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  • How To Save The Industrial Heartland

    You would think an economic development official in Michigan these days would be contemplating either early retirement or seppuku. Yet the feisty Ron Kitchens, who runs Southwest Michigan First out of Kalamazoo, sounds almost giddy with the future prospects for his region.

    How can that be? Where most of America sees a dysfunctional state tied down by a dismal industry, Kitchens points to the growth of jobs in his region in a host of fields, from business services to engineering and medical manufacturing. Indeed, as most Michigan communities have lost jobs this decade, the Kalamazoo region, with roughly 300,000 residents, has posted modest but consistent gains.

    Of course, Kalamazoo, which is home to several auto suppliers, has not been immune to the national downdraft that has slowed job growth. But unlike the state – which he describes as “a hospice for the auto industry” – Kalamazooans are already looking at expanding other emerging industries, including advanced machining, food processing, medical equipment, bioscience and engineering business services. Unemployment, although above the national average, is more than two points below the horrendous 9.3% statewide average.

    As Kitchens notes, this relative success came through often painstaking and laborious work, a marked departure from the “magic bullet” approach to economic recovery that often dominates Michigan and other rustbelt states. In the past, Michigan Gov. Jennifer Granholm has touted ideas about developing “cool cities” to keep young people from bolting to more robust locales and, more recently, on the promise of so-called “green jobs” tied to sustainable energy.

    “People don’t want to talk about ‘blocking and tackling,’” Kitchens suggests. “You keep your head down and keep pushing. It’s not sexy but it works over the longer term.”

    For his part, Kitchens never much embraced the idea of coolness – a “cool Kalamazoo” effort even received $100,000 from Gov. Granholm as part of her strategy of promoting “creative urban development” as a way to keep talent in the state.

    Of course, this gambit failed miserably almost everywhere, even before the recent economic meltdown. Nearly one in three residents, according to a July 2006 Detroit News poll, believes Michigan is “a dying state.” Two in five of the state’s residents under 35 said they were seriously considering leaving for other locales.

    Kitchens does not express much faith either in Granholm’s latest gambit, developing Michigan into a green energy superpower. After all, states like Texas and California have a wide lead in these technologies and other areas, notably the Great Plains, possess a lot more wind and biofuel potential. And in terms of low-mileage “green” vehicles, the Big Three lag way behind not only the Japanese but even some European competitors.

    So instead of believing in reincarnation or finding some miraculous cure, Kitchens believes places must rely on exploiting their historic advantages. In the case of Michigan, those are assets like a powerful engineering tradition and a hard-working and skilled workforce that can be harnessed in fields outside the auto industry. In addition, the area enjoys a cost of living significantly below the national average and far less than those in the coastal states.

    “There’s no easy way to get out of the trouble the region is in,” Kitchens suggests. “You can’t make it by trying to be ‘cool places’ or be the green capital. Instead we have to focus on who we are, a place that has a great tradition of advanced engineering, and take advantage of this.”

    So far this approach has paid off, leading to the creation of some 8,000 new jobs over the past three years. The region has focused both on bringing in new companies as well as helping existing ones expand. Perhaps most importantly, it has also raised a $50 million venture capital fund from local investors to help launch fledgling entrepreneurs.

    The region also boasts an extensive set of business incubators, which seek to leverage the engineering skill of those just out of school or those who have left bigger companies.

    The Kalamazoo experience shows one way out for not only Michigan but also other struggling Midwestern industrial hubs. Another promising example can be seen in Cleveland’s recently developed “District of Design,” which seeks to capitalize on the regions historic strengths in specialty manufacturing. It is all about taking advantage of the embedded DNA that exists in these once wondrously productive places.

    This approach can even revive the residues of the automobile industry. There may be widespread and deserved contempt for the top management of firms like General Motors, but industry veterans repeatedly point out that the region – most particularly the area around Detroit – retains an enormous reservoir of engineering talent, which could provide the linchpin for regional recovery.

    One recent sign validating this was the opening of a new $200 million Toyota research and development center in suburban Detroit. The key reason for making the investment, noted Japanese Consul-General Tamotsu Shinotsuka, was Michigan’s “abundant human resources.” If you are looking for “resources” who know the business of building cars and engines, locating in Michigan has certain logic.

