Confidence Survey recorded a 57 percent fall in businesses which believe “Australia will have good economic conditions in the next 12 months”. Astonishingly, the recent Boston Consulting Group consumer sentiment survey found that Australians feel less financially secure than the average European, even less secure than Spaniards, whose economy is in meltdown.

    Nor is much love flowing to Gillard and Swan. Stuck in opinion-poll hell – support for the government has been around 30 percent for over a year – they would be thrown out in a landslide if an election were held today.  

    Why are Australians so low when their economy is so high? The chattering classes are in a funk over this conundrum. People should be showering this fine progressive government with praise, they insist. In patronising tones so familiar around inner Sydney and Melbourne, one columnist scribbled “we are, as a nation, chucking a full-on, all-screaming, all-door slamming teenager temper tantrum … Maybe it’s time we grew up and realised how good we’ve got it.” Others suggest more sober explanations.

    Topping the list is Gillard’s absurd $23 a tonne carbon tax, effective from 1 July this year. Most pundits are loath to concede that, in international terms, the measure is quite radical and Gillard only embraced it to appease the Greens. From the comfort of their armchairs, they dismiss fears about the tax as irrational. After all, Treasury modelling indicates that the effect on growth will be minuscule and, under the government’s package, households will be over-compensated for cost of living increases. If only the Opposition would drop its inflammatory attacks, they maintain, the pessimism would disappear.

    Some blame the negative wealth-effect of sliding house prices and shrinking superannuation funds, battered by stock market volatility.  

    No doubt, such factors do contribute to the malaise, along with loss of faith in a parliament hit by financial and sexual scandals implicating the Speaker and a Labor MP. But opinion-makers who refuse to look beyond the headline figures are concealing the larger story. Across a range of traditional industries, workers grasp that the economy is shifting in directions that could erode the foundations of their mobility and independence. Understanding more than they are given credit for, they fear that the current Labor Government, beholden to Greens and academic elites, and hiding behind stodgy rhetoric, is driving or exploiting those shifts. The most visible manifestations of this are the carbon tax and other green agendas.

    These workers have cause to be worried, if they glance across the Pacific. In his close analysis of the California crisis, US demographer Joel Kotkin starts with the premise that “California consolidated itself as a bastion of modern progressivism.” Drawing on extensive evidence, Kotkin exposes the suffocating influence of radical environmentalists, progressive high-tech venture capitalists, Hollywood moguls, and civil rights attorneys, who have given California escalating energy costs – 50 per cent above the US average and rising – and dwindling fossil-fuel energy exploration and production, America’s sixth highest tax rates, also rising, coupled with proposals to skew the tax system in favour of the super-rich against microbusinesses, the third heaviest tax burden on business out of the 50 states, enormous subsidies and tax breaks for solar and other renewable-energy producers, and complex labour laws.

    “California’s green policies”, says Kotkin, “affect the very industries – manufacturing, home construction, warehousing, and agribusiness – that have traditionally employed middle and working class residents”. With reason, Kotkin calls these developments The New Class Warfare. There is indeed a class dimension to discontent in the United States and Australia, and it has nothing to do with the confected class-war rhetoric coming out of the Obama Administration – “we must all pay our fair share” – and the Gillard Government –“spreading the benefits of the [mining] boom”.  

    John Black, a demographic profiler and former senator, points out that since Labor came to power in 2007, “public administration, education, and health sector jobs have accounted for almost six out of ten of the 760,000 jobs created, instead of the longer term two out of ten.” The health industry alone has grown by 260,000 jobs in four years, a figure that equates to some 2.6 per cent of the whole workforce. Over those years, manufacturing, which accounts for 8.3 of total employment, lost close to 100,000 jobs.

    Last year, “health care and social assistance” replaced “retail trade” as the largest occupational category profiled by the Australian Bureau of Statistics, while “manufacturing” along with “agriculture, forestry and fishing”, traditional blue-collar hubs, were the only categories to contract. "Education and training" and "public administration and safety" ranked higher than "transport, postal and warehousing" and "wholesale trade".

    Job-shedding by a succession of manufacturing, retail and construction firms has dominated recent news bulletins. According to Black, if not for growth in the publicly-funded sector, the employment rate would be closer to 7 than 5 percent.

