Category: Economics

Asian Manufacturers : Is Turnabout Fair Trade?

When the British troops laid down their arms at Yorktown, Virginia, a colonial band played “The World Turned Upside Down,” a popular air marking the absurdity of the occasion. Now the American economy is turned upside down, and the small businesses that once fortified it have exchanged places with Asian manufacturers that America once sought to protect. No man’s enlightenment is complete without the deepening amazement that comes with having seen such a reversal.

In the case of the US economy, it happened in a piecemeal fashion — with Fair Trade laws playing a pivotal role — that was all the more insidious for being deliberate. The national agenda that was followed was intended to prevent the fragile nation states of the world from going communist.

As a kid, I had a zoomed-in view of the transition. My father was part of it, as president of a company that attempted an end run around the nation’s Fair Trade laws, which, for those too young to remember, specified the minimum retail price at which a product could be sold. These laws were intended to protect small mom and pop businesses from being bankrupted by chain stores during the Great Depression. And they largely succeeded in their mission. Main Street thrived because outfits like Wal-Mart were prohibited from rolling back prices.

Needless to say, the Fair Trade laws weren’t fair to consumers, who were forced to pay virtually the same price for goods sold at linoleum-floored outlets like Wal-Mart as they did at marbled emporiums like Saks Fifth Avenue.

The complexity of the market, which created gray areas in the laws and made their enforcement difficult, was seized on by my father as an opportunity. He bought surplus stock from well-known manufacturers, re-labeled it, and sold it for considerably less. His private label, “Amcrest,” is still remembered fondly by smart shoppers as having been an economical way to buy everything from mouthwash and undergarments to watches and refrigerators. The brand became so big that the government sued my father and nearly put him out of business.

End of story? Not quite. Shortly after the government filed suit, someone at the State Department had a bright idea. While the government would not permit my father to continue to buy surplus output from American manufacturers, it encouraged him to do the same thing…from manufacturers in the Far East.

The State Department considered this an act of enlightened self-interest along the lines of the Marshall Plan. Experts opined that it would save Japan and Taiwan, and possibly the rest of Asia, from falling into the communist orbit. After all, China and North Viet Nam had already fallen to communism. Singapore was toying with the ideology. Who could say where it would pop up next? People like my father would bring jobs and prosperity to Japan and Taiwan, and the grateful citizenry would form vibrant democracies and become bastions of anti-communism. Nobody ever imagined that these once backward nations would someday be eating our lunch – and our dinner.

The U.S. policy further allowed manufacturers in these nations to sell their wares largely free of American tariffs. So what began as a trickle of surplus output became a flood of finished goods. At the beginning, most of the stuff was simply cheaply made. But it didn’t take long for Japan to learn the gospel of quality from the American engineer Edward Deming, whom American manufacturers shunned.

Japan moved up the value chain. My father was among the first to begin importing Sony TVs, which were leagues better than American sets. South Korea followed Japan’s arc. Taiwan, too, stepped up, though it did so with industrial policies that targeted the software and microprocessor industries.

As these trends were taking shape, the U.S. was hit with high inflation. By the 1970s, most states decided to repeal their Fair Trade laws, setting Wal-Mart on a trajectory to become the nation’s largest corporation. Later, under pressure from Wal-Mart and others, Taiwanese businessmen moved their factories to China, where they could turn out the same umbrellas and Tupperware at one tenth the cost.

Taiwan didn’t suffer. It went on to manufacture the first IBM desk-top computer, and to found Taiwan Semiconductor, whose chips run most of Dell’s products. By the mid nineties, Taiwan, no bigger than New Jersey, had a larger store of foreign currency reserves than the United States did.

Wal-Mart and other American firms that were committed to low cost production then lobbied the U.S. to permit China to join the World Trade Organization. This would allow China to sell its wares in America without tariffs. Once China was accepted as a member, American-based factories found themselves unable to compete with the cheap goods that flooded in from the Middle Kingdom. To survive, they, too, moved their production and jobs there.

By the new millennium, the government policy that had begun years earlier to prevent nations like Japan, South Korea and Taiwan from going communist had been turned upside down. The economic forces that our policies unleashed effectively mandated that all production take place in China, a communist country that has no interest in democracy, freedom or human rights. The transplantation into China of millions of American jobs and thousands of U.S. industries that once paid taxes to the U.S. Government has forced that government to borrow from China, now America’s largest creditor, just to meet expenses.

Ironically, China is providing a significant amount of the money needed to bail out our sick economy. The U.S.’s high unemployment, tottering banks and vast trade and government deficits actually mirror conditions in Japan and Taiwan after World War II, conditions that our own government believed to be fertile ground for communism.

It is as if the points of the compass were reversed, and the United States was suddenly in the grip of antipodal forces intent of turning our world upside down. And what’s left of our treasure is falling fast from our pockets, and into the iron rice bowl of a communist dictatorship.

Tim Koranda is a former stockbroker who now works as a professional speechwriter. He can be reached at koranda@alum.mit.edu.

August 21, 2009
The New Radicals

America’s ”kumbaya” moment has come and gone. The nation’s brief feel-good era initiated by Barack Obama’s stirring post-partisan rhetoric–and fortified by John McCain’s classy concession speech–has dissolved into sectarian bickering more appropriate to dysfunctional Iraq than the world’s greatest democratic republic.

Yet little of the shouting concerns the fundamental economic issue facing the U.S. today: the decline of upward mobility and income growth for the working and middle classes. Instead we have politicos battling over two versions of ”trickle down” economics.

The Democrats seem bent on installing a permanent ruling mandarinate alongside a small financial aristocracy. The Republicans, meanwhile, simply want to help the rich hold onto as much of their money as possible.

Neither approach will improve prospects for the vast majority of Americans. The Bush Administration policies of low taxes–for the upper classes–and less regulation helped engender a massive asset bubble unsupported by economic fundamentals. This ultimately drove up both the current account and federal deficits and led to the severe Great Recession.

The Obama ”trickle down” is, sadly, not all that different from the Bush-Paulson strategy. Like its predecessor, it endorses the bailout of giant financial institutions as the linchpin of its economic policy. It is, simultaneously, profoundly anti-democratic and anti-capitalist.

Other aspects of the Obama policy seem likely to prop up Wall Street traders at the expense of the rest of us. The administration’s big ”cap and trade” proposals could prove more advantageous to well-heeled ”carbon traders” than to the environment. The other big winners may be Silicon Valley venture capitalists, who– increasingly bereft of their own ideas for making money–hope to cash in on Washington-subsidized energy schemes.

Of course, not all Democrats have sold out. Sens. Byron Dorgan, D-N.D., and John Tester, D-Mont., have expressed opposition to bailing out ”too big to fail” institutions. New York Attorney General Andrew Cuomo has been fearless in unveiling the enormous Wall Street bonuses–over $32.6 billion last year– handed out as firms suffered $81 billion in losses and almost drove the world economy to ruin.

Unfortunately, these are exceptions. Illinois Sen. Dick Durbin recently admitted that the banks remain ”the most powerful lobby on Capitol Hill,” adding that they ”frankly own the place.”

So far in 2009 the Democrats have netted nearly 60% of all campaign contributions that have come from the financial industry, now the largest sector in terms of donations. The biggest donations have gone to such influential Democrats as Sen. Charles Schumer and his sidekick, newly appointed Sen. Kirsten Gillibrand, from New York; Sen. Chris Dodd D-Conn., and Majority Leader Harry Reid D-Nev. Schumer, the Street’s leading vassal in Congress, has emerged as the rising star in the Democratic leadership. If Majority Leader Reid loses his seat–as is now possible, according to polls in Nevada–Wall Street’s main man could well end up a future Majority Leader.

