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  • More Clouds Over Sky-High Metro Housing

    Can housing costs get so high that they repel new migrants, and stunt a metropolitan area’s economic growth?

    For potential migrants looking for a job, metropolitan areas—and in particular large metropolitan areas—are the places to be. People move in because that’s where the jobs are. More than 93% of non-farm jobs in the U.S. are in the 100 largest metropolitan areas. The biggest 15 metro areas account for 34% of the nation’s jobs. Big places also have the benefits of cultural amenities, educational institutions, and impressive retail and restaurant environments.

    The combination of population growth, a constrained supply of land, and local land use policies, however, work together to put upward pressure on housing costs. Wages in big cities are typically higher than in other places. In theory, this compensates for higher housing costs. But is this notion a thing of the past?

    One measure of housing affordability in metropolitan areas is the Housing Opportunity Index (HOI), produced quarterly by the National Association of Home Builders, and defined as the share of homes sold in a metropolitan area affordable to a household earning the local area median income, using standard mortgage underwriting criteria. The nation’s largest metropolitan areas—the so-called Mega metropolitan areas—are the least affordable places to live as measured by the HOI. They also experienced the biggest drop in affordability over the 2000-2007 period: The average HOI for the Mega metropolitan areas dipped from 54.3 to 34.5 between 2000 and 2007 (Table 1). In other words, 54.3% of homes in the nation’s largest metropolitan areas were affordable to the median income household in 2000, but only 34.5% were in 2007.

    Metropolitan Area Hierarchy
    Population
    Mega metro greater than 2.5 million
    Major metro 1 to 2.5 million
    AAA metro 500,000 to 999,999
    AA metro 250,000 to 499,999
    A metro less than 250,000
    Source: D. A. Plane, C. J. Henrie, and M. J. Perry.  2005. Migration up and down the urban hierarchy and across the life course. PNAS 102(43).

    Given the run-up in home prices, household migration to the Mega metropolitan areas should have slowed between 2000 and 2007, while migration to smaller, more affordable places should have been relatively higher.

    Table 1. Housing Opportunity Index by  Metropolitan Area Type: 2000 and 2007
    Percent of Homes Affordable to Median Income Household
    Metropolitan Area Type 2000 2007 Pct. Change
    Mega metropolitan 54.3 34.5 -19.8
    Major metropolitan 68.3 57.5 -10.9
    AAA metropolitan 70.7 53.2 -17.5
    AA metropolitan 66.4 56.2 -10.3
    A metropolitan 70.3 62.5 -7.8
    All metropolitan areas 68.7 58.3 -10.4
    Source: National Association of Home Builders and author’s calculations

    In-migration rates (Table 2) fell between 2000 and 2007 for all sizes of metropolitan areas, with somewhat larger drops in the Mega metros.

    Table 2. Household In-Migration Rates (per 10,000 housing units) by Metropolitan Area Type: 2000 and 2007
    Metropolitan Area 2000 2007 Pct. Change
    Mega metropolitan 401 367 -8.8
    Major metropolitan 449 423 -5.8
    AAA metropolitan 467 440 -5.8
    AA metropolitan 544 501 -7.9
    A metropolitan 560 526 -6.1
    All metropolitan areas 527 492 -6.6
    Source: IRS County-to-county migration files and author’s calculations

    Is there a statistical relationship between a metropolitan area’s housing affordability and household in-migration rates in a given year? The short answer is no. A simple correlation between metropolitan area HOI and in-migration rate for both 2000 and 2007 show a weak negative relationship between housing affordability and household in-migration rates.

    What does seem to matter is the change in housing affordability over time. There is a positive and large correlation between the change in HOI between 2000 and 2007 and in-migration rates in 2007. That is, places where affordability dropped between 2000 and 2007 generally had lower rates of household in-migration in 2007. Places that became more affordable between 2000 and 2007 had higher in-migration rates in 2007.

    Why would the change in housing affordability be related to in-migration when a metro area’s current affordability is not? It may be that changes in housing affordability are actually signals for a multitude of economic changes. Generally, we think of home prices as being influenced by changes in the local economy. When a region loses jobs, as some metro areas in the mid-West have, home prices fall and the region becomes more affordable.

