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  • Global Warming Cooling?

    Back when the media was more obsessed with the state of global warming than the state of global lending, the environmental movement appeared completely ascendant. But with economic concerns in both Europe and North America on rise, their premier issue of global warming seems to be losing some of its political cache.

    A good account of what’s happening both in Canada and Europe can be found in the green blog, Breakthrough. There’s even some advanced thinking here about the need to make something like a “carbon tax” a spur to economic growth. On target for the most part, Greens seem to have a problem thinking about the economy. Like John McCain, it’s not their strong point.

    These shifts in popular concerns, as well as the real estate downturn, create an odd atmosphere for the kind of restrictive legislation discussed in Wendell Cox’s timely article. Still there remains a great temptation – justified or not by the facts – to use global warming as a means of imposing the perennial anti-suburban agenda of some planners, large urban developers, smart growth advocates and urbanists.

    Perhaps it is a good strategy for density advocates to push their case now when it all seems so theoretical and builders are still walking around in shock. It may take years to absorb vacant condo towers as well as newly foreclosed single family houses. Only when the economy turns around will the conflict over what actually is greenest – as well as most market friendly – intensify again.

  • More Machinists, Fewer Poets?

    Politicians from both parties, while on the campaign trail, often argue that they will work to make a college education accessible and affordable to all Americans. Very rarely will one hear calls for “better quality” of education at our colleges and universities, with such debates seemingly being restricted to our K-12 educational system. An opinion piece in the Chronicle of Higher Education claims, however, that many of our institutes of higher learning are failing to meet the challenge of providing a good return on investment for those attending their institutions.

    In his piece, education consultant Marty Nemko argues that “college is a wise choice for far fewer people than are currently encouraged to consider it,” and that colleges and universities need to be held accountable for their “defective products: students who drop out or graduate with far too little benefit for the time and money spent.”

    Nemko points out that over 40 percent of students who enter four-year institutions do not graduate in six years, and cites the “killer statistic,” that,

    “Among high-school students who graduated in the bottom 40 percent of their classes, and whose first institutions were four-year colleges, two-thirds had not earned diplomas eight and a half years later.”

    Nemko also takes issue with the quality of education received by those who do graduate, stating that “50 percent of college seniors scored below “proficient” levels on a test,” requiring them to perform basic tasks, and that “the percentage of college graduates deemed proficient in prose literacy has actually declined from 40 to 31 percent in the past decade.”

    Many young people, Nemko argues, should look to other routes of career development and education, such as apprenticeships and other vocational training.

    Other options do exist, even in the face of a difficult economy. Around the nation, there are communities reporting a need for more skilled workers, requiring training not necessarily linked to gaining a bachelors degree. Manufacturers in northeast Wisconsin face a shortage of new workers, with one company president noting that the local technical school, Northeast Wisconsin Technical College,

    “had 40 job openings posted for CNC technicians. They graduated seven people. In mechanical design, they had 85 job postings and graduated nine people. In electro-mechanical technology they had 75 job openings and graduated four people.”

    Austin, MN, faces a shortage of maintenance mechanics. According to one local technical instructor,

    “If we can’t get more [people] interested in two-year college educations and jobs that require a specialized skill like industrial maintenance mechanics or carpentry and electricians, we’re going be in a deep world of hurt in about five years when all these people retire and we can’t produce goods we need to produce.”

    Communities around the nation will need to find ways to meet such shortages, and build their productive economies. Failure to do so may lead to a loss of potential economic growth. According to the technical instructor, in the face of shortages of skilled workers, “companies may back off on the expansion or growth. Or they may end up relocating to a place where they can find these employees.” Convincing young people that there are other good career options outside the four year degree path will be among the many challenges faced in building our nation’s economic future.

  • Regulating People or Regulating Greenhouse Gases?

    It seems very likely that a national greenhouse gas (GHG) emission reduction standard will be established by legislation in the next year. Interest groups are lining up with various proposals, some fairly benign and others potentially devastating.

    One of the most frequently mentioned strategies – mandatory vehicle miles reductions – is also among the most destructive. It is predictably supported by the same interests that have pushed the anti-automobile (and anti-suburban) agenda for years, often under the moniker of “smart growth.”

