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  • What To Look For In The Next President

    As the 2012 election approaches, America is in a state of malaise. Massive debt, unfettered spending, economic decline and partisan divide have served to undermine the great American narrative that is predicated on optimism and a “can do” attitude.

    As I assess the candidates for President, I will be looking for the one who most fully understands why we need to resurrect the compelling narrative for America. The compelling narrative has four basic components:

    Aspirational: President John F. Kennedy spoke to our better nature in 1962, when, at Rice University, he laid down the challenge of reaching the moon in a decade, His words still inspire us nearly 50 years later:

    We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.

    His vision was ambitious, his goal worthy, and his target understandable. This is why his words excited a nation to follow. Similar aspirations drove the pioneers west to settle America, drove our nation to wage world wars, hot and cold, against evil, and drove a president to declare war on poverty.

    Visceral: The legacy of President Dwight D. Eisenhower is a national interstate system of highways that crisscross America and connect our economy. In 1955, he spoke of systems that unite us as a people. His words rang true to a shared vision for America:

    Together, the united forces of our communication and transportation systems are dynamic elements in the very name we bear—United States. Without them, we would be a mere alliance of many separate parts.

    Most of post-World War II America was still dependent on the two-lane national highway system that included Route 66 and Route 30. Americans instinctively followed Eisenhower’s leadership that they saw as advancing their quality of life and jump starting the economy into higher gear. They knew instinctively that this would require a modern, multi-lane, high speed roadway system, so Eisenhower’s narrative was enacted and 50,000 miles on interstate highway were constructed over the next five decades.

    Fills a Gap: Martin Luther King, Jr. eloquently framed the civil rights issue in human terms in a 1967 speech:

    Being a Negro in America means trying to smile when you want to cry. It means trying to hold on to physical life amid psychological death. It means the pain of watching your children grow up with clouds of inferiority in their mental skies. It means having your legs cut off, and then being condemned for being a cripple.

    Americans understood that a moral, political and economic gap existed between black and white America. The compelling narrative of the civil rights movement led to proposals for new policies and programs to narrow the gap and Americans responded.

    Pays Dividends: The compelling narrative pays dividends all along the way. The space program produced better computers, materials and science. The interstate system gave rise to the motel industry and suburban development. The push west provided impetus to build the transcontinental railroad. World Wars sent men to war and women into industry. Policies that grew out of the civil rights movement made America a more inclusive nation.

    In 2011, we have no compelling narrative. The space program is about to be de-funded, as we have retreated from the moon and settled for a low orbit space station. The interstate system is beginning to crumble as the benefits have been exhausted and no new vision has been created. Public policies designed to close the racial gap are being scrutinized because the problem still exists. In short, the great movements have stopped paying dividends and Americans have lost interest and, more important, lost confidence.

    President Obama has tried to create a compelling narrative around renewable energy. This has been undermined by the burst of the ethanol (corn fuel) bubble and the relatively low return on investment from wind and solar power. New alternative sources like shale gas find their energy narrative competing with the aspirations of the environmental cause. As a result, Obama’s vision is not gaining traction as a compelling narrative.

    America’s next great leader will not only see the future, but will be able to articulate a clear path to get there. He/she will inspire us to join in the pursuit of the cause. We will know in our guts that the cause is right for America. We will clearly see the need to be filled. And, we will understand the benefits that will be derived from the undertaking.

    Debt, deficits, entitlements, taxes and spending are not compelling narratives in and of themselves. They are mere building blocks in our quest to articulate the next great American narrative. What it will be is the great unknown.

    Photo by Alfred Hermida: Watching The President.

    Dennis M. Powell is founder and president of Massey Powell, a strategic communications and digital strategy development company headquartered in Plymouth Meeting, PA. He can be reached at dpowell@masseypowell.com.

  • HASHIFIED

  • The Rise Of The Third Coast: The Gulf Region’s Ascendancy In U.S.

    For most of the nation’s history, the Atlantic region — primarily New York City — has dominated the nation’s trade. In the last few decades of the 20th Century, the Pacific, led by Los Angeles and Long Beach, gained prominence. Now we may be about to see the ascendancy of a third coast: the Gulf, led primarily by Houston but including New Orleans and a host of smaller ports across the regions.

    The 600,000 square mile Gulf region has long been derided for its humid climate, conservative political traditions and vulnerability to natural disasters. Yet despite these factors, the Gulf is destined to emerge as the most economically vibrant of our three coasts. In our rankings of the fastest-growing job markets in the country, six Gulf cities made the top 50: Houston, Corpus Christi and Brownsville, in Texas; New Orleans; and Gulfport-Biloxi and Pascagoula, in Mississippi. In contrast, just one Pacific port, Anchorage, Alaska, and one small Atlantic port, Portsmouth, N.H., made the cut.

    This reflects a long-term shift of money, power and jobs away from both the North Atlantic and the Pacific to the cities of the Gulf. The Port of Houston, for example, enjoyed a 28.1% jump in foreign trade this year, and trade at Louisiana’s main ports also reached records levels.

    This growth stems from a host of factors ranging from politics, demographics and energy to emerging trade patterns and new technologies. One potential game-changer is the scheduled 2014 $5.25 billion widening of the Panama Canal, which will allow the passage to accommodate ships carrying twice as much cargo as they are able to carry currently. This will open the Gulf to megaships from Pacific Basin ports such as Singapore, Shanghai, Pusan and Kaohsiung, which have mostly sent their cargos to West Coast ports such as Los Angeles and Long Beach. Some analysts predict that more than 25% of this traffic could shift to Gulf and South Atlantic ports. “More of Asia will be heading to this part of the world,” says Jimmy Lyons, CEO of the Alabama State Port Authority.

    The area also is getting a big jolt from ascendant Latin America, the Gulf’s historic leading trade partner. Bill Gilmer, an economist with the Federal Reserve Bank of Dallas, notes that Latin America is home to many of the world’s fastest-growing economies, with overall growth rates last year exceeding 6.1%. Since 2002 about 56 million people in the region have risen out of poverty, according to the World Bank.

    Trade with Latin American partners — including Mexico — is ramping up growth in Houston as well as other Gulf ports. Brazil, for instance, has risen to become Mobile, Ala.’s leading trade partner.  Latin immigration to virtually all the Gulf cities, including New Orleans, can only strengthen these economic ties.

    The energy industry represents another critical force in the Gulf’s resurgence. It employs at least 55,000 workers in the Gulf, which produces roughly one-quarter of the nation’s natural gas and one-eighth of its oil. Although Houston seems assured of its spot as the focal point of the world fossil fuel industry, oil and gas also boosts numerous economies throughout the region, notably in Corpus Christi and various ports across Southern Louisiana.

    Though the Obama administration puts its bets on subsidizing “green jobs,” traditional energy jobs may prove, in the short and medium term, far more important.  There is even widespread talk about the Gulf emerging as a center for the export of natural gas. Over $ 6 billion in new investments are already being proposed for export facilities, notes David Dismukes, associate director of the Louisiana State University Center for Energy Studies.

    The energy-related economy produces high-wage jobs that range from geology and engineering to the muscle work on the oil rigs, which provide well above average wages for blue collar workers. Such growth is particularly critical to regions such as New Orleans, long dependent on generally lower-wage industries like hospitality and personal services. The energy business also will help accelerate the expansion of business services such as law, accounting, architecture and advertising.

    The shift to the Gulf includes some rapid industrial expansion, particularly for energy intensive industries. Huge natural gas supplies are creating enormous opportunities for expanding petrochemical industries. The German firm Thyssen Krupp opened a new $5 billion steel mill last year, and Nucor Steel announced a large new facility to be built just outside New Orleans. Like energy production, these facilities tend to pay above-average wages for blue collar workers, which will likely raise living standards for a region that has lagged historically.

    At the same time, demographic trends suggest these areas will continue to become more attractive to international commerce. Despite a legacy of hurricanes and floods, Houston, with over 5 million people, has emerged as among the fastest-growing large metropolitan regions in the country. The region’s population is expected to double in the next 20 years. Most of the economies its port serves — Dallas-Fort Worth, San Antonio and Austin — also have experienced rapid growth. Recoveries are in place in many other hurricane-devastated areas, including greater New Orleans.

