New Geography

Category: Economics

  • The Census’ Fastest-Growing Cities Of The Decade

    Over the past decade urbanists, journalists and politicians have hotly debated where Americans were settling and what places were growing the fastest. With the final results in from the 2010 Census, we can now answer those questions, with at least some clarity.

    Not only does the Census tell us where people are moving, it also gives us clues as to why. It also helps explain where they might continue to go in the years ahead.  This information is invaluable to companies that are considering where to expand, or contract, their operations.

    For Forbes’ evaluation of the Census’ winners and losers, we have focused not on individual cities, but on metropolitan areas, which represent the most accurate designation for measurement. Take Atlanta, No. 10 on our list. While the city’s population grew by 1,000 over the last decade (2010 boundaries), the region, according to the Census grew, by roughly 1 million, the largest numerical increase among the country’s 51 largest metro areas. The city itself represents less than one-tenth the total metro area population.

    Las Vegas continued to be the nation’s fastest-growing major metropolitan area per capita, adding 41.8% to its population between 2000 and 2010. But the Las Vegas margin was very thin. Raleigh, N.C. (which ranked second) also gained 41.8%, and the difference between the two could only be measured at the third decimal point. If Raleigh had added just 10 more people, it would have been the leader.

    Overall, some 15 of the big metros grew at more than twice the 9.7% rate experienced by the entire country. One key reason — for at least some cities — was job growth. Las Vegas, which added 575,000 residents, and Raleigh grew their economies despite the tough recession. Sin City is still a top flight tourist destination, and its business-friendly policies are still attractive to other industries, particularly from highly regulated California.  The Texas metros Austin (No. 3), Houston (No. 8),  San Antonio (No. 9 ) and Dallas-Fort Worth (No. 11) all had strong job growth — as did Nashville, Tenn. (No. 12).

    However, not all the top growing regions in the country share the same economic trajectory. Many of the other leaders grew their job bases rapidly at the beginning of the decade but gave back some of their gains after the collapse of the mortgage market. This happened in places like Las Vegas Riverside-San Bernardino, Calif. (No. 5), Orlando , Fla., (No. 6), Phoenix, Ariz., (No. 7), Jacksonville, Fla. (No.13) and Sacramento, Calif. (No. 14).

    Yet all of the top ten — with the exception of Atlanta — expanded their job base during the decade.

    So if job growth itself is not a single determining indicator, what else has swelled these populations? Two things seem to stand out. One major factor seems to be affordability of housing. Throughout the decade people have moved primarily to those areas with cheaper house price relative to incomes.

    Take the movement of people from expensive coastal California not only to the interior parts of the state but especially to the Texas metropolitan areas, such as Dallas-Fort Worth and Houston. To put this in context, the median house price today as a share of median household income (the “median multiple”) averaged at 2.7 in Dallas-Fort Worth and 2.8 in Houston, compared with 7.2 in the No. 41 ranked Los Angeles or 8.1 in ultra-pricey San Francisco, which ranked No. 37.

    During the bubble, coastal California housing prices were even higher, peaking at a median multiple over 10, while Dallas-Fort Worth and Houston remained at 3.0 or below. There was also strong migration from coastal California to closer metropolitan areas in the West, where house prices were high by national standards, but far more affordable than in coastal California. Examples of this trend were No. 1 Las Vegas (which averaged 4.0 and peaked at 5.9), No. 7 Phoenix (averaged 3.4 and peaked at 4.7) and No. 15 Denver (averaged 4.1 and peaked at 4.5).

    A similar phenomenon can be seen on the east coast. To understand the rapid growth of a place like Raleigh, you have to look to the migration of people from the Northeast, notably the No. 44 New York area and No. 43 Boston. Housing costs seem to be a leading factor here. The ratio of median house price to median household income   in Raleigh averaged 3.6 (peaked at 4.2) — well below that of its primary talent sources like New York, which averaged 6.3, peaking at 7.7, and Boston, which averaged 5.2 and peaked at 6.1.

    Among the 20 fastest-growing regions, No. 16 Washington, D.C. region had relatively expensive housing, with an average median multiple of 4.2, after peaking at 5.7. Washington must be regarded in this sense as the great exception, a place whose steady employment growth has defied all market logic, since it is largely tethered to the ever-expanding scope of the federal government and its similarly growing legions of parasitic private corporations.

    The other major factor determining growth seems to be urban area density and size. Despite all the triumphant celebration of the glories and attraction of dense big city urbanism, almost all the fastest-growing metropolitan areas have low-density core cities and are predominately suburban in form. Indeed not one of the top 15 growing regions has a core city with a density of over 5,000 per square mile and only three, the Dallas-Fort Worth, Houston and Atlanta metropolitan areas, have more than 5 million residents.

    In contrast, the regions with the densest core cities–such as Boston and San Francisco–all grew at about half or less than the national average, despite core densities of 12,000 or above. All three of America’s largest metropolitan areas–New York, Los Angeles and Chicago, with populations nearing or above 10 million–grew far below the national average.  However thrilling and alluring dense large cities might be to pundits, academics and policy wonks, they are proving not so beguiling to Americans who, for the most part, continue to seek out “the American dream” wherever they can best afford it.

    Yet the very bottom of our list does include cities that are neither expensive nor particularly dense. These include the long-standing declinapolises that actually managed to lose population while the rest of the country was gaining. These include No. 47 Buffalo, N.Y., No. 48 Pittsburgh, Pa., No. 49 Cleveland, Ohio and ever-suffering No. 50 Detroit.

    The only non-rust belt core city to lose population this decade was No. 51 – New Orleans-Metarie-Kenner, La.  Of course, the Big Easy’s decline stems in large part from both nature’s depredations and what appears to be only a limited restoration of its basic infrastructure. But amazingly, the job loss in New Orleans was less than that of perennial loser Detroit and former perennial winner San Jose, which ranked 35th.

    So in our minds, NOLA’s last place finish may be a bit unfair, but then again so is life — and  sometimes demographics.

    Population 2000-2010 Employment 2000-2010
    Geography Change Pct Change Change Pct Change
    Las Vegas-Paradise, NV 575,504 41.83% 103,800 14.88%
    Raleigh-Cary, NC 333,419 41.83% 59,500 13.62%
    Austin-Round Rock-San Marcos, TX 466,526 37.33% 93,800 13.94%
    Charlotte-Gastonia-Rock Hill, NC-SC 427,590 32.14% 34,000 4.43%
    Riverside-San Bernardino-Ontario, CA 970,030 29.80% 122,800 12.42%
    Orlando-Kissimmee-Sanford, FL 489,850 29.79% 92,300 10.15%
    Phoenix-Mesa-Glendale, AZ 941,011 28.94% 108,400 6.87%
    Houston-Sugar Land-Baytown, TX 1,231,393 26.11% 278,600 12.38%
    San Antonio-New Braunfels, TX 430,805 25.17% 96,200 12.91%
    Atlanta-Sandy Springs-Marietta, GA 1,020,879 24.03% -30,900 -1.35%
    Dallas-Fort Worth-Arlington, TX 1,210,229 23.45% 101,400 3.67%
    Nashville-Davidson–Murfreesboro–Franklin, TN 278,145 21.20% 34,900 5.00%
    Jacksonville, FL 222,846 19.85% 15,900 2.81%
    Sacramento–Arden-Arcade–Roseville, CA 352,270 19.60% 10,700 1.34%
    Denver-Aurora-Broomfield, CO 364,242 16.71% -20,000 -1.65%
    Washington-Arlington-Alexandria, DC-VA-MD-WV 785,987 16.39% 285,700 10.67%
    Tampa-St. Petersburg-Clearwater, FL 387,246 16.16% -42,000 -3.63%
    Salt Lake City, UT 155,339 16.03% 41,600 7.36%
    Portland-Vancouver-Hillsboro, OR-WA 298,128 15.46% -7,800 -0.80%
    Indianapolis-Carmel, IN 231,137 15.16% 16,600 1.95%
    Richmond, VA 161,294 14.70% 14,000 2.38%
    Oklahoma City, OK 157,566 14.38% 20,500 3.83%
    Columbus, OH 223,842 13.88% -11,400 -1.25%
    Seattle-Tacoma-Bellevue, WA 395,931 13.01% -10,700 -0.65%
    Miami-Fort Lauderdale-Pompano Beach, FL 557,071 11.12% 27,900 1.29%
    Kansas City, MO-KS 199,296 10.85% -16,600 -1.69%
    Minneapolis-St. Paul-Bloomington, MN-WI 311,027 10.48% -59,000 -3.38%
    Louisville/Jefferson County, KY-IN 121,591 10.46% -29,500 -4.75%
    San Diego-Carlsbad-San Marcos, CA 281,480 10.00% 26,400 2.21%
    Memphis, TN-MS-AR 110,896 9.20% -36,700 -5.88%
    Birmingham-Hoover, AL 75,809 7.20% -27,400 -5.30%
    Baltimore-Towson, MD 157,495 6.17% 21,600 1.73%
    Virginia Beach-Norfolk-Newport News, VA-NC 95,313 6.05% 13,100 1.82%
    Cincinnati-Middletown, OH-KY-IN 120,519 6.00% -35,800 -3.52%
    San Jose-Sunnyvale-Santa Clara, CA 101,092 5.82% -191,900 -18.38%
    Hartford-West Hartford-East Hartford, CT 63,763 5.55% -24,400 -4.38%
    San Francisco-Oakland-Fremont, CA 211,651 5.13% -243,100 -11.43%
    Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 278,196 4.89% -47,300 -1.72%
    St. Louis, MO-IL 114,209 4.23% -48,200 -3.60%
    Chicago-Joliet-Naperville, IL-IN-WI 362,789 3.99% -323,300 -7.07%
    Los Angeles-Long Beach-Santa Ana, CA 463,210 3.75% -340,400 -6.23%
    Milwaukee-Waukesha-West Allis, WI 55,167 3.68% -60,000 -6.91%
    Boston-Cambridge-Quincy, MA-NH 161,058 3.67% -112,900 -4.45%
    New York-Northern New Jersey-Long Island, NY-NJ-PA 574,107 3.13% -99,100 -1.18%
    Rochester, NY 16,492 1.59% -27,700 -5.22%
    Providence-New Bedford-Fall River, RI-MA 17,855 1.13% -35,500 -6.16%
    Buffalo-Niagara Falls, NY -34,602 -2.96% -21,300 -3.81%
    Pittsburgh, PA -74,802 -3.08% -23,300 -2.03%
    Cleveland-Elyria-Mentor, OH -70,903 -3.30% -144,700 -12.74%
    Detroit-Warren-Livonia, MI -156,307 -3.51% -470,900 -21.38%
    New Orleans-Metairie-Kenner, LA -148,746 -11.30% -98,300 -15.91%