    Regrettably, these interests have never understood the economic importance of rapid travel – mobility – throughout the nation’s urban areas. Indeed, one of the factors that makes American metropolitan areas so competitive is that, judging by work trips, travel times are the best in the world for their population. The secret to that success is the ubiquitous mobility of the automobile, which allows people to travel from virtually any point to any other in an urban area in a relatively short period of time. It also helps that automobile travel has become so inexpensive that it is available to more than 90 percent of the nation’s households. Restrictions on driving would change that.

    At this point, it is unclear exactly how any attempt to restrict driving might be implemented. It is clear, however, that the consequences will weigh most heavily on the nation’s lower-income, disproportionately-minority households. Any price mechanism would put limits first on the low income households who cannot afford the higher prices. At the same time, attempts to reduce the demand for automobile use by forcing more new development into existing urban footprints (urban areas) would make traffic congestion more severe, increase travel times and intensify air pollution. This approach would fall more harshly on low income households simply because housing prices (and rents) would rise disproportionately in urban areas as the option of opening new suburban developments on inexpensive land is removed or severely restricted.

    Mobility is crucial to the economic viability of urban areas and to their citizens, rich and poor. It does no good to claim that alternative transit services will be provided, because they generally cannot compete. According to data from the 2007 American Community Survey, the average transit work trip takes twice as long as the average single-occupant automobile work trip. This means that the average commuter would spend at least an additional eight hours traveling to and from work in a week.

    For low income households, this could mean the difference between employment and unemployment. How will a low-income single parent, for example, drop children off at day care centers and continue to work by transit? It might be considered a fortunate case if this could be accomplished in triple the time of the automobile commute.

    These dynamics were further demonstrated when University of California Berkeley researchers concluded that African-American unemployment could be substantially reduced if cars were available to non-car households. Brookings researchers put it more directly: “Given the strong connection between cars and employment outcomes, auto ownership programs may be one of the more promising options.” Or, as a Progressive Policy Institute report suggested, “In most cases, the shortest distance between a poor person and a job is along a line driven in a car.”

    There is good reason to believe that technological solutions will make it possible for us – including low income households – to continue to live our lives as we do now while substantially reducing GHG emissions. People are already driving less and shifting to more fuel-efficient cars. Volkswagen plans to market 1,000 prototype 235 mile per gallon cars in 2010. They are only two-seaters but could be used for a large share of travel. If, in 2030, one-quarter of US car travel was by such cars, the average fuel economy would be about 75 miles per gallon and concern about cars as a source of GHG emissions would be a thing of the past. And this does not even consider the alternative fuel advances – electric cars, natural gas, hydrogen – that are on the horizon.

    There is a broader problem with the idea of restricting driving. This strategy is less about the environment and more about regulating people’s behavior. It is not people that require regulation, it is GHG emissions. There is a subtle but important difference.

    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.”

  • Obama’s Marketing Message

    By Morley Winograd and Michael D. Hais

    In less than two weeks, when Barack Obama’s lead in all the polls is likely to be confirmed in the voting booth by the American electorate, millions of words will be written about why he won and how John McCain managed to lose. Unfortunately, marketing executives and corporate leaders have ignored some of the most important lessons from the campaign.

    Obama’s success to date lies in his ability to blend his own persona as a messenger with a unifying and uplifting message that reaches the newest generation of Americans, Millennials, born between 1982 and 2003. His campaign has mastered marketing through social networks and other Internet-based communication technologies. This “cool” approach defeated the “hot” rhetoric that came from his primary opponent, Hillary Clinton, and is likely to perform even more favorably against the more confrontational and traditional campaign of John McCain.

    But Millennials don’t just represent the key constituency behind Senator Obama’s successful campaign but also a key market opportunity for economic growth. Almost one-third of all Americans are in this generational cohort, and even though many of them are still too young to vote, almost all of them influence the daily purchases of the families of which they are a part. Until brand managers and marketing mavens master the art of reaching and attracting Millennials, consumer expenditures will continue to languish.