    If Gillard and Swan are to be believed, such shifts are beyond their control. In a major address on the economy in February, Gillard explained that “the level of the dollar – and the pace of its rise – has broken some business models and forced economic restructuring”. Displaying Marie Antoinette levels of indifference, she declared “these are powerful, economy-wide transformations, perhaps best thought of as ‘growing pains’.” If you thought this posed a complex challenge, think again. “The equation is simple,” she said, “skills brings jobs, and skills bring job security.”

    Here Gillard genuflects to the progressive dogma that education is the answer to every economic problem. It’s hardly surprising that a movement dominated by academics, researchers, educators and university administrators should claim ownership of the path to salvation. But Gillard has it back-to-front. In activities like manufacturing, economic growth brings jobs, which bring skills, not the other way around.

    It’s true that the mining boom and Australia’s safe credit rating have driven the dollar to near or above parity with the greenback. It’s also true that this has exerted pressures on the export and import-competing sector. But government action has intensified these pressures. Labor is ideologically committed to social gentrification and expansion of the white-collar professional classes, particularly in social services, even if this means transferring resources from productive industries that will slow down, stagnate, shrink or vanish.

    While Gillard and Swan would never be so candid, their allies in Australia’s bulging university system, the public sector unions and the Greens aren’t so inhibited. Nor are Labor figures like former Prime Minister Paul Keating, who criticised the Opposition’s attack on the carbon tax in these startling terms:

    … in this country, 80 per cent of people work in the tertiary economy, in services, in the industry like – as we are tonight, in the service economy. And, the new industries, the green industries, are service industries, not the old manufacturing. Manufacturing’s moved to the east [meaning East Asia]. It’s the service industries that are the new growth industries. So, to turn your back on the mechanism which allocates the capital out of the old industries and into the new ones is to turn your back on the future.

    If Gillard Labor cared about blue-collar and other routine jobs, not to mention the small business sector, they would switch to policy settings that spur growth in industries like manufacturing, retail, transportation and logistics, construction and forestry. Cutting spending, reducing company and other business taxes, junking green taxes and green tape, withdrawing from the debt market and liberalising industrial relations would hand employers more flexibility to cope with the high dollar and low cost competitors in Asia.

    Clearly, this isn’t the government’s priority. Instead they have introduced a carbon tax and a mining tax, and in last month’s budget dropped a proposed cut in company tax, they are throwing at least $2.7 billion at various green schemes, not including the “winner picking” $10 billion Clean Energy Fund, they have adopted a Renewable Energy Target of 20 per cent by 2020, they are pouring vast sums of money into higher education to the tune of $5 billion a year including an additional $5.2 billion in the budget, some of which will find its way into a maze of “sustainability institutes,” they have lifted the cap on university places and embarked on a radical plan to expand the proportion of 25 to 34 year olds with a bachelor’s degree to 40 per cent by 2025, they have re-regulated the labour market and imposed a system which, according to the chairman of BHP-Billiton, “is just not appropriate and doesn’t recognise today’s realities,” they have laid the groundwork for new multi-billion-dollar programs in aged, disability and mental health care, employing tens of thousands of new carers, and they have endorsed an industrial tribunal decision that boosts the pay of these workers by up to 65 percent.

    California here we come.

    John Muscat is a co-editor of The New City, where this piece first appeared.

    Photo of Australian Parliament House by BigStockPhoto.com.

  • America’s Two Economies

    Surely you’ve seen it in your own neck of the woods: great contrasts between prosperity and wealth on the one hand, and hardship and despair on the other. I have certainly seen it in every place I have been over the last four years. FDR described the Great Depression as “one-third of a nation ill-housed, ill-clad, ill-nourished.” Yet do we not today have one-third of a nation either unemployed, underemployed, underwater on their one greatest asset (their homes), in crushing debt (which I define as unserviceable from current income), insolvent/bankrupt, on food stamps, unemployment or disability payments, or otherwise dependent on government? The diminishing of the middle class is daunting, but most disturbing is the diminishing of its prospects.

    Perhaps you attribute this state of affairs to the “rich get richer, poor get poorer” meme. But there’s something else, something more going on. I have written about this before (unraveling, stagnation, middle America, middle class is the future), but here bring a fuller picture.

    In the years since the Great Recession started (and ended?) in 2008-2009, the US has been characterized by two economies. One of these American economies is thriving, as are the economic actors part of it. The other economy is miserable, as are its inhabitants. The divergence between these two economies is growing more pronounced. Why is this so, how did it happen, and what does it portend?