    Sources: U.S. Census 2000, U.S. Census 2010, U.S. Bureau of Labor Current Employment Survey

    This piece originally appeared in Forbes.

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

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

    Photo by justin fain

  • The Problem With Megacities

    The triumphalism surrounding the slums and megacities frankly disturbs me. It is, of course, right to celebrate the amazing resilience of residents living in these cities’ massive slums. But many of the megacity boosters miss a more important point: that the proliferation of these sorts of communities may not be desirable or even necessary.

    Cities may be getting larger, particularly in the developing world, but that does not make them better. Megacities such Kolkata (in India), Mumbai, Manila, Sao Paolo, Lagos and Mexico City — all among the top 10 most populous cities in the world — present a great opportunity for large corporate development firms who pledge to fix their problems with ultra-expensive hardware. They also provide thrilling features for journalists and a rich trove for academic researchers.

    But essentially megacities in developing countries should be seen for what they are: a tragic replaying of the worst aspects of the mass urbanization that occurred previously in the West. They play to the nostalgic tendency among urbanists to look back with fondness on the crowded cities of early 20th Century North America and Europe. Urban boosters like the Philadelphia Inquirer’s John Timpane speak fondly about going back to the “the way we were” — when our parents or grandparents lived stacked in small apartments, rode the subway to work and maintained a relatively small carbon footprint.

    Unfortunately such places were often not so nice for the people who actually lived in them. After all, they have been moving from higher to lower density locations for over fifty years, a trend still noticeable in the new Census. As my mother, who grew up a slum-dweller, says of her old Brooklyn neighborhood: “Brownsville was a crappy neighborhood then, and it’s a crappy neighborhood now.”

    My mother considers herself a tried and true New Yorker, but she and my late father chose to raise their kids on Long Island. She now lives in an apartment in Rockville Centre, somewhat farther out on the Island. One could imagine many slum-dwellers in developing countries would also choose a less crowded environment for themselves and their children, if that option existed.

    Most slum-dwellers, at least from what I have seen in India, move to the megacity not for the bright lights, but to escape hopeless poverty in their village. Some argue that these migrants are better off than previous slum-dwellers since they ride motorcycles and have cell phones.

    But access to the wonders of transportation and “information technology” is unlikely to compensate for physical conditions that are demonstrably worse than those my mother endured.  At least Depression-era poor New Yorkers could drink water out of a tap and expect consistent electricity, something not taken for granted by their modern day counterparts in Mexico City, Manila or Mumbai.

    More serious still, the slum-dwellers face a host of health challenges that recall the degradations of Dickensian London. Residents of mega-cities face enormous risks from such socially caused maladies as AIDS and other sexually transmitted diseases, urban violence, unsafely built environments, and what has been described as  ”the neglected epidemic” of road-related injuries. According to researchers Tim and Alana Campbell, developing countries now account for 85% of the world’s traffic fatalities.

    One telling indication of the difficulties the newcomers face is the relatively low level of life expectancy in the city — roughly 57 years — which is nearly seven years below the national average.

    Even with solid economic growth, these megacities are not necessarily becoming better places to live. In 1971, slum dwellers accounted for one in six Mumbai-kers; now they constitute an absolute majority. Inflated real estate prices drive even fairly decently employed people into slums. A modest one-bedroom apartment in the Mumbai suburbs, notes R. N.  Sharma of the Mumbai-based Tata Institute of Social Sciences, averages around 10,000 rupees a month, double the average worker’s monthly income.

    Traffic congestion is also worsening. Nearly half of Mumbai commuters spend at least one or two hours to get to work, far more than workers in smaller rivals such as Chennai, or Hyderabad. Fifty percent of formal sector workers expressed the desire to move elsewhere, in part to escape brutal train or car commutes; only a third of workers in other cities expressed this sentiment.

    What does this say about the future for megacities?  When conditions become oppressive enough, people generally respond by finding a better place to live. Poor village dwellers in Bihar may not all stay in the countryside, but they — and many better-skilled immigrants — may find other, less intense urban options.

    Recent research suggests that these immigrants will increasingly move to the urban fringe or to smaller cities. A massive research effort published earlier this year for the Lincoln Institute of Land Policy found that since 1990 “built-up area densities” have been dropping by roughly 2% a year, including in the developing world.

    An impressive new study by the McKinsey Global Institute, called “Mapping the Economic Power of Cities,” has found that “contrary to common perception, megacities have not been driving global growth for the past 15 years.” Many, the report concludes, have not grown faster than their host economies.

    McKinsey predicts these cities will underperform economically and demographically as growth shifts to   577 “fast growing middleweights,” many of them in China and India.  We can see this already in the shift of industrial growth to smaller cities in India. There may be an additional 25 million jobs added to the Indian auto industry by 2016, according to recent estimates, it appears most will go to other states, such as Gujarat, West Bengal and Tamil Nadu, enriching cities such as Chennai and Ahmedabad, nut not Mumbai.

    These realities lead some advocates in developing countries to question the logic of promoting megacities. Tata’s Sharma notes that as manufacturing and other industries move to smaller, more efficient cities, they remove many middle-income opportunities. Instead, the gap between the megacity’s rich and poor expands more rapidly.   “The boom that is happening is giving more to the wealthy.  This is the ’shining India’ people talk about,” Sharma says. “But the other part of it is very shocking, all the families where there is not even food security. We must ask: The ‘Shining India’ is for whom? “

    Ashok R. Datar, chairman of the Mumbai Environmental Social Network and a long-time advisor to the Ambani corporate group, suggests that Asian megacities should stop emulating the early 20th Century Western model of rapid, dense urbanization. “We are copying the Western experience in our own stupid and silly way,” Datar says. “The poor gain on the rich. For every tech geek, we have two to three servants.

    Datar suggest that developing countries need to better promote the growth of more manageable smaller cities and try bringing more economic opportunity to the villages.  One does not have to be a Ghandian idealist to suggest that Ebenezer Howard’s “garden city” concept — conceived as a response to miserable conditions in early 20th Century urban Britain — may be better guide to future urban growth.

    Rejecting gigantism for its own sake, “the garden city” promotes, where possible, suburban growth, particularly in land-rich countries. It also can provide a guide to more human-scale approach to  dense urban development. The “garden city” is already a major focus in Singapore, where I serve as a guest lecturer at the Civil Service College. Singaporean planners are embracing bold ideas for decentralizing work, reducing commutes and restoring nearby natural areas.

    These ideas may be most relevant to cities on the cusp of rapid growth, such as Hanoi. As we walk through the high-density slums on the other side of the dike that protects Hanoi from the Red River, Giang Dang, founder of the nonprofit Action for the City, tells me that rapid growth is already degrading the quality of Hanoi’s urban life, affecting everything from the food safety to water to traffic congestion. Houses that accommodated one family, she notes, now often have two of three.