    CEOs need to learn how to create brands that attract Millennials with something more transcendent than their product’s functionality or characteristics. Corporations will only hit their growth targets if they are willing to change their own message, messenger and media to fit the tastes of this generation.

    A recent study by The Economist magazine’s Intelligence Unit suggests this campaign lesson has not yet penetrated the thinking of many in the “C suites” of the world’s corporations. More than half of those executives said they did not currently have a strategy to target or retain this demographic group. In their report, “Maturing with the Millenials”, survey respondents acknowledged the need for new tactics to target the millennial customer, but indicated a lack of readiness to do so.

    For instance, the report found that, “While 44% indicate that communicating the right messages in the right medium and at the right time is critical to their success, the majority have yet to leverage enriched content, peer recommendations and enhanced online experiences as part of their outreach—even though they acknowledge these are among the most effective ways to communicate with Millennials.” This sounds a lot like Hillary Clinton’s advisors Mark Penn and Mandy Grunwald on the eve of the Iowa caucuses when they derided the supporters of Obama as looking “like Facebook” pages. When Obama’s Facebook legions came out to vote in droves in the Iowa caucuses they dealt a fatal blow to Senator Clinton’s cause.

    Companies, fortunately, do not have to suffer the short shelf life of failed candidates. They can change their strategies in order to capture an emerging new base. We have seen this with companies that have succeeded with emerging ethnic markets at home and with whole new markets abroad.

    Even though most executives surveyed by The Economist understood that Millennials have specific consumer needs, few have tailored their marketing strategy for this generation. Four out of 10 executives in the Economist’s survey said that Web 2.0 technologies, such as webcasts and online forums, are the best way to serve Millennial customers. More than 80 percent agreed that consumer needs vary by age group, and 42 percent believed that a bigger share of investment should go towards Millennial customers. Yet remarkably, the respondents reported that telephone, e-mail and physical storefronts were the top three ways that Millennials could interact with their company currently.

    The risks companies are taking by not addressing Millennials are great. John Gerzema, Chief Insights Officer for Young & Rubicam, details this argument in a new book, The Brand Bubble. His research shows that consumers’ trust in brands has declined by half in just ten years. Instead consumers increasingly turn to nontraditional sources of information, such as search engines and social networks, to determine what they should buy and from whom. That is why any good corporate CEO should check every day what customers are saying about their company on the mushrooming “Why I hate xx” websites that now exist for every major company.

    To restore their brand’s value and regain traction with the buying public, companies will need to reinvent themselves in order to engage Millennial constituencies on Millennial terms and in Millennial media. They will need to learn the art of attracting support from Millennials without appearing to be chasing after it in much the same way Obama did in his campaign.

    One leading-edge private sector example of how to pull off this Zen-like non-effort is Nike’s successful efforts to enhance its brand’s attractiveness by creating online communities of runners. By partnering with Apple it created an application for runners that transfers running time, distance and even calories burned to a Nano so that the results can be uploaded for sharing with others. By building virtual running communities, Nike gave its customers an opportunity to register their individual profiles while receiving content that they can access while running. Nike was able to create its own social network linking people with similar running habits, such as those who run with poodles, to produce a strong bond of affiliation among each member of the group, and from that experience an equally strong sense of loyalty to the Nike brand.

    In 2006, the International Television and Video Almanac pointed out that Americans were being bombarded with about “5,000 marketing messages each day, up from 3000 in 1990 and 1500 in 1960.” Nothing in the trend line for communication technologies suggests this amount of corporate generated content is likely to decrease in the coming decades. Not surprisingly, Millennials can absorb much more information at any single moment than previous generations. But this does NOT mean that they are absorbing information in the same way. To gain the attention and brand loyalty of Millennials, companies will have to turn to non-traditional, online information distribution platforms to create a new message that builds a sense of community and caring around their products.

    The best way to do that is to incorporate a cause or purpose into the reason for buying a product. It may be protecting the environment by going green, or reducing inequality in the world through acts of charity, or demonstrating a commitment to young people by investing in educational institutions, or all of the above. Regardless of the cause, not only did the era of unfettered capitalism end with this month’s financial meltdown, but so too did the days of appeals to consumers based solely on narrow self-interest or conspicuous consumption. Bling is out; doing good is in. Make that your message, and you have a story that will work effectively in the Millennial era.