    Overall the Gulf is expected to be home to 61.4 million people by 2025, a nearly 50% increase from its 1995 base. This expanding domestic market — along with the possibilities posed by the canal — have already persuaded two larger retailers, Wal-Mart and Home Depot, to establish modern new distribution centers in Houston.

    Finally there is the matter of political will. Both the Northeast and the Pacific regions are increasingly dominated by environmental, labor, urban land and other interests often hostile to wide-ranging industrial expansion.  A legacy of labor unrest, most notably a big strike of West Coast ports in 2002,   convinced some shippers to diversify their operations elsewhere.   Growing regulation in California, suggests economist John Husing, a leading expert on port-related issues, makes the prospects for growing warehouse, logistics and manufacturing jobs increasingly “impossible”  there.

    East Coast ports, subject to some of the same pressures, may be slow to make the “intense capital improvements” required to capture expanding trade. In contrast, the Gulf’s leaders in both parties support   broad based economic growth.  New Orleans’ Democratic Mayor Mitch Landrieu is no less friendly to industrial and port expansion  than Republican Gov. Bobby Jindal. Houston Democratic mayors like Annise Parker, Bill White and Bob Lanier have been as strongly in favor of critical business and infrastructure investment as their Republican counterparts.

    Such differences in attitude have driven power shifts   throughout American economic history. In the 19th century New York through a combination of ruthless ambition and greater vision  overcame aristocratic Boston and more established Philadelphia. Icy Chicago performed a similar coup over its then far more established and temperate rival, St. Louis, in the mid- and late 1800s.

    In the last century, unfashionable Los Angeles, without a great natural port, overcame the grand Pacific dowager San Francisco, blessed by one of the world’s great natural harbors, as the economic center of the West Coast. Los Angeles built a vast new modern and largely artificial port to make up for what nature failed to provide, and also nurtured a host of   industries from aerospace, oil and entertainment to garments.

    Now history is about to repeat itself as Texas, Louisiana and other Gulf Cities seek to reorder the nation’s economic balance of power.  Unless California and the Northeast awaken to the challenge, they will be increasingly supplanted by a region that seems more determined to expand their economic dominion.

    This piece originally appeared at Forbes.com.

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

    Photo by NASA Goddard Photo and Video

  • Adjusting to Fiscal and Political Realities in Transportation Funding

    As this is written, we do not know the exact level of funding the House Transportation and Infrastructure Committee will propose in its draft legislation, to be unveiled in the first week of July and marked up the following week. Nor do we know what level of funding the Senate Finance Committee will come up with. But we do know that both Houses will be obliged to propose far less funding than is contained in the current (FY 2010) surface transportation budget of $52 billion ($41 billion for highways, $11 billion for transit). What will be the practical consequences of this belt tightening?

    The proposition that the Federal Government "must learn to live within its means" has become the fiscal conservatives’ article of faith and an elliptical way of stating the Republican opposition to deficit financing. This principle has found its way into the House T&I Committee’s "Views and Estimates for Fiscal Year 2012" report and it has been reaffirmed in countless statements and briefings by congressional sources.

    The practical implications of this policy for the federal-aid surface transportation program are unambiguous: federal budget authority in FY 2012 and beyond will be limited to the tax receipts flowing into the Highway Trust Fund. Those revenues (plus interest) will amount to an estimated $36.9 billion in 2011, according to the Congressional Budget Office (CBO)— $31.8 billion to be credited to the Highway Account and $5.1 billion to the Transit Account. Over the next ten years, CBO estimates these revenues will grow at an average rate of a little more than one percent per year, largely reflecting expected growth in motor fuel consumption. ("The Highway Trust Fund and Paying for Highways," testimony of Joseph Kile, Asst. Director of CBO, before the Senate Finance Committee, May 17, 2011).

    Thus, over a six-year period, 2012-2017, tax receipts credited to the Highway Trust Fund (plus interest) could be expected to amount to approximately $230 billion— about the same sum as was authorized in the 5-year SAFETEA-LU authorization ($238.5 billion).

    Limiting future budget authority to tax revenues flowing into the Highway Trust Fund will cause a significant drop from the current funding level. However, current spending has been inflated by a massive injection of stimulus funds from the American Recovery and Reinvestment Act of 2009— a total of $48 billion ($27.5 billion for highways, $6.8 billion for transit and $8 billion for high-speed rail). The stimulus almost doubled the annual amount of funding available  for transportation, making baseline comparisons misleading. A more accurate measure would be to compare the expected FY 2012 funding with pre-stimulus funding levels. In this comparison, the highway program would suffer a drop of 17% — from an average of $38.6 billion/year during SAFETEA-LU (FY 2005-2009) to $32 billion/year in FY 2012.  Adding the uncommitted HTF funds remaining in the Highway Account at the end of Fiscal Year 2011  ($14.8 billion, CBO estimate) would enable the annual highway allocation to be raised to about $34 billion/year — a drop of only 12 percent from the SAFETEA-LU level). (SAFETEA-LU data obtained from www.fhwa.dot.gov/safetealu/safetea-lu_authorizations.pdf,  4/6/2006),

    Such reductions, while not insignificant, would not be catastrophic. The cut in spending  authority could be absorbed by streamlining and narrowing the scope of the federal-aid program. Its primary mission would need to be refocused on traditional "core" highway and transit programs and on keeping existing transportation assets in a state of good repair. Discretionary awards such as the TIGER and high-speed rail grants would have to be eliminated. Proposals for major infrastructure spending (through the proposed Infrastructure Bank) would have to be dropped. So would programs that are deemed of little national significance or that do not serve the national need — such as various "transportation enhancements," set-asides, and "livability" projects that cater to narrow constituencies. Most of these Trust Fund "hitchikers," as Sen. James Inhofe calls them, will have to be handed off to state and local governments.

    Will states and local governments be willing and able to pick up the slack? Some will, others may not. Many states and localities have been willing to approve significant transportation improvement programs– provided the objectives are clearly spelled out. In fact, voters approved 77 percent of local transportation ballot measures in 2010, according to the Center for Transportation Excellence.

    While the above prospect may sound alarming when set against the current inflated spending levels, distorted by the stimulus spike, many fiscal conservatives view the new fiscal environment as an opportunity to return the federal-aid program to its original roots. Greater spending discipline, they hope, will refocus the federal mission on national interests and legitimate federal objectives, restore the program’s lost meaning and sense of purpose and give states and localities more voice and responsibility in managing their transportation future. With more constrained funding, certain hard-to-attain objectives such as greater emphasis on asset preservation, expanded use of highway pricing and tolling and higher levels of  private investment, will become a greater imperative and more achievable.

    Let us also not forget that the federal contribution constitutes only about 25% of the nation’s total surface transportation budget (40% of the capital budget). The rest is provided by state and local governments. The nation would still be spending more than $150 billion/year to preserve and improve our highways, bridges and transit systems— $50 billion short of the level recommended by the National Transportation Policy and Revenue Commission, but still a respectable level of funding.

    What about major new infrastructure investments? Undoubtedly, they will be necessary in the longer run because of the need to replace aging facilities and to accommodate future growth in population. But major capital expenditures can be, and will have to be, deferred until the recession has ended, the economy has started growing again and the federal budget deficit has been brought under control. At that more distant moment in time, perhaps toward the end of this decade, the nation might be able to resume investing in new infrastructure and embark on a new series of "bold endeavors" — major capital additions to the nation’s highways and rail systems. For now, prudence, good judgment and the compelling need to rein in the budget deficit, dictate that government should live within its means. And that means spending no more than what we pay into the Trust Fund.

  • Blight Envy – How Development Works in LA

    I never thought I’d say this, but I think I want to live in a blighted neighborhood. Well, actually, a community redevelopment area (CRA). They used to be one and the same, but no longer. Apparently you have to live or do business in a redevelopment area to get any “love” in Los Angeles … love being when the government takes your tax dollars and gives them to someone else no more needy.

    Let me explain.

    The City Council of Los Angeles just approved a program to loan CRA money to businesses in the Hollywood redevelopment area, which extends from Franklin Avenue south to Santa Monica Boulevard. If borrowers meet certain conditions, loans for storefront improvements never have to be paid back … wow, free money!