    Expanding Hanoi’s current 6 million people — already at least twice its population in the 1980s — to megacity size — say between 10 million and 15 million — may thrill urban land speculators but may not prove  so good for city residents.  Like Datar, Dang favors expanding conditions both smaller cities, and the Vietnamese countryside.

    “The city is already becoming unlivable,” she  insists. “More people, more high-rises will not make it better. Maybe it’s time to give up the stupid dream of the megacity.”

    Such voices are rarely heard in the conversation about urban problems.  But the urban future requires radical  new thinking.  Rather than foster an urban form that demands heroic survival, perhaps we should focus on ways to create cities that offer a more a healthful and even pleasant life for their citizens.

    This piece originally appeared in Forbes.com

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

    Photo by Dey Alexander

  • California: Club Med Meets Third World?

    On March 25th, the Bureau of Labor statistics released a report that showed that California jobs had increased by 96,000 in February.  The state’s cheerleaders jumped into action. Never mind that the state still has a 12.2 percent unemployment rate, and part of the decline from 12.4 percent is because just under 32,000 discouraged workers left California’s labor force in February. 

    Unfortunately, the cheerleaders are likely to once again be disappointed.  It is unwise to build a case on one data point.  Data are volatile and subject to all sorts of technical issues.  For example, the estimate of California’s job growth is seasonally adjusted data and subject to revision.

    More importantly, even if California did see 96,000 new jobs in February, that pace is unlikely to be maintained.  California’s economy is just too burdened by the State’s DURT: Delay, Uncertainty, Regulation, and Taxes.  Instead of enjoying the truly vibrant recovery one would expect given its climate, location, natural resources, university network, workforce, and natural and manmade amenities, California’s economy will grow far below its potential, burdened by its DURT. 

    People often ask me to identify the most important impediment to California’s economic growth, but there isn’t just one.  Every business is different.  One may be most impacted by regulation, another by taxes.  Instead, it is the total cost of the DURT.

    Taxes are certainly one component of DURT.  The Tax Foundation ranked California 49th in business taxes and Kiplinger ranks California worst in retiree’s taxes, which serves as a good proxy for individual tax burdens.  No doubt, California’s taxes are high, but that alone wouldn’t be too big a problem.  People happily pay to live in California.  Higher taxes and home costs are just the beginning.

    California is in its own class when it comes to regulation; nothing is unimaginable in a state where bulk of the executive leadership comes from the San Francisco-Oakland area.  Today, there are two regulations that are particularly hurting California’s economy, AB32 and SB375.  AB32 is California’s attempt to unilaterally solve the planet’s global warming problem.  It will have serious implications, all of them detrimental to economic activity.  SB375 attempts to advance its global warming  goals through regional planning mandates.  Here’s a sympathetic analysis of SB375 from a smart guy.

    Those are just the most onerous regulations.  California has thousands of regulations and more come daily.  California had 725 new laws come into effect on January 1, 2011, and the state has over 500 constitutional amendments, averaging over four new constitutional amendments a year.

    Which brings us to uncertainty.

    Uncertainty about the future regulatory environment is detrimental to economic activity.  It is extraordinarily difficult to plan when the regulatory environment is in such a state of flux, and nothing is unimaginable.

    Regulatory uncertainty is far from California’s only source of uncertainty.  California’s local governments are notoriously fickle, particularly in the generally affluent coastal areas.  I know of one project that spent four years in planning, only to be denied by the City Council, even though the project was supported by the planning department.  That’s just expensive.  Developers spend hundreds of thousands of dollars on architects, engineers, and planning consultants while jumping through the hoops set up by the planning department, neighborhood groups, environmentalists, and other special interest groups.

    This type of story is all too common in Coastal California.  Some California communities, such as Santa Monica, require that prior to building a new house, you must use two by fours, string, and flags to provide the outline of the proposed structure for up to 90 days.  This is to facilitate neighbor complaints before the project is built.

    The previous story also relates to delay.  Delay in California is legendary, a result of regulatory hurdles, demand for studies, and legal action.  California newspapers often describe projects as controversial, but this is redundant.  Every project is controversial in California. 

    Want to rebuild an aging bridge?  Someone will sue you and claim the old bridge is a historical landmark.  Want to put in a solar farm?  Someone will sue you because the land is home to endangered rats, turtles, salamanders, toads, fairy shrimp, or something.  Endangered species are everywhere in California.  Want to put a condominium project in a depressed part of town?  Someone will sue you because it doesn’t match the neighborhood.  Want to build a house?  Someone will sue you because it will block their view.

    All these things and more happen in California.  It’s no surprise that businesses find California a very challenging place to be profitable.  California’s markets are huge.  No doubt about it.  So, some business will operate in the state.  California’s location on the Pacific Rim and it ports also compel some business to be in California, even if costs are high.  California is a fantastic place to live.  So, people who can afford to will live here.  Some business owners will locate businesses where the owner wants to live.  But, most businesses are too competitive to give up profits to live in California.  Many keep their headquarter s here while shipping their new jobs to other states, or abroad.

    Even so, California is unlikely to become Detroit.  It, sadly, is also unlikely to achieve its potential or regain its previous economic vigor.  The cost of California DURT is just too high.  Instead, the place will become increasingly divided.  Coastal regions, for the foreseeable future, will become even more affluent, heavily white and increasingly Asian.  Hosts of unseen, less fortunate people support them, often commuting from more hardscrabble interior locations.

    Considerable poverty will coexist uncomfortably in California’s coastal paradise.  Working class families already crowd into housing units designed for one family, and this will likely only get worse. 

    What Coastal California won’t have is much of a middle class.  Lack of opportunity and high housing costs makes the most pleasant parts of California an unattractive place for people who define quality of life by opportunity and affordable housing, young families.  Domestic migration is likely to continue to be negative.

    For its part, inland California is already depressed, 27 counties have unemployment rates over 15 percent.  Eight have unemployment rates above 20 percent.  Even during the boom, many of California’s inland areas had extraordinarily high unemployment rates.  Central California’s poverty and blight will only get worse.

    All this is courtesy of expensive California DURT.  Because of it, California’s economy will lag.  More importantly, California seems to be morphing into almost a Hollywood caricature.  The self-absorbed hedonistic wealthy live side by side with the poor, like  a combination of a Club Med and Leisure Village in a third-world country.

    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.

    Photo by chavez25

  • Hanoi’s Underground Capitalism

    Along the pitted elegance of Pho Ngo Quyen, a bustling street in Hanoi, Vietnam, you will, predictably, find uniformed men in Soviet-style uniforms, banners with Communist Party slogans, and grandfatherly pictures of Ho Chi Minh. Yet, capitalism thrives everywhere else in this community — in the tiny food stalls, countless mobile phone stores and clothing shops  offering everything from faux European fashion to reduced-price children’s wear,  sandals and sneakers.

    Outside a ministry office, someone is cutting hair on the street. Nearby a woman is drying squid to sell to customers. Internet cafes proliferate, filled with young people.  Virtually every nook and cranny has a small shop or workplace for making consumer goods.

    In some ways, Hanoi seems very much a third-world city in terms of its infrastructure and cracking sidewalks, and it shares some characteristics with the slums featured in this Megacities project, such as underground economies and a growing population migrating from rural areas. But its poverty pales compared to places like Mumbai or Rio. The poor sections are rundown and crowded, but you don’t see people sleeping on the streets. This is a city clearly on the way up — in a country with nearly 95% literacy and a countryside that not only feeds itself but remains the largest source of export earnings.

    Of course, many rural residents — still roughly 70% of the population — continue to pour into Hanoi and other cities, but without the same desperation that characterizes, for example, people moving from Bihar to New Dehli or Mumbai. There is nothing of the kind of criminal elements that fester in the favelas of Brazil or Mexico City colonias.

    In Hanou, even for the poor, it’s not just about survival. There’s a sense of Wild West in the East. With very un-socialistic frenzy, motorcyclists barrel down the streets like possessed demons, with little regard to walking lanes or lights. Everyone not on the government payroll seems to have hustle, or is looking for one.

    Modern-day Hanoi reminds me most of China in the 1980s, when I first started going there. But there are crucial differences. State-owned companies in Vietnam lack the depth and critical mass of their Chinese counterparts, for example.  Still, as in China, foreign firms are moving in: Panasonic plants dot the outskirts, and Nokia is planning to build a $200 million factory on the city’s edge.

    Hanoi is not Singapore either, where an enlightened state has allowed flashes of street capitalism, particularly in the hawker’s stalls that make the city a foodie’s delight. In Singapore business remains highly deliberate and world-class, enabled by a much envied and skilled Mandarinate. As you walk around Hanoi, peak inside a cavernous building and you’ll see not a sleek Singapore-style mall, but a cluttered collection of small boutiques. It reminds one of nothing more than the Vietnamese outposts in Orange County, Calif., or in Los Angeles’ Chinatown, which is now largely dominated by Chinese from Vietnam.