    Of course, this talent pool long has been available to the Big Three. However, as retired automotive engineer Amy Fritz has suggested, they have been ill-used by top management. American engineers, the British-born and educated Fritz suggests, are not inherently less talented than their Asian or European counterparts. They tend be more innovative but their creativity is often stifled by the short-term oriented management priorities of their bosses.

    “With or without a bailout, the Big Three as we have known them will not be the same,” writes Fritz. “One or two could disappear. Others will no doubt shrink. However, the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.”

    Indeed, even in a future with a shrunken Big Three – and perhaps the extinction of at least one of them – the industrial heartland does not have to die. Nor does it have to become a permanent “hospice” for failed once-great companies. The way to a long-term prosperous future cannot be built by depending on the administrations of Washington or the political clout of the United Auto Workers.

    Instead, Michigan, and much of the industrial heartland, should build a strategy that taps into culture that once made it the envy of the manufacturing world. These people are the key to any recovery, the ones who can both transform fading companies or start new ones. As the late Soichiro Honda once told me, “What’s important is not gold or diamonds, but people.”

    This is the basic lesson of business that the current leaders of the Big Three, most Michigan politicians and perhaps too many on Capitol Hill have forgotten, or perhaps never learned. The industrial heartland may be down but as long as the talent and will is there, it is far from out.

    If you do not believe it, take a little trip up to Kalamazoo, which may be quietly showing how to take the Great Lakes toward a new and brighter future.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Doug McDonald

  • Railcars as Economic Indicators

    With the nation locked in the firm grips of recession, one indicator of our country’s import demand and manufacturing capacity is being stockpiled in Montana. Just south of Great Falls, along the Missouri River, Burlington Northern Santa Fe (BNSF) Railway Co. is stockpiling flatbed container cars – a lot of flatbed cars. By some accounts, there are about 1,500 railcars, or 1.5 percent of the North American flatbed fleet and roughly 5 percent of the BNSF fleet, parked between Great Falls and Helena suggesting that Americans are buying and importing less from foreign manufacturers and manufacturing less for foreign consumption. If and when they are brought back into rotation will depend on freight demand – driven by American consumption.

  • Bailing out California, Again

    If many of the nation’s governors have their way, the next agenda item for the spendthrift federal government could be a bailout of state budgets. According to a report issued on December 10 by the Center on Budget and Policy Priorities, 37 states face mid-year 2009 budget deficits, totaling $31.7 billion. As would be expected from its size, California leads the pack at $8.4 billion. However, California’s shortage is well above its share, at more than one-quarter of the total which is double its share of the population.

    Yet it gets worse. Later, California Governor Arnold Schwarzenegger announced that the budget deficit had risen to $14.8 billion, which would take its share of the deficits to more than three times its share of the population. All of this is after a long and drawn out legislative process that was to have closed a previous $22 billion deficit earlier in the year.

    For years, California boasted a strong economy, with the world’s leading technology, entertainment and agricultural industries. The state’s Legislative Analyst claims that California would be the 7th largest economy in the world if it were a nation. California is rich not only in the aggregate, but at the ground level. Only eight of the 50 states have a higher gross state product per capita. This means that California is per capita the richest large economy in the world. Thus, any bailout would be disproportionately financed by parts of the country that are often far less affluent.

    How can it be that California stands in such tatters seeking a handout? Why are people from other states, at least 30 of which wouldn’t even rank in the top 50 economies of the world, being asked to prop up this dynamo?

    The problem starts in Sacramento. California has been pitifully served by its state government. After missing the June 30 statutory deadline for balancing the 2009 budget, the legislature and governor spent the better part of the next three months doing everything they could to finish the job. In the final analysis they pretended to balance the budget with math that virtually no-one believed. That’s probably why there has been so little outrage at the new $15 billion deficit that has developed so quickly.

    But the buck doesn’t stop with lawmakers. After all, California’s electorate has repeatedly sent the elected representatives to Sacramento that have produced this mess. In California the voters themselves seem oblivious to the financial status of the state.

    This is likely to get worse before getting better. In the past voters could be counted on to vote down expensive new projects in hard times. But not anymore. In November they approved more than $30 billion in additional bonded indebtedness when they should have been asking for either a draconian spending cut or the tax increases. Californians will not be stopped from living beyond their means.