Some Democrats try to have it both ways, playing populists for the peanut galleries but getting cozy with the industry when it matters. Massachusetts Rep. Barney Frank, the House Financial Services Chairman, talks tough but has a history of friendly relations with financial powerhouses. One of Frank’s own top assistants, Michael Pease, just went to work for the biggest winner since taking TARP bucks, Goldman Sachs. As left-winger blogger Glenn Greenwald put it recently: ”The only way they can make it more blatant is if they hung a huge Goldman Sachs banner on the Capitol dome and branded it onto the foreheads of leading members of Congress and executive branch officials.”

In the end the faux populist Democrats end up with policies that make Ronald Reagan’s ”trickle down” seem downright Leninist. Harry Truman once quipped that ”There should be a real liberal party in this country, and I don’t mean a crackpot professional one.” Sadly, it’s increasingly the latter.

The hypocrisy should open a path for the Republicans as wide as the Grand Canyon. But the ill-named Party of Lincoln still seems to think that the path to power lies in the tired old formula of ultra-patriotism, guns, abortion and religious rectitude. Screaming ”socialism” may awaken the spirits of some on the old right, but it’s hard to make a convincing case when George Bush socialized banking and grew the deficit.

You certainly can’t trust big-business conservatives to stop bonuses for the TARP babies, particularly the 25 financial firms deemed ”too big to fail” by the likes of Ben Benanke. Give GOP big-business leaders higher stock prices, and they will follow you anywhere. Only a few–such as Sen. Charles Grassley, R-Iowa,–have shown they are truly serious about the free market or defending the interests of the regular taxpayer.

Given this sad political picture, the best hope now is to build an alternative perspective that focuses on the basic economic issues. This would not be the media celebrated movement of moderates–Democrats-lite and Republicans-lite–who seek kumbaya through compromise. It would, instead, require a radical third tendency–neither strictly left or right–that would draw on long-term American priorities and values.

These new radicals would focus on basic issues like improving infrastructure, and primary education and bolstering the nation’s productive economy. Their inspiration would come from a long tradition of federal successes–from the Homestead Act and the WPA to the Interstate Highway and the space program. They would view the financial crisis not as an imperative for protecting the well-connected but for financial reform, decentralization and innovation.

Such an approach would address what the British author Austin Williams calls our ”poverty of ambition.” Americans historically have rejected a future constrained by entrenched hierarchies. Most, I believe, would support spending money and paying taxes, if it was spent to achieve big things that would lead to a greater, more widespread prosperity and opportunity.

Just imagine if the upward of $1 trillion spent guaranteeing Goldman Sachs and Citigroup executives giant paydays had instead gone into roads, bridges, subways, buses, port development, skills training, energy transmission lines and basic scientific research. And imagine if instead of protecting Citigroup and Bank of America, we encouraged stronger local banks and solvent financial entrepreneurs to fill the breach left behind by gross failures.

Such an approach may seem extreme, but it might have wide appeal. We know, for example, that the TARP bailout is widely unpopular. Indeed, according to one survey taken earlier this year, Americans oppose continuing bailouts for banks by better than 2 to 1.

As I travel the country, I find anger is deepest among business owners who find securing loans increasingly difficult nearly a year after the original bailout. Even as the economy slowly recovers, this anger will become more pronounced with the coming bonuses doled out to those at bailed-out firms. As Sen. Grassley puts it: ”My people ask, ‘When are these people going to be put in jail?”’ Instead we’re paying for them to stay at the Ritz.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

August 18, 2009
California Disease: Oregon at Risk of Economic Malady

California has been exporting people to Oregon for many years, even amid the recession in both states.

Indeed, the 2005 American Community Survey report shows that California-to-Oregon migration was 56,379 in 2005, the sixth-largest interstate flow in the United States. The 2000 census showed a five-year flow of 138,836 people, the eighth-largest over that time period. Until two years ago, Oregon was managing to absorb this population with mixed results, but generally as part of an expanding and diversifying economy. But that pattern has ended, at least for now.

So now what will Oregon do with a suddenly excess population? California, at least, can say its emigres over time will reduce unemployment and reduce out-of-whack property prices. The immediate net benefits for Oregon are harder to discern.

California’s massive economic collapse — which has resulted in 926,700 jobs lost from July 2007 through June 2009 and an unemployment rate of 11.6 percent — is now becoming Oregon’s problem. As Californians, largely for lifestyle and cost reasons, head north across the border, they have helped swell Oregon’s ranks of both unemployed and, perhaps equally important, underemployed.

Our analysis of California migrants has shown a gradual reduction in their earnings over what they were earning in the Golden State. There also are less quantifiable impacts. Portland, a city attractive to many unemployed and underemployed younger Californians, could well be becoming the “slacker” capital of the world.

There’s another major problem with the continuing California migration. Along with young people, newcomers to the state also include large numbers of the retired and semi-retired. These people generally have little interest in economic growth, whether for longtime state residents or their fellow, often younger emigres. Instead what they bring with them are political attitudes that could slow down the state’s economic recovery.

Some might call this California disease. This refers to a chronic inability to make hard decisions as well as a general disregard for business and economic activity.

California’s inability to plan or create new public infrastructure affects every part of the state’s economy. California was once a leader in building infrastructure, but that was in Pat Brown’s gubernatorial administration in the 1960s when California last planned a major infrastructure project.

There are consequences to California’s inability to deal with infrastructure. Its freeways are parking lots. Its water problems are threatening the viability of Central Valley agriculture, one of the key drivers of the state’s economy. Its electrical system is so bad that every summer brings the fear of interruptions in the supply of electricity. Its universities are in decline. Its prisons are overcrowded.

Another symptom of California disease is regulation and red tape that increases the uncertainty for any project and raises the cost.

California projects can be in planning for years, and at the end of that planning process they may still be denied. The long delays are expensive. And as many would-be California developers will tell you, the uncertainty is a strong detriment to economic activity and development.

We also see symptoms of California disease in tax policy. California no longer has the United States’ highest income tax rate. Big deal. With a top income tax rate of 10.3 percent, sales taxes that can reach 10.25 percent and a 33.9 cents-per-gallon gas tax, its total taxes are among the highest in the country.

California’s regulatory climate also reflects the disease. Even as the state endures its most brutal recession in decades, it persists in unilaterally imposing new regulation, making the state less competitive with other states.

In short, California is whistling past the graveyard, hoping that its economy will rebound, “because it always has.”

Key symptoms of California disease are forgetting that quality of life begins with a job and negative domestic migration.

With all the influx of Californians, it’s not surprising that Oregon shows some signs of California disease. It recently increased its tax rates so that Oregon’s highest-income taxpayers face marginal tax rates that match Hawaii’s for the highest in the nation. Oregon’s land-use planning had been extremely centralized for some time. Indeed, Oregon’s land-use planning may be the most centralized in the United States. This makes it harder for communities to control their own destinies, whether they want to grow or not.

If Oregon does have California disease, the malady is surely not as advanced as it is in California. Oregon has lower gasoline taxes and lower property taxes than California. Oregon, in contrast with California, enjoys net positive domestic migration. It is also a good sign that a significant percentage of the people moving to Oregon from California are young folks. While it seems to many that the typical California immigrant is a wealthy aging baby boomer, the data show that he (or she) is still most likely a young person in his 20s or 30s, and often married with children. They are people who, if the economy grew, could have something to contribute to the economy as well as the cultural development of the state.