    Le Dang Doanh, one of the architects of Vietnam’s economic reforms, which were  known as (Doi Moi) and launched in 1986, estimates the private sector now accounts for 40% of the country’s GDP, up from virtually zero. But Le Dang estimated as much as 20% more occurs in the “underground” economy where cash — particularly U.S.  dollars — reigns as king.

    “You see firms with as many as 300 workers that are not registered,” the sprightly, bespectacled 69-year-old economist explains. “The motive force is underground. You walk along the street. I followed an electrical cable once and it led me to a factory with 27 workers making Honda parts and it was totally off the system.”

    After years as a Communist apparatchik, Le Dang now has more faith in markets than is commonly found in the American media or U.S. college campuses. Trained in the Soviet Union and the former East Germany, Le Dang saw up close the “future” of a state-guided economy and concluded it doesn’t work. He noted that in agriculture farmers produce 50% of the cash income on the 5% of land that they can call their own. He also mentions proudly that his son, born in 1979, works for a private Hanoi-based software firm.

    Other Vietnamese also have developed a taste for self-interest — and display considerable ingenuity finding their way. One clear inspiration, and source of capital, for the rapid acceleration toward capitalism comes from the over 3.7 million overseas Vietnamese. Ironically many of these are former stalwart opponents to the nominally capitalist rulers who fled the Communist takeover in 1975.

    Today you see these ties at Vietnamese banks and trading companies nestled in various U.S. communities, including the largest in Orange County.  Overall, the U.S. community — also strong in Houston, Northern Virginia and San Jose –  accounts for roughly 40% of the total diaspora.

    These communities have prospered, after a shaky start following the end of the Vietnam War. They are particularly prominent in fields such as information technology, science and engineering, with percentage representation in the workforce in those fields higher than most other immigrant groups.

    For years the Communist homeland had little contact and shared no common purpose with this  largely successful, intensely capitalist diaspora. Strengthening ties between these upwardly mobile communities and the mother country are changing both. As UC Davis researcher Jane Le Skaife has found,Vietnam now ranks sixteenth in the world in remittances from abroad, with over $8 billion in 2010, nearly three-fifths come from the U.S.  This amounts to roughly 8% of the country’s GDP and is a larger amount than investment from international aid donors.  Skaife and others believe this number may be much too small given the Vietnamese penchant for  running beneath the official radar — a skill honed over the centuries.

    Although hardly fans of the official Marxist-Lenninist regime, many Vietnamese , notes Le Skaife, now take great pride — and see great opportunity — in Vietnam’s rapid growth and growing affluence.  According to the  CIA World Factbook, the country’s poverty rate has dropped from 75% in the 1980s to  10.6% of the population in 2010 . In terms of economic output, a brief on Vietnam by the World Bank reported that between the years 1995 and 2005 real GDP increased by 7.3% per year and per capita income by 6.2% per year.

    The growing symbiosis of   Vietnam with its diaspora, particularly in the U.S., will shape the rapid development of the country, notes Le Dang. This parallels the roles played earlier by the Indian and Chinese diaspora in the development of their home countries over the past two decades.

    Nowhere will this impact be felt more than in major cities such as Hanoi, Danang and especially Ho Chi Minh City (the former Saigon). “We are seeing more of the expatriates here, and they are bringing management skill and capital through their family networks,” Le Dang says. “They are a key part of the changes here.”

    For Americans, these changes should be welcomed both for economic and geopolitical reasons. Although much of our intelligentsia welcomes the onset of a “post-American” world, the perspective in Hanoi could not be more different. To Vietnam’s leaders, the United States, for all memories of the devastating war there, remains a critical counterweight to the country that has been their historic rival, China. Americans are more welcomed in Hanoi these days than in Berlin or Paris, or maybe even Toronto.

    Even in the ramshackle working class wards along the Red River, you see signs in English and the dollar is welcome. It’s not that these fiercely independent people want to become Americans, but that they are acting like Americans — or at least those who still favor grassroots capitalism as the best way to secure the urban future.

    This piece originally appeared in Forbes.

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

    Photo by Gerry Popplestone

  • Vietnam, No Longer an Underdeveloped Country

    The most recent estimates for 2010 indicate that Vietnam is no longer among the underdeveloped countries of the world and has moved onto the ranks of middle-income countries.  Financial remittances – better known as money being sent back to the home country – have lent a critical hand in accomplishing this major triumph in the country’s formerly depressed economy.

    The influx of money by overseas Vietnamese, many of whom fled as political refugees, has dramatically changed the economic landscape of the country in terms of poverty levels and development.

    Development Since the War

    The aftermath of the war had left Vietnam among the five poorest countries in the world with 75 percent of the population living in poverty in 1984. Since then, the poverty level had dramatically decreased to 37 percent in 1998 and later to 29 percent in 2002, according to the World Bank.

    The CIA World Factbook more recently estimated Vietnam as having only 10.6 percent of the population living below the poverty line in 2010, a far cry from the 75 percent just 26 years earlier. In terms of economic output, a brief on Vietnam by the World Bank reported that the real GDP increased by 7.3 percent per year during 1995-2005 and per capita income by 6.2 percent per year.

    Vietnam was expected to enter the ranks of other middle-income countries by reaching the $1,000 GDP per capita marker by 2010, which it did according to the International Monetary Fund (IMF). The IMF estimated Vietnam’s GDP per capita as $1,155 for the 2010 fiscal year. Since then, the country’s Ministry of Planning and Investment (MPI) has set a new target that nearly doubles Vietnam’s current GDP per capita over the next four years. An expected GDP per capita of $2,100 by 2015 will allow Vietnam to surpass India’s GDP per capita in the global economy and be among the ranks of the Philippines.

    The target GDP per capita, however, is still well below its communist competitor, China, which now boasts an average GDP per capita of $4,520. Even though China presently holds the title as the “Red Dragon of the East,” Vietnam, with its enormous potential for economic growth, has recently been referred to as the “Rising Dragon” and the “New Asian Dragon” by various scholars.

    The World Bank avowed, “Vietnam is one of the best performing economies in the world over the last decade.” It further stated, “Vietnam’s poverty reduction and economic growth achievement in the last 15 years are one of the most spectacular success stories in economic development.”

    Remittances Over the Years

    Financial remittances have had a notable influence on the improved economic conditions in Vietnam over the years. This has been especially evident since the U.S. rescinded the embargo against Vietnam in 1995, which allowed for greater opportunities to remit money through formalized channels.

    In the years immediately following the Vietnam War, it was close to impossible for Vietnamese-Americans to send money directly to their home country. The majority of remittances that were successfully sent back to the home country were primarily conducted through informal money transfers.

    The gradual increase in official remittances over the past few decades, however, has been attributed to a combination of key events, which include but are not limited to: the Vietnamese government launch of a renovation process (Doi Moi) in 1986, the U.S. lifting of the embargo against Vietnam in 1995, and Vietnam’s membership into the World Trade Organization in 2007.

    In 2008, Vietnam emerged as the tenth leading recipient of migrant remittances among developing countries with $7.2 billion received during that year alone. The U.S. neighbor to the south, Mexico, with $26.3 billion, was third behind India and China.

    Later in 2009, Vietnam’s financial remittances fell slightly to $6.8 billion despite predictions of a greater drop among all developing countries. The slight decline during the considerable global economic downturn illustrated the resilience of money being sent to Vietnam from abroad, particularly from troubled economies such as the United States, France and in Eastern Europe.

    In addition, remittances appear again on an upswing.  By the end of the 2010 fiscal year, Vietnam set a new total inward remittance record of more than $8 billion through official channels. This $8 billion represented about 8 percent of the overall GDP for the country that year.

    The Role of remittances on development

    Although there have been no notable studies that directly connect migrant remittances and development specifically in Vietnam,  the effects of financial remittances on the Vietnamese economy are likely to be profound.

    Existing studies on other countries in the world have already illustrated the significant relationship between migrant remittances and development in the home country in terms of balance of payments, saving and investment, structural changes in the economy, and other channels influencing development and growth. In recent decades, these links between mother country and expatriates have played a critical role in the rise of both China and India.

    Such ties are particularly critical for developing countries which see remittances as a reliable long-term source of foreign capital. In 2000, the United Nations reported that financial remittances had increased the GDPs of El Salvador, Jamaica, Jordan, and Nicaragua by 10 percent. The World Bank in 2004 further revealed that financial remittances accounted for 31 percent, 25 percent, and 12 percent of the GDP in Tonga, Haiti, and Nicaragua, respectively.

    More recent data from the Migration Policy Institute (MPI) in 2009 astonishingly showed that remittances constituted 49.6 percent, 37.7 percent, and 31.4 percent of the overall GDP for Tajikistan, Tonga, and Moldova, respectively. Although Vietnam’s inward formal remittances comprise less than 10 percent of the country’s overall GDP, it was still ranked 16th among the top 30 remittance receiving countries by the World Bank in 2010.