    So how can this continue? One way is for the world’s richest largest economy to be bailed out by people in states that are generally poorer and have been more frugal than California. The state’s powerful congressional delegation, with such heavyweights as Speaker Nancy Pelosi and Henry Waxman, the new boss of the House Energy and Commerce Committee, are likely to see to it that the national interest is sacrificed on behalf of California.

    The final irony here is the nation and indeed the world is already paying a heavy price for another exercise in Californian excess. The state is ground zero for the mortgage meltdown. It was here that house prices exploded. State and local land use policies provided the fuel for much of the increase, so that when demand increased in response to the profligate lending, the housing supply market could not adequately respond (unlike other higher demand parts of the country).

    With the most bloated housing bubble in the nation, mortgage losses understandably were concentrated in California. California, which accounts for 12 percent of the national population has accounted for more than one-half of the aggregate loss in housing value. California house prices dropped at least 10 times as much as the national average since the peak of the bubble. When the people could not pay their mortgages, unprecedented losses occurred and house values plummeted from 25 percent to 50 percent in some areas. Enough people who had virtually no financial stake in their houses walked away.

    California’s ability to spend every dollar the nation can print on its behalf should not be underestimated. Boatloads of federal money for California are likely to postpone any genuine efforts to improve California’s long run financial picture. The often used line about fighting a fire with gasoline has few better applications. A state that has thrown financial caution to the wind is not likely to adopt the necessary frugality with a new, national source of revenue. The special interests that have driven California’s spending into the stratosphere will not be more inclined to moderate their demands or to spend less lobbying money in Sacramento’s corridors. California’s taxpayers, perhaps the most anti-tax in the nation, are not likely to accept higher taxes if Washington can be counted on to pay instead.

    There could be no worse signal to California’s dysfunctional governor and legislature than to bail them out. With the situation deteriorating daily, bailing out California could become a continuing national obligation – sort of like Iraq, but without the prospect of an exit date.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Bailing out on the Dreamland…And Returning Home

    My father, who was from eastern Kentucky, headed with millions of other Appalachian people for the “promised land” after the great depression. The promised land in that day consisted of cities such as Dayton, Detroit, Gary, and Cincinnati, out of which rose great factories that employed thousands on giant “campuses.” They thrived through the vigor of this transplanted workforce – uneducated like my father but full of gumption, tenacity and work ethic.

    My father tells of begging for a job: when turned down by Personnel, he went running, not walking, to see the foreman who put him “right to work that night.” It was in those factories that my dad and other “immigrants” found good middle-class pay…if little in the way of inspiring work. But, he and the others were not picky, as necessity was the mother of this invention.

    Today the world is different. Many of the workers who left for jobs in other cities are returning home to Appalachia – and not entirely by choice. Many of them are being laid off from the auto factories with little else to turn to but family and ties to “place”.

    This creates a new challenge to areas like Appalachia and my region, eastern Kentucky. These are no longer inevitable geographies of distress; certainly they are no more challenged that those of the former dreamscapes up north around the Great Lakes.

    The media will be slow to see this change. Recently CNN focused on the poorest of the poor in Clay County, Kentucky in ways that fit the media stereotype as a home to the ignorant, the racist and the sexist. They even quoted a Clay County woman who observed that “Hillary’s place was in the home.”

    The media is not the only group stuck on the old images. From Kennedy’s famous tour to LBJ’s announcement of the War on Poverty in 1964 from a front porch in Inez, Kentucky to John McCain’s visit during the primary, the region has proven to be an enigma to presidents and policy makers who abhorred the intractable poverty they saw there. It just wasn’t right that an America of plenty would have that “other” “third” world so resistant to the policies and dollars designed to provide transformation.

    In the past, policies were implemented that alternately featured the fundamental nature of the people – not always flattering – to absentee ownership and the exploitation of its rich minerals by outside interests. Or they reflected radical policies and programs that did not take into account the unusual ties to local culture and the strong sense of place and community – attributes that are not often in line with of the culture of consumerism and national mega-corporate prominence.

    Have we reached a turning point where the peeling away of the onion reveals not a past assessment of red America as epitomized by sound bite depictions but one of lessons that can be learned? We were surprised if not alarmed by a Greenspan who admitted that he too was caught off guard by the crash of 2008. We were lulled into believing that Harvard and Yale graduates really do know more and are smarter than the rest of us. We were lulled into believing that just one more plastic Santa or TV set made in China was going to fill the void in our busy lives.