    I have been debunking the “rich get richer, poor get poorer” theme for 30 years, maintaining that the relative income gap did not matter as long as absolute income growth was widespread, and economic growth was providing opportunities to all (which was the case). But now those caveats have come into play: middle-income, middle-class earnings, wealth and opportunities are under immense pressure. This is not because the rich get richer, or that redistribution is the answer (I find the debate over austerity vs. growth pretty stupid, when growth too often just means growth of government). It is because of fundamental, structural economic trends which may be with us for a long time to come.

    Divergent Sectors, Divergent Fortunes
    Perhaps you have heard of the manufacturing “renaissance” in America and the exporting “boom.” Both are true. American exports are booming, measuring in at about $180 billion each month (up from $140 per month two years ago). Exports account for about 14% of GDP, and are growing about 16% a year. American manufacturing employment has been hurt by globalization, but manufacturing output continues to grow and exporters are thriving.

    American manufacturing and export prowess are likely to continue into the foreseeable future, as large American companies use innovation and technology to become more productive, and as the growing global middle class demands more American goods (including energy in the form of oil and natural gas).

    The bad news is that exports and manufacturing do not translate into more jobs or even higher wages. Our new job growth has been in health care, education, services and government, areas that do not produce great income and wealth. This holds down the potential income gains of all wage-earning Americans.

    But the income and potential of those in management, finance, high technology and the professions are not adversely affected. The benefits of productivity, manufacturing, exports and economic dynamism generally, therefore, accrue to the already well-situated capitalists, managers and properly skilled. Sure, the internet will continue to make it easier for many small businesses to survive (and some even to thrive), but they cannot be great founts of sustainable jobs.

    Two-tiered economies are well-known and expected in developing countries – an export/manufacturing or raw material sector and a weak domestic service sector – but we’re not used to seeing it in an advanced, technologically sophisticated country like the United States. It actually could mean that the rich will get richer, but the economy will be missing its traditional ladder for those in the middle and below to climb.

    Where will enough employment growth come from to maintain the middle class? Many analysts tell us it will come from the innovation sector, or the innovation economy. But again, the benefits of innovation seem now to accrue to the companies and individuals   already in a position to exploit it, increasing productivity and profitability without a concomitant increase in employees.

    Dystopian Economics
    This is getting perverse, isn’t it? We have high unemployment and underemployment, huge debts and deficits, but companies are profitable and share prices continue to rise. There seems to have been a breakdown in the correlation between employment and GDP, between the housing market and overall economic strength, and between GDP growth and stock market valuations.

    Statistics say we are in a low-inflation environment, but living expenses seem to be rising for food, energy, healthcare and education (the things on which the middle class must spend). Those with jobs and income in sectors that are doing well don’t seem to be as affected. That would certainly help explain the contrasts of wealth and hardship that one sees around the country.

    In other words, what we seem to have created is a winners-take-all economy. Large companies with global exposure, highly skilled workers, and high net worth individuals are the main beneficiaries of current economic policy. Job creation, most small businesses, and low- and medium-end housing are not.

    What if a rising tide no longer lifts all boats?
    We now have the lowest percentage of Americans working or looking for work in 30 years. That really is devastating because the only way out of our fiscal and entitlement nightmare is to have more people working more hours and more years. Is the opposite our future?

    The trends that are creating and sustaining two economies in the US have been building for years and seem to me to be so strong as perhaps impervious to amelioration. The “two economies model” meets my test of sustainability: being supported and reinforced by other fundamental social, demographic, political and technological trends (or at least not being incompatible with them). It is hard to foresee how the “two economies model” can be reversed or even tempered, though it is a path that will leave tens of millions of Americans behind even as the “working” economy improves.

    I have been analyzing, writing and speaking on trends for 30 years. My audiences are often businesses or organizations looking for a picture of the future environment. I usually get a laugh from the observation that the future will be bright for some, dismal for others, and therefore recommend being in the first group. I don’t think I’ll make that joke anymore; somehow it’s no longer funny.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Finding a job photo by Bigstockphoto.com.