    But it is also possible that the relationship can work differently. Can home prices influence job growth, particularly when prices rise quickly and wages cannot keep up? Perhaps the phenomenon is a result of employers not being able to expand their businesses and add jobs because they could not find workers that could afford to re-locate. Perhaps new firms did not locate in places with rapidly escalating housing costs because the wage premium got too high. Perhaps the disadvantages of large metropolitan areas started to outweigh the advantages, at least on the margins.

    Job data from the Bureau of Labor Statistics provides some preliminary indications on the economic effects of housing unaffordability in large metro areas. In metropolitan Miami, for example, the HOI dropped 49 points, from 58.8 in 2000 to 10.0 in 2007. The job growth rate in Miami slowed considerably in 2007. The number of jobs in the Miami metro area grew by about 3% annually in 2004, 2005 and 2006; however, in 2007, jobs grew by only 0.6%. In the Washington DC metro area, where the HOI dropped 39 points between 2000 and 2007, job growth proceeded at a stable 2.0 to 2.5% annual growth rate in 2004, 2005 and 2006. In 2007, however, job growth was at 0.8%.

    In many places where housing affordability improved—or at least did not decline too much—job growth held steady or increased in 2007. Many of these were Major metro areas (with populations between one and 2.5 million). For example, the HOI for Denver increased six points, from 58.5 in 2000 to 64.5 in 2007. The job growth rate in Denver in 2007 was 2.2%, up from 2.1% in 2006, 2.0% in 2005 and 0.8% in 2004. In Pittsburgh, the HOI was up 8.6 points and annual job growth rates were steady between 2004 and 2007. In Rochester, NY, the HOI was up five points and job growth in 2007 was stronger than in 2006.

    So—big drops in housing affordability may be a problem for a metropolitan area’s economic health. High housing costs make it more difficult to attract labor. The wage premium needed to offset the high housing costs becomes untenable at some point. As a result, new firms stop locating in high cost areas and existing firms are unable to add jobs.

    Eventually, of course, job losses would put downward pressure on housing costs and the metropolitan area’s economy would stabilize. Large metropolitan areas will end up with a smaller share of the nation’s jobs after this stabilization process. If large places are good for economic activity because of the agglomeration benefits they provide, the dispersion of economic activity may not be a good thing for them.

    How can the biggest cities best prosper? Large, high cost metropolitan areas can stem economic slowdowns through policy changes that increase the supply of housing, thereby reducing housing costs. These policy initiatives would include changes to local land use and building regulations to encourage the construction of more housing. A regional approach to increasing the housing supply would focus on promoting housing near transit and employment centers.

    In the last two years, home prices have declined across many high cost metropolitan areas; however, job growth has already slowed disproportionately in many of these regions. This trend will likely continue in the near future. If the nation’s largest places are to be the dominate location for job growth in the future, regional and local policymakers need to develop comprehensive housing strategies that treat housing as an integral part of a regional economic development policy.

    Photo by limonada (Emilie Eagan), Late Afternoon and Almost Stormy

    Lisa Sturtevant is an Assistant Research Professor at George Mason University School of Public Policy, Center for Regional Analysis.

  • How Obama Lost Small Business

    Financial reform might irk Wall Street, but the president’s real problem is with small businesses—the engine of any serious recovery. Joel Kotkin on what he could have done differently.

    The stock market, with some fits and starts, has surged since he’s taken office. Wall Street grandees and the big banks have enjoyed record profits. He’s pushed through a namby-pamby reform bill—which even it’s authors acknowledge is “not perfect”—that is more a threat to Main Street than the mega-banks. And yet why is Barack Obama losing the business community, even among those who bankrolled his campaign?

    Obama’s big problems with business did not start, and are not deepest, among the corporate elite. Instead, the driver here has been what you might call a bottom-up opposition. The business move against Obama started not in the corporate suites, but among smaller businesses. In the media, this opposition has been linked to Tea Parties, led by people who in any case would have opposed any Democratic administration. But the phenomenon is much broader than that.