    Have we turned a corner? My father tells of his father making mandolins to supplement his small income as a dirt farmer. He also tells of crops failing and of meager, if existent, Christmas presents. But each spring this man with ties to the land and place reminds me to “plant my corn when tree buds are the size of squirrel ears.” Now I don’t know the first thing about planting corn or even what a squirrel ear looks like. But as we move through the current crisis and a reassessment of the American Dream, I hear echoes of a desire here not to embrace modernity but to seek a return of front porches; local foods and farms; a desire for something beyond the cold flickering computer screen in the middle of the night; and an understanding that we may have, if not more information, perhaps more wisdom than those who hold themselves out as experts.

    All this will be critical as we consider people returning from the Great Lakes and the big cities back to Appalachia. Rather than seeing them as new victims, or unreconstructed red staters, the Obama Administration needs to regard these people as assets for renewing a part of the country that, always close to last, can begin to fulfill its own potential on its own terms.

    Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

  • Chicagoan

  • Financial Crisis: Who will Bailout the State and Local Governments?

    The continual Illinois corruption scandals have created not only ignominy to the Land of Lincoln, but have now placed a negative ranking from Standard and Poor on its credit. If Illinois vies with other states for the title of most corrupt, it has plenty of company when it comes to financial disaster.

    Although building for years, the impending collapse of state and municipal finance has been hastened by the growing financial crisis. The year 2008 will go down as one of the most turbulent years in the history of financial markets. Long established companies such as Lehman Brothers, Fannie Mae, Freddie Mac, and Citigroup have imploded. Large retailers like Circuit City have already filed for bankruptcy and, without federal help, huge companies like General Motors will join the parade.

    Yet with all the turbulence in the private economy, there has been much less media attention on the coming bankruptcy of some municipalities and perhaps even some states. Many of us are taught in college finance classes that the yield on municipal bonds always has to be lower than U.S. Treasury securities, largely due to their exemption from federal income taxation. This normal pricing of municipal bonds no longer exists. Municipal bond yields, the last couple of months, are consistently higher than U.S. Treasuries. This tells us that the credit markets perceive great risk in lending to America’s cities. The perceived ability to pay back principal is now the operating rule in the credit markets.

    As of this writing, Triple-A rated, Tax-Exempt General Obligation Bonds are yielding over 5% while the 30 Year Treasury Bond yields around 3%.This suggests that many communities and some states as well may be in distinct danger of default.

    There’s a general pattern as to where the biggest problems lie: in those states and communities where public employee unions wield all but unlimited power. This is not so much the fault of unions – the purpose of every union is to gain higher wages for its workers – but in many states and cities there is no counterforce to their influence. This becomes a vicious circle. Local politicians overpay unionized government workers who make campaign contributions and organize “get out the vote” drives to make sure the politicians keep overpaying them.

    The most recent famous example is the California city of Vallejo filing for Chapter 9 bankruptcy. George Will writes:

    Joseph Tanner, who became city manager after this municipality of 120,000 souls was mismanaged to the brink of bankruptcy, stands at a white board to explain the simple arithmetic that has pushed Vallejo over the brink. Its crisis — a cash flow insufficient to cover contractual obligations — came about because (to use figures from the 2007 fiscal year) each of the 100 firemen paid $230 a month in union dues and each of the 140 police officers paid $254 a month, giving their respective unions enormous sums to purchase a compliant City Council.

    So a police captain receives $306,000 a year in pay and benefits, a police lieutenant receives $247,644, and the average for firefighters — 21 of them earn more than $200,000, including overtime — is $171,000. Furthermore, police and firefighters can store up unused vacation and leave time over their careers and walk away, as one of the more than 20 who recently retired did, with a $370,000 check. Last year, 292 city employees made more than $100,000. And after just five years, all police and firefighters are guaranteed lifetime health benefits.

    The recent news out of the state of California is no better. The L.A. Times reports that California’s budget deficit could reach $41 Billion by 2010. Can California continue to pay 3600 prison guards over $100,000 a year? It would be wrong to single out California. Many other places are on pace for financial ruin.