  • Facebook’s False Promise: STEM’s Quieter Side Of Tech Offers More Upside For America

    Facebook‘s botched IPO reflects not only the weakness of the stock market, but a systemic misunderstanding of where the true value of technology lies. A website that, due to superior funding and media hype, allows people to do what they were already doing — connecting on the Internet — does not inherently drive broad economic growth, even if it mints a few high-profile billionaires.

    Of course Facebook is a social phenomenon that has affected how people live and interact, but its economic impact — and future level of profitability — is less than clear. This stands in sharp contrast to Apple‘s iTunes, which has become a new distribution platform for small software companies and musicians, not to mention the role of Amazon in the distribution of books and other products.

    From the standpoint of economic development, it’s time to focus on the growing divergence between two different aspects of technology. One is largely an information sector that focuses on such things as information software (think Facebook or Google), publishing and entertainment. For most journalists and urban theoreticians, this is the “sexy” sector, particularly since it tends to employ people just like them: younger, products of elite college educations, often living in “hip and cool” places like San Francisco, Manhattan or west Los Angeles.

    Then there’s a larger, less-heralded group of workers that my colleague Mark Schill at Praxis Strategy Group has focused on: those in STEM (science-, technology-, engineering- and mathematics-related) jobs. These workers perform technology work across a broad array of industries, including but not limited to computers, media and the Internet, representing some 5.3 million jobs in the nation’s 51 largest metropolitan areas. This compares to roughly 2.2 million jobs classified as in the information sector in these 51 regions.

    These STEM occupations are about harnessing technology to improve productivity in mundane traditional industries and the service sector. STEM workers are as likely, if not more so, to be working for manufacturers, retailers or energy producers as for software firms. These workers epitomize the notion of technology, as the French sociologist Marcel Mauss once put it, as “a traditional action made effective.”

    The information sector may be increasingly important, but it is STEM workers, working in a diverse set of industries (including information), who hold the broader hope for the U.S. economy. Over the past decade, the information sector has created many stars, but about as many flameouts. Overall information employment peaked in 2000 at 3.6 million jobs; by 2011 this number had dropped by almost a million. Things have not much improved even in the current “boom”; between February and May this year, the sector lost over 8,000 jobs.

    Essentially the information sector has created a huge amount of churn, as the nature of its employment changes with shifts in technology. For example, the software sector within information has seen real growth, adding some 10,000 jobs the past two years, while other parts of the information sector have suffered significant drops. These include, sadly for aged scribblers, traditional publishing, such as newspapers and book publishing, which has gone from nearly 1 million jobs in 2002 to under 740,000 in May of this year.

    With Facebook stock in the tank, and other major social media sites languishing, the current “boom” may prove among the shortest-lived in recent memory. Shares of less well-anchored companies — meaning those with only a vague outlook for long-term profits — such as Zynga and Groupon have fallen dramatically. The market for the next round of ultra-hyped IPOs also seems to be dissipating rapidly. The carnage has led at least one analyst to suggest Facebook’s fall could “destroy the U.S. economy.”

    Fortunately the overall picture in technology is more hopeful than you’d understand from reading about social media startups. STEM employment has grown 3% over the past two years, more than twice the national average. In the 51 largest metros areas, 150,000 STEM jobs were added from 2009 through 2011. More important still, this reflects a long-term pattern: Over the past decade, STEM employment — despite a drop during the recession — expanded 5.4%.

    These two different classifications underpin geographical differences between and within regions. Sometimes the “hot” areas don’t look so great when it comes to actual job creation in these generally well-paying fields.

    Silicon Valley’s social media boom, for example, may have propelled it once again, at least temporarily, into the ranks of the fastest-growing employment centers. Yet it’s not seeing the gains in STEM jobs that took place during earlier Valley booms in the ’80s or ’90s that were broader based, encompassing manufacturing and industry-oriented software. Indeed STEM employment in the Valley still has not recovered from the 2001 tech bust — the number of STEM jobs is down 12.6% from 10 years ago.

