New Geography

Category: Economics

  • Santa Fe-ing of the World, Bridging the Digital Divide

    This is the second of a two-part piece. Read part one.

    If we accept that many rich people are going to find attractive this scenario of dramatically different settlement patterns that feature new aggregation – widely dispersed – the question then becomes whether information technology will ever become a global influence on the built environment, shaping the way the middle class and even the working class live, the way railroads, jets, and automobiles did.

    I would argue that the answer is yes. “Jet set” used to refer to the wealthy. Horseless carriages were once a luxury. But none of this is any longer true. In fact, this “Santa-Fe-ing” pattern of dispersion plus aggregation looks a lot like the behavior of corporations over the last half century. The only difference is that now, due to Moore’s Law’s continuing precipitous drop in the price of information technology, the benefits have become affordable to a burgeoning number of individuals.

    For half a century, corporations have put each piece of their puzzle wherever they find comparative advantage. They figured out that with enough mainframes and toll-free telephone lines, they could put their headquarters one place, their research and development a second place, their factories a third place, their back-shop paper-shuffling a fourth place, their call centers a fifth place, and their salesmen all over the place. This information-technology-driven dispersion contributed hugely to the rise of aggregations we see in the edge cities of places like the Route 128 corridor around Boston, the birthplace of high technology.

    Talk to corporate location specialists and they will happily tell you that of the top 100 things their clients look for, the first 99 is qualified workforce. If the facility in question is a sneaker factory, that means people who will work for pennies an hour, and the answer may be Malaysia. If this means advanced innovation, the answer is places where smart people are willing to cluster, like Silicon Valley – and Bangalore, India.

    The core premise of the Santa-Fe-ing hypothesis is that this sort of choice is now available to millions, and soon billions. Because of the ability of Moore’s Law to bring technology to the masses at an accelerating rate, similar choices are now available to individuals, who can look to live, work, play, pray, shop and die wherever they see comparable advantage. They are no longer inextricably tethered to huge, centrally located organizations.

    At the time of the American Revolution, in the Agrarian Age, more than 95 percent of all people lived outside what then passed for cities, because wresting profit from the land through farming, trapping, forestry and the like was how wealth was created. Today, however, technology has allowed a tiny number of people to farm thousands of acres, and the number of people in these occupations in the U.S. has dropped to less than 2 percent.

    Similarly, half a century ago, at the height of the Industrial Age, the majority of all Americans were in blue-collar manufacturing jobs. Today it’s 19 percent and dropping while the number of people in “service occupations” exceed 78 percent. This is not all about a decline in industrial competitiveness. The U.S. steel industry is the most productive in the world. That’s because it has lowered the number of man-hours per ton of steel to very low rates, by the increasing use of Information Age cleverness to make its product. Even automobile manufacturing has used information technology to redraw the map of where it builds cars. Who, a generation ago, would have expected Mercedes to locate its U.S. assembly plant in Alabama?

    There’s no reason to think the rest of the developing world is not following the pattern of Santa Fe-ization. But as the cost of enabling technology drops precipitously, this effect is already transforming the built environment worldwide – including in such unlikely places as Croatia and Ecuador that are usually not the favorite subjects of futuristic speculation.

    There are already 30 African nations with more cell phones than landlines. If you look at the billboards in a megacity like Lagos, you will be convinced that the three biggest industries in Nigeria are evangelical churches, health food supplements, and cell phones. At this writing, it’s already almost a decade since Filipinos ousted a tyrant for the first time using cell phone text messaging to mobilize hundreds of thousands of people for street demonstrations in under an hour. In developing countries the proportion of people with access to a phone grew an astonishing 25 percent in the 1990s, according to the Worldwatch Institute, an organization devoted to “an environmentally sustainable and socially just society.” One in five of the world’s population had used a mobile phone by 2002—up from 1 in 237 in 1992. This remarkable pattern fueled connections to the internet. In 1992, just 1 in 7,788 of the world’s population had used the internet. In 2002, 1 in 10 had.

    To be sure, these patterns are not distributed uniformly. In places capable of great technological sophistication, such as China and Russia, governments who fear their own dissidents – and thus try to control information – have attempted to intentionally slow the revolution. Some Middle Eastern societies recoil at dissemination of Western ideas in general, and pornography in particular. Latin America is hampered by low literacy rates. There are some failed places on earth marked by such outrageous politics, pathetic infrastructure, abysmal annual incomes and few cities that it’s hard to imagine how they will achieve any significant development any time soon. Singapore researchers examining internet uptake in Asia pointed to a familiar list of failed suspects: Bangladesh, Cambodia, Kazakhstan, Laos and Myanmar.

    Nonetheless, the gap between the haves and have-nots has hardly proven to be hopelessly rigid, as the migration of software-writing jobs to India has demonstrated. The International Telecommunication Union, tallying broad measures of connectedness worldwide, including affordability, found Slovenia tied with France. Korea, Hong Kong and Taiwan were ahead of the United States. In the Caribbean basin, access for the Bahamas, St. Kitts and Nevis, Antigua and Barbuda, Barbados, Dominica, Trinidad and Tobago, Jamaica, Costa Rica, St. Lucia and Grenada were ahead of Russia. The Eastern European nations of Estonia, the Czech Republic, Hungary, Poland, the Slovak Republic, Croatia, Lithuania, Latvia, Bulgaria, Belarus and Romania were ahead of China. The Singapore researchers found that a lack of English-speakers did not necessarily correlate with poor technology pickup. In a post-literate world – in which the internet increasingly becomes something you watch and listen to, rather than read – low literacy rates were less a barrier than one might expect, at least in Asia. The digital divide seems to be narrowing, a University of Toronto study says. The demographic lag between those who use the Internet in developing countries and those who use it in the United States was about five years, the Canadian researchers reported. This technology is getting to the masses a lot faster than did electricity, radio, washing machines, refrigerators, television, air conditioners and automobiles.

    The big difference between information technologies and others separating the haves from the have-nots is price. Because The Curve rules, costs drop dramatically. The transformative stuff quickly becomes affordable and ubiquitous, even in developing countries. How can this not have consequences for our material world?

    Every urban African I’ve ever talked to would prefer to be living in his or her village. They say they came to the city for economic opportunity, not out of preference. They return to their villages every chance they get.

    If, as the price of information technology approaches zero – transforming everything from transportation to markets – at the same time that the problems of megacities become more and more intractable, the value of being someplace that is great for reasons that can’t be digitized will broaden.

    If this puts a cap on the growth of megacities by spreading the benefits of urbanity more broadly – the way the automobile drained immigrant ghettos like the Lower East Side of Manhattan into the former cow pastures and potato farms of New Jersey and Long Island during the middle 20th century – I’m not sure that’s so bad.

    What started in Santa Fe could transform the world.

    Joel Garreau is Lincoln Professor of Law, Culture and Values at the Sandra Day O’Connor College of Law and the Lincoln Center for Applied Ethics at Arizona State University. He is a fellow at The New America Foundation in Washington, D.C., and author of several best-selling books including Radical Evolution, Edge City and The Nine Nations of North America.