    The one group that has fared badly in the last two years has been the private-sector middle class, particularly the roughly 25 million small firms spread across the country. Their discontent—not that of the loud-mouthed professional right or the spoiled sports on Wall Street—is what should be keeping Obama and the Democrats awake at night.

    Small business should be leading us out of the recession. In the last two deep recessions during the early 1980s and the early 1990s, small firms, particularly the mom and pop shops, helped drive the recovery, adding jobs and starting companies. In contrast, this time the formation rate for new firms has been dropping for months—one reason why unemployment remains so high and new hiring remains insipid at best.

    Here’s one heat-check. A poll of small businesses by Citibank, released in May, found that over three quarters of respondents described current business conditions as “fair or poor.” More than two in five said their own business conditions had deteriorated over the past year. Only 17 percent said they expect to be hiring over the next year.

    It’s not hard to see the reasons for pessimism. Entrepreneurs see bailed-out Wall Street firms and big banks recovering, while getting credit remains very difficult for the little guy. In addition, many small businesses are terrified of new mandates, in energy or health, which makes them reluctant to hire new people. Small banks—not considered “too big to fail”—fear that they will prove far less capable of meeting new regulatory guidelines than their leviathan competitors.

    The small business owners I’ve spoken to—like most of the public—generally don’t seem convinced about the effectiveness of the stimulus, even if the administration claims it helped us avert an economic “catastrophe.” Barely one fourth of voters, according to a recent Rasmussen poll, think it helped the economy.

    Obama’s troubles with the bigger firms are more recent. Initially, President Obama wowed the big rich, leading The New York Times to dub him “the hedge fund candidate.” By the time he won the election, he enjoyed wide support from the Business Roundtable, the Silicon Valley venture community and other titans.

    Initially, big business was happy with Obama’s stimulus plan, and more or less was ready to acquiesce to both his health-care reforms and cap and trade. After all, most large companies generally provide some health coverage to their employees. For Wall Street, cap and trade represents just one more wonderful way to arbitrage their way to more profits.

    Of course, some corporate titans will remain loyal to the White House. Take the lucky folks from Spanish- based Abengoa Solar, who are now getting $1.45 billion in federal loan guarantees for an Arizona solar plant that will create under 100 permanent jobs while providing expensive, subsidized energy to perhaps 70,00 homes. If this is stimulus, it’s less jarring than a decaf from Starbucks. Also let’s dismiss those on Wall Street who whine about the administration’s occasionally tough anti-business rhetoric. Wolves should have thicker skins. The Obama administration and Congress have delivered softball financial reform dressed up as major progressive change. They should be grateful, not petulant.

    But there’s clearly something more serious than hurt feelings at play here. The pain felt by small businesses is hitting the big boys, too. After three straight bad years, small businesses buy a lot less stock, business services, and equipment. Big companies can hoard their money and sport big profits, but ultimately they have to sell to consumers and small firms. Maybe that’s something that the media moguls—who after all have to sell to the hoi polloi—have been picking up on, too.

    This has led some Obama allies, like GE’s Jeffrey Immelt, to grouse that Obama does not like business, and vice versa. “Government and entrepreneurs are not in sync,” he explained to reporters in Europe. So, too, has Ivan Seidenberg, the head of the once Obama-friendly Business Roundtable, who denounced the administration recently for creating “an increasingly hostile environment for investment and job creation here in this country.”

    Among businesses of all sizes, there is now a pervasive sense that the administration does not understand basic economics. This is not to say they believe Obama’s a closet socialist, as some more unhinged conservatives claim. That would be an insult to socialism. Obama’s real problem is that he’s a product, basically, of the fantastical faculty lounge.

    For the most part, university professors do not much value economic growth, since they consider themselves, like government workers, a protected class. Many, particularly in planning and environmental study departments, also embrace the views of the president’s academic science adviser, John Holdren, who suggests Western countries undergo “de-development,” which is the opposite of economic growth.

    Of course, such ideas, if taken seriously, have economic consequences. You want to see the future? Come to California, where the regulatory stranglehold is killing our economy. Subsidizing favored interests also is not a winning strategy. There’s simply not enough money to maintain a federal version of Chicago-style baksheesh. The parlous state of Obama’s home state of Illinois—which manages to make even California or New York appear models of prudent management—demonstrates the futility of the subsidize-the-base game.