    Metropolitan STEM Job Growth, Sorted by 10-year Growth
    MSA Name 2001-2011 Growth 2009-2011 Growth 2011 Concentration
    Las Vegas-Paradise, NV 25.5% -3.4% 0.51
    Washington-Arlington-Alexandria, DC-VA-MD-WV 20.8% 4.4% 2.16
    San Antonio-New Braunfels, TX 20.1% 3.0% 0.82
    Nashville-Davidson–Murfreesboro–Franklin, TN 18.5% 3.1% 0.74
    Riverside-San Bernardino-Ontario, CA 18.3% -1.6% 0.55
    Seattle-Tacoma-Bellevue, WA 18.1% 7.6% 1.95
    Salt Lake City, UT 17.5% 4.5% 1.17
    Jacksonville, FL 17.4% 3.0% 0.88
    Baltimore-Towson, MD 17.2% 3.9% 1.36
    Raleigh-Cary, NC 14.9% 1.4% 1.56
    Houston-Sugar Land-Baytown, TX 14.3% 3.6% 1.25
    Orlando-Kissimmee-Sanford, FL 14.2% -1.4% 0.90
    San Diego-Carlsbad-San Marcos, CA 13.1% 6.5% 1.38
    Austin-Round Rock-San Marcos, TX 8.8% 2.4% 1.75
    Charlotte-Gastonia-Rock Hill, NC-SC 8.1% 2.1% 0.97
    Columbus, OH 7.8% 3.8% 1.32
    Buffalo-Niagara Falls, NY 7.7% 2.4% 0.96
    Virginia Beach-Norfolk-Newport News, VA-NC 7.5% -3.1% 1.05
    Miami-Fort Lauderdale-Pompano Beach, FL 7.5% 2.8% 0.73
    Indianapolis-Carmel, IN 7.5% 1.2% 1.06
    Oklahoma City, OK 7.3% 2.9% 0.89
    Dallas-Fort Worth-Arlington, TX 6.2% 3.7% 1.21
    Cincinnati-Middletown, OH-KY-IN 6.1% 4.6% 1.08
    Sacramento–Arden-Arcade–Roseville, CA 6.0% -1.6% 1.19
    Louisville/Jefferson County, KY-IN 5.6% 4.3% 0.77
    Phoenix-Mesa-Glendale, AZ 5.4% 1.5% 1.00
    Portland-Vancouver-Hillsboro, OR-WA 5.2% 4.2% 1.24
    Atlanta-Sandy Springs-Marietta, GA 4.8% 4.3% 1.10
    Denver-Aurora-Broomfield, CO 4.0% 2.8% 1.47
    Richmond, VA 3.8% 0.4% 1.14
    Providence-New Bedford-Fall River, RI-MA 3.6% 2.4% 0.90
    Pittsburgh, PA 3.1% 3.6% 1.07
    Hartford-West Hartford-East Hartford, CT 3.1% 1.2% 1.18
    Minneapolis-St. Paul-Bloomington, MN-WI 2.6% 3.1% 1.37
    Tampa-St. Petersburg-Clearwater, FL 2.4% 2.0% 0.88
    Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 2.2% 0.3% 1.19
    Kansas City, MO-KS 1.9% -2.6% 1.15
    New York-Northern New Jersey-Long Island, NY-NJ-PA 1.2% 2.9% 1.00
    San Francisco-Oakland-Fremont, CA 0.8% 3.7% 1.60
    Memphis, TN-MS-AR 0.0% 0.7% 0.56
    Boston-Cambridge-Quincy, MA-NH 0.0% 4.8% 1.64
    Los Angeles-Long Beach-Santa Ana, CA -2.2% 1.7% 0.98
    Milwaukee-Waukesha-West Allis, WI -2.3% 0.2% 1.04
    St. Louis, MO-IL -3.5% -1.4% 1.05
    Birmingham-Hoover, AL -3.9% -3.4% 0.70
    Cleveland-Elyria-Mentor, OH -4.9% 1.2% 0.93
    Chicago-Joliet-Naperville, IL-IN-WI -5.2% 1.1% 0.96
    New Orleans-Metairie-Kenner, LA -6.7% 3.6% 0.71
    Rochester, NY -8.9% 2.1% 1.19
    San Jose-Sunnyvale-Santa Clara, CA -12.6% 4.9% 3.09
    Detroit-Warren-Livonia, MI -14.9% 8.8% 1.42
    Total in Top 51 Regions 4.2% 3.0%

    Data source: EMSI Complete Employment, 2012.1. The “2011 Concentration” figure is a location quotient. That’s the local share of jobs that are STEM occupations divided by the national share of jobs that are STEM occupations. A concentration of 1.0 indicates that a region has the same concentration of STEM occupations as the nation.

     

    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.

    Computer engineer photo by BigStockPhoto.com.