  • Santa Fe-ing of the World

    This is part one of a two-part piece. Read Part two.

    Human settlements are always shaped by whatever is the state of the art transportation device of the time. Shoe-leather and donkeys enabled the Jerusalem known by Jesus. Sixteen centuries later, when critical transportation has become horse-drawn wagons and ocean-going sail, you get places like Boston. Railroads yield Chicago – both the area around the “L” (intraurban rail) and the area that processed wealth from the hinterlands (the stockyards). The automobile results in places with multiple urban cores like Los Angeles. The jet passenger plane allows more places with such “edge cities” to rise in such hitherto inconvenient locations as Dallas, Houston, Seattle and Atlanta and now Sydney, Lagos, Cairo, Bangkok, Djakarta, and Kuala Lumpur.

    The dominant forms of transportation today are the automobile, the jet plane, and the networked computer. What does adding the networked computer get you? I think the answer is “the Santa-Fe-ing of the World.” This means the rise of places where the entire point of which is face-to-face contact. These places are concentrated and walkable, like villages. Some are embedded in the old downtowns – such as Adams Morgan in Washington, or The Left Bank of Paris, or the charming portions of what in London is referred to, somewhat narcissistically, as “The City.” Some are part of what have traditionally been regarded as suburbs or edge cities, such as Reston, Virginia, or Emeryville/Berkeley, California.

    Santa Fe, New Mexico, is a remarkable example of this trend. Home to a world-renowned opera, charming architecture, distinguished restaurants, great places to buy used boots, quirky bookstores, sensational desert and mountain vistas and major diversity, it is also little more than a village of 62,000, far from the nearest major metropolis.

    This “Santa-Fe-ing” means urbane well beyond the current definition of urban. It means aggregation and dispersal. As with all innovation, its impact is first seen among people with enough money to have choices.

    The logic of this hypothesis starts with the question: “In the 21st century, is there any future for cities of any kind?”

    After all, some would have us believe that with enough bandwidth, each of us can wind up on his or her own personal mountaintop in Montana, being lured down into the flatlands only to breed.

    That’s a preposterous view of human nature, of course. There’s a reason solitary confinement is a punishment. We are social animals. But still, many of the historic reasons for human concentration are gone. It’s been a century since you’ve had to live within walking distance of your factory. Today, you often don’t even need be within driving distance of your office – as anyone with a cell phone knows. You certainly don’t need a metropolis to acquire anything a dot-com is willing to sell – which is a very big deal now and growing exponentially.

    Absent a cataclysm of biblical proportions, I think this means the one and only reason for congregation in the near future is face-to-face contact. Period. Full stop. The places that are good at providing this will thrive – think Oxford, England. The ones that are not will die. Cities are not forever. You have not heard much lately from the Babylon chamber of commerce.

    There are nearly 100 classes of real estate out of which you build cities, according to William J. Mitchell, the former head of the architecture and planning department at MIT. They are all being transfigured. The classic example is bookstores. If all you want to do is exchange money for a commodity, the path with least friction is often Amazon. In backwaters where, just ten years ago, buying or even borrowing a non-best-seller was a chore that took weeks, hundreds of thousands of titles are now within one click. Does this mean bookstores have disappeared? Of course not. The half of them that have survived and even grown since the ‘90s, however, have morphed. The critical elements are no longer the shelves. They are the couches, cappuccino machines, and cafes. Bookstores have become places to loiter, face-to-face, among like-minded people.

    What about grocery stores? What happens when it becomes cheaper for the supermarket to deliver your toilet paper to you than it is to heat, light and pay rent and taxes on its store? Under what circumstances would you ever again get in your car to drive to market again? For me, the answer is that I want to have face-to-face contact with my tomatoes – or anything else you might find in a social setting like a farmers’ market. I’m not sure I’d trust the kid at the dot com to pick out my spare ribs. If the grocer wants to ship me my barbecue sauce, however, I won’t mind. Ninety-five percent of everything one finds in a supermarket is flash-frozen, shrink-wrapped, and nationally advertised. We are in the midst of a burgeoning freight revolution, in which the stuff is coming to us, rather than us going to the stuff – as anybody who has Christmas shopped lately may have noted. In fact, I can’t think of anything in an entire Wal-Mart that I would regret having delivered to me in a big brown van. Visiting a Wal-Mart doesn’t give me enough of a psychic boost to justify a drive now. Of course, if big-box retail migrates into the digital ether tomorrow, we’ll have an enormous challenge figuring out the adaptive re-use of their buildings. What will we make of them? Roller skating rinks? Greenhouses? Non-denominational evangelical churches? Artists lofts? Whatever the answer, I doubt their passing will be mourned.

    What about college campuses? Is there any future for those? After all, the University of Phoenix, the online learning establishment, became one of the hottest growth stocks of the early 21st century. Internet MBAs abound from some of the world’s most distinguished schools. Why bother ever getting out of your pajamas to learn?

    Again, the answer is face-to-face contact. After all, distance learning is nothing new. Benjamin Franklin engaged in correspondence classes. The United States military is awash in senior officers with advanced degrees from the University of Maryland, which has pioneered its outreach programs to people in remote locations.

    However, distance learning will always be everyone’s second choice. It works best for people who do not have the time or money for the conventional academic experience. First choice remains the traditional universities. Getting into them has become insanely competitive and expensive. Why are they so desirable? Because sitting in class absorbing information from a lecturer is only a tiny part of the college experience. College is where many people meet their first spouse. It’s where they develop a network of friends that they’ll likely maintain for life. It’s an entertainment center and an athletic center. Oh, and as for learning – most of the stuff that has stuck with me came out of dorm sessions at one in the morning, engaging in face-to-face contact with smart people.

    As we shall see, the impact of face-to-face on urban calculations includes office space, and even home locations. But why is this transformation occurring now?

    It all starts with Moore’s Law, first stated by Intel co-founder Gordon Moore As the core faith of the entire global computer industry, it has come to be stated this way: The power of a dollar’s worth of information technology will double every 18 months, for as far as the eye can see. Sure enough, in 2002, with a billion-transistor chip, the 27th doubling occurred right on schedule. The 30 consecutive doublings of anything man-made that we have achieved at this writing – an increase of well over 500 million times in so short a time — is unprecedented in human history. This is exponential change. It’s a curve that goes straight up.

    For sure, railroads also changed everything they touched. They transformed Europe. North America was converted from being a struggling, backward, rural civilization mostly hugging the East Coast into a continent-spanning, world-challenging, urban behemoth. New York went from a collection of villages to a world capital. Chicago went from a frontier outpost to a brawny goliath. The trip to San Francisco went from four months to six days. Distance was marked in minutes. Suddenly, every farm boy needed a pocket watch. For many of them, catching the train meant riding the crest of a new era that was mobile and national. A voyage to a new life cost 25 cents.

    Of course, as railroad expansion ran out of critical fuel – including money and demand for the services – things leveled off, and society tried to adjust to the astounding changes seen during the rise of this curve. The last transcontinental railroad completed in the United States was the Milwaukee Road in 1909. In part, that was because of the rise of a new transformative technology: The one millionth Model T rolled off the assembly line in 1915.