But Oregon’s relationship with California remains a double-edged sword. On the one hand, Oregon has benefited from the inflow of cash and skilled workers. On the other hand, Oregon’s relationship with California has led to the current situation where at 12.2 percent for the month of June, Oregon has one of the highest unemployment rates in the United States.

Oregon may be at a crossroads. The state is richly endowed with many of the components of a high quality of life. People want to live in Oregon, and they are moving to Oregon even in hard times. Yet as the population swells, there’s no concurrent growth in businesses and employment. Over time, this could pose serious problems. Remember, quality of life begins with a job, preferably a rewarding, well-paying job.

However, Oregon must avoid making many decisions that led to California’s current situation. The costs of California disease are more than those reflected in the economic statistics. Devastated communities and families, and wasted opportunities, could infect this fair state for years to come.

Joel Kotkin is author of “The City: A Global History.” Bill Watkins is director of the Center for Economic Research and Forecasting at California Lutheran University.

August 17, 2009
The New Industrial City

Most American urban economic development and revitalization initiatives seek to position communities to attract high wage jobs in the knowledge economy. This usually involves programs to attract and retain the college educated, and efforts to lure corporate headquarters or target industries such as life sciences, high tech, or cutting edge green industries. Almost everything, whether it be recreational trails, public art programs, stadiums and convention centers, or corporate incentives, is justified by reference to this goal, often with phrases like “stopping brain drain” and “luring the creative class”.

The future vision underpinning this is a decidedly post-industrial one. This city of tomorrow is made up of people living upscale in town condos, riding a light rail line to work at a smartly designed modern office, and spending enormous sums – with the requisite sales tax benefits – entertaining themselves in cafes, restaurants, swanky shops, or artistic events.

In contrast the factory has no place in this future city. Indeed industry is considered a blight that needs to be eliminated or repurposed. What were once working docks are to be converted to recreational waterfront parkland. Warehouses and small factories become the site for developing lofts, studios, or boutiques. This urban economy is based almost solely around intellectual work and services, not physical production.

But there is a problem with this equation. In almost any city, the bulk of the people do not have college degrees. According to Brookings, the average adult college degree attainment rate for the top 100 metro areas is only 30.6% In the many years it will take to raise this, what are the rest of the people supposed to do for a living? Younger cohorts are better educated than their grandparents, so this will improve over time. But better educated for what? Not everyone is cut out, or wants to be a stock-trader or media consultant. We have to think about those who would rather work with their hands, or are better suited for that kind of work.

The vision touted by too many urban boosters is that of an explicitly two-tier society. There are elite, well paid knowledge workers in industries like finance, law, and technology, and then there is everybody else. Programs designed to boost knowledge industries turn out to be subsidies to cater to the most privileged stratum of society. The public is called on to pay for urban amenities for the favored quarter of the intelligentsia, with the benefit to the rest of the people assumed.

But little thought is given as to how everyone else will get by, other than working in low wage service occupations catering to the privileged. In the Victorian era, they called this going “into service”. Today we might think of them better as globalization’s coolie class.

Beyond this, can we as a country prosper if we don’t actually make things anymore? Some of the fear of manufacturing decline is overblown. Despite large scale job losses in the manufacturing sector, the US has continued to set industrial production records outside of recessions. However, as the chart below from the Federal Reserve shows, industrial production growth flattened significantly in the late 1990s.

Sadly, manufacturing has been hammered in this Great Recession. There will certainly be a cyclical upturn in output, but restructuring in the automobile industry portends a permanent reduction in domestic output in that sector among others. Unless carefully handled, increasing regulation of carbon emissions, along with the associated energy price rises, will encourage further offshoring to countries with few climate change obligations, such as China, India, Brazil and other developing nations.

Yet to remain both a prosperous and fair society, the United States must remain a manufacturing power. Manufacturing still provides the traditional route to middle class wages for those without college degrees. It also alone employs 25 percent of scientists and related technicians and 40 percent of engineers and engineering technicians.

Of course, the next wave of manufacturing will differ greatly from the past. Improvements in productivity and global competition mean a bleak future for large scale, low value-added, routinized production. The era where an assembly plant provided thousands of good jobs at good wages is a thing of the past other than for the lucky few. And where there are new factories, they are often in greenfield locations like the new Honda plant in Greensburg, Indiana – halfway between Indianapolis and Cincinnati – not urban centers. Polluting heavy industry like primary metals and refining really are incompatible with neighborhoods. So what is to be done?

One answer is to build a new industrial city focusing on small scale craft and specialty manufacturing with high value added. We’re seeing a precursor to this in the rise of organic farming and artisanal products of all kinds. TV shows featuring hip young carpenters renovating homes or gearheads tricking out cars and motorcycles make these professions seem glamorous. Magazines targeted at the global elite like Monocle scour the world in favor of the finest handcrafted products from old school workshops, building demand for these products. The New York Times Magazine recently did an article making the case for working with your hands, and also noted how digitally oriented designers are rediscovering the use of their hands. Perhaps it is no surprise that sociologist Richard Sennett turned his attention to the idea of the craftsman. In short, making things, craftsmanship, and quality are back in fashion.

The challenge for urban economies is to develop this and put it on a sound industrial and economic footing. One key might be to inspire people to start these craft oriented businesses by tapping into people’s desire to purchase ethical and sustainable products. We increasingly see with foods and other items that people want to understand their provenance, to know who made them, how, with what, and under what conditions. Often today businesses catering to this desire are small scale “Mom and Pop” type operations, but there is no reason they can’t be done at greater scale, or expanded into areas like organic food processing, not just organic farming. American Apparel has done just that by manufacturing low cost, stylish clothing “Made in Downtown Los Angeles. Sweatshop Free.” at scale, for example.

Beyond craft products, reinvigorating small scale, specialty fabrication and other businesses, to rebuild an American version of Germany’s Mittlesand, creates another, often ignored option for urban economies. Quality, flexibility, responsiveness, and a willingness to do small runs are keys. These businesses can also underpin product companies higher in the value chain. They start building an ecosystem of local companies and expertise that can be useful for related or spin-off businesses. Jane Jacobs, and before her the great French historian Fernand Braudel, noted how cities could incubate many new enterprises because all the diverse products and services they needed were available locally. If you need to scour the globe looking for custom parts and services, it can quickly overwhelm a small business. That’s one reason American Apparel started in Los Angeles, which already had a network of garment producing firms and expertise to draw on. What’s more, these firms might be ideal candidates to take over empty strip mall or other space in decaying inner ring suburbs, helping to solve the “graybox” problem. Even Main St. locations could potentially benefit from businesses beyond traditional boutiques.

Today these types of specialty firms are often found in America’s largest cities, so they stand to benefit most from this. Smaller cities also need to figure out how to build this ecosystem. The culture needs to change too. Particularly in the Midwest/Rust Belt area, industrial labor has tended towards low skill, repetitive work in larger scale mass production industries. Retraining will be needed for these newer types of businesses, but this is vocational or skill training, not necessarily a college degree. It is a much more tractable problem.

Not only could this new manufacturing base be a source of urban middle class jobs for the non-college degreed, it would do something arguably more important. It links the fortunes of the new upscale urban residents, the people who are both the customers for many of these products and potentially also the entrepreneurs making them, with that of their less educated neighbors. For many owners, managers, and workers, it might bring into daily contact people who might not otherwise ever interact if one group worked in an office and another in a warehouse. Rebuilding that sense of community and commonwealth, that we are neighbors, fellow citizens, and all in this together, is critical to building a truly sustainable, well-functioning and broadly prosperous society.