    The worst part is that none of this was necessary. A stimulus plan that helped workers and communities by recreating a WPA for the unemployed youths might have gained wide support on Main Street. Credits for hiring, reductions in payroll taxes or a regulatory holiday for small firms also might have bolstered business confidence. Business people, particularly at the grassroots level, would also like to see a return for the detested TARP in a freer flow of credit for their firms. They are not so much hostile to Obama as puzzled by his inability to address their needs.

    But for now, the stimulus is widely seen as a wasted opportunity and proof of Washington’s enduring incompetence. As a result, roughly 80 percent of Americans, according to Pew, say they don’t trust the federal government to do the right thing, which does not bode well for a second round of pump-priming.

    This leaves business turning back to the Republicans. Not because most see them as competent or even intelligent; GOP rankings are also at a low ebb. Business owners across the spectrum are forced to embrace the “party of no” because Obama and the Democrats have given them so little to say “yes” to.

    This article originally appeared in The Daily Beast.

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

    Official White House Photo

  • Revisiting Toronto’s G20 Costs

    In the lead up to the G20 conference, the security costs were projected to approach a billion dollars. As high as this number sounds, sources are now speculating that the total bill could be closer to $2 billion. Shocking as that number is, the costs incurred by local businesses may have exceeded that total.

    In addition to the physical damage to the hundreds of shops that were smashed in, there were major productivity losses during, and in the week before the conference. The most visible opportunity cost was the sharp decline in retail sales. According to Monaris Solutions, businesses within the security barrier saw a 28.08% decline in sales, and a 40.87% decrease in transactions. Businesses outside of the barrier experienced a 10.78% decline in sales, and a 16.43% decrease in transactions. The total city decline in sales was 9.31%, with 14.96% less transactions. This may not seem like that much, until you consider that the city has $47 billion in annual retail sales. A crude calculation puts the total retail losses in the $386 million range for the 25-27th. Given that this is a summer weekend, it is probably a low estimate.

    The implicit costs to the financial sector would be difficult to tabulate. With 223,000 employees, even minor disruptions to the sector are extremely costly. Many of the large banks asked their employees to work from home for several days, which certainly caused some level of productivity costs. Many of them also had to temporarily move their trading floors outside of the downtown core. Moreover, each bank needed to prepare its employees for the inevitable disruptions during the conference. As the security boundaries shifted, and government policies to deal with the conference changed, banks were required to hold multiple meetings in preparation. Assuming each meeting lasted a half hour, and the average employee earns $20/hour (an understatement), the financial sector would have lost roughly over $2 million for every single preparatory meeting.

    Unfortunately, it is impossible to calculate the full cost of the summit to Toronto businesses. The banks have been fairly quiet about their own costs, likely because of the Harper government’s strong stand against implementing a global bank tax, a move that would have devastated the global financial sector. Though there have been no public statements from the banks, there are rumors circulating that the financial sector lost at least as much as retailers. Those same rumors have it that the overall economic losses exceeded the security costs (based on the original security estimates). With nearly $400 million in retail losses alone, this seems realistic. Let’s hope this G20 experience has finally put to death the myth that hosting controversial global political meetings in major cities brings economic benefits.

  • U-Haul to Ohio?

    If one measures a state’s popularity on the cost of U-Haul rentals, then Ohio is losing out to the sunny Florida beaches big time. The one-way rental fees for a 26-foot U-Haul truck show a significant disparity in the cost to go from Florida to Ohio and the cost to go from Ohio to Florida. The rate for going from Miami to Cleveland is $1,000 compared to $1,457 if the destination was swapped, resulting in a 45.7% premium to leave Ohio. That percentage still pales against the 50.4% premium to go from Cleveland to Tampa or the whopping 56% premium to go from Cleveland to Orlando. U-Haul is offering deep discounts for Ohio-bound travelers, which hopefully for Ohio, will attract more people.

    This is not unique to Florida either. U-Haul rates to go to and from states like Texas and Pennsylvania reflect the same pattern. Some speculate that Ohio’s higher taxes are to blame for the exodus, but who knows; maybe Ohioans just want a change of scenery.