    In contrast, the curve predicted by Moore’s Law did not stop. The computer industry still regularly beats its clockwork-like 18-month schedule for price-performance doubling.

    The effect of Moore’s Law on the built environment is and will become ever more profound.

    For example, will we ever need offices outside our homes? After all, haven’t we all heard plenty about telecommuting?

    Sure, but how many of us have discovered with some chagrin that the most productive five minutes of our work day has occurred around the shared printer? Somebody asks what we’re working on. Conversations ensue. “Oh really? Did you know that Jane was working on something like that?” “There’s this guy you’ve got to talk to; I’ll send you his phone number as soon as I get back to my desk.” “I was just reading about that very subject; I’ll ship you the name of the book.”

    This kind of casual face-to-face contact is irreplaceable no matter how cheap or immersive video technology gets. Humans always default to the highest available bandwidth that does the job, and face-to-face is the gold standard. Some tasks require maximum connection to all senses. When you’re trying to build trust, or engage in high-stress, high-value negotiation, or determine intent, or fall in love, or even have fun, face-to-face is hard to beat.

    This would seem to argue that some old patterns endure, and that’s true. But think of the twists suggested by this new premium on human basics. Suppose you decided that you could get all the face-to-face you needed two days a week. Would that influence where you lived? Would the mountains or the shore start looking good to you? Suppose you decided that you could get all the face-to-face you needed three days a month. Would the Caribbean start looking good to you?

    Residential real estate is being transformed for these reasons. In the U.S., the explosive growth is in places far beyond any metropolitan area, like the Big Sky Country of Montana, the Gold Country of the California Sierras, the Piedmont of Virginia and the mountains and coasts of New England. For eons, when we’ve visited a nice place on vacation, we’ve asked ourselves, “Why am I going back?” Now, however, we have a new question: “Why am I going back?” Santa Fe is more than 800 miles from Los Angeles, yet it is only semi-jokingly referred to as L.A.’s easternmost suburb. To find out why, check out the nearest airport – in this case Albuquerque – any Monday morning.

    Joel Garreau is Lincoln Professor of Law, Culture and Values at the Sandra Day O’Connor College of Law and the Lincoln Center for Applied Ethics at Arizona State University. He is a fellow at The New America Foundation in Washington, D.C., and author of several best-selling books including Radical Evolution, Edge City and The Nine Nations of North America.

  • It’s the Jobs, Stupid: Infrastructure Matters

    It may surprise you to know that some policy makers and academics believe that “nothing matters” when it comes to infrastructure — the physical structures that make water, energy, broadband and transportation work — and economic prosperity. The thrust of the idea that infrastructure doesn’t matter may have started with Larry Summers, appointed by President Obama as Director of the National Economic Council in 2009. The New York Times says he is “the only top economic adviser with a West Wing office” – meaning he is very powerful in Washington terms.

    His most vocal critic in the matter of infrastructure is Representative Peter DeFazio (D-Oregon). DeFazio appeared on MSNBC’s Rachel Maddow, criticizing Summers, saying that Obama is “ill-advised by Larry Summers” in regards to using stimulus money to cut taxes for businesses. “Larry Summers hates infrastructure,” says DeFazio, who argues that more of the stimulus should have gone to infrastructure. Summers backed away from any earlier comments when he told the Financial Times last June that there may also be “a case for carefully designed support for infrastructure investment.”

    The question seems obvious. What good is it to stimulate business if they don’t have the tools they need to work with?

    Summers’s attitude could make it difficult to generate major new investments in things like roads, bridges, and the broadband communication access that businesses – small and large – need to get the job done. Companies choose to locate where infrastructure is better. Businesses will leave areas where infrastructure is missing or deteriorated – taking jobs with them.

    Certainly U.S. firms look for good infrastructure when they consider placing offices overseas, and foreign firms must do the same when they consider locating here. The idea that good infrastructure would enable economic specialization and lower costs – making U.S. businesses more efficient, more competitive, and therefore able to create more U.S. jobs – is clearly reflected in the way that businesses behave. Emerging market countries remain economically competitive, and are constantly building and rebuilding their infrastructure as their economies develop. Can the U.S. remain competitive if our infrastructure doesn’t keep up with them? It is becoming increasingly clear that deteriorating infrastructure in the United States may actually be contributing to increased costs (and decreased efficiency) of American businesses.

    Recently, the U. S. Chamber of Commerce initiated a project under the Let’s Rebuild America initiative to find a way to measure the performance of infrastructure and the role it plays in economic prosperity. Over the next year, a team of experts (of which I am a member) led by Michael Gallis & Associates will create an Infrastructure Index that can be used to explore the contribution infrastructure makes in keeping American businesses competitive in an increasingly global economy.

    What is innovative about the project team’s approach is that it measures the performance of infrastructure, and not just the size. Thirty years ago researchers on this subject limited their measurement of “infrastructure” to “government spending on public projects” to analyze the impact on economic growth and productivity. This approach is flawed for several reasons.

    First, not all money designated for infrastructure is spent the same way. Government inefficiencies and political corruption plus purchasing power in local economies contribute to inconsistency in quantity and quality of infrastructure based on money spent. Measuring infrastructure in terms of spending alone doesn’t cover the impact of growth on infrastructure. In other words, that a growing economy can afford more infrastructure is just as likely a cause of positive statistical results as the possibility that more infrastructure helps the economy grow. Further, where spending is used to measure infrastructure, the studies usually consider only public spending, ignoring the contribution of investments from private companies (e.g., the contribution of private satellites to communications infrastructure).

    Less than half of the statistical studies using expenditure-based infrastructure measures find that developing or maintaining infrastructure has significant positive effects on the economy. In contrast, over three-fourths of the studies using physical indicators – the number of phone lines, the miles of high-quality road — find a significant positive contribution from infrastructure to the economy.

    There is no dispute that economic growth is necessary as long as there is an increasing population, which will be the case over the next four decades in America as well as Canada and Australia. We need to address the question: is it possible for the economy to “hit a wall” because it runs out of usable infrastructure? In other words, the question is not if infrastructure helps the economy but rather can a lack of infrastructure impede the economy? Can the economy outgrow its infrastructure?

    As the economy changes, so will the demands for infrastructure. The four components of infrastructure – transportation, energy, water and broadband – need to be made relevant across decades, even as the role of one industry may change within the economy. For example, while it is obvious that information-workers, such as computer programmers and software developers who increasingly work from remote locations, require access to broadband infrastructure, they also alter the way that transportation infrastructure is used. Some knowledge-based activities relying on spatial agglomeration place greater importance on rail/subway and less importance on roads. Yet, that does not mean that a knowledge-based economy will need fewer roads – someone has to service those computers and that technician will likely travel to its customers on roads.

    We need to move away from the “one-size-fits-all” approach to infrastructure development toward better integration with the economic activity that uses it. Each region needs to assess its own needs and base their investment decisions on conditions that exist within their region.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. She will be participating in an Infrastructure Index Project Workshop Series throughout 2010. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

  • Immigration Is U.S.