    Morley Winograd and Michael D. Hais are co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics

  • The Entrepreneur is the True Face of Capitalism in America

    “Joe the Plumber” has gotten a lot of media attention over the past week. Depending on which side of the political fence you’re on, he is either a phony who is not even a registered plumber or a symbol for the unintended consequences of wealth redistribution policies. A Rasmussen survey taken on October 19th showed “Sixty-nine percent (69%) of Democrats think [Obama] is right on [spreading the wealth], but 78% of Republicans disagree.”

    It is easy to rail against corporations like Exxon-Mobil while surging gas prices force average Americans to make tough choices with the family budget. In 2007, they reported $39.5 billion in profits which represented 11.4 percent of revenues – up 9.3 percent over 2005.

    Not surprisingly, building popular support to tax windfall profits is easy politically. So, too, is the idea that these taxes should be redistributed to working families. On the other hand, making the case that profits will spur new energy development and reward shareholders seems almost impossible.

    CEO pay, and especially bonuses, are also easy targets for populists. In 2007, major financial firms in New York paid $39 billion in bonuses to themselves. Overall, CEO bonuses increased 27.1 percent in 2006 according to Business Week. The public has trouble understanding how the CEO at Lehman Brothers can make almost $450 million since 2000 and provide millions of dollars in “golden parachutes” to executives even as the firm was failing.

    But the media and the electorate often miss a key distinction. CEOs are not entrepreneurs. They are high paid managers who run the companies that true entrepreneurs built generations ago. Many are graduates of elite business schools who have extensive networks of contacts in business, government and among the “movers and shakers” of our nation. Quite a few are from the nation’s wealthiest families.

    On the other hand, “Joe the Plumber” is a symbol of entrepreneurism – the “little guys” with big dreams. They want to be their own boss. They feed off the soft underbellies of corporations too big or too inflexible to react to changes that create opportunities. Most are hard-working and honest. They don’t have stock options, bonuses or golden parachutes at retirement. In fact, most have many payless paydays when building their businesses.

    Entrepreneurs are America’s job creators. According to the Small Business Administration, from 2003 to 2004 companies with less than 20 employees created roughly 1.6 million net new jobs. Companies with 20 to 499 employees created around 275,000 net new jobs. Meanwhile, employment at companies with more than 500 employees shrank by 214,000.

    The University of Michigan and Florida International University study entrepreneurial activity in America. The metric they use is the number of people who start new businesses or manage firms less than four years old. In 2005, they reported that 23 million people were in this category. Some of the demographics of this group are interesting:

    • 18- to 34-year-olds account for about 44 percent of new firm creations.
    • 57 percent of those starting a new business have high school education.
    • Only 23 percent have finished college.

    Entrepreneurs are the risk-takers in America who know that they are bucking long odds in pursuing their dream. In his book Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By, Professor Scott Shane compiled data tabulated by the Bureau of the Census produced for the Office of Advocacy of the U.S. Small Business Administration and found that only 29 percent of business ventures that were started in 1992 where still around in 2002.

    The entrepreneur is the embodiment of the American spirit and validation of the American dream. Bill Gates epitomized this in the last few decades. He is now using his tremendous wealth for good by funding education and world health programs. On the foundation’s website, Gates lists 15 principals about the role of philanthropy. Principal #7 reflects Gates’s entrepreneurial roots: “We take risks, make big bets, and move with urgency. We are in it for the long haul.”

    The legacy of entrepreneurism can be seen in university buildings, hospital wings, libraries, research centers, foundations and companies that bear the names of entrepreneurs. Most started with a vision to do something new or make something better or more efficiently than ever before. Sadly, many of these institutions, particularly universities and non-profit foundations, seem committed not to fostering more entrepreneurs, but rather to teaching that capitalism is inherently unfair.

    When candidates rail against CEOs and corporate greed they need to be careful that their anger and the populist policies that grow out of it do not spill over into entrepreneurism and extinguish its flame.