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

August 17, 2009
Mapping Industry Employment Trends by State

Mark Hovind at Jobbait.com has released another fascinating set of maps and data on industry employment trends by state over the past few months. Here’s a taste:

The maps below show the employment trends by state and industry sector for the 12 months ending June 2009 (July will be available August 21). Green is growing faster than the workforce. Grey is growing slower. Red is declining. Black is declining more than 8%. White is not available.

Head over to Jobbait.com for the full analysis.

August 13, 2009
Why The ‘Livable Cities’ Rankings Are Wrong

Few topics stir more controversy between urbanists and civic boosters than city rankings. What truly makes a city “great,” or even “livable”? The answers, and how these surveys determine them, are often subjective, narrow or even misguided. What makes a “great” city on one list can serve as a detriment on another.

Recent rankings of the “best” cities around the world by the Economist Intelligence Unit, Monocle magazine and the Mercer quality of life surveys settled on a remarkably similar list. For the most part, the top ranks are dominated by well-manicured older European cities such as Zurich, Geneva, Vienna, Copenhagen, Helsinki and Munich, as well as New World metropolises like Vancouver and Toronto; Auckland, New Zealand; and Perth and Melbourne in Australia.

Only Monocle put a truly cosmopolitan world city – Tokyo – near the top of its list. The Economist rankings largely snubbed American cities – only Pittsburgh made it anywhere near the top, at No. 29 out of 140. The best we can say is most American cities did better than Harare, Zimbabwe, which ran at the bottom. Honolulu got a decent No. 11 on the Monocle list and broke into the top 30 on Mercer’s, as did No. 29 San Francisco. But regarding American urban boosters, that’s all, folks.

To understand these rather head-scratching results, one must look at the criteria these surveys used. Cultural institutions, public safety, mass transit, “green” policies and other measures of what is called “livability” were weighted heavily, so results skewed heavily toward compact cities in fairly prosperous regions. Most of these regions suffer only a limited underclass and support a relatively small population of children. In fact, most of the cities are in countries with low birthrates – Switzerland’s median fertility rate, for example, is about 1.4, one of the lowest on the planet and a full 50% below that of the U.S.

These places make ideal locales for groups like traveling corporate executives, academics and researchers targeted by such surveys. With their often lovely facades, ample parks and good infrastructure, they constitute, for the most part, a list of what Wharton’s Joe Gyourko calls “productive resorts,” a sort of business-oriented version of an Aspen or Vail in Colorado or Palm Beach, Fla. Honolulu is an exception, more a vacation destination than a bustling business hub.

Yet are those the best standards for judging a city? It seems to me what makes for great cities in history are not measurements of safety, sanitation or homogeneity but economic growth, cultural diversity and social dynamism. A great city, as Rene Descartes wrote of 17th century Amsterdam, should be “an inventory of the possible,” a place of imagination that attracts ambitious migrants, families and entrepreneurs.

Such places are aspirational – they draw people not for a restful visit or elegant repast but to achieve some sort of upward mobility. By nature these places are chaotic and often difficult to navigate. Ambitious people tend to be pushy and competitive. Just think about the great cities of history – ancient Rome, Islamic Baghdad, 19th century London, 20th century New York – or contemporary Los Angeles, Houston, Shanghai and Mumbai.

These represent a far different urbanism than what one finds in well-organized and groomed Zurich, Vienna and Copenhagen. You would not call these cities and their ilk with metropolitan populations generally less than 2 million, “bustling.” Perhaps a more fitting words would be “staid” and “controlled.”

Peace and quiet is very nice, but it doesn’t really encourage global culture or commerce. Growth and change come about when newcomers jostle with locals not just as tourists, or orbiting executives, but as migrants. Great cities in their peaks are all about this kind of yeasty confrontation.

Alas, comfort takes precedence over dynamism in these new cities. Take the immigration issue: Unlike Amsterdam in its heyday or London or New York today, most northern European countries have turned hostile to immigration and many have powerful nativist parties. These are directed not against elite corporate executives or academics, but newcomers from developing countries. In some cases, resentment is stoked by immigrants taking advantage of well-developed welfare systems that worked far better in a homogeneous country with shared attitudes of social rights and obligations.

Of course, these cities aren’t total deadweights. After all, Switzerland has its banks, Helsinki boasts Nokia and Denmark remains a key center of advanced and green manufacturing technology. For its part, Vancouver gets Americans to shoot cheap movie and TV shows with massive tax breaks and will host the Winter Olympics. But none can be considered major shapers of the modern world economy.

The one American city favored by The Economist, Pittsburgh, represents a pale – and less attractive – version of these top-ranked European, Canadian or Australian cities. Its formerly impressive array of headquarters has shrunk to a handful. Once the capital of steel, it now pretty much depends on nonprofits, hospitals and universities.

You will be hearing a lot more about Pittsburgh – the city has a prodigious PR machine funded largely by nonprofit foundations and universities – as it gets ready to host the G-20 meeting next month. Fans claim that the former steel town has developed a stable – if hardly dynamic – economy. Its torpidity is being sold a strength; boom-resistant in the best of times, it’s also proved relatively recession-proof as well.

In this sense, Pittsburgh represents the American model of the slow-growth European city. This may appeal to those doing quality-of-life rankings, but not to those who have been fleeing the Steel City for other places for generations. Immigrants are hardly coming in droves either – Pittsburgh ranks near last among major metropolitan areas in percentage of foreign-born residents. As longtime local columnist and resident Bill Steigerwald notes, since 1990 more Pittsburghers have been dying than being born. If this represents America’s urban future, perhaps it’s one that takes its inspiration from Alan Weisman’s “A world without us.”

Yet the future of urbanism, here and abroad, will not be Pittsburgh. Based on current preferences, something like 20 million – or more – people will have moved to U.S. cities by 2050. Most will likely settle in more dynamic places like New York, Los Angeles, Houston, Phoenix, Dallas, Chicago and Miami. These cities have become magnets for restless populations, both domestic and foreign-born. They also contain all the clutter, constant change, discomfort and even grime that characterize great cities through history.

But it’s economics that drives migrants to these dirtier, busier metropolitan centers. Many of the cities at the top of the livability lists, by contrast, are also among the world’s most expensive. They generally also have high taxes and relatively stagnant job markets.

Many U.S. cities, however, offer far more materially to their average residents than their elite European counterparts do. American cities, when assessed by purchasing-power parity, notes demographer Wendell Cox, do very well indeed. Viewed this way, the U.S. boasts eight of the top 10 – and 37 of the top 50 – metropolitan regions in terms of per capita income.

The top city on Cox’s list, San Jose, Calif., epitomizes both the strengths and weaknesses of the American city. The heartland of Silicon Valley, the San Jose region has generated one of the world’s most innovative – and well-paid – economies. On the other hand, its mass transit usage is minuscule, its cultural attributes measly and its downtown hardly a tourist destination.

Meanwhile, pricey and scenic Zurich, No. 2 on the Mercer list and No. 10 on The Economist rankings, comes in 74th when considering adjusted per capita income. Economist favorite Vancouver, one of the most expensive second-tier cities on the planet, ranks 71st. For the average person seeking to make money and improve his or her economic status, it usually pays not to settle in one of the world’s “most livable” cities.

This is not to say that rambunctious urban centers like Los Angeles, New York or London couldn’t learn from their more “livable” counterparts. Anyone who has braved the maddening crowds in Venice Beach, Times Square or London’s Piccadily knows a city can have too much of a good thing. Los Angeles could use a more efficient bus system. Better-maintained subways and commuter trains in New York would be welcome by millions as they would in Greater London.