    As a card-carrying member of the Los Angeles Area Chamber of Commerce, I certainly don’t begrudge businesses financial support to help improve their prospects, including the streetscape, when the whole community benefits.

    But let’s be real: Many parts of the Hollywood redevelopment area, which includes the Hollywood & Highland complex, Sunset + Vine and the Roosevelt Hotel, are no more blighted than any other part of the city.

    That includes my neighborhood council district, which lies south of the designated redevelopment area and encompasses Melrose Avenue, West Third Street and Wilshire Boulevard on the Miracle Mile. But there’s no money for our businesses. Or businesses on West Pico Boulevard. Or businesses on Van Nuys Boulevard. We are chopped liver.

    There is a place for redevelopment, to be sure, but this program illustrates exactly why the CRA has so many critics. In this case, the problem isn’t the program — storefront improvement loans are a great idea. The problem is in the execution. This should be a citywide program, with funds shared among all Council districts in Los Angeles and doled out based on objective criteria.

    It’s time to rethink redevelopment.

    Cary Brazeman, a former executive with CB Richard Ellis in Los Angeles, is a neighborhood council member and founder of LA Neighbors United. Contact him through www.LAneighbors.org

  • I am Jack

  • Outlawing New Houses in California

    UCLA’s most recent Anderson Forecast indicates that there has been a significant shift in demand in California toward condominiums and apartments. The Anderson Forecast concludes that this will cause problems, such as slower growth in construction employment because building multi-unit dwellings creates less employment than building the detached houses that predominate throughout California and most of the nation. The Anderson Forecast says that this will hurt inland areas (such as the Riverside-San Bernardino area and the San Joaquin Valley) because their economies are more dependent on construction than coastal areas, such as Los Angeles, the San Francisco Bay Area and San Diego.

    Detached Housing Permits Remain Strong in the Historic Context: The Anderson Forecast reports that multi-unit building permits have recovered more quickly than building permits for detached housing. However, any such shift is likely to be highly volatile. Since the peak of the bubble, the distribution of building permits between detached and multi-unit in California has been on a roller coaster. Indeed the Anderson Forecast characterizes the "2010 US Census" as "showing a significant shift in demand toward condominiums and apartments." Actually, the 2010 US Census asked no question from which such a conclusion about housing types or any question from which such a conclusion could be drawn.

    The trends in the building permit data are not completely clear. In 2005, the year before prices started to collapse, 75 percent of building permits in California were for detached housing. This trended downward, reaching a low of 52 percent in 2008. In 2009, the detached housing recovered to account for 73 percent of all housing building permits. Then the figure fell back to 59 percent in 2010.

    With these erratic trends, it is tricky to forecast longer term market trends and consumer demand.  Economic projections in 1934 would have suffered from a similar problem, as the Great Depression was continuing and no one could really tell when it would end. Today’s continuing housing depression may be similar.

    Moreover, as the Anderson Forecast notes, detached housing construction declined in the early 1980s, dropping to 42 percent in 1985. In fact, over the 25 years between 1960 and 1985, detached houses accounted for an average of only 54 percent of new housing construction in California, well below the 2010 figure of 59 percent (Figure 1).

    Equally important, the condominium market remains in a deep depression. In 2010, less than four percent of houses built for sale in the United States were multi-unit buildings, including condominiums (Figure 2), as an increasing majority of multi-unit buildings have been built as rentals (Figure 3). Comparable California data is not available, but from the peak of the bubble (2006/7) to 2009, there was a loss of more than 3,000 owner occupied  multi-unit dwellings with 10 or more units, while owner occupied detached houses increased by nearly 100,000 (Note 1).

    If there is an intrinsic pent-up preference for condominium living, it is not evident in the poor performance of high-density developments even in such theoretically desirable places as Santa Monica, San Francisco, Oakland, San Jose and North Hollywood. Condominium prices, for example, have fallen 52 percent in the major California metropolitan areas, compared to 48 percent for single-family houses (Figure 4). Naïve developers, relying too much on the much promoted notion that suburban empty-nesters were chomping at the bit to move to new housing in the core area, often watched their empty units liquidated at $0.50 or less on the dollar or turned into rentals.  Further, if people are moving to apartments, it’s not for love of density but more likely due weakening economic circumstances.

    Inland California Continues to Grow Faster: The Anderson Forecast also suggests that growth in interior California will suffer because "workers are less likely to move inland into an apartment and commute toward the coast." This assumption of slower inland growth reflects the conventional wisdom that areas outside the large coastal metropolitan areas have stopped growing since the burst of the housing bubble as people flock towards the coastal urban core (Note 2). The reality is different, as interior California and the peripheral metropolitan areas of the larger metropolitan regions (Note 3) continue to grow more strongly even in bad economic times. After the burst of the bubble, from 2008 to 2010 (Figure 5):

    • In the Los Angeles area, the adjacent Riverside-San Bernardino ("Inland Empire") and Oxnard metropolitan areas, combined, have grown at seven times the rate of the core Los Angeles metropolitan area.
    • In the San Francisco Bay area, the adjacent Napa, Santa Cruz, Santa Rosa and Vallejo metropolitan areas, combined, have grown nearly twice as quickly as the core San Francisco and San Jose metropolitan areas.
    • California’s deep interior, the San Joaquin Valley has grown even faster than the exurban areas of Los Angeles and San Francisco.

    One key reason: most people who move to interior areas do not commute toward the core.  For example, less than 10 percent of workers in the Riverside-San Bernardino metropolitan area commute into Los Angeles County, a market share that declined 15 percent between 2000 and 2007. Many also simply cannot afford the higher cost of living in the coastal metropolitan areas, which likely will continue to retard growth in the core metropolitan areas.

    The Policy Threat to New Houses : A survey by the Public Policy Institute of California suggests a vast preference (70%) for detached housing among the state’s consumers.  This continuing preference is demonstrated by detached housing prices that are generally two times historic norms relative to incomes in the coastal metropolitan areas (Los Angeles, San Francisco, San Diego and San Jose).

    Yet now, this choice is under a concerted assault by both the state and many local governments, cheered on by most media and the academic community.  For years, planning regulations have driven land prices so high that house prices have risen to well above the rest of the nation (Figure 5) under regulations referred to by terms such as "smart growth" and "urban containment." The regulations and the inevitably resulting speculation propelled a disproportionate rise (nearly $2 trillion) in California house prices compared to national norm. If California house prices had risen at the same rate relative to incomes as in more liberally regulated areas, the loss to financial markets could have been hundreds of billions of dollars less when the bubble burst (Figure 6).

    Planning for Crowding and Density: California’s assault on detached housing is taking on a distinctly religious fervor.  The state’s global warming law (Assembly Bill 32) and urban planning law (Senate Bill 375) is providing a new basis to impose draconian limits on the construction of detached housing. For example, in the San Francisco Bay area, it has been proposed that 97 percent of new housing be built within the existing urban footprint. That would mean an emphasis on multi-unit housing and little or no new housing on the urban fringe. The option of a single family home will be all but non-existent for   even solidly middle income Californians.

    Planning authorities in the Bay Area seem oblivious to the fact that destroying affordability also destroys growth, already evident by the state’s poor economic performance and ebbing demographic vigor.    Planners rosily project 2 million more people between 2010 and 2035 in the San Francisco Bay area. The growth rate over the past 10 years suggests a number less than half that (Figure 7) and given the rapid aging of the area, even this estimate may be too high. The planners also project more than 1.2 million   new jobs, something difficult to believe given the more than 300,000 job loss (Note 4) that occurred in the Bay Area between 2000 and 2010 (Figure 8).

    The Environmental "Fig Leaf:" The environmental justification for these policies is fragile . Research supporting higher density housing has routinely excluded the greater emissions from construction material extraction and production, building construction itself and common greenhouse gas emissions from energy consumption that does not appear on consumer bills. Further, higher densities are associated slower and more erratic speeds, which retards fuel efficiency and increases greenhouse gas emissions, a factor not sufficiently considered.

    The report seems to ignore any other options besides rapid densification, which as McKinsey Global Institute has pointed out is not at all necessary to reduce GHG emission reductions. They point to other factors as more fuel efficient cars.   

    Oddly, the San Francisco Bay Area proposal does not even mention working at home (much of it telecommuting), the most environmentally friendly way of accessing employment. Working at home has grown six times the rate of transit since 2000 in the Bay Area.