    Let’s punish those whose greed for short-term profits has nearly destroyed our economy whether or not they are on Wall Street or in a corporate suite. But we must keep in mind that if we let our anger spill over to extreme new regulation and a new regime of higher taxes, we will also be targeting those “little guys and gals” who want to chart their own course to success. America needs its entrepreneurs perhaps now more than ever before in our history.

    Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

  • Obama’s Marketing Message

    In less than two weeks, when Barack Obama’s lead in all the polls is likely to be confirmed in the voting booth by the American electorate, millions of words will be written about why he won and how John McCain managed to lose. Unfortunately, marketing executives and corporate leaders have ignored some of the most important lessons from the campaign.

    Obama’s success to date lies in his ability to blend his own persona as a messenger with a unifying and uplifting message that reaches the newest generation of Americans, Millennials, born between 1982 and 2003. His campaign has mastered marketing through social networks and other Internet-based communication technologies. This “cool” approach defeated the “hot” rhetoric that came from his primary opponent, Hillary Clinton, and is likely to perform even more favorably against the more confrontational and traditional campaign of John McCain.

    But Millennials don’t just represent the key constituency behind Senator Obama’s successful campaign but also a key market opportunity for economic growth. Almost one-third of all Americans are in this generational cohort, and even though many of them are still too young to vote, almost all of them influence the daily purchases of the families of which they are a part. Until brand managers and marketing mavens master the art of reaching and attracting Millennials, consumer expenditures will continue to languish.

    CEOs need to learn how to create brands that attract Millennials with something more transcendent than their product’s functionality or characteristics. Corporations will only hit their growth targets if they are willing to change their own message, messenger and media to fit the tastes of this generation.

    A recent study by The Economist magazine’s Intelligence Unit suggests this campaign lesson has not yet penetrated the thinking of many in the “C suites” of the world’s corporations. More than half of those executives said they did not currently have a strategy to target or retain this demographic group. In their report, “Maturing with the Millenials”, survey respondents acknowledged the need for new tactics to target the millennial customer, but indicated a lack of readiness to do so.

    For instance, the report found that, “While 44% indicate that communicating the right messages in the right medium and at the right time is critical to their success, the majority have yet to leverage enriched content, peer recommendations and enhanced online experiences as part of their outreach—even though they acknowledge these are among the most effective ways to communicate with Millennials.” This sounds a lot like Hillary Clinton’s advisors Mark Penn and Mandy Grunwald on the eve of the Iowa caucuses when they derided the supporters of Obama as looking “like Facebook” pages. When Obama’s Facebook legions came out to vote in droves in the Iowa caucuses they dealt a fatal blow to Senator Clinton’s cause.

    Companies, fortunately, do not have to suffer the short shelf life of failed candidates. They can change their strategies in order to capture an emerging new base. We have seen this with companies that have succeeded with emerging ethnic markets at home and with whole new markets abroad.

    Even though most executives surveyed by The Economist understood that Millennials have specific consumer needs, few have tailored their marketing strategy for this generation. Four out of 10 executives in the Economist’s survey said that Web 2.0 technologies, such as webcasts and online forums, are the best way to serve Millennial customers. More than 80 percent agreed that consumer needs vary by age group, and 42 percent believed that a bigger share of investment should go towards Millennial customers. Yet remarkably, the respondents reported that telephone, e-mail and physical storefronts were the top three ways that Millennials could interact with their company currently.

    The risks companies are taking by not addressing Millennials are great. John Gerzema, Chief Insights Officer for Young & Rubicam, details this argument in a new book, The Brand Bubble. His research shows that consumers’ trust in brands has declined by half in just ten years. Instead consumers increasingly turn to nontraditional sources of information, such as search engines and social networks, to determine what they should buy and from whom. That is why any good corporate CEO should check every day what customers are saying about their company on the mushrooming “Why I hate xx” websites that now exist for every major company.

    To restore their brand’s value and regain traction with the buying public, companies will need to reinvent themselves in order to engage Millennial constituencies on Millennial terms and in Millennial media. They will need to learn the art of attracting support from Millennials without appearing to be chasing after it in much the same way Obama did in his campaign.