    Massachusetts is another state where unions have hijacked the political process for the benefit of their members. Last year, The Boston Globe reported how lucrative rent-seeking can be:

    Nearly one in 10 Massachusetts State Police officers made more than the governor last year, with 225 officers topping the $140,535 annual salary of the state’s chief executive.Four of the 2,338 state troopers were paid more than $200,000, and 123 others were paid more than $150,000, the salary of the governor’s Cabinet secretaries, according to payroll information obtained by the Globe under the state public records law.

    And that brings me back to my home state of Illinois. We not only face an immediate cash flow crisis but also must confront an underfunded public pension fund deficit of more than $50 Billion, and the Blagojevich scandal has held up a needed $1.4 billion short-term bond offering. Chicago Public Radio reports the Illinois pension deficit is “larger than the state’s annual budget.” There is a clause in the Illinois State Constitution that prevents any state or local government worker’s pension from being cut. Will a federal bankruptcy judge have to come in and void a section of the Illinois State Constitution?

    When the major credit rating agencies failed to accurately price in the risk of subprime mortgages, questions about their rating standards are now becoming quite important. If you can’t trust Moody’s, Standard and Poor’s, and Fitch, what should you be looking for if you want to own municipal bonds?

    In the coming years, many municipalities and state governments will need to deal with the conflict between those who pay taxes and those who consume them. Government workers’ salaries come from the taxpayers: which means government workers aren’t net taxpayers. Cheap and easy credit might no longer be available to help pay for overpaid government workers.

    This situation can be resolved in two ways. As in a bankruptcy proceeding, states and cities can work with unions to control costs and reduce obligations. Or they can – as Wall Street and Big Three have done – come to Washington, DC to beg. Once that happens, the long-term credibility of Washington’s debt will need to rise to record levels, with implications that are almost too horrific to contemplate.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • Rust Belt Realities: Pittsburgh Needs New Leaders, New Ideas and New Citizens

    The current recession provides a new opportunity for Pittsburgh’s elite to feel good about itself. With other boom economies from Phoenix to Miami on the skids – and other old Rust Belt cities like Detroit, Cleveland and Buffalo even more down on their luck – the slow-growth achievements of the Pittsburgh region may seem rather impressive.

    Yet at the same time, the downturn also poses longer-term challenges for which the local leadership is likely to have no answers.

    In large part, Pittsburgh’s “success,” such as it is, has been based on what may be called a “legacy economy,” essentially funded by the residues of its rich entrepreneurial past. This includes the hospitals, universities and nonprofits whose endowments have underwritten the expansion of medical services and education, which have emerged as among the region’s few growth sectors.

    The other great advantage Pittsburgh has – as do potentially other shrinking Rust Belt burgs – is lower housing prices. That’s the good news. But the lack of a great surge in housing prices during the real estate “bubble” also testifies to the region’s general lack of overall attractiveness and its languid job market.

    The current national economic meltdown now changes these realities, and in ways that may not allow Pittsburgh and other slow-growth burgs as much comfort as they might wish.

    For one thing, the “legacy” economy is almost certain to start shrinking as the portfolio investments of universities, hospitals and nonprofits begin to erode. After all, these institutions rode the boom elsewhere for a long time; they now will reap the consequences of that dependence.

    Perhaps even more important, the great housing advantage seems certain to weaken as a net positive. As prices in Florida, Arizona and even California begin to decline, Rust Belt residents who’ve been thinking of moving to warm weather, more dynamic economies and lively entrepreneurial environments will now have their chance.

    To thrive, Pittsburgh simply cannot rely on being somewhere that is a good place to go to school, get sick or die. It needs to offer restless, entrepreneurial people an opportunity to succeed and do something new.

    As local blogger Jim Russell notes, the real problem with his hometown is not that people leave, but that others do not come to replace them. People always leave places, but exciting locales – Los Angeles, New York, Seattle, Houston or San Francisco – also attract large numbers of new people. The immigrants, many of them seeking the “main chance,” are generally the people who shake things up and bring new energy to places.

    Who seeks their “main chance” in Pittsburgh? Certainly not foreign immigrants, who are staying away in droves. Metropolitan Pittsburgh has one of the lowest percentages of foreign-born residents in the nation. Even Detroit, with its sizable Arab population, has some sort of ethnic vibe.

    In the short run, some might argue, not having immigrants relieves the stress on schools and eases potential social tensions. Yet in the America that is emerging, these newcomers represent arguably the most dynamic new element and harbingers of the future. By 2000, one in five American children already were the progeny of immigrants, mostly Asian or Latino; by 2015 they will make up as much as one-third of American kids.