    Outlawing New Houses Detached housing remains the overwhelming choice of Californians. There is no indication that this preference is about to be replaced by a preference for high-density housing.  Current and future middle class Californians could be corralled into more crowded conditions, because questionable planning doctrines mandate that detached housing should be outlawed.

    —-

    Notes:

    1. Calculated from 2006, 2007 and 2009 American Community Survey data. The over ten unit category is used because is more generally reflective of the dense condominium development generally favored by densification advocates (Latest data available).

    2.  Another questionable tenet of conventional wisdom is that the price declines in the outer suburbs were greater than in the cores. When the price declines reached their nadir, core California markets were generally at least as depressed from their peak prices as suburban markets.

    3. Metropolitan region refers to combined statistical areas, which have a core metropolitan area, such as the Los Angeles MSA and include surrounding metropolitan areas, such as the Riverside-San Bernardino MSA and the Oxnard MSA.

    4. Annual, 2000 to 2010, calculated from California Economic Development Department data.

    Lead photo: Houses in Los Angeles. Photograph by author.

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

  • Enterprising States: Hard choices now, hard work ahead: State Strategies to Renew Growth and Create Jobs

    This is an excerpt from "Enterprising States: Creating Jobs, Economic Development, and Prosperity in Challenging Times" authored by Praxis Strategy Group and Joel Kotkin. The entire report is available at the National Chamber Foundation website, including highlights of top performing states and profiles of each state’s economic development efforts.

    Read the full report.

    Read part one in this series.

    America has the world’s largest economy, the world’s leading universities, the most robust entrepreneurial culture and many of its biggest companies—yet many see this as a diminishing advantage.31 Stagnation, many predict, will extend into the foreseeable future because the economy’s low-hanging fruit has disappeared and so the pace of innovation has slowed; by this argument we are now on a “technological plateau” that will make further growth challenging.32 The United States remains a leader in global innovation, but better-funded, higher-performing hubs of innovation are emerging among determined competitors, notably China.

    In contrast, we believe America’s prospects for competing with other countries are better than commonly assumed, and we are convinced that our strategy for the future is unlikely to be found elsewhere. Unlike our major competitors, we enjoy a huge base of natural resources—such as food and energy—which are likely to become ever more in demand as countries like China and India grow their economies. Most important of all, the United States, particularly in contrast with Europe and East Asia, enjoys relatively youthful demographics, promising an expanding workforce, new consumers and a new flood of entrepreneurs.

    Yet our demographics and resources require intelligent policies that fit our particular situations. As a young country, we will have to find employment for an additional 20 million Americans in this decade. Slow growth, which could be accommodated in rapidly aging Japan or Germany, is not an option for the United States. We will also need to harness all forms of energy, from renewables to fossil fuels. Today, half of our trade deficit consists of energy, and yet we have the oil and gas resources to supply the vast majority of our needs. As we invest in renewables for the long run, the country needs to use the resources that are readily available in order to reduce the deficit and spark job growth.

    Our ability to compete, particularly on the state level, could be compromised by an inability to address our budgetary challenges. According to the Center on Budget and Policy Priorities, states are struggling with budget shortfalls for fiscal 2012 that add up to $112 billion. The most recent Fiscal Survey of the States anticipates considerably more financial stress in the states as the substantial funding made available by the American Recovery and Reinvestment Act of 2009 will no longer be available.

    Most states have already taken actions to streamline and downsize government to meet the new economic realities. This has proven to be challenging given the increased demand for state services during the national recession. Surely, more redesign, streamlining and reform is on the way. To recoup lost revenue, states have taken such actions as eliminating tax exemptions, broadening the tax base, and in some cases increasing rates as well as raising a number of fees. Low tax rates by themselves are not a silver bullet for growth, but it has become clear that outdated state tax systems can undercut economic vitality.

    States are the fulcrum of change in key areas of education, infrastructure, energy, innovation and skills training—something that was confirmed on many fronts in the first Enterprising States study. States and localities are far better positioned than the federal government to foster strategic investment, regulations, taxes and incentives that encourage private sector prosperity. In large part, this is because they are more responsive to local conditions.

    Equally important, a diversified portfolio of opportunity agendas implemented by the individual states will go a long way toward renewing growth and prosperity in the national economy.

    New Era of Leadership by the States?

    As the 2010 Enterprising States study was being completed, the states were implementing sweeping changes to deal with a growing number of challenges. Since then twenty-nine new governors have started their terms. Governors of every state, along with their legislative counterparts, are taking steps to grow their states’ economies, create jobs and compete globally. They want to help businesses prosper, to produce an educated and skilled workforce, and to provide other essential services and infrastructure that foster the entrepreneurship and innovation that will lead to greater productivity and competitiveness.

    The dramatic shortage of job opportunities has driven up the unemployment rate, pushed a large number of workers into part-time jobs, increased underemployment problems, and reduced the number of people who were expected to be active participants in the labor force. There is universal agreement that we need policies and programs that create jobs now, alongside investments to lay the foundations for long-term economic growth. “To keep the American dream of widely shared prosperity alive,” one commentator has argued, “we need to choose entrepreneurship and competition over the vested interests of the status quo.”

    Restoring confidence in the economy by creating a meaningful and compelling plan for moving forward is a top priority for elected officials as well as leaders from business, education, and labor groups throughout the country.

    There is also a stark recognition among the states that solving their fiscal problems is directly connected to creating an economic climate that will foster job creation. Any state with a budget tilting towards insolvency is in a weak position to make and maintain investments in its workforce and economic infrastructure. A state’s fiscal health also has immediate consequences by affecting its credit rating and, thereby, the cost of borrowing money. Unfunded pension obligations, viewed historically as soft debt, are now being considered together with the total value of state bonds to come up with a credit rating.

    Many governors and state legislatures are attempting to strike a balance between budget cuts that could hold back the recovery by putting more people out of work, and spending cuts and government reforms that would create a more business-friendly environment, leading to greater business confidence, private-sector investment and job creation. How this balance is achieved depends on each state’s unique set of circumstances and available assets. Moreover, at their core, these debates reflect the fundamental tensions between the two major visions of American progress, namely: creating equality of condition by boosting wages, improving working conditions, and guaranteeing basic services, and creating equality of opportunity, by creating the conditions whereby individuals can elevate themselves through industry, perseverance, talent, and righteous behavior.

    As noted in The Economist, private capital is mobile and it goes where government works. So while political considerations and ideological rationalizations certainly do influence the mix of austerity measures and public investments, the real opportunity today is for states to redesign government for the 21st century. That means cutting programs that do not spur economic growth and shifting resources, where possible, to those existing or planned programs that will.

    While spending cuts will help control deficient budgets, so will increased revenue brought by economic growth. As states enact budget austerity measures, what job creation initiatives are surviving or receiving increased investment? What are the new priorities for job creation? How are states balancing cuts with critical job-creating initiatives that will stimulate innovation, build infrastructure, provide skills training, and unleash the dynamism of small business?

    Job-Centric States Are Redesigning Government and Investing in Opportunity

    Determining where to cut and where to invest40 is the central challenge of the day. States must carry out short-term strategies to jump-start and/or sustain an as-of-yet lackluster recovery, and cut costs to make state government more efficient and to avoid financial calamity. Simultaneously, though, they must craft and invest in innovations and structural solutions that will foster long-term economic growth while reining in taxes and regulations that stifle job creation.

    In most states, revenues remain stubbornly down from where they were before the recession, and job growth is proving to be more elusive than in most previous recoveries. The strategies now being planned or undertaken by each state are based on their unique sets of interests, resources and capabilities, aligned with the opportunities that they see on the horizon and believe are conceivably within their grasp. Yet all states “will likely need a new network of market-oriented, private-sector-leveraging, performance-driven institutions”41 to restore and revitalize their economies.

    The 2011 Enterprising States study highlights state-driven initiatives to 1) redesign government, including measures to deal with excessive debt levels that inhibit economic growth and job creation, and 2) forward-looking, enterprise-friendly initiatives whose primary goal is to create the conditions for job creation and future prosperity.

    The policy initiatives and programmatic efforts are related to the five policy areas that were included in the original Enterprising States report.