Ultimately great cities remain, almost by necessity, raw (and at times unpleasant) places. They are filled with the sights and smells of diverse cultures, elbowing streetwise entrepreneurs and the inevitable mafiosi. They all suffer the social tensions that come with rapid change and massive migration. New York, Los Angeles, London, Shanghai, Mumbai or Dubai may not shoot to the top of more elite, refined rankings, but they contain the most likely blueprint of our urban future.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

August 11, 2009
Can Obama be deprogrammed?

In my first foray into political life in the 1970s, I worked during college on the staff of a liberal Democrat in the Texas state Senate. Only a few years earlier, Patty Hearst had been kidnapped and brainwashed by the Symbionese Liberation Army, and a moral panic about cults seducing college kids was sweeping the nation. One result was the rise of a new, thankfully ephemeral profession: “deprogrammers” who for pay would kidnap a young person from a cult and break the spell, by means of isolation, interrogation and maybe reruns of “The Waltons.”

A reactionary Republican state senator from the Houston area, who was heartily despised by my senator, introduced a bill granting parents the right to hire deprogrammers to kidnap adult children who belonged to what the parents regarded as cults and then confine them in motels for several weeks, subject to psychological coercion, without notifying the authorities. Needless to say, this deprogramming law was the greatest threat to the tradition of habeas corpus until another reactionary Texan was installed in the White House in 2001. The bill was laughed to death, when, during a hearing, the sponsor was asked if it could be used to deprogram young people who had joined a certain well-known cult. “Why, yes, Senator,” the Republican replied, “it would apply to cults like the Unitarians.”

Boy, do we need deprogrammers now, to liberate Barack Obama from the cult of neoliberalism.

By neoliberalism I mean the ideology that replaced New Deal liberalism as the dominant force in the Democratic Party between the Carter and Clinton presidencies. In the Clinton years, this was called the “Third Way.” The term was misleading, because New Deal liberalism between 1932 and 1968 and its equivalents in social democratic Europe were considered the original “third way” between democratic socialism and libertarian capitalism, whose failure had caused the Depression. According to New Deal liberals, the United States was not a “capitalist society” or a “market democracy” but rather a democratic republic with a “mixed economy,” in which the state provided both social insurance and infrastructure like electric grids, hydropower and highways, while the private sector engaged in mass production.

When it came to the private sector, the New Dealers, with some exceptions, approved of Big Business, Big Unions and Big Government, which formed the system of checks and balances that John Kenneth Galbraith called “countervailing power.” But most New Dealers dreaded and distrusted bankers. They thought that finance should be strictly regulated and subordinated to the real economy of factories and home ownership. They were economic internationalists because they wanted to open foreign markets to U.S. factory products, not because they hoped that the Asian masses some day would pay high overdraft fees to U.S. multinational banks.

New Dealers approved of social insurance systems like Social Security and Medicare, which were rights (entitlements) not charity and which mostly redistributed income within the middle class, from workers to nonworkers (the retired and the temporarily unemployed). But contrary to conservative propaganda, New Deal liberals disliked means-tested antipoverty programs and despised what Franklin Roosevelt called “the dole.” Roosevelt and his most important protégé, Lyndon Johnson, preferred workfare to welfare. They preferred a high-wage, low-welfare society to a low-wage, high-welfare society. To maintain the high-wage system that would minimize welfare payments to able-bodied adults, New Deal liberals did not hesitate to regulate the labor market, by means of pro-union legislation, a high minimum wage, and low levels of immigration (which were raised only at the end of the New Deal period, beginning in 1965). It was only in the 1960s that Democrats became identified with redistributionist welfarism — and then only because of the influence of the New Left, which denounced the New Deal as “corporate liberalism.”

Between the 1940s and the 1970s, the New Deal system — large-scale public investment and R&D, regulated monopolies and oligopolies, the subordination of banking to productive industry, high wages and universal social insurance — created the world’s first mass middle class. The system was far from perfect. Southern segregationist Democrats crippled many of its progressive features and the industrial unions were afflicted by complacency and corruption. But for all its flaws, the New Deal era is still remembered as the Golden Age of the American economy.

And then America went downhill.

The “stagflation” of the 1970s had multiple sources, including the oil price shock following the Arab oil embargo in 1973 and the revival of German and Japanese industrial competition (China was still recovering from the damage done by Mao). During the previous generation, libertarian conservatives like Milton Friedman had been marginalized. But in the 1970s they gained a wider audience, blaming the New Deal model and claiming that the answer to every question (before the question was even asked) was “the market.”

The free-market fundamentalists found an audience among Democrats as well as Republicans. A growing number of Democratic economists and economic policymakers were attracted to the revival of free-market economics, among them Obama’s chief economic advisor Larry Summers, a professed admirer of Milton Friedman. These center-right Democrats agreed with the libertarians that the New Deal approach to the economy had been too interventionist. At the same time, they thought that government had a role in providing a safety net. The result was what came to be called “neoliberalism” in the 1980s and 1990s — a synthesis of conservative free-market economics with “progressive” welfare-state redistribution for the losers. Its institutional base was the Democratic Leadership Council, headed by Bill Clinton and Al Gore, and the affiliated Progressive Policy Institute.

Beginning in the Carter years, the Democrats later called neoliberals supported the deregulation of infrastructure industries that the New Deal had regulated, like airlines, trucking and electricity, a sector in which deregulation resulted in California blackouts and the Enron scandal. Neoliberals teamed up with conservatives to persuade Bill Clinton to go along with the Republican Congress’s dismantling of New Deal-era financial regulations, a move that contributed to the cancerous growth of Wall Street and the resulting global economic collapse. As Asian mercantilist nations like Japan and then China rigged their domestic markets while enjoying free access to the U.S. market, neoliberal Democrats either turned a blind eye to the foreign mercantilist assault on American manufacturing or claimed that it marked the beneficial transition from an industrial economy to a “knowledge economy.” While Congress allowed inflation to slash the minimum wage and while corporations smashed unions, neoliberals chattered about sending everybody to college so they could work in the high-wage “knowledge jobs” of the future. Finally, many (not all) neoliberals agreed with conservatives that entitlements like Social Security were too expensive, and that it was more efficient to cut benefits for the middle class in order to expand benefits for the very poor.

The transition from New Deal liberalism to neoliberalism began with Carter, but it was not complete until the Clinton years. Clinton, like Carter, ran as a populist and was elected on the basis of his New Deal-ish “Putting People First” program, which emphasized public investment and a tough policy toward Japanese industrial mercantilism. But early in the first term, the Clinton administration was captured by neoliberals, of whom the most important was Treasury Secretary Robert Rubin. Under Rubin’s influence, Clinton sacrificed public investment to the misguided goal of balancing the budget, a dubious accomplishment made possible only by the short-lived tech bubble. And Rubin helped to wreck American manufacturing, by pursuing a strong dollar policy that helped Wall Street but hurt American exporters and encouraged American companies to transfer production for the U.S. domestic market to China and other Asian countries that deliberately undervalued their currencies to help their exports.

By the time Barack Obama was inaugurated, the neoliberal capture of the presidential branch of the Democratic Party was complete. Instead of presiding over an administration with diverse economic views, Obama froze out progressives, except for Jared Bernstein in the vice-president’s office, and surrounded himself with neoliberal protégés of Robert Rubin like Larry Summers and Tim Geithner. The fact that Robert Rubin’s son James helped select Obama’s economic team may not be irrelevant.