    You can sing about sea to shining sea or amber waves of grain, but it’s immigration that provides America’s basic rhythm. Nothing distinguishes the American experience from that of other nations more than the mass migration of people from elsewhere to here. We are truly a nation of immigrants: Close to 90% of the population–excluding Native Americans and those who were forced here in shackles–moved here out of their own volition.

    Not that this has made things any easier for immigrants. In the 1850s the nativist Native American Party–reacting to a wave of Irish Catholic and German immigrants–declared that America faced “an imminent peril” from immigrants “of an ignorant and immoral character.” California in the late 19th century tried to ban Asian immigration and land ownership. In 1924 immigration from everywhere outside northern Europe was severely restricted.

    The current wave of immigration, largely from Asia and Latin America, has once again sparked nativist fears. (Witness Arizona’s recent, harsh immigration law.) Yet America needs immigrants now more than ever. The U.S., like virtually all advanced countries, produces insufficient native-born children to prevent it from becoming a granny nation-state by 2050.

    Only immigration can provide the labor force, the expanding domestic markets and, perhaps most important, the youthful energy to keep our society vital and growing. Many bustling sections of American cities–the revived communities along the number 7 train line in Queens, N.Y., Houston’s Harwin Corridor, Los Angeles’ San Gabriel Valley–are dominated by immigrant enterprise. In contrast, the cities without large-scale immigration, such as Cleveland, Pittsburgh and Cincinnati, have stagnant and even declining populations.

    In the future successful immigration will distinguish America from most key competitors. Globally, resistance to immigration or any form of linguistic, religious or ethnic diversity has become more commonplace. Over the past few decades Iran, Egypt, Turkey, Russia, Indonesia and the nations of the former East Bloc have constricted their concept of national identity. In Malaysia, East Africa and even the province of Quebec preferential policies have led successful minorities such as Jews, Armenians, Coptic Christians Indians and Chinese to find homes in more welcoming places, often in the U.S.

    In recent decades Europe has received as many immigrants as the U.S., but it has proved far less able to absorb them. The roughly 20 million Muslims who live in Europe remain marginalized. In Europe, notably in France, unemployment among immigrants–particularly those from Muslim countries–is often at least twice that of the native born; in Britain as well Muslims are far more likely to be out of the workforce than either Christians or Hindus.

    But in the U.S. immigrant workers with lower educations are more likely to be in the workforce than their nonimmigrant counterparts. And most American Muslims are comfortably middle class, with income and education levels above the national average. The newly crowned Miss America is from a Detroit-area Shiite immigrant family from southern Lebanon.

    Our 21st-century economy will be shaped in large part by these immigrants and their descendants. Much is made of the movement of poor, largely uneducated immigrants from south of the border, but more than half of all skilled immigrants in the world come to the U.S., too. Even with its slow-growing population, Europe continues to be a major source of American immigrants, particularly skilled workers. By 2004 some 400,000 E.U. science and technology graduates were residing in the U.S. Barely one in seven, according to a European Commission poll, intends to return to their home continent.

    Of course, the majority of the nation’s immigrants, both undocumented and legal, come from developing countries: China, India, Mexico, the Philippines and the Middle East. Since roughly four in five immigrants come from nonwhite countries, by 2039, due largely to immigrants and their offspring, the majority of working-age Americans will be “minorities.”

    Even if immigration slows down dramatically, particularly with a weak economy, these groups will grow in significance as we approach mid-century. In 2000 one in five American children were already the progeny of immigrants; by 2015 they will make up as much as one-third of American kids. Many demographers predict that by 2050 non-Hispanic whites will be in the minority. America’s racial and ethnic dye is already cast, and permanently shaped, by immigration.

    By embracing, and being embraced by, immigrants, America follows the path of history’s most successful civilizations. The Roman civilization, which started in a tribal city-state, gradually opened citizenship to all Italians, and by the third century made citizenship available to free men throughout the “multi-nationed” empire; less than half the Senate came from Italy. “Rome,” wrote a Greek writer in the second century, “is a citadel which has all the peoples of the earth as its villagers.”

    In this sense the American model of immigration and ethnic integration, for all its many flaws, forms a critical pillar for the nation’s future global leadership. Even those who return home will retain strong familial and business ties to the U.S. They will confirm America’s unique status as the world’s one great global civilization.

    This article 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. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in Febuary, 2010.

    Photo by telwink

    May 21, 2010

  • Houston: Model City

    Do cities have a future? Pessimists point to industrial-era holdovers like Detroit and Cleveland. Urban boosters point to dense, expensive cities like New York, Boston and San Francisco. Yet if you want to see successful 21st-century urbanism, hop on down to Houston and the Lone Star State.

    You won’t be alone: Last year Houston added 141,000 residents, more than any region in the U.S. save the city’s similarly sprawling rival, Dallas-Fort Worth. Over the past decade Houston’s population has grown by 24%–five times the rate of San Francisco, Boston and New York. In that time it has attracted 244,000 new residents from other parts of the U.S., while older cities experienced high rates of out-migration. It is even catching up on foreign immigration, enjoying a rate comparable with New York’s and roughly 50% higher than that of Boston or Chicago.

    So what does Houston have that these other cities lack? Opportunity. Between 2000 and 2009 Houston’s employment grew by 260,000. Greater New York City–with nearly three times the population of Houston–has added only 96,000 jobs. The Chicago area has lost 258,000 jobs, San Francisco 217,000, Los Angeles 168,000 and Boston 100,004.

    Politicians in big cities talk about jobs, but by keeping taxes, fees and regulatory barriers high they discourage the creation of jobs, at least in the private sector. A business in San Francisco or Los Angeles never knows what bizarre new cost will be imposed by city hall. In New York or Boston you can thrive as a nonprofit executive, high-end consultant or financier, but if you are the owner of a business that wants to grow you’re out of luck.

    Houston, however, has kept the cost of government low while investing in ports, airports, roads, transit and schools. A person or business moving there gets an immediate raise through lower taxes and cheaper real estate. Houston just works better at nurturing jobs.

    It’s not just smug coastal places getting smoked by Texas. Since the collapse of the housing bubble Houston has outperformed Sunbelt counterparts like Phoenix, Las Vegas and Los Angeles. A big factor has been that manufacturing, professional services, international trade and technology industries have been the primary drivers of the city’s economic growth–rather than construction and speculation. Ironically, this has increased home values. Since 2007 prices of homes in Houston have ticked slightly higher, while those in Las Vegas, Phoenix, Los Angeles and the Bay Area each are down by more than 35%.

    Some traditional urbanists will concede these facts but then try to shift the focus to “qualitative” factors: the best-educated residents, the highest salaries, the most expensive real estate. Although it also attracts a large number of low-skill migrants, Houston has considerably expanded its white-collar workforce. According to the Praxis Strategy Group, Houston’s ranks of college-educated residents grew 13% between 2005 and 2008. That’s about on par with “creative class” capital Portland, Ore. and well more than twice the rate for New York, San Francisco or Los Angeles.