    • Entrepreneurship and Innovation
    • Exports, International Trade and Foreign Direct Investment
    • Workforce Development and Training
    • Infrastructure
    • Taxes and Regulation

What’s different in 2011 and for the foreseeable future is that for many states the imperative for change is real. The choice is simple. To remain a job-creating, fiscally robust economy, states will either change on their own or change will continue to be forced upon them.

Investing In Opportunity

States are taking a hard look at making investments in and implementing initiatives to create and sustain high-growth, higher-wage, 21st century industries.States play a key role in the higher education landscape, so there is considerable support for and investment in programs that educate the future talent pool and foster collaboration between business, education and government on science and technology, technology transfer and entrepreneurial programs. As states evaluate their return on investment, performance-based funding has become a best practice for aligning colleges and universities as partners in workforce preparation and sources of opportunity, growth, and competitive advantage.

High-growth start-ups are the best generators of new jobs, accounting for nearly all net job creation in America in the last twenty-plus years. They are also the firms most likely to raise productivity, a basis for economic growth. They also create jobs that did not previously exist, and solve problems in a way that makes a difference in people’s lives.

States have stepped up their efforts to help companies scale up and grow in order to capture growing domestic and international markets. A number of states have established or expanded seed and growth-stage financing funds. Some have implemented economic gardening programs deliberately designed to focus on expanding existing second-stage companies that have viable growth opportunities. Several states have undertaken initiatives to fix deficiencies in the market that inhibit private-sector investment and entrepreneurial activity. Tax credits for angel investors and state-backed venture capital funds are just two examples.

Companies with a global reach that bring together multiple technologies or complex expertise—such as advanced manufacturing, investment banking, construction and engineering, and natural resources—are likely to drive the nation’s global competitiveness in the next few years, along with more focused technology companies that are part of complex virtual networks.44 For that reason, several states are implementing, and having considerable success with, programs to help companies expand into global markets by assisting in the development of a customized international growth plan. And, some states have made significant headway using focused and purposeful strategies to attract foreign direct investment.

Public-private partnerships and privatization initiatives for economic development and the provision of infrastructure are proliferating throughout the states. Building funds and bonding programs that involve private-sector investors are now widely used to construct specialized facilities for research, demonstration, and technology transfer in key economic sectors. Building on the lessons of the past, states have become considerably more adept at avoiding what Robert Fogel has called “hothouse capitalism,” in which government assumes much of the risk while private contractors and financiers take the profit.

While unemployment remains high, many currently available jobs go unfilled. America faces a shortfall of almost two million technical and analytical workers in the coming years, a situation that stands to thwart economic growth.45 Painfully cognizant of this dilemma, many states are establishing workforce training and development programs that address structural unemployment problems and the mismatch between available jobs and the skills of the existing workforce. The goal is to align training and academic programs with in-demand regional occupations, and to add greater flexibility to workforce training programs that have left some re-trainable individuals slipping through the cracks.

Forward-looking states are modernizing their education and workforce training initiatives by developing people-focused approaches that help and train workers in navigating their careers, provide assistance for entrepreneurs, make lifelong learning loans, and offer wage insurance plans. The goal is to empower people to find better jobs and/or to create new ones. Plainly, making America more globally competitive is vital, but the increasingly obvious gap in our economic discussions is an agenda for making Americans more personally competitive. In this view, forging a new economics for the Individual Age will require rethinking our economy from the bottom up in order to realize future growth and prosperity.

Finally, because energy issues, both current and future, have become such critical factors in business and for economic growth, states are getting serious about policies, initiatives and investments to provide clean, secure, safe and affordable energy tailored to regional, state and local resources. These include renewable energy standards, investments in research, development and commercialization of energy technologies and processes, and the establishment of new financing authorities to build the infrastructure that will extract and transport energy to the places where it will fuel new growth.

Redesigning Government

The fiscal situation of many states has caused them to reconsider the level of services they are providing and, certainly, the way that they deliver them. According to the Government Accountability Office, “Because most state and local governments are required to balance their operating budgets, the declining fiscal conditions shown in our simulations suggest the fiscal pressures the sector faces and foreshadow the extent to which these governments will need to make substantial policy changes to avoid growing fiscal imbalances.”

In The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis, David Osborne and Peter Hutchinson contend that Industrial Age government is just not up to the tasks and challenges at hand. Centralized bureaucracies, hierarchical management, rules and regulations, standardized services, command-and-control methods, and public monopolies are simply not aligned to Information Age realities. Today, government must be restructured and prepared for rapid change, global competition, the pervasive use of information technologies, and a public that expects quality and has lots of choices.

The keys, according to Osborne and Hutchinson, are to 1) get rid of low-value spending, 2) move money into higher-value, more cost-effective strategies and programs and 3) motivate all managers to find better, cheaper ways to deliver results. In sum, government needs to provide incentives, expect accountability, and allow the freedom to innovate.48
Government redesign efforts that are now underway or in the planning stages often follow the simple guidelines outlined above. Yet various approaches are now being used by state governments, including:

  • Consolidation, reorganization, or elimination of agencies, boards and commissions.
  • Regionalization of governance to decentralize decision-making and to customize and align service delivery with local circumstances.
  • Streamlining and modernizing bureaucratic processes to increase productivity and improve service delivery, often by deploying services online.
  • Experimenting with charter agencies that commit to producing measurable benefits and to saving money—either by reducing expenditures or increasing revenues—in exchange for greater authority and flexibility.

Steps to curb spending and reform taxation in the states have varied widely. States with the most serious fiscal problems are laying off workers, imposing hiring freezes, reducing spending for education and health care and ending or curtailing social services. Aid to local governments has been cut. For many states, current obligations for public pension funds and health insurance costs are unaffordable and future obligations represent a
looming financial disaster. Cuts, concessions and larger contributions from employees are now a necessary part of balancing the state’s checkbook.

Taxes and tax policies vary considerably among the states. To make up for lost revenues, most states have taken such actions as eliminating tax exemptions, broadening tax bases, and in some cases increasing rates as well as raising a number of fees. States have enacted increases in all of the major taxes they levy, including personal income taxes, general sales taxes, business taxes, and excise taxes. However, many states did reduce business taxes with new credits or expanded existing credits to encourage investment and growth in targeted industries.
Uncertainty, above all, is the antagonist of growth, investment, and job creation. States that cannot rid themselves of onerous DURT49 (delays, uncertainty, regulations and taxes) are in peril of putting the heaviest burdens on new and small businesses and on entrepreneurs, the real job creators in a growing economy. In a tight economy these considerations become more stringent for entrepreneurs and companies that are making economic decisions simply because the levels of uncertainty and the stakes are so much higher. Eliminating employment regulations and time-consuming processes that place unreasonable burdens on business can have a significant impact on job creation.

Moreover, the competitive identity of a state today relies increasingly on the degree to which the actions of the private, public and civic sectors are aligned with and corroborate the identity claimed or brand promise. A story must be backed up by actions: to simply proclaim an enterprise-friendly environment is no longer adequate.
States that are doing it right today are responsive and are taking a cooperative, supportive approach to dealing with new and existing companies. Their attitude and operating systems are customer-centric and their emphasis is on streamlining processes for obtaining permits, licenses, and titles.

Many state governments across the country are adopting a fast-track approach to achieving a better balance between the requirements of regulation and the need for new jobs and industry, so that that results have a higher priority than rules. This is the mindset that must guide the interface between government and business.
operating budgets, the declining fiscal conditions shown in our simulations suggest the fiscal pressures the sector faces and foreshadow the extent to which these governments will need to make substantial policy changes to avoid growing fiscal imbalances.”

In The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis, David Osborne and Peter Hutchinson contend that Industrial Age government is just not up to the tasks and challenges at hand. Centralized bureaucracies, hierarchical management, rules and regulations, standardized services, command-and-control methods, and public monopolies are simply not aligned to Information Age realities. Today, government must be restructured and prepared for rapid change, global competition, the pervasive use of information technologies, and a public that expects quality and has lots of choices.