    Rather than compliment itself on not exhausting itself by running too fast, the Pittsburgh region should think about producing enough of a pulse to attract immigrants and aggressive young people. A place that reassures itself on the basis of its stable, homogeneous and rapidly aging population seems doomed to achieve little better than self-satisfied stagnation.

    City leaders may be proud to see Pittsburgh hailed in the media – most recently by USA Today and the Cleveland Plain Dealer – as a poster child for urban “renaissance,” yet these glowing accounts are clearly not inspiring many people to settle there.

    Indeed, in a nation with the most vigorous demographics in the advanced industrial world, the City of Pittsburgh continues to suffer one of the most precipitous declines in population. Like the former East Germany, the town needs more coffins than cribs. Even the suburbs of Pittsburgh have been losing population.

    More worrisome, there seems no strategy – or even an inclination of needing one – to change this reality. Rather than stimulate the grassroots economy, the region for decades has sought to revive itself by spending billions on new stadia, arenas, convention centers and cultural facilities, sometimes in the process demolishing vibrant working-class neighborhoods or local business districts. Meanwhile, the roads and bridges of the city – which continues to battle bankruptcy – are in a constant state of disrepair.

    Every time I read about or visit Pittsburgh, the powers that be have a new project to prove to themselves that the city actually has a life. Most recently, it’s a lame-brained scheme to create a 1.2-mile, $435 million (at least) transit tunnel under the Allegheny River to connect Downtown’s heavily subsidized office towers to the North Shore’s even more heavily taxpayer-funded pro sports stadiums and a future casino.

    Yet, in reality, Pittsburgh’s “Tunnel to Nowhere” is simply part of the same old brain-dead development strategy that may impress visiting journalists or conventioneers but creates little in the way of good new jobs or long-term opportunities.

    You have to think about what the energetic people who come to a community really want – things like economic opportunities, single-family houses and good schools for their kids. Who but speculators and city officials cares about luring the latest ESPN Zone or Planet Hollywood? These kinds of venues are simply commodities now, with no sense of place and available in any city of decent size willing to subsidize them.

    So what should the Pittsburgh region do differently?

    The first thing would be to consider using its scarce public funds to revive the old urban neighborhoods and leafy suburbs that constitute Pittsburgh’s greatest competitive advantage. These are places that may attract students now, but to matter in the long term, some of these young people must stay after they graduate. This will be particularly critical as the current “echo boom” begins to fade and the now record-high number of students begins to drop.

    Second, the region should target growing small businesses. The era when Pittsburgh was a big-business town is all but over. In 1960, 22 Fortune 500 companies were headquartered there. Now it’s roughly a third that number. High taxes, tiresome regulatory regimes and the enormous burden created by outsized city employee pensions have hit the small entrepreneur hardest. Addressing these issues is more important to them than new arts venues or jazz clubs.

    Finally, the city needs a shtick to call its own. It might look at its historic strengths as an innovative engineering city. Pittsburgh could look also to its hinterland, a region rich in beauty and resources, as part of its competitive advantage.

    All of these things could provide linchpins for a true renaissance – one driven not by public relations and shiny new subsidized edifices, but by the energy of its people.

    That’s what has always made for great cities – and what will do so well after this current recession has passed into memory. Pittsburgh has the potential to catch the inevitable next wave that will emerge after the crisis, but only if it can get past its long-standing celebration of mediocrity.

    This article originally appeared at Pittsburgh Tribune-Review.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Infrasystems Build 21st Century Economies

    Infrastructure investment has been a key driver of economic development throughout American history. In our country’s earliest days, the building of canals and turnpikes, followed by construction of railroads, greatly catalyzed expansion and development. Later, investment in electricity and telephone networks facilitated the development of vast expanses of the American landscape. More recently, the national interstate highway system and now the continuing build-out of broadband telecommunications networks have democratized the geography of business endeavors that were once confined to large metropolitan centers.

    Highways, airports, harbors, utility distribution systems, railways, water and sewer systems, and communications networks remain critical elements in economic development. But in today’s globally competitive, net-centric economy a great advantage will accrue to regions and industries that develop sophisticated “infrasystems” including such innovation infrastructure such as university and lab facilities, technology and training centers, export processing facilities, and research parks.