    But Houston’s biggest advantage cannot be reduced to numbers. Ultimately it is ambition, not style, that sets Houston apart. Texas urbanites are busy constructing new suburban town centers, reviving inner-city neighborhoods and expanding museums, recreational areas and other amenities. In contrast with recession-battered places like Phoenix, Houston remains remarkably open to migrants from the rest of America and abroad.

    Houston, perhaps more than any city in the advanced industrial world, epitomizes the René Descartes ideal–applied to the 17th-century entrepreneurial hotbed of Amsterdam–of a great city offering “an inventory of the possible” to longtime residents and newcomers alike. This, more than anything, promises to give Houstonians the future.

    This article 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. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in Febuary, 2010.

    Photo by telwink

  • Is It Game Over for Atlanta?

    With growth slowing, a lack of infrastructure investment catching up with it, and rising competition in the neighborhood, the Capital of the New South is looking vulnerable.

    Atlanta is arguably the greatest American urban growth story of the 20th century. In 1950, it was a sleepy state capital in a region of about a million people, not much different from Indianapolis or Columbus, Ohio. Today, it’s a teeming region of 5.5 million, the 9th largest in America, home to the world’s busiest airport, a major subway system, and numerous corporations. Critically, it also has established itself as the country’s premier African American hub at a time of black empowerment.

    Though famous for its sprawl, Atlanta has also quietly become one of America’s top urban success stories. The city of Atlanta has added nearly 120,000 new residents since 2000, a population increase of 28% representing fully 10% of the region’s growth during that period. None of America’s traditional premier urban centers can make that claim. As a Chicago city-dweller who did multiple consulting stints in Atlanta, I can tell you the city is much better than its reputation in urbanists circles suggests, and it is a place I could happily live.

    Yet the Great Recession has exposed some troubling cracks in the foundations of Atlanta’s success. Though perhaps it is too early to declare “game over” for Atlanta, converging trends point to a possible plateauing of Atlanta remarkable rise, and the end of its great growth phase.

    Growth Is Slowing

    As with many other boomtowns, in Atlanta growth itself has been among the biggest industries. Construction particularly played a big role in its economy. The housing crisis cut the legs from under Atlanta’s real estate machine. Though prices didn’t collapse, new home building did. From 2005 to 2009 Atlanta’s number of annual building permits fell by 66,352, the biggest decline of any metro area.

    Atlanta grew strongly in the 2000s, with growth of over 1.2 million people, a 29% rise that beat peer cities like Dallas and Houston. But look at the recent past and see a very different dynamic. Domestic in-migration has cratered, only reaching 17,479 last year, or 0.32%. While migration did slow nationally last year due to the economy, Dallas and Houston continued to power ahead. Dallas added 45,241 people (0.72%) and Houston added 49,662 (0.87%). Even Indianapolis added 7,034, but that’s 0.42% on a smaller base, meaning Atlanta is actually getting beat on net migration by a Midwest city; its in-migration rate is about on par with Columbus, Ohio, another healthy Midwest metropolis..

    The collapse in in-migration should be very worrying to Atlanta’s leadership. No new people, no new housing demand, thus no construction jobs. It should come as no surprise that Atlanta’s 10.8% unemployment rate is well ahead of the 9.7% national rate.

    The Infrastructure Brick Wall

    Last July, Judge Paul Magnuson ruled that Atlanta had been illegally taking water from Lake Lanier, the principal source of the region’s water supply. The ruling may not stick but it nevertheless has brought into focus the long term insufficiency of the water supply for Atlanta. Lake Lanier almost ran dry during a recent drought, but has since recovered in the recent wet years. The problem is more political than environmental. Atlanta has not appreciably expanded its water sources in 50 years despite all that growth.

    Atlanta has a myriad of infrastructure problems. It suffers some of the highest water and sewer rates in the nation, double those of New York City. And these are only going to get worse as the city embarks on a multi-billion dollar Clean Water Act Compliance program. This is an ominous sign for a city whose attractiveness is in large part due to its low costs. As Councilwoman Clair Muller put it, “I’m not sure being No. 1 in the country for water and sewer rates is a good selling feature for Atlanta.”

    But the biggest infrastructure issue for Atlanta is transportation. Atlanta is famous for its bad traffic and attendant pollution. Its freeways are among the world’s widest, but this disguises the extent to which the roadway infrastructure is woefully insufficient. Atlanta has a simple beltway and spoke system similar akin to Indianapolis and Columbus, much smaller cities. Other big cities like Houston, Dallas, Minneapolis, and Detroit have much more elaborate systems. In particular, rather than relying on a single ring road, these cities have webs of freeway with multiple “crosstown” routes.

    But Atlanta’s greatest road problem lies in the lack of arterial street capacity. Atlanta’s suburban arterial network is mostly former winding country roads, many of which have never been upgraded to handle the traffic demands on them. Most upgraded streets are radial routes, not crosstown ones, which forces even more traffic onto the overloaded freeway network.

    For those who prefer transit, Atlanta hasn’t invested there either. It built the MARTA heavy rail system as an extremely forward looking transportation investment, mostly in the 1970s and early 80s. This was built before Portland’s system and is far better than light rail to boot. But there has been almost no expansion of the network. The state of public transport has been largely frozen for some time. Meanwhile, Dallas, Houston, Phoenix, and others have invested billions.

    Competition Is Here

    Bad traffic congestion and other infrastructure ills didn’t matter much when Atlanta was the only game in town. For a long time, anyone who needed a presence in the Southeast found Atlanta the easy default answer. In many cases it was the only real possibility.

    That’s no longer true. Atlanta is now surrounded by upstart, much faster growing cities such as Charlotte and Raleigh-Durham in North Carolina, Nashville, Tennessee and Charleston, South Carolina – all in many ways now have the ambitions once characteristic of Atlanta.

    Atlanta’s problem lies in its insufficient differentiation from these other places. Other than the airport, a clear major asset to Atlanta, what do you actually lose by moving to Charlotte or Nashville? Your commute is likely to be less. Except for certain groups – African Americans or gays – the city seems to be losing allure.

    These other cities also have the talent to compete for a lot of the business Atlanta used to pick up without working for it. The new head of the Atlanta Regional Commission declared Atlanta’s love affair with the edge city high rises all but over. Planners always talk like this, but it is still a startling sentiment to hear in Atlanta, formerly the most boosterish of cities. That’s the sound of a city losing its mojo. Meanwhile, Charlotte chamber of commerce chief Bob Morgan says, “To understand Charlotte, you have to understand our ambition. We have a serious chip on our shoulder. We don’t want to be No. 2 to anybody.” That’s the way Atlanta used to talk.

    Caught in the Middle

    Atlanta does seem to realize it’s in a different competitive world. It must elevate its game and upgrade its product. Like Chicago and other growth stories before it, as Atlanta got big and rich, it decided it needed to get classier as well. To go for quality, not just quantity. And to embrace a more urban future for its core.

    But it might be too little, too late. Atlanta is urbanizing, but despite the huge influx of people into the city, it’s not there yet. Atlantic Station got built and attracted lots of press, but numerous other mixed use projects were killed by the poor economy. Ambitious projects like the Beltline park and transit project lack funding.