The keys, according to Osborne and Hutchinson, are to 1) get rid of low-value spending, 2) move money into higher-value, more cost-effective strategies and programs and 3) motivate all managers to find better, cheaper ways to deliver results. In sum, government needs to provide incentives, expect accountability, and allow the freedom to innovate.48

Government redesign efforts that are now underway or in the planning stages often follow the simple guidelines outlined above. Yet various approaches are now being used by state governments, including:

  • Consolidation, reorganization, or elimination of • agencies, boards and commissions.
  • Regionalization of governance to decentralize • decision-making and to customize and align service delivery with local circumstances.
  • Streamlining and modernizing bureaucratic processes • to increase productivity and improve service delivery, often by deploying services online.
  • Experimenting with charter agencies that commit • to producing measurable benefits and to saving money—either by reducing expenditures or increasing revenues—in exchange for greater authority and flexibility.

Steps to curb spending and reform taxation in the states have varied widely. States with the most serious fiscal problems are laying off workers, imposing hiring freezes, reducing spending for education and health care and ending or curtailing social services. Aid to local governments has been cut. For many states, current obligations for public pension funds and health insurance costs are unaffordable and future obligations represent a
looming financial disaster. Cuts, concessions and larger contributions from employees are now a necessary part of balancing the state’s checkbook.

Taxes and tax policies vary considerably among the states. To make up for lost revenues, most states have taken such actions as eliminating tax exemptions, broadening tax bases, and in some cases increasing rates as well as raising a number of fees. States have enacted increases in all of the major taxes they levy, including personal income taxes, general sales taxes, business taxes, and excise taxes. However, many states did reduce business taxes with new credits or expanded existing credits to encourage investment and growth in targeted industries.
Uncertainty, above all, is the antagonist of growth, investment, and job creation. States that cannot rid themselves of onerous DUR (delays, uncertainty, regulations and taxes) are in peril of putting the heaviest burdens on new and small businesses and on entrepreneurs, the real job creators in a growing economy. In a tight economy these considerations become more stringent for entrepreneurs and companies that are making economic decisions simply because the levels of uncertainty and the stakes are so much higher. Eliminating employment regulations and time-consuming processes that place unreasonable burdens on business can have a significant impact on job creation.

Moreover, the competitive identity of a state today relies increasingly on the degree to which the actions of the private, public and civic sectors are aligned with and corroborate the identity

States that are doing it right today are responsive and are taking a cooperative, supportive approach to dealing with new and existing companies. Their attitude and operating systems are customer-centric and their emphasis is on streamlining processes for obtaining permits, licenses, and titles.

Many state governments across the country are adopting a fast-track approach to achieving a better balance between the requirements of regulation and the need for new jobs and industry, so that that results have a higher priority than rules. This is the mindset that must guide the interface between government and business.

Read the full report, including highlights of top performing states and profiles of job creation efforts in all 50 states.

Praxis Strategy Group is an economic research, analysis, and strategic planning firm. Joel Kotkin is executive editor of NewGeography.com and author of The Next Hundred Million: America in 2050

  • Enterprising States: Recovery and Renewal for the 21st Century

    This is an excerpt from "Enterprising States: Creating Jobs, Economic Development, and Prosperity in Challenging Times" authored by Praxis Strategy Group and Joel Kotkin. The entire report is available at the National Chamber Foundation website, including highlights of top performing states and profiles of each state’s economic development efforts.

    Read the full report.

    Read part two in this series.

    Restoring Growth and Upward Mobility: A Call to the States

    Over a year and a half into the recovery, the condition of the American economy is far from satisfactory. For the vast majority of Americans, conditions have improved only marginally since the onset of the Great Recession. Unemployment remains high, job creation meager, and American workforce participation has dropped to near record depths — the lowest rate in a quarter of a century.

    Not surprisingly, this spring’s Washington Post-ABC poll revealed that far more Americans feel the economy is getting worse than getting better. There seems to be what the New York Times described as “a darkening mood” among Americans about the future. Confidence in the Federal Reserve’s policies on the money supply has eroded among economists, as few benefits have accrued to smaller businesses and middle-class households.3 Times are particularly tough for entry level workers, including those with educations, and have been worsening since at least the mid-2000s.

    This stress is felt keenly by state and local officials, even in areas that aren’t suffering from the highest rates of indebtedness or pension liabilities. Without pension reform, the state of Utah, for example, would have seen its contributions to government workers’ pensions rise by about $420 million a year, an amount equivalent to roughly 10 percent of Utah’s spending from its general and education funds. The states often must deal with declining revenues at a time when the demand for services caused by the recession has increased. And, unlike the federal government, states can neither print their own money nor buy their own bonds.

    In the past, states could look to Washington for assistance. Now, whatever the intentions or real achievements of the stimulus package, future increases in federal spending seem likely to be meager at best. The 2010 election effectively ended the nation’s experiment with massive fiscal stimulus from Washington. Indeed, leaders of both parties, President Obama, and perhaps most importantly the capital markets, now acknowledge that deficit reduction will be a priority in the coming years.

    This presents a new, and perhaps unprecedented, challenge for the states. With Washington effectively forced to the sidelines, states will now have to address fundamental economic issues relating to growth and employment on their own. Most will have to do so without significantly increasing their own spending.

    For many states, the short-term prognosis is dire. Altogether, 44 states and the District of Columbia are projecting budget shortfalls for 2012 amounting to $112 billion. The upcoming fiscal year, according to the Center on Budget and Policy Priorities, will be “one of the states’ most difficult budget years on record. Retiree benefits for state employees add yet another strain, with the states facing a $1.26 trillion shortfall.”

    As a result, states and localities increasingly find themselves forced to impose tough, even draconian cuts in spending. This affects not only newly minted conservative Republicans, but new liberal Democratic governors such as California’s Jerry Brown and New York’s Andrew Cuomo. The only real debate now is how much to rely on taxes and how much on cuts in spending to address the fiscal issues ahead. One casualty: infrastructure spending, which was boosted by the stimulus, now seems to be winding down as well.

    This report will try to address the nature of this dilemma and suggest ways to best deal with it. Although we agree with the notion of fiscal probity, ultimately, states can deal with the fundamental problems only by spurring growth and upward mobility. This will not only create new revenues, but also dampen the demand for social services.

    A state can neither cut nor tax itself into prosperity. Weak public infrastructure combined with low taxes has failed through history to create strong state economies, as was long the case in the Southeast. But at the same time many large states—California, New York, Illinois—have raised taxes and spending and have suffered a strong out-migration of middle class citizens and jobs for decades.

    Now, faced with enormous deficits, there is a temptation to reduce those very “crown jewels,” such as the California public university system, into what University of California President Mark Yudof describes as “tatters.” In trying to balance their budgets, states run the risk of undermining their own long-term recoveries.

    The great danger that looms here, in our estimation, is not bankruptcy. Rather, it is long-term stagnation, in which growing demands for social services, combined with weak revenues. foster pressure for more taxes, reduced services or a deadly combination of both. This represents something of a existential problem in a country where the prospect for a better future has long been a hallmark.

    The founders of the republic understood the critical importance of maintaining this aspiration, and European observers were struck by the remarkable social mobility in America’s cities. In the 19th century, American factory workers and their offspring had a far better chance of entering the middle or upper classes than their European counterparts. In politics and in daily life, expansion of opportunity was seen as essential to the American experiment. Writing in 1837, one Whig lawyer in Pittsburgh suggested, “If you deny the poor man the means to better his condition . . . you have destroyed republican principles in their very germ.”

    Today, this traditional faith is being sorely tested in much of the country. Although both stock prices and corporate profits have rebounded, little has been done that has stimulated employment. Large companies may be sitting on large caches of cash, in part due to low interest rates and a buoyant stock market, but capital remains scarce for the small businesses that create most of America’s new jobs. Indeed, entrepreneurial growth, as the Kauffman Foundation recently found, has now slowed down among most segments of the population.

    Of course, there have been remarkable stories of wealth creation and success despite these hard times. But even in Silicon Valley—home to such high-fliers as Google, Apple and Facebook—the overall impact on jobs has been minimal. Of the nation’s 51 largest metropolitan regions, San Jose, the Valley’s heartland, has suffered the largest net loss of jobs over the past decade of any major metropolitan region outside Detroit. The San Francisco area suffered job losses only slightly lower, on a percentage basis, than hard-hit Cleveland.11 Due in part to financial controls, investment in promising new companies has become ever more undemocratic, with the bulk of new money pouring into firms like Facebook coming not from public markets, but from a small, well-heeled cadre of private investors. Venture-backed technology companies, notes Intel co-founder Andy Grove, now find it expensive to “scale” their operations and add employees in California or even the United States. As a result, he suggests, companies tend to indulge in “an undervaluing of manufacturing” that erodes employment. This contrasts with, for example, China, where job creation is considered “the number one objective of state economic policy.”