  • 60% of GDP Too Much for High Speed Rail: Vietnam National Assembly

    In a surprise move, the Vietnam National Assembly rejected plans proposed by the government to built a high speed rail line from Ho Chi Minh (Saigon) to Hanoi.

    Some opponents expressed concern that the line would not be competitive with air service. The 900 mile route, which was to operate at up to 186 miles per hour, would take between five and six hours to make the trip between Vietnam’s two principal cities. This compares to the current two hour trip by air. Concerns were expressed that this travel time, combined with fares that would need to be competitive with those of airlines would be insufficient to make the line a viable economically.

    But the strongest objections were expressed with respect to the context of such a large expenditure in a developing nation. The high speed rail line would have cost an amount equal to 60% of Vietnam’s gross domestic product, even before the cost overruns that have typically plagued such projects. This is akin to spending $8.5 trillion on high speed rail in the United States (more than $25,000 per capita).

    National Assembly member Nguyen Minh Thuyet told the Agence France-Press that some children in the Central Highlands can only get to school by swinging on a cable across a river because they have no bridge, questioning the validity of such an expensive project in light of the nation’s low income.

    Photograph: Ho Chi Minh (Saigon)

  • “James Drain” Hits Cleveland

    The ten story of mural of LeBron James is coming down in Cleveland. This one hurts. James wasn’t just the latest embodiment of Cleveland’s hopes, he was a local kid who, unlike so many, had stayed home in Northeast Ohio. His joining of the Cleveland exodus at a time of severe economic distress prompted Cavaliers owner Dan Gilbert to pen a now infamous open letter to fans:

    As you now know, our former hero, who grew up in the very region that he deserted this evening, is no longer a Cleveland Cavalier…..The good news is that the ownership team and the rest of the hard-working, loyal, and driven staff over here at your hometown Cavaliers have not betrayed you nor NEVER will betray you….This shocking act of disloyalty from our home grown “chosen one” sends the exact opposite lesson of what we would want our children to learn. And “who” we would want them to grow-up to become….

    Forty years of frustration boiled over in that letter. Gilbert is from Detroit, but perhaps that’s why he too shares these feelings so viscerally.

    Cleveland’s “Big Thing Theory”

    In a sense though, Cleveland’s disappointment was inevitable. LeBron James was never going to turn around the city. No one person or one thing can. Unfortunately, Cleveland has continually pinned its hopes on a never-ending cycle of “next big things” to reverse decline. This will never work. As local economic development guru Ed Morrison put it, “Overwhelmingly, the strategy is now driven by individual projects….This leads to the ‘Big Thing Theory’ of economic development: Prosperity results from building one more big thing.”

    These have all failed, now even “King James”. The trend lines haven’t changed, even where the individual projects have done well. But often even that hasn’t happened. For example, the Flats, a once-thriving entertainment district in an old warehouse district, now resembles, as one local comedian put it, a “Scooby Doo ghost town.”

    Combating “James Drain”

    James’ departure also fits the narrative of generalized anxiety around “brain drain” and cities losing their best and brightest of each generation. As lots of people really have left Cleveland, this is understandable. But the real story is much more complex. A look at IRS tax return data shows that in reality Cleveland doesn’t have especially high out-migration. Its metro out-migration rate* in 2008 was 28.02. Miami’s was 40.34 and for even the boomtown of Atlanta it was 38.95. Not only is Cleveland not losing an especially high number of people, you can actually argue it is losing too few. A big part of the problem in Cleveland’s economy is that too many people are stuck there.

    Conversely, a real migration problem is that too few people are moving in. As local attorney Richard Herman noted, “New York City and Chicago, like most major cities, see significant out-migration of their existing residents each year. What is atypical is that Cleveland does not enjoy the energy of new people moving in.” The Cleveland metro in-migration rate was only 22.19. Miami’s was 30.36 and Atlanta’s a robust 51.91.