Instead of the updated Rooseveltonomics that America needs, Obama’s team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to “market failures,” the private sector will not provide.

Healthcare? New Deal liberals favored a single-payer system like Social Security and Medicare. Obama, however, says that single payer is out of the question because the U.S. is not Canada. (Evidently the New Deal America of FDR and LBJ was too “Canadian.”) The goal is not to provide universal healthcare, rather it is to provide universal health insurance, by means that, even if they include a shriveled “public option,” don’t upset the bloated American private health insurance industry.

Education? In the 1990s, the conventional wisdom of the neoliberal Democrats held that the “jobs of the future” were “knowledge jobs.” America’s workers would sit in offices with diplomas on the wall and design new products that would be made in third-world sweatshops. We could cede the brawn work and keep the brain work. Since then, we’ve learned that brain work follows brawn work overseas. R&D, finance and insurance jobs tend to follow the factories to Asia.

Education is also used by neoliberals to explain stagnant wages in the U.S. By claiming that American workers are insufficiently educated for the “knowledge economy,” neoliberal Democrats divert attention from the real reasons for stagnant and declining wages — the offshoring of manufacturing, the decline of labor unions, and, at the bottom of the labor market, a declining minimum wage and mass unskilled immigration. One study after another since the 1990s has refuted the theory that wage inequality results from skill-biased technical change. But the neoliberal cultists around Obama who write his economic speeches either don’t know or don’t care. Like Bill Clinton before him, Barack Obama continues to tell Americans that to get higher wages they need to go to college and improve their skills, as though there weren’t a surplus of underemployed college grads already.

Environment? Here the differences between the New Deal Democrats and the Obama Democrats could not be wider. Their pro-industrial program did not prevent New Deal Democrats from being passionate about resource conservation and wilderness preservation. They did not hesitate to use regulations to shut down pollution. And their approach to energy was based on direct government R&D (the Manhattan Project) and direct public deployment (the TVA).

Contrast the straightforward New Deal approaches with the energy and environment policies of Obama and the Democratic leadership, which are at once too conservative and too radical. They are too conservative, because cap and trade relies on a system of market incentives that are not only indirect and feeble but likely to create a subprime market in carbon, enriching a few green profiteers. At the same time, they are too radical, because any serious attempt to shift the U.S. economy in a green direction by hiking the costs of non-renewable energy would accelerate the transfer of U.S. industry to Asia — and with it not only industry-related “knowledge jobs” but also the manufacture of those overhyped icons of the “green economy,” solar panels and windmills.

While we can’t go back to the New Deal of the mid-20th century in its details, we need to re-create its spirit. But short of confining them in motel rooms and making them watch newsreels about the Hoover Dam, Glass-Steagall, the TVA and the Manhattan Project, is it possible to liberate President Obama and the Democratic leadership from the cult of neoliberalism?

This article first appeared at Salon.com

Michael Lind is Whitehead Senior Fellow at the New America Foundation and Director of the American Infrastructure Initiative.

Official White House Photo by Pete Souza.

August 10, 2009

One Step for Short-term Economic Stimulus, and One Giant Leap (backward) for U.S. Energy Sustainability

The “cash for clunkers” (or CARS) program that was widely predicted to be extended by the Congress has been, if nothing else, a clear public relations win for the Obama Administration. It may also be, at least for the short-term, a shot in the arm for the beleaguered American auto industry (including domestic dealerships of foreign car companies, like Honda and Toyota). But the program’s extension may also be bad news for anyone who was hoping that candidate Obama’s campaign promises to fix our domestic energy policy would translate into something resembling a robust make-over.

Don’t get me wrong; I am a huge fan of President Obama. And I am generally very supportive about what the Administration is trying to do. The President’s agenda is nothing if not ambitious, or may be better described as audacious. In no particular order, President Obama is seeking to fix the environment, reform the healthcare system, overhaul banking and financial services regulations, reverse a downwardly spiraling national and global economy, repair race relations in America, and get drivers to cease texting and talking on their cell phones while driving.

And yet, one of President Obama’s greatest strengths may also be his greatest weakness: The willingness and ability to compromise, as it is the fundamental nature of compromise that the outcome will inevitably be less than ideal. This consequence of compromise can be seen clearly in the President’s efforts to secure Congressional approval of an additional $2 billion in funding for the CARS program.

The initial concept behind CARS was elegant in its simplicity: give owners of “gas-guzzlers” (i.e. automobiles with highly inefficient internal combustion engines) a monetary incentive to trade their fuel inefficient vehicles for highly fuel-efficient replacements. The auto industry – albeit more centered in Tokyo than Detroit on this point – clearly is producing numerous passenger vehicles capable of achieving a combined city/highway rating of 30 miles-per-gallon (mpg) or more. Yet there remain a number of registered motor vehicles in the U.S. with substantially less than 18 mpg ratings under the program (any vehicle with a mpg rating above that is not worthy of the “clunker” moniker).

If this was the Administration’s original goal for the CARS program, the $1 billion authorization could have had a considerable impact on fuel consumption. Assuming the maximum rebate of $4,500 on every trade-in, almost a quarter of a million (222,222 to be exact) fuel-inefficient vehicles would have been voluntarily taken off America’s roads. Great idea! Triple that program funding amount to $3 billion, coupled with the same lofty goal, and two-thirds of a million fuel inefficient cars would have been swapped out for highly fuel efficient cars. If the average driver puts 12,000 miles per year on a car, and the average improvement in fuel efficiency is 12 mpg (i.e. from 18 mpg to 30 mpg) the program would save 1,000 gallons of gas per car, per year, or 666,666,000 gallons of gas annually.

If only this purpose – to incentivize drivers to purchase only the most fuel efficient vehicles – had remained the thrust of the CARS program. However, it seems that the elegant simplicity behind the CARS concept became intertwined in the “since the government now owns GM and Chrysler don’t you think we should do something to spur domestic car sales” debate. All of a sudden, light trucks (the product type on which the Big Three hung their hats and, subsequently, on which they were hung by their collective petard) became eligible provided they are more fuel-efficient than the millions of light trucks already registered and on domestic highways. So, instead of a rising fleet of truly efficient cars we now see sales of new SUVs of all sizes and dimensions, and not just the recently introduced hybrid versions, being allowed a “cash-for-clunkers” rebate. All that is necessary is for the trade-in vehicle to qualify under CARS and the newly purchased SUV achieve a paltry 18 combined mpg.

In other words, the concept behind the initial legislation appears to have quickly devolved from “let’s incentivize the best consumer behavior possible when it comes to fuel efficiency” to “let’s get people to buy passenger cars, SUVs, and light trucks.” The Hummer H3, for example, with an MSRP of less than $45,000 (the maximum MSRP allowed under CARS), and a combined city/highway mpg of 18, could qualify for the rebate program (hoping the irony is not lost on anyone that a vehicle, the Humvee, that was the exclusive product of a publicly owned entity, the Defense Department, ended up being the product of another publicly owned entity, GM).

There’s no doubt that CARS was wildly successful in its public debut, so much so that the $1 billion in federal rebate funds were projected to run out within the first 30 days of the program’s roll-out. Car dealerships and automakers were as ecstatic in their praise for the program as they were vociferous in their clamor to seek the additional $2 billion in Congressional funding. However, the pace at which the CARS rebates were utilized strongly suggests that the cash-for-clunkers program would have been equally successful even if Congress had stuck to the original premise of the program: To get car owners to trade in the worst mpg offenders for the exemplars of fuel efficiency. Instead, Congress and the Administration have botched the chance to make a real, lasting difference, while spending $3 billion in the process.