    Much the same can be said of New York, where the paper economy has been boosted by Fed policy but the creation of middle-income jobs continues to lag. New York City’s current financial boom—Wall Street pay hit a new record in 2011—simply reinforces a level of income inequality that is the highest in the nation. Unemployment in the toniest Manhattan precincts reaches barely five percent, while it’s 20 percent in working-class Brooklyn. Not surprisingly, the city’s distribution of wealth is now twice as unequal as in the rest of the nation. It may seem a model recovery on Wall Street, but it is less so on the streets of the nation’s premier city.

    In contrast, the states that have fared best in creating middle-class jobs have been either those close to the expanding federal government, another major beneficiary of the stimulus, or those that have attended to more basic industries, such as energy production, agriculture and manufacturing. These industries have propelled widespread expansions in the Great Plains, parts of the Intermountain West, Alaska and Texas.

    More interestingly, many of these states have also experienced a surge in STEM—science, technology, engineering and mathematics—related employment. In some states, this has come as a result of continuing state investment in education and training; in most cases, these states have simply tended to create a business-friendly atmosphere for companies of all sorts. They have also generally kept housing costs low, something critical to young families.

    Perhaps the best way to look at our evolving economy is not so much from the point of view of companies or industries, but of individuals. States often focus on their largest employers, but those companies have been cutting jobs for the past decade. Since 2000, large corporations—which employ roughly one-fifth of American workers— have stopped hiring, as they did in the previous decade, and actually reduced their payrolls by nearly three million while adding 2.4 million jobs abroad.

    Andrei Cherny, an Arizona Democrat writing in the journal Democracy, suggests that “both progressives and conservatives have offered little in the way of new answers as their long-held orthodoxies run headlong into new realities.” Cherny admits that the stimulus and the Fed’s strategy of loose money—what he calls “government by hot check”—failed to address the needs of the nation’s large class of small entrepreneurs.

    Left out of the equation are the small businesses that, according to the Bureau of Labor Statistics, employ half of all workers and create 65 percent of all new jobs. Most of these firms are small, under-capitalized, and run by single proprietors or families.

    In this environment, notes economist Ying Lowery, “Business creation is job creation.” The states that will do best are those that create the conditions to lure and retain those who start companies or who are selfemployed. Policies that target managers of hedge funds, venture firms, or large corporations have their place, but the real action—particularly in a world of ever-changing technology and declining long term employment—lies in the movement of individuals.

    Under these conditions, where individuals migrate or decide to settle will have a critical impact on which states or regions grow. Three dynamic population segments— educated workers, immigrants and downshifting boomers—illustrate the factors that drive their migration patterns. In many ways they represent the “canaries in the coal mine”; where they go is generally where the air is good for entrepreneurship.

    The movement of educated workers has become a much discussed topic among pundits and economic developers in recent years. One common assumption is that “the best” migrants tend to move to “hip and cool” locales, generally on one of the coasts. These workers then form the core of growing industries and, more importantly, new ones. Yet the evidence tells a somewhat different, perhaps surprising, story. An analysis of recent Census data on the migration of educated workers finds that the biggest net growth has taken place not in New York, San Francisco and Boston, but in places like Nashville, Houston, Dallas, Austin, and Kansas City. Indeed, many of the leading “creative class” states, notably California, Massachusetts and New York, fared considerably worse than regions in states such as Missouri, Kansas, Texas and Tennessee in terms of net migration numbers.

    These location choices have to do with how individuals make decisions: people move primarily for reasons related to jobs, family, and housing. An analysis of the migration of educated workers, for example, reveals that, for the most part, these workers are moving away from expensive, dense regions to more affordable, generally less dense places. This migration also tends to parallel moves to those states that generally impose fewer regulatory burdens on business.

    Perhaps even more surprisingly, we see a similar pattern in minority and immigrant entrepreneurship. These groups now constitute a growing percentage of business startups. Overall, according to the Kauffman Foundation, foreignborn immigrants in 2010 constituted nearly 30 percent of all new businesses owners, up from 13.4 percent in 1996. This has also been the one outstanding segment of the population whose entrepreneurship rate has grown throughout the current recession.

    As with the case of educated migrants, minority entrepreneurs tend to establish themselves in less expensive, more business-friendly, and generally less heavily regulated metropolitan regions. A recent survey of minority migration and self employment by Forbes found that the best conditions for non-white entrepreneurs were in metropolitan areas in Georgia (Greater Atlanta), Tennessee (Nashville), Arizona (Phoenix), Oklahoma (Oklahoma City), and several Texas cities (Houston, Dallas, San Antonio and Austin). In contrast, most regions in California and the Northeast, outside of the Washington, D.C. metropolitan area, did quite poorly.

    Jonathan Bowles, president of the New York-based Center for an Urban Future, has traced this poor performance to a myriad of factors including sky-high business rents, which stymie would-be entrepreneurs in minority communities. “[Entrepreneurs] face incredible burdens here when they start and try to grow a business,” Bowles suggests. “Many go out of business quickly due to the cost of real estate and things like high electricity costs. It’s an expensive city to do business in without a lot of cash.”

    Boomers are unique compared to traditional senior populations. According to the Kauffman Foundation, they tend to be more likely to start businesses than are younger age groups. In 1996, people between 55 and 64 years of age accounted for 14 percent of entrepreneurs; in 2010 they represented 23 percent.

    Less is known about the migration of aging boomers, a large segment of the population, but evidence so far suggests that they, too, are moving to such states. According to AARP, most boomers prefer to stay close to where they live—mostly in suburbs—or where their children tend to move, that is, to the low-regulation states of the South and West.

    States can draw on these migration patterns in developing their economic policies. Generally, people migrate to states with jobs, and states with population gains generally produce more employment than those with slower growth. Indeed, despite the great disruptions of the mortgage crisis, regions such as Orlando, San Bernardino-Riverside and Las Vegas all recorded double-digit employment gains over the last decade.

    More recent developments suggest that future growth may depend on several critical factors. It is clear, for example, that investments in education—for example in Austin, Raleigh-Durham and parts of the Great Plains—have paid off by attracting both individuals and industries, and have made these areas among the healthiest employment markets in the country. Some of these states have suffered less fiscal distress than states elsewhere in the nation, and have benefited from their educational investment through hard times. Investments in community colleges may prove to be particularly essential, since their role in providing skilled workers has been critical in many states.

    States that have invested in new infrastructure such as ports, airports, roads and improved transit tend to have a leg up on others that have failed to do so. Even relatively low-tax states such as Texas have invested heavily in recent years in roads and port facilities, which are critical to industries locating there. Even during the recession, many industries—from manufacturing and environmental firms to health care and information technology—have had trouble hiring skilled workers. States are responding by creating job-oriented training programs in states like Ohio, New York, Tennessee, Washington and Wisconsin, which have all established technical institutions separate from community colleges. Tennessee alone has 27 such “technical centers” offering one-year certificates for certain jobs.

    Overall, as Delaware Governor Jack Markell has pointed out, businesses generally do not want to eliminate government, but rather want it to be useful for economic growth. Markell, who has done some considerable budgetcutting himself, believes that the focus needs to be on expanding the economy, which will requires improvements not only in schools, but in transportation infrastructure that will make the free market work better.

    Perhaps even more important has been creating a favorable business climate. California, for example, possesses the greatest basic economic attributes of any state: a mild climate, location on the Pacific Rim, a world-class university system, and a legacy of strong infrastructure investment. Yet today, despite the presence of leading global industrial zones such as Hollywood and Silicon Valley, as well as the country’s richest agricultural sector, California’s unemployment remains well above the national average and job growth has remained relatively tepid. After many years in denial, even some of the state’s most progressive politicians realize that something is amiss. In a remarkable development, for example, California leaders including Lieutenant Governor Gavin Newsom recently visited Texas to learn from the large state that has fared best during the long recessionary period. Given the political gap between Californians like Newsom, a former mayor of San Francisco, and Texas Governor Rick Perry, this represents something of a “Nixon in China” moment.