    Atlanta is left as a sort of “quarter way house” caught between its traditional sprawling self and a more upscale urban metropolis. It offers neither the low traffic quality of life of its upstart competition, nor the sophisticated urban living of a Chicago or Boston.

    Here too, Dallas and Houston continue to power ahead of Atlanta. Both are seeing significant urban infill and are also making major investments in cultural infrastructure that far outstrip those of Atlanta. For example, Dallas just opened a showplace performing arts complex, with buildings by the likes of Norman Foster and Rem Koolhaas. Houston has emerged as a dynamic multi-cultural city. Both have a long way to go, but are in a much stronger growth position to pull it off.

    Atlanta at Maturity

    Cities, like companies, go through a life cycle. There’s the youthful founding, the explosive growth phase, then maturity and, for some, decline. Chicago and Detroit were two of the huge growth stories of the industrial era, for example. Atlanta, Houston, and Dallas have been three of the boomtowns of the current age. Like other cities before them, that growth will come to an end one day. It is then that we’ll see if, like Chicago and New York, they will succeed as mature regions and truly take their place in the pantheon of great American cities, or, like Detroit or to a lesser extent Philadelphia, will decline or stagnate.

    Atlanta is far from dead, but it may be facing the beginning of the end of its growth cycle. If so, this will be the true test and measure of the greatness of that city. Will Atlanta make the grade? And how?

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

    Photo by james.rintamaki

  • Mr. Rudd’s Unproductive Ideas on Urban Productivity

    For urban planners, the compact city is a central dogma. All else hangs off it. There can be no planning without urban growth boundaries, the iron curtains beyond which urbanisation must cease.
    More to be dreaded than George Orwell’s nightmare vision, in Nineteen Eighty-Four, of “a boot stamping on a human face – forever” is the prospect of “a footprint stamped on a patch of earth – forever”. So much has the concept of “footprint”, in its “ecological”, “carbon”, “human” and other manifestations come to pervade the thinking of activists and planners, that all greenfield
    development is considered a violation of mother earth. They oppose it at any cost, endlessly recycling their stock of arguments.

    If environmental alarmism starts to pall, they will fret over the prospect of social alienation. If this falls flat, they turn to an economic angle. We’re told, increasingly, that compact planning will boost the economy’s productive capacity.

    “To … lift our urban productivity”, proclaimed Kevin Rudd in his famous “BigAustralia” speech, “we must establish new frameworks for how the different levels of government, along with businesses and the community, work together to build better cities and suburbs.”

    The argument runs along familiar lines. Traffic congestion is costing the economy around $10 billion dollars a year in delays and inefficiencies. The answer is to shift as many commuters and as much freight as possible from cars, vans and trucks and onto off-road modes like rail. In the case of commuters, many more of them should be using public transport. But the massive capital costs of constructing rail lines can only be justified if population densities are high enough to underpin acceptable rates of use. So people and firms should be concentrated in more compact centres and corridors serviced by fewer roads and more rail lines. Hey presto! Productivity gets a boost.

    Despite a degree of surface plausibility, the argument it wilts under closer scrutiny.

    Let’s consider the version presented by Mr. Rudd. His starting premises are that “road congestion by 2005 was contributing an avoidable cost of $9.4 billion”, that “if we fail to act, that cost will double in the next decade”, and, citing Sir Rod Eddington’s 2006 UK Transport Study, that “cutting travel time in Britain by just 10 percent could raise national productivity by as much as 1.2 percent.”

    Having noted that “one of the factors driving the increased reliance on road usage is the long-term underinvestment in public transport networks”, Mr. Rudd suggests some remedies. “[I]ncreasing density in cities is part of the solution to urban growth”, he says, and “forms of development need to be fully integrated with current and future transport networks.”

    So far, so typical. But the resort to Eddington’s study raises questions about context. Do his findings translate to Australian conditions? Eddington’s source for the productivity estimate is, in the words of Mr. Rudd, “leading British economist Professor Tony Venables”. More precisely, an analysis by Venables and Patricia Rice of the spatial causes of productivity in “the regions of Great Britain”. Essentially, they set out to measure how distances fro areas of high “economic mass” (or high economic density) interrelat with productivity levels. The analysis is static, and doesn’t addres the productivity impacts of measures to raise densities over time.

    Before coming to the estimate, Eddington is at pains to lay the contextual groundwork. Unlike Mr. Rudd, he concedes, on the role transport can play in lifting productivity, that “the literature has been largely unsuccessful in answering this question”. In a footnote, he says the work of Venables and Rice is “usefully beginning to inform debate”. No more.

    Eddington’s most telling observation, from an Australian perspective, is that “the contribution that transport can make to productivity is dependent on … the existing density of the area”. He says “not al firms and areas are equally agglomerated, and will therefore no benefit equally from a particular transport improvement”. Eddingto explains that “transport alone cannot generate clusters, it can play an important role in facilitating their expansion by reducing travel time and costs …”

    In other words, the extent to which transport infrastructure can boost productivity depends on existing densities, not target densities. This is the crucial point: Australian cities are much less dense than European, including British, cities. According to the City Mayors ranking of 125 cities by population density, London ranks 43rd with 5,100 people per square kilometre, Leeds/Bradford 57th with 4,050, Manchester 58th with 4,000 and Birmingham 64th with 3,800. Sydney ranks 113rd with 2,100 and other Australian cities don’t even make the list. Our cities also have some of the most dispersed commercial and industrial structures in the world, with relatively small CBDs accounting for around 12 to 20 per cent of urban jobs.

    British cities are denser for several reasons: a more compact land mass, a colder climate, a longer history of settlement stretching deep into the era before modern transportation, and, particularly in the case of South-East England and London, an economy dominated by business services and information technology, which thrive on “agglomeration effects”. These do feature prominently in Sydney’s economic mix, but nowhere near the scale of London, the world’s mecca of banking, finance and investment. Until recently, the London Stock Exchange was the largest in the world, accounting for 32 per cent of global turnover.

    The contrasts between British and Australian conditions are manifest, even if Sir Rod has lost sight of them since his appointment as Mr. Rudd’s infrastructure czar in 2008.

    Still, the heralded boosts to national productivity aren’t likely to materialize. In low density environments, transport projects have limited economy-wide impacts. A smaller proportion of individuals and firms are placed to exploit them. This is especially so in the case of rail infrastructure (of course, freight rail lines servicing particular port and production facilities warrant special consideration). At the same time, measures to raise densities could wipe out such productivity gains as there are. Zoning controls and urban growth boundaries, for instance, raise land values and rents, with knock-on effects for prices, the cost of capital, and wage and
    salary expectations.

    It makes little sense to trumpet new efficiencies in transport, if other costs have been jacked up to achieve them. That’s why the key concept in economic thinking about productivity is “total factor productivity” (TFP), the portion of output not explained by all the inputs used in production. Mr. Rudd wrongly isolates transport costs from the myriad other costs bearing on urban productivity, and accords them overblown status.

    The true path to urban productivity lies in empowering firms to choose their optimal location, taking account of their individual mix of costs and benefits. This means watering down regulations which restrict these choices, and improving access to as many points on th urban landscape as possible. Rail infrastructure is the least flexible option. There’s no way that planning bureaucrats, brandishing a few large-scale projects, can make better location decisions for thousands of businesses than the firms themselves.