    One leading-edge private sector example of how to pull off this Zen-like non-effort is Nike’s successful efforts to enhance its brand’s attractiveness by creating online communities of runners. By partnering with Apple it created an application for runners that transfers running time, distance and even calories burned to a Nano so that the results can be uploaded for sharing with others. By building virtual running communities, Nike gave its customers an opportunity to register their individual profiles while receiving content that they can access while running. Nike was able to create its own social network linking people with similar running habits, such as those who run with poodles, to produce a strong bond of affiliation among each member of the group, and from that experience an equally strong sense of loyalty to the Nike brand.

    In 2006, the International Television and Video Almanac pointed out that Americans were being bombarded with about “5,000 marketing messages each day, up from 3000 in 1990 and 1500 in 1960.” Nothing in the trend line for communication technologies suggests this amount of corporate generated content is likely to decrease in the coming decades. Not surprisingly, Millennials can absorb much more information at any single moment than previous generations. But this does NOT mean that they are absorbing information in the same way. To gain the attention and brand loyalty of Millennials, companies will have to turn to non-traditional, online information distribution platforms to create a new message that builds a sense of community and caring around their products.

    The best way to do that is to incorporate a cause or purpose into the reason for buying a product. It may be protecting the environment by going green, or reducing inequality in the world through acts of charity, or demonstrating a commitment to young people by investing in educational institutions, or all of the above. Regardless of the cause, not only did the era of unfettered capitalism end with this month’s financial meltdown, but so too did the days of appeals to consumers based solely on narrow self-interest or conspicuous consumption. Bling is out; doing good is in. Make that your message, and you have a story that will work effectively in the Millennial era.

    Morley Winograd and Michael D. Hais are co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008)

  • Income Inequality on the Rise

    A new report released today by the Organization for Economic Co-operation and Development (OECD) says that income inequality between the rich and poor has grown in three quarters of OECD nations over the past twenty years. The report, “Growing Unequal?”, states that the gap between the rich and middle class in the United States has also grown.

    According to the OECD report,

    “The United States is the country with the highest inequality level and poverty rate across the OECD, Mexico and Turkey excepted. Since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s.”

    As this inequality has risen, rich households “have been leaving both middle and poorer income groups behind.” According to the 30 nation report, “this has happened in many countries, but nowhere has this trend been so stark as in the United States.”

    Commenting on the report, Business Week notes that such increases may pose a threat to “the ‘American Dream’ of social mobility,” with the OECD report noting that social mobility “is lowest in countries with high inequality such as the United States”.

    Facing a potentially deep economic downturn, the middle and lower classes may be in for rough times. Economist Anthony Atkinson, interviewed by Business Week noted that while much of the growth in inequality has taken place during a time of economic expansion, “If a rising tide didn’t lift all boats, how will they be affected by an ebbing tide?” As newgeography.com Executive Editor Joel Kotkin noted earlier today, the survival of the “American aspirational model” may be on the line.

  • The biggest issue remains undecided

    Unless something completely unexpected occurs, the presidential election has been settled, with Barack Obama the clear winner. Yet, except for the Republican Party’s demise, the most important issue of this era — the future of the middle class — remains largely unaddressed.

    Indeed, even as social polarization has diminished — a change that is reflected in Obama’s electoral success — economic polarization has intensified. Globalization and the securitization of almost everything have created arguably the greatest concentration of wealth since before the Great Depression.

    During much of the 20th century, the middle class was on a roll, with strong income gains and increasing rates of homeownership. But in the past few decades, while returns to capital and to certain elite occupations grew rapidly, wages for lower-income and middle-class workers have stagnated.

    To date, neither Obama nor John McCain has articulated a clear message of how to restore the path to upward mobility. Recent proposals from both candidates have been distinctly ad hoc and have had a short-term orientation — not surprising, given the severity of the crisis and the brief period left before the election.

    Yet over time, how the next president, presumably Obama, addresses the problems of middle-class Americans will determine the future of American politics. The party that captures the loyalty of that class — as Republicans did in the early 20th century; Democrats, from the 1930s to the 1960s; and Republicans, again after that — will dominate the nation’s politics in the coming decade.