    This is not to say that California, or any other state, should draw its economic policy from another state. Those states that attempt to use tax incentives to “lure” industries with no overwhelming need to relocate — as shown in recent findings about Illinois incentives to movie-makers — are often disappointed. In many cases, the incentive game becomes a classic “race to the bottom,” in which the benefits of new jobs often prove transitory. Since the 1990s, just two percent of job growth and decline has been due to businesses relocating across state borders, yet the costly practice of using unfocused tax expenditures to poach companies continues.

    Nor can states reliably predict which industries will need more workers over the long term. In the 1990s, economist Michael Mandell predicted that cutting-edge industries like high-tech would create 2.8 million new jobs; in reality, notes a 2010 New America Foundation report, they actually shed 68,000.30 Each state and each region has its own peculiar economic DNA. States with exportable products—for example the Great Plains or the Upper Midwest—may need to focus on ways to get their output efficiently to market. Already affordable, they may also choose to increase their attractiveness to high value-added companies and educated individuals by boosting their education systems and making their metropolitan regions more congenial to well-educated migrants.

    In other states such as New York or Massachusetts, the economy is focused on intangible exports like financial services and software. Making themselves more affordable for both individuals and companies may be the best way for states to improve competitiveness. Over the long term, no state economy can sustain its people if it only focuses on the “luxury” sectors; the large number of unemployed and underemployed workers will drain state resources. As those state resources become more limited, decisions about how to structure tax incentives or where to place education and infrastructure investments must be based upon a deep understanding of this economic DNA. Strategic investments will limit wasteful spending and maximize impact in the economic sectors where a state is most likely to grow.

    Ultimately, there is only one route to sustainable state economies, and that is through broad-based economic growth. The road to that objective can vary by state, but the fundamental goal needs to be kept in mind if we wish to see a restoration of hope and American optimism about the future.

    Read the full report, including highlights of top performing states and profiles of job creation efforts in all 50 states.

    Praxis Strategy Group is an economic research, analysis, and strategic planning firm. Joel Kotkin is executive editor of NewGeography.com and author of The Next Hundred Million: America in 2050

  • Detroit: A Century On The Smart-Growth Grid

    The following excerpts are from a report that was intended to solve many of the planning issues facing one of America’s largest cities: Detroit. Its conclusions are in many ways counter to the ‘Smart Growth’ principles being promoted by influential decision makers. It was compiled by the city’s highest level planners and engineers:

    “One disadvantage under which Detroit is working is the extremely mixed character of its building – fifty thousand dollar houses, warehouses, saloons, institutions, slums, factories of all sorts, inexpensive dwellings, great apartment houses, and huge billboards follow one another almost in the same block, to the great detriment of practically all classes of occupancy. A zone system, if established, would bring order out of this chaos; and it would so stabilize the character of neighborhoods as to greatly increase land values. Though such control may at present be impossible, much may be done to assist in establishing zones or districts confined to one type of use, such as residential, industrial, and the like.”

    This suggests that the ‘Smart Growth’ goals of mixed uses and mixed incomes may not be so ‘smart’.

    Of course, those who believe in intermixing all sorts of uses and incomes on the same block refer to cities where, a century ago, such a mix was normal, and suggest that the isolation of modern transitional zoning is a far worse option.

    As we read further:

    “In this report, stress will be laid on the less expensive residential development, for which… if the street and lot system is not well adapted to it, there will result serious and at the time wholly unnecessary waste and expense. Moreover, the added cost in land and improvements is apt to cause a deduction in the cost of the building which will lower the standard of living in an entire district.”

    In other words, this report is referring to the importance in lower income residential development to create the most efficient form of streets and infrastructure. This would free up funds that would have otherwise been used for wasteful design to be applied to housing. The results of reducing wasteful construction would enhance living standards, instead of lowering them. The authors of this report understood the importance of efficiency, and how it relates to the welfare of residents outside the gentrified sections of the city. The report goes onto recognize one of the most important financial aspects of development:

    The house should normally represent three fourths of the cost; the improvements, such as sewers, sidewalks, etc. about an eighth; and the raw land an eighth.

    Why is this so critical? Before the current housing market crash and the resulting depletion of American bank accounts, home builders traditionally stood by this model. But after the dot-com bubble, where investors put their money into vapor-ware only to see their investments disappear, the new favorite investment became land and buildings. In many areas of the country developers and national home builders went on a bidding spree, hiking raw land prices into the stratosphere. In the past, the financial rule was that a completed lot could not exceed 1/4th the total home price. The ‘rule’ was now broken, ignored or modified. Financial institutions also turned their heads away. Had the real estate market continued to hold fast to the above formula that served history so well, there may not have been a housing crash.

    The report questions another aspect of ‘smart growth’, too:

    “No Alleys. Alleys are unnecessary and wasteful of room, except where dwellings are in continuous rows or in groups of three or more. For detached and semi-detached cottages the space between adjacent houses necessary for light and air is sufficient also for a walk from the street to the back door.”

    While alleys are fodder for heated discussions from many sides of the planning field, clearly this city’s planners do not like them, yet this particular city is full of alley-laden blocks. Those that blame poor planning on the automobile embrace alleys as a way to hide cars in the rear yards. What this actually does is literally surround the home with pavement and vehicle use-areas. Instead of reducing the connection between home and automobile, it increases the connection. The authors clearly recognize this, and go on to promote common gardens and play areas in the rear yards instead.

    The report is very specific about street design. It suggests that the streets be sized for the traffic count, rather than creating unnecessarily wide streets everywhere, perhaps recognizing that too many cities have one size that is supposed to fit all. Unfortunately, planning and engineering consultants often seem to feel, inexplicably, that a short cul-de-sac in a city serving 10 lots somehow carries the same traffic as a street with ten times or more that number of homes. Many sections of Las Vegas, for example, from the air look like a sea of paving and rooftop – and that’s in the suburbs!

    The report addresses street grids, as well:

    “In rough topography the rectangular and the formal have no place, as they require heavy construction expense otherwise unnecessary. Even in flat country… the depressingly monotonous effect of the rectangular system should be avoided, on economic grounds if no other, for the dead level of mediocrity to which it brings districts depreciates their total value very materially. While to be sure no site is worth very much less than the average, none is worth very much more, whereas with variety in the layout many lots may be created with unusual value, due to location, attractive outlook, and special shape of lot adapted to the needs of the particular resident.”

    Oh my, such harsh words against the very grid pattern that the ‘Smart Growth’ movement promotes. It seems that the authors are suggesting a much more organic design, which can eliminate the monotony that detracts from housing and community values. It would seem that the very rigid relationships that are being promoted by ‘smart code’ proponents would not be embraced in this city, at least not by the top level staff and advisors.

    The details of this report?

    DETROIT
    Published by the Commission
    1915

    It was located in the Cornell University Archives library annex. Called Detroit Suburban Planning, and authored by Arthur Coleman Comey, Landscape Architect, it was based on the preliminary plan for Detroit by Edward H. Bennett, Architect. It included input from the commissioner of parks and boulevards, the commissioner of public works, and the city engineer.

    I grew up just outside the border of Detroit in the 1950s and early 1960s. It seemed that, for the most part, development continued on the same grid patterns, ignoring this report for at least the 40 years that followed its publication.

    Today, to provide a hope for sustainability for Detroit, we need to heed the report and provide better housing for those that cannot live in architectural wonderlands that only the wealthy can afford, or be subsidized by tax dollars that are no longer available. The development process of trying to jam each and every unit allowed by a regulation’s most minimal dimension in order to achieve the highest possible density pretty much guarantees that the development will fall into the very same traps that the report warned us about.

    Rick Harrison is President of Rick Harrison Site Design Studio and Neighborhood Innovations, LLC. He is author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable and creator of Performance Planning System. His websites are rhsdplanning.com and performanceplanningsystem.com. To learn more about the kind of communities described in the report, check out Harvard University’s Graduate School of Design’s Landscape Urbanism writings and programs, or, to learn more about Prefurbia as applied specifically to this kind of redevelopment, click http://www.rhsdplanning.com/redev.swf (to request a DVD, contact rharrson@rhsdplanning.com.