    Perhaps Mr. Rudd should imitate one of his own team. Out of a soundly-based concern for the impact of planning and zoning laws on competition, particularly in the retail sector, small business minister Craig Emerson has launched an enquiry by the Productivity Commission. They can be expected to know what they’re talking about.

    This article first apeared at The New City Journal

  • So Much for Europe’s Superiority

    For much of the last quarter century, European pundits, particularly in France, have been promoting the notion that the old continent sat on the verge of a grand resurgence. The events of the past month—culminating in a trillion dollar rescue of the Euro—should, at least, put that dodgy notion to rest.

    Although the financial crisis may have originated on Wall Street, it’s been Europe and the Euro that now represent the big threat to drive world markets back into recession. The show stealers are India, China and Brazil. Still the big boy on the block, the American economy is growing, albeit not spectacularly.

    What a change from the heady predictions of the European elites just a decade ago. Back then Jacques Attali, eminence grise for former French President Francois Mitterrand, asserted that “Japan and Europe” would likely “supplant the United States as the chief superpowers wrangling for global economic supremacy.” More recently, author Jeremy Rifkin wrote a book about what he defined as The European Dream, a green-tinged, social democratic ode to enlightened diversity that he predicted would supplant the declining dirty, unruly model forged by the United States on the world stage.

    You can blame the spendthrift Greeks for this trouble, or even the lack of geeks in Europe (anyone found a continental Google or Apple lately?). But Euro-stagnation is nothing new. It’s deeply rooted and longstanding. Indeed, since 1970 it has not been the U.S. that has faded before the onslaught from the East, but the core 15 nations of the European Union. Over that 40-year period the EU-15’s share of world GDP has plummeted from roughly 37 percent to under 28 percent; the American chunk, roughly 27 percent, has stayed remarkably even. Basically Asia, and particularly China and India’s gain, largely has been at Europe’s expense, not our’s.

    In stating the case for European superiority, much has been made by boosters of Europe’s different institutional framework, tax or regulatory structure. No question these have advantages and disadvantages compared with those of the United States, but there’s little case for arguing that the “Euro-model” has been a rip-roaring economic success. It’s imploding on its weak periphery, and the collapse is threatening even bigger players, including the United Kingdom.

    Europe’s problems extend well beyond policy, into the realm of culture and demographics. Even in France, people and what they do actually matter more than abstract ideas. A culture that believes in itself, not only to have children, but also start businesses and innovate will overcome one, however theoretically well managed, that does not. This is the fundamental problem of Europe as whole, although it does not apply equally to every individual country in the union.

    One key element is demographics. According to the most conservative estimates, the United States by 2050 will be home to at least 400 million people, roughly 100 million more than live here today. In contrast, the populations of much of the EU, as well as most of East Asia, will be stagnant or falling over the next few decades. Like other advanced countries, the United States will be aging but not nearly as quickly. By 2050, there may be close to 40 percent of the population in Japan and Germany over 65; in the United States that proportion should be closer to 25 percent.

    If there’s going to be a European dream, they better start importing people or creating them. Otherwise, the European workforce will be dying out, literally. Between 2000 and 2050 the population of the U.S. between 14 and 64 is projected to expand by some 44 percent, while that of the EU contracts by 25 percent and Japan’s by over 40 percent.

    With its growing workforce, the United States will require substantial economic growth in order to stave off downward mobility of its young population. Europe’s prime challenge will be to pay for its aging population with a diminished workforce, and perhaps find ways to invest in faster growth economies. Europe’s future may be as the world’s coupon-clippers, consultants and waiters.

    Yet this may not be the fate of all Europe, particularly if the grand neo-Bonapartist European is allowed to fizzle and national characteristics can reassert themselves. The aptly named PIGS (Portugal, Italy, Greece and Spain) make clear that you can not enjoy a Scandinavian welfare state with a Mexican-style economy. You have to earn the right to six weeks of vacation and Porsche-level heath-care plans.

    This contrasts with the productive, disciplined countries of the north—roughly today’s version of the Medieval Hanseatic League—who continue to export goods and services enough to sustain their expansive, and generally less corrupt, welfare states. Essentially you have the sunny, good food and times countries—an arc from Portugal to Spain—and the gloomier places like Scandinavia, the Netherlands and Germany.

    A secular kind of Protestant ethic is alive and well in post-Christian Europe. In some countries like Sweden and Denmark, blond and red-haired baby-making is making a modest comeback, lifting the future prospects for these countries. As for the Mediterranean crowd, get used to African or Arab chefs cooking your pasta. It might not be too bad, as long as the weather holds up.

    This article originally appeared in The Daily Beast.

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

    Photo by alibaba0

    May 16, 2010

  • Florida and Oil

    By Richard Reep

    Some say it took Mrs. O’Leary’s cow to make Chicago the city of great architecture that it is today: after the fire of 1871 that destroyed many of its buildings, leading citizens recognized the critical importance of their built environment. Today, we have a city that boasts some of the world’s best architecture. If BP’s oil disaster is a new millennium cow starting another conflagration, the nation may ironically benefit from seeing the ominous oil slick spreading across the gulf, spelling the end to our dependence on oil as the dominant energy source for the nation.

    Cries of “drill baby drill” are suddenly silent as the horror of rusty streaks spreads from MC252, and Florida’s governor Charlie Crist has already viewed the oil slick twice – aware that the tourism industry, already on its knees, will suffer yet another blow amid unemployment, the credit freeze, and state depopulation. The massive disaster looming in the Gulf of Mexico appears to be a giant, ugly metaphor for some choices that America will make in the near future. If we are going to stay dependent upon oil as our energy source of choice, we better grit our teeth, clean it up, and hope for a technological fix to reduce the risk of this happening again.

    Instead of reducing our dependence upon foreign oil, this disaster is causing many in Florida to question whether we should depend on oil at all, foreign or domestic. Ironically, in a state that has consistently banned offshore drilling to prevent such as disaster, Florida’s beaches are likely to suffer from environmental damage anyway. 4,000 or so oil rigs exist in the Gulf of Mexico making this event likely to occur again in the future, and as the engineers experiment with one repair after another it is evident that we are a long way from making these rigs risk-free.

    Over in Florida, the dismay over this event is palpable, and since nothing can be done about it, there is only speculation about what direction to head in the future. Despite the “sunshine state” moniker, the oil industry’s grip on the state is so strong that solar energy is losing market share rather than gaining as an energy resource. The legislature, starved for money to balance the budget, had to kill a rebate program that subsidized building owners when they add solar energy systems to their property. Florida, despite its abundance of renewable energy potential, has yet to see policy that diversifies the energy needs of the state, and sources like solar energy require extraordinarily heavy subsidies to be palpable to most owners.

    While the recession is pushing most prices downward, energy costs are rising across the country, whether fossil fuels or notFlorida is heavily dependent upon fossil fuels, making renewable energy resources someone else’s profit center, judging from California, Oregon, Washington, and Minnesota’s contribution to the top ten cities using renewable energy. Florida, with vast agricultural lands beset by freezes that destroyed much of the cold-sensitive citrus crop this year, has yet to consider energy crops like sugar cane, sorghum, switchgrass, or other biofuels.