    The political future may lie with a party that embraces a growth-oriented economic strategy that focuses on the creation of higher-income productive jobs for both younger and older workers. But it’s far from clear that the Democrats under Obama are ready to play that role.

    Clearly, these are not the Democrats of Franklin D. Roosevelt’s New Deal, Harry Truman’s Fair Deal or even Lyndon Johnson’s Great Society. Working- and middle-class Americans, including small farmers, low-level proprietors and ethnic businessmen, constituted the primary base for those Democrats. Although some leading Democrats, notably Roosevelt himself, came from the aristocracy, the upper classes and most of the corporate hierarchy remained fiercely Republican.

    But now the old class lines have changed. The once-impregnable visual barriers of the past — which separated the ultrarich from the rest of us — have largely dissolved. As Irving Kristol once noted, “Who doesn’t wear blue jeans these days?” Today, you can walk into a film studio, software corporation or high-tech firm and have trouble distinguishing the upper tiers from at least the middle ranks.

    Many of these moguls today tend to be socially and environmentally liberal and strong supporters of the Democratic Party. Yet despite their attire and attendance at U2 concerts, their economic concerns will remain radically different from the rest of society. Having secured their support, a President Obama may be forced to take great pains to secure the fortunes of the likes of George Soros, Robert Rubin, the Google decabillionaires and other big party funders.

    We may have witnessed the birth of this new class in the bizarre alliance of Nancy Pelosi, Harry Reid and Barney Frank with Wall Street’s viceroy, Treasury Secretary Henry Paulson. Once fully in power, these Democrats likely will begin by propping up the financial elites — much as Bush has done — but will also have to make a “grand bargain” to satisfy key party constituencies outside of the financial elite.

    There are already hints of this in Obama’s recent statements. His program to send cash to the poor through tax credits and other largesse can be seen as a political payout to his large, heavily minority, urban constituency. Massive bailouts for failing city, state and county governments — another part of the senator’s program — would also bolster public employee unions and their pension funds, both of which have emerged as key Democratic backers. New handouts for the U.S.-based auto industry, as Obama has recently suggested, would, not coincidentally, help one of the last large, unionized private sectors.

    Sadly, none of this will do more to create upward mobility, particularly for the next generation. The working poor may get a few hundred desperately needed dollars to spend, but this is no substitute for a policy that would stimulate production of jobs. Unions and their pension funds would get an extended holiday from addressing their often outrageously generous retirement and medical benefits, but that comes at the expense of the larger, private work force. The financial elites could secure government support for stabilized markets but would have little incentive to invest in domestic production industries and middle-class employment.

    Finally, Obama’s base of highly educated, socially liberal, professional Democrats — largely insulated in universities and nonprofits from economic distress — would be rewarded with the political validation of their worldviews on everything from gay marriage and diversity to environmentalism. More federal support for education, another likely Obama initiative, could also allow them to keep comfortably feathering their nests.

    Over time, however, such an approach could threaten the unity of the Democratic Party. This prospect emerged in the first House vote on the initial Wall Street bailout package. In addition to economic fundamentalist Republicans, many suburban, exurban and rural Democrats also found the plan objectionable. Hostility was particularly marked in the Great Plains, Appalachia, South Texas and other areas strongly oriented toward energy production, manufacturing and logistics.

    This growing wing of populist Democrats, often more socially conservative than their coastal and urban counterparts, tend to favor steering capital toward sectors such as domestic energy production, agriculture, manufactured goods and domestically sourced specialized services. All these, they believe, could drive up incomes and salaries for a wide spectrum of Americans far better than boosting transfer payments or shoring up investment banks.

    This political approach does not appeal to the urban liberals now dominant in both the Democratic Congress and the Obama camp. These represent places, such as New York, San Francisco and Chicago, that are increasingly more dependent on speculative real estate and financial assets than producing goods. Their primary interest in the next few years will be to find out how to create yet another bubble, perhaps tied to designated “green” industries, which could send local land values and stocks soaring again to unsustainable heights.