    Cities need new blood. Cleveland isn’t getting it. Its circulatory system is shut down. Cleveland needs more natives to leave and more newcomers to arrive. Both sides win. Those Cleveland departees will move on to be part of the new energy other cities so desperately need. James is going to get to live the high life he wants in South Beach, but somebody else will be fired up to get the opportunity to play in Cleveland.

    Selling Cleveland

    But that begs the question, what’s going to get more people to move to Cleveland? The fact is, James wasn’t getting the job done, and never would. Nor will amenities like the Cleveland Orchestra or the Rock and Roll Hall of Fame Museum.

    The mistake Cleveland and other Rust Belt cities make is that they are too worried about the likes of LeBron James moving to Miami. For people with the means and the desire to choose a place like South Beach, Cleveland simply can’t compete. And let’s not forget, James snubbed Chicago, New York, and Los Angeles too.

    Rather than trying to take on the Chicagos, Miamis, and New Yorks of this world at their strongest points, Cleveland would be far better served ceding that market and fighting where it can best compete. Believe it or not, not everyone wants to live in a huge global city. There are plenty of people who might choose to live in Cleveland, if the city focused on the basic blocking and tackling of city services, quality of life, and business climate instead of splashy grands projets. As Anthony Bourdain said this week:

    I think that troubled cities often tragically misinterpret what’s coolest about themselves. They scramble for cure-alls, something that will “attract business”, always one convention center, one pedestrian mall or restaurant district away from revival. They miss their biggest, best and probably most marketable asset: their unique and slightly off-center character….Cleveland is one of my favorite cities. I don’t arrive there with a smile on my face every time because of the Cleveland Philharmonic.

    In short, Cleveland needs less South Beach, less Chicago Loop, and more American Splendor. Ultimately, my bet is Cleveland will end up missing Harvey Pekar a lot more than it will any multi-millionaire sports star.

    Shooting the Messenger

    Who is going to get that message out about Cleveland? After that sendoff, it sure won’t be LeBron James. That’s a shame. As Jim Russell has richly illustrated, people make migration – and investment – decisions based on knowledge, not just information. Nobody picks a city to live in by entering reams to statistics into a sixteen tab spreadsheet. They’re more likely to move to be near family, friends, or places they know. That knowledge comes from first hand experience – and trusted recommendations.

    Until the switch flips on Cleveland’s brand, it needs to be out earning that trust of prospective residents. The people who’ve left aren’t Judases, they’re your field sales force – or at least they should be. James could have been a missionary “Witness” for Cleveland in a foreign land. Instead, Cleveland blew an enormous opportunity, and left itself with little more than soured memories and a partially demolished mural as an ephemeral reminder of yet another failed Next Big Thing.

    * Tax return exemptions migrating per 1000 overall tax return exemptions in the base year.

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

    Photo by alexabboud

  • JIll Starr

  • The Democrats’ Middle-Class Problem

    Class, the Industrial Revolution’s great political dividing line, is enjoying Information Age resurgence. It now threatens the political future of presidents, prime ministers and even Politburo chiefs.

    As in the Industrial Age, new technology is displacing whole groups of people — blue- and white-collar workers — as it boosts productivity and creates opportunities for others. Inequality is on the rise — from the developing world to historically egalitarian Scandinavia and Britain.

    Divisions are evident here in the United States. Throughout the 2008 presidential campaign, Barack Obama lagged in appealing to white middle- and working-class voters who supported Hillary — and former President Bill — Clinton.

    Now, these voters, according to recent polls, are increasingly alienated from the Obama administration. Reasons include slow economic growth, high unemployment among blue- and white-collar workers and a persistent credit crunch for small businesses. These factors could cause serious losses for Democrats this fall — and beyond.

    This discontent reflects long-term trends. Since 1973, for example, the rate of growth of the “typical family’s income” in the United States has slowed dramatically. For men, it has actually gone backward when adjusted for inflation.

    The past few years have been particularly rough. About two in five Americans report household incomes between $35,000 and $100,000 a year. Right now, almost three in five are deeply worried about their financial situation, according to an ABC poll from March.

    This should give Democrats an issue, theoretically. But to date, Obama and his party seem incapable of harnessing the growing middle- and working-class unrest.