So here are the “outcomes” of CARS thus far: According to cars.com, the top ten fuel-efficient cars sold in the U.S. range from the Honda Fit (32 combined mpg) to the Toyota Prius (46 combined mpg). However, based on statistics tracked by jalopnik.com, of the top ten new vehicles purchased using CARS rebates only two, the Toyota Prius (#1 in fuel efficiency and #4 in most-purchased) and the Honda Fit (#10 in fuel efficiency and #9 in most-purchased), are on both lists (see the table below). In fact the list of the most-purchased vehicles using CARS rebates appears to be comprised of more lower-priced cars (e.g. the Chevy Cobalt and Hyundai Elantra) and cars that were already very high-volume sellers before the economic downturn (e.g. Toyota Camry and Corolla).

Ten Most-Purchased Vehicles Using CARS Rebate*		Ten Most Fuel-Efficient Vehicles Sold in the U.S.**
1	Toyota Corolla	1	Toyota Prius 48/45/46 mpg
2	Ford Focus FWD	2	Honda Civic Hybrid 40/45/42 mpg
3	Honda Civic	3	Smart Fortwo 33/42/36 mpg
4	Toyota Prius	4	Nissan Altima Hybrid 35/33/34 mpg
5	Toyota Camry	5	Toyota Camry Hybrid 33/34/34 mpg
6	Hyundai Elantra	6	Volkswagen Jetta TDI 30/41/34 mpg
7	Ford Escape FWD	7	Ford Escape Hybrid*** 34/31/32 mpg
8	Dodge Caliber	8	Toyota Yaris 29/36/32 mpg
9	Honda Fit	9	MINI Cooper/Clubman 28/37/32 mpg
10	Chevrolet Cobalt	10	Honda Fit 28/35/31 mpg
*as posted on jalopnik.com Aug. 7^th		as posted on cars.com Aug. 7^th, city/hwy/combined mpg * also includes Mercury Mariner/Mazda Tribute Hybrid

Inasmuch as Congress has already approved the additional $2 billion for the CARS program – without improving the fuel efficiency goals the program incentivizes – then why don’t we at least be honest about it and just add the $3 billion CARS price tag to the federal auto industry bailout. Sadly, as it stacks up now, claiming that this program is all about fuel efficiency or domestic energy policy is a sham.

Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

August 9, 2009

New York City Closes Shop

Mayor Michael Bloomberg owes 200,000 small business owners an apology.

When Michael Bloomberg was first elected Mayor of New York City in 2001, the city’s small business owners were hopeful and confident that finally a successful businessman would be creating the city’s economic policy. They hoped to see an end to powerful special interests that, through political donations, had gained control over the economic policy of the city.

New York’s small business community had been in a state of crisis ever since former Mayor Ed Koch gave the keys to the city and opened all the city’s government doors to real estate speculators and developers. His economic policy of favoring only a handful of developers and real estate speculators resulted in tens of thousands of long established small businesses being forced to close. New York City had the worst anti-small business environment in the nation, and the July, 1986 Inc. magazine headline said it all, “New York, New York the Worst Place in America to Start a Business.” This anti small business environment continued under two more Mayors, David Dinkins and Rudy Giuliani. It would be up to Bloomberg to change course and save the city’s small businesses from the “death grip” that landlords had on them.

The small business community anticipated that Bloomberg’s first change would be to appoint a small business owner as Commissioner of Small Businesses. The best choice would be a Hispanic business person with no ties to the real estate industry. This would be a major change in policy because previous policy makers were closely tied to the real estate industry, and none had ever owned a small business. A Hispanic Commissioner would be justified because Hispanics owned between 42 and 45% of all the city’s small businesses.

To the disappointment of the city’s desperate small business owners, Bloomberg appointed Robert Walsh Commissioner of Small Businesses. Walsh had never owned or operated a small business. He was in North Carolina at the time of his selection, managing the Charlotte Center City Partners, a property owners/banks organization promoting a business district in that city. His background included working for the property owners as director of a Business Improvement District, the Union Square Partnership, in New York City. Walsh’s selection would create the worst anti-small business environment of any city in the nation.

A reliable way to evaluate the stability of New York City’s small business community is to examine the number of Commercial Warrants for Eviction. The majority of these warrants are issued to “holdover commercial tenants” whose leases have expired, and who can’t afford to pay the new, higher rent. The consensus of business organizations is that these warrants represent about one third of small businesses; the ones that stay and fight in court. The other two-thirds walk away without a fight. During what many consider the reign of terror for small businesses — 1986-1989, the last 4 years of Koch’s term — 17,433 warrants were issued to evict small businesses, out of approximately 53,000 total small business failures. During the last full four years under Bloomberg, 2005-2008, 27,809 warrants were issued to evict, with about 83,000 small businesses forced to close. Since the successful businessman Bloomberg took office, around 152,964 small businesses have been forced to go out of business.

The circus is not the greatest show on earth; Walsh’s Small Business Services department is. For the past seven years, on paper, the department has had numerous programs to assist small businesses. If you did not see for yourself the long established neighborhood small businesses that have been forced to close every month, and the empty stores on every block in every neighborhood, you might believe that the SBS was actually helpful. The testimony by Walsh and Bloomberg on the state of the city’s small businesses before the city council is a long list of SBS programs and their successes.

Two things happened to highlight the true state of NYC’s small businesses. The first was the decline of tax dollars generated by Wall Street. This caused a shift in the focus to NYC’s 200,000 small businesses, which were now called upon to carry more of the tax burden and job creation.

The second was a survey of Hispanic small businesses (see PDF, below). A new Hispanic chamber, the USA Latin Chamber of Commerce, was recently formed in New York City and conducted a citywide survey of 938 Hispanic business owners in early 2009. Over half of the businesspeople believed they were at risk to close due to high rents. Seventy percent had been forced to lay off workers due to high rents. When they first opened their businesses in NYC, 91% believed it was the best city in the nation to invest in the American Dream. Today, 84% believe New York City is no longer a good place for immigrants to open their businesses. The main reason given, again, high rents and unreasonable lease terms. Of those surveyed, 82% would not recommend to a friend or family to open a business in the city.

One of the survey’s biggest surprises concerned demands by landlords or agents for “cash money” under the table to negotiate a new lease; 31% answered yes, and business organizations have come forward to predict that the real figure is between 45-55% of mostly immigrant small businesses. The results confirmed another survey (see PDF, below), this one by the USA Bodegas Assoc., that the city’s small businesses were in a “Crisis” and in peril of disappearing completely without government protection.

Bloomberg did not follow the leadership of President Obama, who called for quick actions to save small businesses. Walsh expanded his “dog and pony show” with a citywide PR campaign which claimed that the city’s small business problems resulted from the recent decline in the economy, and by offering a series of government programs: business conferences, business forums, loan programs, initiatives, all intended to stimulate start-ups and expansions. But at a recent city council hearing, Councilman Robert Jackson asked “Does the SBS have a single program to save or keep a single small business from going out of business in New York City?” Walsh reluctantly had to answer “no”.

In March, 2009 a coalition of 67 citywide business/union/tenant organizations was formed; The Coalition to Save Hispanic Small Businesses released a final report recommending that the best solutions could be found in Jackson’s Small Business Survival Act. The bill is based upon a simple system of regulating the commercial lease renewal process. It would give tenants the right to renewal, and encourage bargaining in good faith between the landlord and tenant.