    These infrasystems – integrating facilities, technology and advanced socio-technical capabilities – have emerged as key drivers of innovation and the locus of future higher-value industries and higher-paying jobs.

    Infrasystems differ by region. For some communities they can be constructed around a key asset such as a local hospital, equipped with medical technology and operated by a highly skilled staff of health care professionals. For a place like Wenatchee, Washington where Internet giant Yahoo decided to locate a data center, the key infrasystems asset lay in a highly aggressive economic development community and low cost, clean energy.

    Wenatchee represents a classic success story for an infrasystems approach. They took many of the right steps including a $12 million investment by the Port of Chelan County and others in the Confluence Technology Center, a state‐of‐the art facility built specifically to attract information technology companies to the area. Another factor in this success is $50 million investment by the Chelan County Public Utility District (PUD) in laying fiber‐optic cable to homes and businesses.

    If our infrastructure policy and financing debate is going to center around miles of paved road, number of bridges or even the number of construction jobs – certainly all worthy objectives – we could still miss the key target of creating long-term employment and making our country, and regions, more competitive. Advanced infrasystems represent the cutting edge economic tool of the 21st Century.

  • Make Sure All That Infrastructure Spending Is Well Supported

    It’s the new buzzword: infrastructure.

    President-elect Barack Obama has promised billions in infrastructure spending as part of a public works program bigger than any since the interstate highway system was built in the 1950s. Though it was greeted with hosannas, his proposal is only tapping into a clamor for such spending that’s been rising ever since Hurricane Katrina hit New Orleans in 2005 and a major bridge collapsed in Minneapolis last year. With the economy now officially in recession, the rage for new brick and mortar is reaching a fever pitch.

    But before we commit hundreds of billions to new construction projects, we should focus on just what kind of infrastructure investment we should – and shouldn’t – be making. More important, we should think beyond temporary stimulus and make-work jobs and about investments that will propel the economy well into this century.

    After all, it’s not that we stopped spending on infrastructure over the past decade. It’s that mostly, we haven’t spent on the right things.

    New York City, for example, has wasted billions on its bloated bureaucracy and on constructing new sports stadiums and other ephemera deemed necessary to maintain Mayor Michael Bloomberg’s “luxury city.” Meanwhile, many of its subway and rail lines have deteriorated. Over the decades, brownouts and blackouts, caused in part by underinvestment in energy infrastructure, have become common during periods of high energy use in the summer.

    Similarly, California Gov. Arnold Schwarzenegger has extolled the Golden State as “the cutting-edge state . . . a model not just for 21st-century American society but the world.” Yet California’s once envied water-delivery systems, roadways, airports and schools are in serious disrepair. Many even more hard-pressed communities – Cleveland, Pittsburgh, Philadelphia, Baltimore and New Orleans – have similarly wasted limited treasure on spectacular new convention centers, sports arenas, arts and entertainment facilities and hotels while allowing schools, roads, ports and other critical sinews of economic life to fray.

    Convention centers and other tourist attractions create reasonably high-paying construction jobs in the short term, but over time, they create an economy dominated by lower-wage service jobs. Take New Orleans. It was once one of the nation’s great industrial and commercial centers. But then the city turned its back for decades on its diverse economic base and invested not in levees, port development and basic infrastructure but in the arts, culture and tourism. The tourism and convention business surged, but the result was a low-wage economy. Nearly 40 percent of New Orleans households, or twice the national average, earned less than $20,000 a year in 2000.

    Other places have followed a similar trajectory of folly, heavily subsidizing luxury condominiums, restaurants and other amenities to help lure the so-called creative class. Michigan Gov. Jennifer Granholm’s 2003 plan to turn her state around focused on creating “cool cities” aimed at attracting hip, educated workers to Detroit and other failing urban centers. Instead of sparking an economic revival, Granholm has presided over a mass exodus of younger workers who can’t find jobs in her state.

    Perhaps no place epitomizes misplaced priorities better than Pittsburgh. Widely hailed in the media as a poster child for the urban “renaissance,” Pittsburgh has suffered a precipitous decline in population: Its 310,000 residents are less than half its 1950 peak. It now shares with parts of the former East Germany the gloomy demographic of having more residents die each year than are born.