    In fact, according to recent polls, these have been the voters that Democrats and the president have been losing over the past year as the economic stimulus failed to make a major dent in unemployment.

    Part of this problem lies with the party’s base, which the urban historian Fred Siegel once labeled “the coalition of the overeducated and the undereducated.” Major urban centers like New York, Chicago and San Francisco might advertise themselves as enlightened, but they have lost much of their middle class and suffer the highest levels of income inequality.

    Representatives from these areas now dominate the party and reflect their bifurcated districts. They often stress the concerns of the educated affluent on issues like climate change and gay marriage, while their economic policies focus on the public-sector workers, “green” industries and maintaining the social welfare net.

    Not surprisingly, this agenda does little for the middle-class — mostly suburban — voters.

    Sen. Scott Brown (R-Mass.), for example, won his margin of victory in largely middle- and working-class suburbs, where many voters had backed Obama in 2008, according to demographer Wendell Cox. Brown lost by almost 2-to-1 among poor voters — and also among those earning more than $85,000 a year.

    Given the danger revealed by these numbers, Democrats and other center-left parties around the world should refocus their policies on issues — such as taxes, private-sector job creation and small business — that affect such voters.

    For this growing class divide can be found globally: In China, for example, technological change and globalization have produced a new proletariat that, unlike in the past, is disinterested in warmed-over Maoist ideology.

    Perhaps nothing demonstrates this more clearly than the unrest at the Foxconn Technology Group. Workers produce cool products — for companies like Apple, Dell and Nintendo — but under such oppressive conditions that some have been driven to suicide.

    Mounting protests about Foxconn’s employment practices, and a recent rash of strikes in China’s Honda plants, reveal the disruptive potential of this class conflict.

    Even as China’s corporations and government become richer, inequality is widening. Indeed, over the past 20 years, China has shifted from an income-distribution pattern like that of Sweden or Germany to one closer to Argentina’s or Mexico’s. By 2006, China’s level of inequality was greater than that of the United States or India.

    Not surprisingly, class anger has reached alarming proportions. Almost 96 percent of respondents, according to one recent survey, agreed that they “resent the rich.”

    China’s class divides may be extreme, but similar patterns can be found almost everywhere. From India to Mexico, economic growth has led to a striking increase in the percentage of urbanites living in slum conditions.

    In 1971, for example, slum dwellers accounted for one in six Mumbaikars. Today, they are an absolute majority.

    This almost guarantees greater class conflict in the future, even as India’s economy booms.

    “The boom that is happening is giving more to the wealthy,” said R.N. Sharma of Mumbai’s Tata Institute of Social Sciences. “This is the ‘shining India’ people talk about. But the other part of it is very shocking — all the families where there is not even food security.We must ask: ‘The “shining India” is for whom?’”

    This growing inequality in the developing world is already shaping global politics. The failure of the Copenhagen climate change conference can be largely ascribed to the unwillingness of China, India, Brazil and other developing countries to sacrifice wealth creation opportunities for ecological reasons.

    Like their counterparts in New Delhi and Beijing, politicians in wealthier countries also face class conflict.

    In Britain, for example, even a massive expansion of the welfare state has done little to stop the U.K. from becoming the most unequal among the advanced European democracies.

    Alienation among white working-class voters — particularly those in the public sector or with modest small businesses — may have contributed to the Labour Party’s poor showing in the recent elections, according to Liam Byrne, the former Labour treasury secretary.

    A similar phenomenon appears in Australia. Labor Prime Minister Kevin Rudd, an icon among upper-class liberals, resigned in large part because of a precipitous decline in the polls among middle- and working-class suburban voters.

    What is not clear is whether conservative parties can abandon their often slavish devotion to big corporate interests to take advantage of these new dynamics. For years, these parties have relied on divisive social issues, like immigration, to win working- and middle-class voters. But it’s possible that a focus on profligate government spending might yet increase the right’s appeal among mid-income voters.

    As this current shift to greater inequality continues, the self-styled “popular” parties’ tendency to ignore class issues could prove disastrous.

    Unless they start addressing class issues in effective ways, they may lose not just their historical base but the political future.

    This article originally appeared in Politico.

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

    Official White House Photo by Pete Souza

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