A city council hearing was finally held this past June before the city council’s small business committee. The three SBS representatives took the side of the property owners against the city’s small businesses. They testified that Bloomberg would not support the bill because it would be too costly to administer at a time when funds were scarce. When asked how costly, they admitted they did not do any actual accounting, but thought it would be costly. An attorney for the Small Business Coalition explained that there was no costs associated with administering the bill since it would be a contractual process where costs would be shared equally between the tenant and the landlord.

SBS also objected that there was no need for the bill since the rental market was weakened by the recession, and landlords were negotiating with tenants to keep them. Supporters explained that the timing was ideal because it would have no impact on those landlords negotiating in good faith.

During the recent impasse, the SBS spokespeople made clear that they did not wish to seek a compromise or alternative solution. And the apology that Mayor Bloomberg owes to New York City’s hard working small business people is also nowhere to be found on the table.

Stephen Null was the owner of three small businesses in New York City during the 1970s and ’80s. In 1984 he founded the Coalition for Fair Business Rents, and in 1991 he co-founded the New York Small Business Congress. He is currently Director of the Lead Free Children Foundation.

August 7, 2009
People, Planet, Prefurbia

The term “sustainable” relates to a concept called the “Triple Bottom Line” (TBL): People, Planet, and Profit (the three P’s), endorsed by the United Nations in 2007 for urban and community accounting.

American suburban land planning is about the SBL (Single Bottom Line): Profit. In city after city, mindless cookie cutter subdivisions, with characterless architecture, serve cars more than people. This dysfunction is caused by the boiler-plate regulations; engineers adhere to the minimum dimensions mandated by city ordinances to gain density, which maximizes developer’s profits. City council and planning commission members are appalled by the monotonous plans developers submit. Subdivisions that meet the minimums must be eventually approved. Developers are judged as evil, but they rely on the engineer who simply follows the city rules. Everyone mistakenly trusts that the consultant whose business card says “Land Planner” is the expert who will lay out the best development. However, “Land Planning” is not a regulated profession.

What? Astonishingly there are no regulatory requirements to prevent anyone from representing him or herself as a land planner… you too can become one by simply printing the title on your business card, and everyone will assume that you, too are an expert. The suburbs have been ripe for a preferable system, one that we call ‘Prefurbia’. The concept was recently featured in Environmental Protection because of its potential for urban renewal. In terms of what it can do for suburbs, compare Conventional development to Prefurbia in terms of the three P’s of sustainability:

People: Conventional Subdivision

The land planner subdivides lots into ordinance minimums. If the city requires that a percentage of the site be set aside for open space, the area likely to be chosen is one that would not be fit for construction, rather than the best open space location for residents. Streets are designed first, then lots. No attention is given to the home or townhome unit other than a “pad” size to fit the structure. The main design focus is always the street layout (also true in Smart Growth plans). If there are any walkways, they parallel the street edge. The typical suburban maze-like street pattern is often difficult to drive through, and even more difficult for pedestrians, which further encourages a drive over a stroll. Suburban Land Use Transitions (zoning) place the lowest income (highest densities) in the most undesirable places. Positioning a high concentration of families overlooking loading docks along the rear of strip retail centers is not just acceptable, it’s encouraged.

People: Prefurbia

In Prefurbia, the Neighborhood Planner designs the pedestrian system first. Destinations for the walks are targeted as a basis for the open space “system,” assuring convenient pedestrian connectivity through the developers land. This is called a Pedestrian Oriented Design (POD). In Prefurbia, the suburban desire for space reigns supreme. Each home, attached or detached, is designed to assure that living areas are placed along the best views, giving the illusion of low density. The consultants who design the Prefurbia neighborhood (architects, planners and engineers) must do something that is foreign to them: they need to actually talk to each other! The architectural floor layouts, interior walls and window locations are an integrated component of the overall neighborhood, a first for land planning. Housing is situated so that each home sculpts a unique streetscape, eliminating monotony while embracing individualism (even if the architecture is somewhat repetitive).

Prefurbia land use places higher density along the most desired site amenities without regard to residents income. In the design process, all income levels are treated as upper class. This new land use theory is called Connective Neighborhood Design (CND).

Retail in Prefurbia is called the Neighborhood Marketplace. Neighborhood congregation areas such as patios, boardwalks, decks, ponds, etc., are placed along the rear of retail centers, which are also main pedestrian destinations. Since the Prefurbia pedestrian systems are separate from streets, there are few conflict points with vehicles. When walks are situated along streets they meander gracefully as far from the street edge as possible.

Planet: Conventional

Subdivision planning sets homes parallel to the edge of the street at the exact minimum distance allowed by regulations. The land planner must stretch the street as much as possible through the site to gain density (also true with Smart Growth design). The developer is burdened with constructing enormous street and utility main lengths to achieve the greatest density. Traffic flow is an afterthought.

Planet: Prefurbia

The Prefurbia Neighborhood Planner designs something very unnatural… a plan with dimensions greater than the minimums. Using entirely new geometric theory made practical by new technologies, the Neighborhood Planner separates the street pattern from the positioning of the homes, which results in lesser street length, but maintains density. This creates more organic (non-paved) space – lots of it! It’s more art than science to create independent, meandering shapes that open up the streetscape. In this scenario, it’s possible to maintain density by reducing the length of street by (typically) 25% compared to conventional planning and up to 50% compared to Smart Growth principals.

The extra landscaped area allows the Prefurbia Neighborhood Engineer to design with much lower environmental impact, and to reduce development costs. The flowing vehicular pattern reduces both time and energy when driving through the neighborhood. All of this together means that in Prefurbia, Green is affordable. Imagine the implications worldwide.

Profit: Conventional

A cookie-cutter subdivision developer relies on a price point to generate a profit. The local Land Planner is likely to design the same style for all clients with the thought that the minimum dimensions allowed by ordinance are in fact the absolute dimensions. Because of this, most, if not all, of the developments within the town will look and feel alike. Because competing developments look the same they must compete mainly on price. Selling cheaper to make a profit makes little sense. This is made worse when the Conventional (and Smart Growth) design requires the longest possible street lengths (and, therefore, costs) to achieve density. With the reduced lot values today, building excessive infrastructure from Conventional and Smart growth design can make many developments unprofitable.

Financial Sustainability: Prefurbia

Profit is not the correct word to describe the financial advantages of Prefurbia. A home is not something that is disposable after the initial sale. Subdividing land sets a pattern that continues to exist for many centuries. An average home sells once every six years. If the number of residents for each home represents just three people, a 100 unit layout will affect the lives and finances of 10,000 people over two centuries. The financial advantage of Prefurbia is based on a significant reduction of infrastructure that’s needed for development, which allows more funds to be spent on curb appeal. The ability to pay more attention to character building (architectural and landscaping elements) without increasing the initial home price provides a tremendous market advantage.

Will the home buyer or renter prefer the claustrophobic garage grove subdivision over the beautiful, functional, open Prefurbia neighborhood? The advantages will continue to provide financial sustainability every time a resident resells the property.

And with a significant reduction of public infrastructure, the municipality is the big winner. A 25% reduction in streets translates into 25% less cost to maintain, yet the tax base stays the same. With the increase in open space, Prefurbia neighborhoods can justify an increase in density that reduces the effects of sprawl.

Perhaps the best news is that Prefurbia can be ideal not just to develop new suburbs and exurbs, but to redevelop urban areas… and maybe to rewrite the triple bottom line to People, Planet, Prefurbia.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. You can view a portfolio of pictures and videos of prefurbia at his website, rhsdplanning and at prefurbia.

August 5, 2009