    Like other cities, Pittsburgh has sought to revive itself with billions in new stadiums, arenas and cultural facilities. Meanwhile, its roads and bridges are in a constant state of disrepair. Most recently, the city embarked on a scheme to create a 1.2-mile, $435 million transit tunnel under the Allegheny River to connect downtown’s heavily subsidized towers with taxpayer-funded pro sports stadiums and a new casino. This “tunnel to nowhere,” derided by a local columnist as the nation’s “premier transit boondoggle,” will no doubt be the sort of thing many states and localities will seek federal infrastructure funds for, justifying them on the basis of both short-term economic stimulus and some kind of “green” agenda.

    Although some new spending on efforts such as developing alternative fuels could improve efficiencies, many “green” projects seem destined to devolve into little more than expensive boondoggles. A recent program passed by the Los Angeles City Council, for example, calls on the city-owned utility’s ratepayers to subsidize installing solar panels on office buildings. This plan, heavily promoted by labor lobbyists, mandates that the project be carried out by the Department of Water and Power, whose employees are among the most well-paid public workers in the nation. By some estimates, it would raise the price of electricity by as much as 8 percent. But it will do nothing to slow the continued flight of industrial and other employment from Los Angeles or its suburbs.

    A “red-green” tilt to infrastructure programs – essentially marrying the labor and environmental lobbies – also seems sure to raise spending on public mass-transit projects. Some transit or rail spending can, of course, promote efficiency and productivity. A significant incentive to increase rail freight, for example, could boost productivity in the critical manufacturing, agriculture and energy industries because rail can generally carry far more goods on less fuel than long-haul trucking.

    Spending on upkeep of transit systems in older centralized cities such as New York, Washington and Chicago also seems logical. But with few exceptions – the heavily traveled corridor between downtown Houston and the Texas Medical Center, for instance – ridership on most new rail systems outside the traditional cities has remained paltry, accounting for barely 1 or 2 percent of all commuters. Such projects are almost absurdly expensive on a per-capita basis; the Allegheny Institute, a Pennsylvania think tank that pursues free-market solutions to local questions, estimates that the cost to the taxpayer of each trip through the new Pittsburgh tunnel could be as much as $15.

    Infrastructure investment requires a strong litmus test. Where the cash goes should be determined chiefly on the basis of how the spending will enhance the nation’s productive capacity and raise incomes across the board. This also means looking beyond traditional brick and mortar investments to critical skills shortages. Businesspeople nationwide complain repeatedly of a chronic shortage of skilled blue-collar workers and technicians. More than 80 percent of 800 U.S. manufacturing firms surveyed in 2005 reported “a shortage of qualified workers overall.” Nine in 10 firms said that they faced a “moderate-to-severe shortfall” in qualified technicians.

    In sharp contrast to sports stadiums and convention centers, programs in skills training for U.S.-based industries such as aerospace, energy, machine tools and agricultural equipment tend to create high-wage jobs, which have expanded over the past decade even as the overall number of industrial positions has declined. Many industrial companies are increasingly desperate for skilled workers and often consider locating wherever they can be found. These companies also produce many jobs that, though not located on the factory floor, are critical to the nation’s competitive edge. For example, the Manufacturing Institute estimates that manufacturers employ one-fourth of all scientists and 40 percent of engineers.

    A forward-looking infrastructure program would also target places that would most benefit from new roads, bridges, ports and other critical facilities, including underperforming regions such as the Great Plains, Appalachia and rural Pennsylvania, as well as the depressed Great Lakes area. These areas offer cheaper labor and housing, prime locations and access to natural resources. Making them more accessible to markets and more energy efficient could replicate the great New Deal success in modernizing much of the South and West.

    Perhaps most critical, we need to look at how to combine new physical investments with new initiatives in skills training, incubating small companies and promoting better ties with local universities and research facilities. This “infrasystems” approach has been implemented successfully in places as diverse as North Dakota’s Red River Valley, the area around Wenatchee, Wash., and in various Southern locales such as Charleston and Savannah.

    The call for more spending on infrastructure represents a unique opportunity to rebuild our productive economy and create long-term middle-class jobs. But if the effects are going to last, the trick is to concentrate on the basics and forget the flashy, feel-good kinds of projects that have characterized many “infrastructure” investments in recent years.

    This article originally appeared at Washington Post.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.