    The existing potential of remittances on development has been notable in Vietnam and continues to grow exponentially – even despite the slowing of the economy in the rest of the world.

    Whether or not these effects are positive or negative may be a matter of ideology and politics. The Vietnamese government clearly wants to maximize the benefits of remittances. But there is concern about such issues as “dollarization” of the economy and the role such transfer may play in worsening the growing inequality between the rich and poor widely decried in Vietnam. Yet overall remittances should be seen as a net positive, helping to spark entrepreneurial ventures critical to the country’s movement from a third world to a solidly second world status.

    Jane Le Skaife is a doctoral candidate in the Department of Sociology at the University of California, Davis. She is currently conducting her dissertation research involving a cross-national comparison of Vietnamese refugees in France and the United States.

    Photo by Yen H Nguyen

  • Actually, Cities are Part of the Economy

    “The prosperity of our economy and communities is dependent on the political structures and mechanisms used to manage and coordinate our economic systems.”

    No politician expecting to be taken seriously would say that today. State intervention was discredited long before it collapsed in the 1980s. Even our prime minister in Australia pays lip-service to “flexible markets with the right incentives and price signals to maximise the value of our people and capital resources.” But how does that square with her government’s quiet push for a more intrusive urban policy agenda?

    Over the last twelve months, Infrastructure Minister Anthony Albanese has been laying the ground work for a grand National Urban Policy, to be announced later in the year. To this end, he released three dense documents. Last March we got State of Australian Cities 2010 (“Cities 2010”), a compilation of statistics confirming, amongst other things, that cities account for 80 per cent of our Gross Domestic Product. Then in December came a discussion paper and a background paper, both called Our Cities.

    Their general drift can be gauged from a line in the latter’s final chapter. It’s the sentence quoted at the top of this article, with the words “cities” and “urban” replacing “economy” and “economic.”

    Embarrassed to champion intervention at the macro level, progressives resort to carving chunks out of the national economy and relabeling them “the environment”, “social capital” or “urban planning” before turning reality upside down. As he moves urban policy to the environment ledger, Mr. Albanese promises to transform the “productivity, sustainability and liveability” of our cities. Intervention is bad for the national economy, it seems, but good for the 80 per cent of GDP generated by cities.

    Urban Myths

    The authors of Mr. Albanese’s documents are anonymous, but aficionados will recognize the handiwork of Curtin University’s Sustainable Policy Institute, Griffith University’s Urban Research Program, the Faculty of the Built Environment at NSW University, and other focal-points of green orthodoxy. The reference lists are full of their output. Their technique of persuasion, recycled by Mr. Albanese’s Department, is to evoke plausible images while perpetuating three myths: suburban growth worsens carbon emissions and traffic congestion, people are being forced to live far from jobs concentrated in CBDs, and denser development will make housing cheaper.

    The discussion paper says: “Australian cities generate very high carbon emissions and air pollution from our heavy reliance on carbon fuels for energy and transport. Carbon emissions from transport are principally due to the lengths of trips necessitated by our dispersed cities and our extensive use of private motor vehicles.” Variations of this passage recur throughout the documents. It sounds plausible enough. So many vehicles cris-crossing our wide open cities must be spewing out heaps of carbon dioxide. But the documents ignore evidence painting a different picture.

    There is the Australian Conservation Foundation’s Consumption Atlas, which found that dense, affluent, inner-suburbs account for more carbon than the dispersed fringe, suggesting that, as a factor in emissions, general consumption trumps settlement patterns; there is a 2007 study by Randolph and Troy confirming earlier findings that energy consumption per capita in high-density developments, like high-rise apartments, is notably higher than in detached housing; there is a recent report by Allen Consulting for the Victorian Building Commission, noting the absence of conclusive evidence that vertical living is more ‘sustainable’ than conventional homes; and there is more.

    None of these rate a mention in the documents. Chapter 5 of the background paper does reference a couple of studies by Alford and Whteman (2009) and Trubka, Newman and Bisborough (2010), but these focus on “transport energy consumption” and “transport greenhouse gases.” They don’t investigate the impact of urban form on general consumption, the real determinant of emission levels. And a study by Perkins et al (2009), cited in Cities 2010, actually contradicts the approved message: “overall, it cannot be assumed that centralised, higher density living will deliver per capita emission reductions for residents … ”

    There is no reliable evidence that suburban growth is worse for emissions. Even Griffith’s Brendan Gleeson, a very green urbanist, had to concede that “the faith … in residential density as a simple lever that can be used to manipulate urban sustainability appears to be misplaced. New Australian scientific analysis points to the consumptive lifestyle, not the nature of one’s dwelling, as the root of environmental woes.”

    In any event, transport accounts for 14 per cent of Australia’s 1.4 per cent share of global emissions, or a minuscule 0.197 per cent of the world’s carbon. We should retain a sense of perspective, even if the documents obsess about our high per capita emissions. If the climate is being affected (a big if), it’s absolute volumes that matter.

    Allied to the myth of carbon-spewing suburbs is the myth of centrally-located jobs. We read in Cities 2010 that “the impacts of outward expansion and low density residential development have been a greater separation between residential areas and locations of employment …” The discussion paper asserts, more directly, that “the trend to inner-city living reflects changing preferences for dwellings and location – living closer to employment that is concentrated in central areas.” Again, similar statements crop up throughout the documents. People shouldn’t have to drive or commute long distances to a “centre” where the jobs are.

    Evidence to the contrary is easy to find. According to the NSW Department of Transport, only 12 per cent of Sydney’s jobs are in the CBD, and second tier centres like North Sydney, Chatswood, Parramatta, Hustville and Penrith have no more than 1.8 per cent each. The rest are distributed throughout the metropolitan region. In the case of Melbourne, McCloskey, Birrell and Yip (2009) say it’s absurd to concentrate housing near transit lines since only 19 per cent of jobs within the Melbourne Statistical Division (MSD – Greater Melbourne) were located in the Melbourne Local Government Area (the CBD), while 81 per cent “are scattered throughout the rest of the MSD”.

    In fact, the background paper points out that a majority of the employed in Sydney, Melbourne and Perth live within 10 kilometres of their workplace, while around 15 per cent live more than 20 kilometres away. This is hardly a disaster in the making. Consistently, Cities 2010 refers to “evidence that commuting distances have been stable or even declining since the 1990s in a number of capital cities.”

    For green urbanists, these myths are indispensible. Their agenda hasn’t a hope unless the public accepts that suburban growth will spoil the climate, and hike congestion and transport costs. As for housing affordability, the documents take a leave-pass (social housing is another story). They promote the term “living affordability”, adding petrol prices and mortgage rates to the equation.

    Evidence linking costly housing to supply restrictions on the fringe, like the annual Demographia survey, is too inconvenient. When the background paper does get around to the subject, it says “multiple factors [impede] the delivery of an efficient supply of suitable and affordable housing.”
    These include “land zoning and building code regulations and other standards related to building quality.” A few pages later, however, canvassing some solutions to the problem, the paper proposes “reforming planning systems to … position a variety of residential development in close proximity to centres and transport infrastructure”. Doesn’t this mean a lot more inefficient “land zoning”?

    This is just one instance of disjointed logic and economic illiteracy; many others are scattered throughout the documents.

    The Invisible Hand and Land

    Actually, cities are part of the economy, and are subject to the same principles. The operations of demand, supply and prices are equally applicable to land and structures. They can’t be erased by regulation, even if it’s called planning and zoning. The inflationary effect of coercive zoning on land values is the elephant in the room. Nowhere is it acknowledged in the documents.

    Consider two recent press items. Retail tenants in Pitt Street Mall, the heart of Sydney’s CBD, are paying rents as high as $13,000 a square meter, while industrial tenants on the north-west outskirts pay around $237. These rent differentials are, of course, a function of distance, and influence the viability, not just the location, of various types of activities.

    Restricting expansion and other forms of coercive zoning place an escalating floor under peripheral rents and values. Mr. Albanese’s authors fail to appreciate the implications of this, not least for “urban productivity.” There is little call to dwell on economic mechanisms if you believe, as the discussion paper puts it, “the private sector, through a myriad of individual decisions and investments, guided and constrained by government investments, regulations or charges, is a powerful shaper of cities [emphasis added]”.

    In the documents, lifting productivity boils down to cutting the costs of traffic congestion, estimated to reach $20 billion a year by 2020, principally by reducing “car dependency” (another loaded term, echoing drug dependency).

    Ignoring the reality of high job dispersal, the background paper says “a key challenge is to reduce dependence on motor vehicles while maintaining access between and within locations … the Australian Government recognises that it has a role … in investing in major mass transit systems, identifying and protecting new transport corridors and supporting means to shift from private vehicles to public transport”. But as McCloskey, Birrell and Yip explain, “the high level of job dispersal around Melbourne [and other cities] cannot be easily unwound.” In those conditions, Mr. Albanese’s strategy is doomed to failure.