    So while Florida sits and watches the oil slick move closer to its shores, some big questions deserve to be asked, and answered. Individuals without the means are generally conserving energy by driving less, biking more, and slowing their lives down to match the pace of their income. All of this is natural conservation of energy is occurring without nannies and big brother shaking a code book at people and may, in the long run, do more to reduce energy consumption than anything else.

    It will take a fundamental shift in thinking to really abandon oil, foreign or otherwise, in Florida or elsewhere. It will take recognition of the incredible abundance of other forms of energy that exist and a passion to seek out ways to use this energy effectively for our needs. This will be only successful with a combination of grass roots and top-down thinking, and perhaps the disaster in the Gulf of will have a legacy similar to the 1969 Santa Barbara oil spill, after which came the Environmental Protection Agency, the Clean Air and Water Act, and a galvanizing of the fledgling environmental movement.

    Sustainability is about preserving the future generation’s ability to choose its own destiny. With this criterion, we should move forward with a pluralist approach to finding energy sources, and consciously step towards them. We won’t abandon oil tomorrow, or the next day, but we can begin to say goodbye to atrocious wastes of nature like the one unfolding in the Gulf of Mexico right now, and we can begin to say hello to a transformation of our lifestyle to embrace different forms of energy for different needs. If this disaster is truly Mrs. O’Leary’s cow, then future generations must truly benefit from the event in order for it to have meaning.

    Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

    Photo by Fabio – Miami

  • Jobs, Environmental Regulation, and Dead French Economists

    The debate over the repeal of California’s global-warming regulation, AB32, has degenerated into a shouting match, each side claiming economic ruin if the other side wins. A couple of long-dead French economists can help us think about the debate.

    The great French economist Leon Walras (1834-1910) showed that perfect markets result in an allocation of goods and services that can’t be improved on, in the sense that no one could be made better off without someone else being made worse off.

    Of course, we don’t have completely unfettered markets. In fact, they have never existed. They will never exist. In particular, we economists like to talk about what we call negative externalities. These occur when I do something, but an unintended consequence is that it hurts you, and you have no recourse.

    An example may make things clearer. Suppose I have a factory that spews out a deadly chemical, one that destroys all life downwind for ten miles. Obviously I’ve reduced the property values for the downwind property owners. (We’re simplifying here. There are many other issues.) There is no market for the damage I’ve done, and downwind landowners may not be able to afford to sue me, and there was a time when they would have likely lost such a case.

    Society’s solution to the problem of negative externalities has been regulation. Until recently, the concept of negative externalities has been the rationale for most environmental regulation. Negative externalities’ victims have also been extended to include non-humans: flora, fauna, and “mother earth.”

    Climate change regulation, though, is a bit different. In the first place, we don’t know how much of its justification, the claim of manmade global warming with long-term negative economic impacts, is accurate. Some, the “non-believers” completely deny the possibility of man-caused global warming. Others, “the believers” believe in man-caused global warming with a fervor that matches that of any religious zealot. Another group, me included, believes that manmade global warming is a possibility that should be considered as a factor in making long-term economic policy.

    If manmade global warming was a certainty, you could reasonably argue that negative externalities justify regulation, the parties being hurt are just not yet born. That’s essentially what the believers are trying to say when they point to the imminent destruction of all life on earth.

    However, once the existence of manmade global warming becomes a probability, it becomes an insurance question. This dramatically increases the level of complexity of the problem, and it dramatically complicates the political problem of reaching consensus about what to do.

    So, proponents of climate-change regulation have tried to simplify the issue. One approach has been to turn everyone into believers, either by attempting to convince the skeptical—as it turns out by using gross exaggeration if necessary—or, failing conversion, excommunicating even the mildest skeptics from civil society.

    Climate-change regulation proponents have also tried, with success, to use the novel argument that climate-change regulation is not only costless but will generate economic growth. The most enthusiastic proponents of this argument, California’s Governor Schwarzenegger among them, describe a utopian future of happy people enjoying previously-unknown prosperity in a pristine earthly heaven.

    Sadly, this better-than-a-free-lunch deal is not likely to materialize. It is true that clever economists have constructed models where such an outcome is possible—models having to do with large-scale inefficiencies existing because of historical accident—but large-scale unrecognized opportunities are unlikely in today’s economy.

    It is also true that some economists have found some evidence of small un-captured gains. I’ve participated in this literature. However, those gains are also unlikely to be of the scale necessary to achieve the promised new economic age. Indeed, most economists doubt their existence, arguing, reasonably, that the researchers failed to measure all of the relevant costs. Economists have a hard time believing that markets are so bad that unrecognized profitable opportunities exist in abundance.

    Today, California is considering the repeal or postponement of its landmark global-warming regulation, AB32. Oddly, both sides are using the same argument. The forces arguing against the repeal of AB32 argue that the repeal will cost jobs. Those arguing for the repeal argue that failure to repeal will cost jobs.

    They are both correct, and they can both prove it with their warring models, which brings us to our second great dead French economist.

    Frederick Bastiat (1801-1850), not long before his death, wrote a piece What is Seen and What is Not Seen. In the essay, Bastiat gives the example of jobs created by breaking windows. The broken window creates work for the glazier, a multiplier is attached to that work, and it looks as if economic activity has increased. However, society is not better off. The problem is that we see, and account for, the work, but we do not see or count the costs associated with the initial destruction of capital.

    So it is with California’s regulation. Proponents of the regulation have research to support their claim of job creation. The “green jobs” created by the regulation are seen and counted. The jobs lost to the regulation are not seen and are not counted.

    The opponents of California’s regulation have estimated the jobs lost to the regulation, mostly a consequence of higher energy costs, but that research—the portion I’m aware of at least—has been criticized for ignoring the jobs created by the regulation. More importantly, they do not see the jobs that might be lost if global warming kills jobs. They only see, and show, the jobs lost to failure to repeal the regulation.

    Creating jobs is easy; creating real economic growth is harder. Banning the use of any productivity-enhancing technology will create jobs, but this could occur at the cost of societal well being. We could achieve full employment by banning all agricultural technology created after the 17th century. There is no unemployment in a Malthusian economy. We’d all have “idyllic” jobs on the farm, yet this would in reality be back-breaking work. Many people would live on the edge of starvation. I don’t think anyone really wants that outcome. It is also easy to create subsidized jobs, even if those jobs add nothing to, or worse detract from, society’s well being.

    Instead of jobs, the argument should focus on such things well being, consumption, income, probabilities, and the like. It is complicated by the uncertainty surrounding the theory of manmade global warming, and the uncertainty surrounding the economic impacts of any warming. But, the stakes are high. People’s lives will be changed. The debate deserves a higher-level of discourse than we’ve seen. Frenetic predictions of job losses or overly optimistic projections of employment created by a green economy will not do. Instead, let’s recognize the complexity of the issue and have a reasoned discussion.

    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 Diogo Martins.