    Alternatively, when diseconomies from congestion start to outweigh economies from centrality, firms and commuters will move to other, less congested sites, easing congestion all-round. This is the only effective, long-term solution to congestion. However by mandating concentration rather than enabling dispersion, evidenced by a dim view of road-building, green planning stymies this process. The documents want to end it altogether.

    According to the background paper, “connectivity within cities can also be achieved by placing people closer to the jobs, facilities, goods and services they desire – or putting these closer to where people live. This highlights the important role of integrated land-use and infrastructure planning in managing the need for physical travel”. But this notion, that firms and residences can be “placed” by a central authority, is logically flawed. It suffers from something akin to a “coordination problem” (a concept from game theory).

    Suppose household A has, in existing circumstances, chosen its optimal location relative to (1) affordable housing, (2) employment and (3) services. How can the government arrange things so that A ends up in a more optimal location? Moving A closer to work may push it further from affordable housing and services. Moved closer to services, A may end up further from other factors, and so on. It’s unlikely that the government can ever place A in a better location relative to all three factors.

    Then suppose household B has chosen its own optimal location relative to the three factors, some distance away from the point chosen by A. How does the government improve the outcome for both households? Action benefiting A may hurt B and vice versa.

    The same problem can be framed for businesses locating relative to (1) competitive rents, (2) transport routes, (3) suppliers, (4) suitable labour and (5) customers (market). Our cities host hundreds of thousands of households and businesses. There is no way that a planning hierarchy can engineer a more efficient outcome than the people themselves, interacting freely in the marketplace. Official meddling is more likely to induce problems than solve them.

    Instances of disjointed logic abound. One paper talks about “micro-reforms to reduce costs to businesses and consumers”, but another urges “access to a range of [more expensive and less efficient] high-quality renewable energy sources”; a paper commends “the principle of subsidiarity, ensuring that the most local level of government is used …”, but then calls for “improving alignment and integration of planning and investment across all three levels of government to support the nationally agreed … objective”; a paper demands action to “reduce red tape”, but all three documents offer heaps more instruments and regulations.

    Ultimately, Mr. Albanese’s documents are the pretext for a new wave of intrusion into economic life. As such, they represent a glaring case of bureaucratic overreach. However much he may spruik flats, smaller houses, public transport and higher utility bills as an enhancement of urban “liveability”, most Australians will disdain them as anything but liveable.

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

    Photo by Joseph Younis.

  • Energy Policy Reset: Forget Nuclear Reactors and Mideast Oil

    The two largest crises today — the Japanese nuclear disaster and the widening unrest in the Middle East — prove it’s time to de-fetishize energy policy. These serious problems also demonstrate why we must expand the nation’s ample oil and gas supplies — urgently.

    The worsening Japanese nuclear crisis means, for all intents and purposes, that atomic power is, if not dead, certainly on a respirator.

    Some experts may still make the case that nuclear power remains relatively safe. Some green advocates still tout its virtues for emitting virtually no greenhouse gases.

    But the strongest case against nuclear power is now rooted in grave public fears about radiation. Imagine trying to site or revamp a nuclear plant today anywhere remotely close to an earthquake fault or a major city.

    Germany has already begun shutting down some reactors. Opposition throughout Europe and in the United States is likely to grow exponentially as Japan’s tragedy unfolds.

    At the best of times, nukes were a hard sell. Even with support from Energy Secretary Steven Chu, a Nobel Prize-winning physicist who talks tough about fossil fuels, the obstacles to new nuclear construction were steep. Now, no amount of Obama administration green or corporate lobbying can overcome images of horrific fires and the terror, even if exaggerated, of radiation leaks.

    The other shoe dropping relates to the growing chaos in the Middle East, from North Africa to the Gulf. The price of oil is likely to continue climbing, unless the world economy slides back into recession — and perhaps even then. The governments that emerge from the current Mideast upheavals are likely to be far less pliable to Western interests than the authoritarian potentates that Washington long supported. Disruptions in supply, higher energy taxes and emergent environmental movements could constrain markets for months, even years, to come.

    These realities upset all the “best” obsessions of our rival political classes. Much of the progressive community, for example, had embraced nuclear fuel as key to ultimately replacing fossil fuels as a source of electricity — including the long-awaited electric cars. Green advocates often overestimated the readiness of renewable fuels — still far more expensive than fossil fuels and highly dependent on subsidies.

    Wind power, for example, produces, at best, some 2.3 percent of the nation’s electricity. But in addition to wiping out whole flocks of birds, it receives subsidies many times higher per megawatt hour than fossil fuels. In contrast, the dirtiest fuel, coal, still produces close to 50 percent of the nation’s electricity.

    Meanwhile, solar panel production, touted as a wellspring of job creation, seems to be shifting inexorably to China. Algae-based biofuels and other types look promising — but could take decades to become practical.

    Many conservatives, on the other hand, have espoused the nuclear option — in part, because the industry has powerful corporate backing, which is always an influential factor to Republicans. But even red-state denizens are probably looking at the scenes of Fukushima with understandable horror.

    So if the “best” agendas of both parties are flawed, it may be time to look at the “good.” The pragmatic way out of this emerging energy mess means focusing on our increasingly abundant supplies of oil and gas.

    “Peak oil” enthusiasts may not have noticed, but recent discoveries and improvements in technology have greatly expanded the scope of U.S. energy resources. New finds are occurring around the world, but some of the biggest are in the United States.

    Shale oil deposits in the northern Great Plains, Texas, California and Colorado could yield more oil annually by 2015 than the Gulf of Mexico. Within 10 years, these finds have the potential to reduce U.S. oil imports by more than half.

    Even more promising, from the environmental standpoint, are huge natural gas finds. Discoveries in Texas, Arkansas and Pennsylvania could satisfy 100 years of use at current demand levels.

    Natural gas is already muscling out coal as the primary source for new power plants. It can also be converted into transportation fuel, particularly for buses, trucks and taxis. In terms of pollutants and greenhouse gases, natural gas is much cleaner to burn than oil and significantly more so than coal.

    Exploring these resources is, of course, still likely to pose considerable environmental risks. But compared with the existential threat of nuclear radiation, even potential oil spills and damage to water supplies from fracking shale might be regarded as tolerable risks for which we have considerable experience and technology managing with enhanced regulation.

    In contrast, a nuclear meltdown, such as could be happening in Japan, poses a far more immediate threat than the scenarios proposed about climate change. Similarly, ceding even more power to an increasingly unstable Middle East represents a clear threat to both our economic and military security.

    Focusing on near- and medium-term fossil fuel development also has the virtue of fitting into the here-and-now realities of global economic conditions — largely the growing demand for energy in developing countries — and all but guarantees long-term high prices that encourage private investors to assume the risk. The likely demise of “clean” nuclear energy, sadly, makes such bets even more appealing.

    Producing domestic energy also creates the potential for hundreds of thousands of new U.S. jobs — everything from engineering to high-paying blue-collar work in the fields.

    A new gas-led energy boom would also spark increases in demand for manufactured goods like oil rig equipment, tractors, pipelines and refineries. And those are sectors that the United States still dominates.

    Would we rather this economic growth take place in Iran, Saudi Arabia or, for that matter, Vladimir Putin’s Russia?

    The time has come for both political parties to give up their “best” energy options for the good. A green economy that produces millions of new jobs is a laudable goal. But the renewable sector cannot develop rapidly without massive expenditures of scarce public dollars. To fully develop these technologies, we need lots of money and time.

    Republicans, too, need to give up their “bests” — including the notion that no policy is always the best, usually a convenient cover for the narrow interests of large energy corporations. Allowing private corporations to unilaterally determine our energy policy makes little sense. After all, most of our key competitors — China, Brazil and India — approach energy not as an ideological hobby horse but as a national priority.

    This new energy policy can be accomplished at far lower cost than either increasing dependence or waiting for the green Godot. It could also be far less expensive in terms of our soldiers’ lives — which would otherwise be spent protecting oil rights of corrupt Middle East regimes.

    It’s time to demand that our deluded, and self-interested, political class develops an energy policy based not ideology but on how to best guarantee prosperity for future generations of Americans.

    This piece originally appeared in Politico.

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

    Photo by gfpeck

  • Why We Can’t Shun Manufacturing for the Service Sector

    There’s been a lot of talk lately about the shift in the US economy away from production and increasingly into services. Consider the employment data from the US: In 1950, 30% of all US jobs were in manufacturing while 63% were in services. In 2011, 9% of total employment remains in manufacturing, 86% in services.

    So does this signify a shift in consumers’ tastes from manufactured goods to services? The short answer is no; if anything, we consume more “things.” The difference is that things are manufactured with far less labor, and they are increasingly made somewhere else. The manufacturing industries still remaining in the US have seen tremendous improvements in productivity. Less-skilled work continues to flow out of the US, but the work that remains is higher-skilled, and more productive. Accordingly, the manufacturing jobs that remain in the US pay well.

    Some look to the loss of US manufacturing jobs without concern: the future (they argue) is in service industries. As jobs disappear in manufacturing, others open in services like health care and retail. The problem is that as more manufacturing jobs leave, more productivity leaves as well.

    Consider this: Classical economists saw productivity as the key in determining relative wages — the more productive the laborer, the higher his/her wages. Unlike manufacturing, service-sector jobs have strict limits in terms of productivity. For example, a live performance of Beethoven’s 5th requires the same amount of performers/employees as when it was performed early in the 19th century. Compare that with the production of almost anything manufactured — the number of workers now required to produce a bolt of fabric, for example.

    So how is it that workers in service sectors, where productivity has relatively little growth, maintain wages competitive with workers in manufacturing, where productivity has done nothing but increase?

    At least part of the answer lies in what modern economists have dubbed the “Baumol Effect,” after influential economist William Baumol. The Baumol Effect states that lower productivity notwithstanding, service industries have to pay wages comparable to manufacturing in order to get the workers it needs: it’s a simple matter of labor market competition.

    So let’s put a little data behind this. The following table lists the 2010 national sales and employment numbers for 2-digit NAICS industry sectors, ranked in terms of total sales.

    Industry
    Name
    Sales (Millions)
    Jobs 
    Employment Rank
    31-33
    		 Manufacturing $4,444,349 12,116,153
    4
    90
    		 Government $3,055,594 23,931,184
    1
    52
    		 Finance and Insurance $2,335,933 9,276,170
    8
    62
    		 Health Care and Social Assistance $1,671,158 18,983,244
    2
    54
    		 Professional, Scientific, and Technical Services $1,482,841 11,711,344
    6
    53
    		 Real Estate and Rental and Leasing $1,391,188 7,374,135
    11
    44-45
    		 Retail Trade $1,194,951 17,369,914
    3
    51
    		 Information $1,135,475 3,252,198
    18
    23
    		 Construction $1,123,601 8,886,854
    9
    42
    		 Wholesale Trade $993,673 6,071,136
    13
    48-49
    		 Transportation and Warehousing $770,350 6,084,630
    12
    72
    		 Accommodation and Food Services $691,475 11,872,079
    5
    56
    		 Administrative and Support and Waste Management and Remediation Services $601,900 10,138,827
    7
    81
    		 Other Services (except Public Administration) $502,463 8,872,041
    10
    22
    		 Utilities $377,695 595,031
    21
    55
    		 Management of Companies and Enterprises $376,055 1,935,179
    19
    11
    		 Agriculture, Forestry, Fishing and Hunting $360,521 3,456,096
    17
    21
    		 Mining, Quarrying, and Oil and Gas Extraction $355,246 1,410,588
    20
    61
    		 Educational Services $260,555 4,080,407
    14
    71
    		 Arts, Entertainment, and Recreation $208,984 3,780,900
    16
    		Total $23,334,007 171,198,110
    Source: EMSI Complete Employment, 4th Quarter 2010

    When considering what industry sectors to prioritize for workforce and economic development efforts it is important to look beyond basic employment numbers. This is because, while a sector might have a lot of jobs, it might not actually be producing a lot of income for the region, which is also very important for overall economic health and vitality.

    Sectors that generate more income per worker tend to have much bigger ripple effects, which means that a lot more people are impacted as a result of direct and indirect spending. The following table is organized by sales per worker, derived by dividing the total sales for an industry by total employment for a particular year.

    Industry Sector
    Sales Per Worker
    Utilities
    630K
    Manufacturing
    370K
    Information
    350K
    Finance and Insurance
    250K
    Mining, Quarrying, and Oil and Gas Extraction
    250K
    Real Estate and Rental and Leasing
    190K
    Management of Companies and Enterprises
    190K
    Wholesale Trade
    160K
    Government
    130K
    Professional, Scientific, and Technical Services
    130K
    Construction
    130K
    Transportation and Warehousing
    130K
    Agriculture, Forestry, Fishing and Hunting
    100K
    Health Care and Social Assistance
    90K
    Retail Trade
    70K
    Accommodation and Food Services
    60K
    Administrative and Support and Waste Management and Remediation Services
    60K
    Other Services (except Public Administration)
    60K
    Educational Services
    60K
    Arts, Entertainment, and Recreation
    60K
    Source: EMSI Complete Employment, 4th Quarter 2010

    Here’s our take on manufacturing and a few other basic observations that help to illustrate the difference between production and service sectors.

    When it Comes to Income Manufacturing is Still King

    At $4.4 trillion in total sales, manufacturing is by far the biggest income generator in our nation, despite a fairly rapid decline in employment (manufacturing has slipped to fourth in overall employment). Despite these trends, manufacturing still manages to far outperform all other industries in terms of pure income creation. Each individual that works in manufacturing generates roughly $370,000 per year. This is a very important fact to consider in a day and age when many folks advocate for improving the service sectors. 

    Again, here’s the thing to note: sectors like manufacturing that generate more income per worker have much bigger ripple effects, creating much more impact in a region while helping to raise wages in lower-productivity service sectors. 

    Government Services: High on Employment but Low on Productivity

    The government sector is twice the size of the manufacturing sector (in terms of employment) but only produces $3 trillion in earnings or $130K in income per worker. Government is a bit trickier to analyze using the sales per worker criteria because the government is essentially capturing tax dollars and spending them on various services (education, military, infrastructure). Government can provide a lot of stability to regional economies, but it’s not really a growth industry (unless you’re in DC!).

    Utilities and Finance – Low Employment but High Sales/Job Ratios

    The utility and finance sectors have lower employment (ranked 8th and 21st, respectively) but rather large sales to job ratios (250K per worker and 650K per worker, respectively). Keep in mind, the utility sector has a lot of overhead and equipment that factor into the equation. There is a huge amount of capital in play in this sector that requires a relatively small workforce. Finance and insurance can generate very large amounts of capital, and they have much less overhead.

    Health Care is Not a ‘Growth Industry’

    Health care, the ultimate service sector, has become the second-largest employment sector in the country, yet it produces only $90K in sales per worker, which is pretty low compared to manufacturing, information, or finance. Basically, the health care sector is important for obvious reasons and it can be a source of good jobs for a local region, but it’s not really an “economic driver” that is going to propel our nation into greater prosperity.

    Retail Trade vs. Information

    The retail trade and information industry sectors have similar income generation ($1.19 trillion and $1.13 trillion, respectively), however, retail trade is five times the size of information in terms of employment. This is why every economic developer is looking for “the next Facebook” and not “the next Napa Auto Parts.” Retail trade only generates $70K per worker while information generates $350K per worker.

    So what’s wrong with a service-based economy? It shrinks manufacturing employment as well as the manufacturing sector’s ability to prop up wages. A labor market that loses wage pressures of high-productivity manufacturing industries will settle at wage rates lower than markets where this wage-boosting effect is present. Economic development policy makers should be careful about shunning manufacturing or other production sectors in favor of service sectors.

    Dr. Robison is EMSI’s co-founder and senior economist with 30 years of international and domestic experience. He is recognized for theoretical work blending regional input-output and spatial trade theory and for development of community-level input-output modeling. Dr. Robison specializes in economic impact analysis, regional data development, and custom crafted community and broader area input-output models. Contact Rob Sentz with questions about this analysis.

    Illustration by Mark Beauchamp

  • Why North Dakota Is Booming

    Living on the harsh, wind-swept northern Great Plains, North Dakotans lean towards the practical in economic development. Finding themselves sitting on prodigious pools of oil—estimated by the state’s Department of Mineral Resources at least 4.3 billion barrels—they are out drilling like mad. And the state is booming.

    Unemployment is 3.8%, and according to a Gallup survey last month, North Dakota has the best job market in the country. Its economy “sticks out like a diamond in a bowl of cherry pits,” says Ron Wirtz, editor of the Minneapolis Fed’s newspaper, fedgazette. The state’s population, slightly more than 672,000, is up nearly 5% since 2000.

    The biggest impetus for the good times lies with energy development. Around 650 wells were drilled last year in North Dakota, and the state Department of Mineral Resources envisions another 5,500 new wells over the next two decades. Between 2005 and 2009, oil industry revenues have tripled to $12.7 billion from $4.2 billion, creating more than 13,000 jobs.

    Already fourth in oil production behind Texas, Alaska and California, the state is positioned to advance on its competitors. Drilling in both Alaska and the Gulf, for example, is currently being restrained by Washington-imposed regulations. And progressives in California—which sits on its own prodigious oil supplies—abhor drilling, promising green jobs while suffering double-digit unemployment, higher utility rates and the prospect of mind-numbing new regulations that are designed to combat global warming and are all but certain to depress future growth. In North Dakota, by contrast, even the state’s Democrats—such as Sen. Kent Conrad and former Sen. Byron Dorgan—tend to be pro-oil. The industry services the old-fashioned liberal goal of making middle-class constituents wealthier.

    Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the states. With a severance tax on locally produced oil, there’s a growing state surplus. Recent estimates put an extra $1 billion in the state’s coffers this year, and that’s based on a now-low price of $70 a barrel.

    North Dakota, however, is no one-note Prairie sheikdom. The state enjoys prodigious coal supplies and has—yes—even moved heavily into wind-generated electricity, now ranking ninth in the country. Thanks to global demand, North Dakota’s crop sales are strong, but they are no longer the dominant economic driver—agriculture employs only 7.2% of the state’s work force.

    Perhaps more surprising, North Dakota is also attracting high-tech. For years many of the state’s talented graduates left home, but that brain drain is beginning to reverse. This has been critical to the success of many companies, such as Great Plains Software, which was founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm has well over 1,000 employees.

    The corridor between Grand Forks and Fargo along the Red River (the border between North Dakota and Minnesota) has grown rapidly in the past decade. It now boasts the headquarters of Microsoft Business Systems and firms such as PacketDigital, which makes microelectronics for portable electronic devices and systems. There are also biotech firms such as Aldevron, which manufactures proteins for biomedical research. Between 2002 and 2009, state employment in science, technology, engineering and math-related professions grew over 30%, according to EMSI, an economic modeling firm. This is five times the national average.

    While the overall numbers are still small compared to those of bigger states, North Dakota now outperforms the nation in everything from the percentage of college graduates under the age of 45 to per-capita numbers of engineering and science graduates. Median household income in 2009 was $49,450, up from $42,235 in 2000. That 17% increase over the last decade was three times the rate of Massachussetts and more than 10 times that of California.

    Some cities, notably Fargo (population 95,000), have emerged as magnets. “Our parking lot has 20 license plates in it,” notes Niles Hushka, co-founder of Kadrmas, Lee and Jackson, an engineering firm active in Great Plains energy development. Broadway Drive in Fargo’s downtown boasts art galleries, good restaurants and young urban professionals hanging out in an array of bars. This urban revival is a source of great pride in Fargo.

    What accounts for the state’s success? Dakotans didn’t bet the farm, so to speak, on solar cells, high-density housing or high-speed rail. Taxes are moderate—the state ranks near the middle in terms of tax per capita, according to the Tax Foundation—and North Dakota is a right-to-work state, which makes it attractive to new employers, especially in manufacturing. But the state’s real key to success is doing the first things first—such as producing energy, food and specialized manufactured goods for which there is a growing, world-wide market. This is what creates the employment and wealth that can support environmental protection and higher education.

    Thankfully, this kind of sensible thinking is making a comeback in some other states, such as Ohio and Pennsylvania. These hard-pressed states realize that attending to basic needs—in their case, shale natural gas—could be just the elixir to resuscitate their economies.

    This piece originally appeared in the Wall Street Journal.

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

    Photo by SnoShuu

  • California’s Demographic Dilemma: A Class And Culture Clash

    The newly released Census reports reveal that California faces a profound gap between the cities where people are moving to and the cities that hold all the political power. It is a tale that divides the state between its coastal metropolitan regions that dominate the state’s politics — particularly the San Francisco Bay Area, but also Los Angeles — and its still-growing, largely powerless interior regions.

    Indeed, the “progressives” of the coast are fundamentally anti-growth, less concerned with promoting broad-based economic growth — despite 12.5% statewide unemployment — than in preserving the privileges of their sponsors among public sector unions and generally affluent environmentalists. This could breed a big conflict between the coastal idealists and the working class and increasingly Latino residents in the more hardscrabble interior, whose economic realities are largely ignored by the state’s government.

    The Census shows that the Bay Area and Los Angeles are growing at their slowest rate in over 160 years under American rule. Between 2000 and 2010 Los Angeles gained less population than in any decade since the 1890s. Its growth rate was slower than metropolitan Chicago, St. Louis and virtually every region that has reported to date, with the exception of New Orleans.

    This reflects not only the poor economy of the past few years, but also a widely cited drop-off in foreign immigration and continued massive outmigration of residents to other states. One reason for this mass exodus may be soaring house prices — largely the product of strong regulatory restraints — which appear to have contributed to slowing population growth after 2003.

    Yet not all of California is stagnating demographically. The state’s interior region — what I call “The Third California” — is growing steadily. While  Orange County, Los Angeles, San Francisco, San Jose and the Silicon Valley increased their population by only 6% or less over the last decade, inland areas such as Riverside-San Bernardino, Sacramento and the Central Valley saw growth of 20% or more. Overall, the interior counties together gained 2 million residents , roughly twice as many as the combined coastal metropolitan areas.

    The reasons for this growth are not difficult to comprehend. In boom times and hard times, housing prices in the coastal regions tend to equal as much as seven or eight times a median family income. The prices in the interior can be three times or less.

    In addition, during the past two decades, the interior region enjoyed fairly strong economic growth. Pro-business county governments promoted the expansion not only of housing, which boosted construction, but of basic industries such as food processing, manufacturing and warehousing. According to economist John Husing, the Inland Empire alone accounted for over 40% of the state’s total job growth.

    Today, in the wake of the collapsed housing bubble, these interior counties are reeling, with double-digit unemployment (in some cases reaching closer to 20%) and what appear to be diminishing prospects. Five of the nation’s 10 metro areas for foreclosures are located in California’s interior.

    Under normal circumstances, lower housing prices and business costs would lead — as in past recessions — to a spate of new economic growth, but this the radical turn in California government could keep these areas permanently poor.

    Essentially, the Third California has become hostage to the coastal cities and their increasingly bizarre economic policies. Under first Arnold Schwarzenegger and now Jerry Brown, California has embraced a series of radical environmental edicts that spell disaster for the more blue-collar interior. These include dodgy land use policies designed to combat “climate change” but essentially seek to steer middle- and working-class Californians out of their cherished suburban homes and into densely packed urban apartment complexes.

    The last election confirmed the Bay Area’s ascendency in Sacramento. Gov. Jerry Brown was previously mayor of Oakland (a city that actually lost population this decade), while the lieutenant governor, former San Francisco Mayor Gavin Newsom, and the new attorney general, Kamala Harris, are from the city by the Bay.  The San Francisco area’s population may be about the same as the Inland Empire’s, but its political perspective now dominates the state.

    Husing describes San Francisco as “a bastion of elitist thinking” due to a large “trustifarian” class who have turned the city into favorite spot for green and fashionably “progressive” think tanks. This thinking is increasingly influential as well in a rapidly changing Silicon Valley. In the past the Valley was a manufacturing powerhouse and had to worry about such things as energy prices, water availability and regulatory relief. But the increasingly dominant information companies such as Apple, Facebook, Twitter, Google and their wannabes are widely unconnected to industrial production in the region. To be sure, they have created a financial bubble in the area that has made some fantastically rich, but according to researcher Tamara Carleton they have contributed very little in new net job creation, particularly for blue-collar or middle-class workers.

    There’s a bit of a snob factor here. Fashionable urbanistas extol San Francisco as a role model for the nation. The City, as they call it, has adopted the lead on everything from getting rid of plastic bags and Happy Meals is now considering a ban on circumcision. When it comes to everything from gay rights to bike lanes, no place is more consciously “progressive” than San Francisco. So why should that charmed city care about what happens to farmworkers or construction laborers in not-so-pretty Fresno?

    Class and occupational profile also has much to do with this gap between the Californias. Husing notes that the Bay Area has far more people with college degrees  (42%) than either Southern California (30%) or the Central Valley (where the percentage is even lower). Green policies that impact blue-collar workers — restraining the growth of the LA port complex, restricting new single-family home construction or cutting off water supplies to farmers — mean little distress for the heavily white, aging and affluent Bay Area ruling circles.

    But such moves could have a devastating impact on the increasingly Latino, younger and less well-educated populace of the interior. Outside of the oft-promised green jobs — which Husing calls “more propaganda than economics” — it is these less privileged residents’ employment that is most likely to be exported to other states and countries, places where broad-based economic growth is still considered a worthy thing.  “By our ferocious concentration on the environment, we have created a huge issue of social justice,” Husing points out. “We are telling blue collar workers we don’t want you to have a job.”

    This all presages what could be the greatest issue facing California — and much of the country — in the decades to come. In places where San Francisco-like fantasy politics preside, expect to witness a growing class and ethnic divide, with consequences that could prove catastrophic to the future of our increasingly diverse society.

    This piece originally appeared at Forbes.com

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

    Photo by wstera2