    All this, however, leaves the Democrats and Obama in a quandary. They could favor programs to expand industry, energy production and basic infrastructure, but they would risk of a wrathful Gore and his allies. It will take all Obama’s considerable political skill to balance his commitments to the greens, the hedge fund industry and venture capitalists with creating a program that will increase the incomes and prospects for middle-class Americans.

    Republicans could take advantage of this schism — if they have the intelligence and foresight to do so. The GOP could embrace the old Hamiltonian policy of internal improvements and incentives for the country’s industrial, energy and logistics companies that still employ millions of working- and middle-class Americans.

    After all, the legacy of corporate socialism bequeathed by President Bush makes it almost impossible for Republicans to sell themselves as economic libertarians. They will need to offer something to the middle class besides the well-worn politics of social resentment and military belligerence.

    But such a GOP rebirth likely lies in the future, if ever. In the next few years, the Democrats will have to address the nation’s growing class chasm on their own. How they do this may well determine not only the future success of the Obama presidency, but the survival of the American aspirational model, as well.

    This article originally appeared at Politico.

    Joel Kotkin is a presidential fellow at Chapman University and executive editor of www.newgeography.com. He is finishing a book on the American future.

  • The middle class is key to any city’s future

    What are your favorite cities in the US and abroad? Chances are you like cities for their vibrancy, diversity, people, foods, smells, sights, sounds, and opportunities for work, learning, play and life.

    These cities can only exist with vibrant middle classes to do the work, pay the taxes, and sustain life (including birthing the kids that are the city’s future).

    I have had the opportunity to live, work in and visit cities around the world. I have noticed that cities dependent on one industry or activity (such as resort tourism, for example), are not interesting, exciting, vibrant, dynamic, or sustainable. They are missing a middle
    class. There is nothing more depressing and dispiriting than to visit a resort where you are surrounded by the wealthy attendees and minimum-wage attendants. It is laughable when such wealthy patrons then try to ameliorate the situation with low-cost housing and other half-baked solutions. Raising wages for the largely itinerant labor force does not work. You need a middle class.

    Some of our “normal” and “regular” cities are heading down this path. They are losing their middle classes.

    The Decline of Middle-Class Neighborhoods

    Several studies document the trend. According to a Brookings Institution study released last year, as a share of all urban and suburban neighborhoods, middle-income neighborhoods in the nation’s 100 largest metro areas have declined from 58% in 1970 to 41% in 2000. In their place, poor and rich neighborhoods are both on the rise, as cities and suburbs have become increasingly segregated by income.
    Middle-income neighborhoods – where families earn 80 to 120 percent of the local median income – have plunged by more than 20 percent as a share of all neighborhoods in Baltimore, Chicago, Los Angeles and Philadelphia. They are down 10 percent in the Washington area. Only 23 percent of central city neighborhoods in 12 large metropolitan areas were middle income in 2000, down from 45 percent in 1970, according to Brookings.

    In Los Angeles – the most hollowed-out metropolitan area in the country over the past three decades – the share of poor neighborhoods is up 10 percent, rich neighborhoods are up 14 percent and middle-income areas are down by 24 percent.

    There are non-economic consequences for cities that lose a lot of middle-income residents. The disappearance of middle-income neighborhoods can limit opportunities for upward mobility, the authors of the Brookings study say. It becomes harder for lower-income homeowners to move up the property ladder, buy into safer neighborhoods, send their children to better schools and even make the kinds of personal contacts that can be a route to better jobs.

    The Exit of the Middle-Class

    In New York, according to “New York’s Delicate Migration Balance,” a report released by the city’s controller last year, 300,000 residents a year are moving out of the city to other parts of the US, twice the number who relocate to NYC from elsewhere in the country – and that was before this year’s financial meltdown.

    Middle-class families – notably households with annual incomes between $40,000 and $60,000 along with households earning more than $140,000 – make up a disproportionate segment of the army heading for the exits. “Those who leave appear to be younger, better educated and slightly more affluent,” the report says. More than 40% of the adults making up the exodus have at least a bachelor’s degree; 20% have a master’s degree or higher.

    That is devastating news, writes Errol Louis (“Call an ambulance – our middle class is bleeding,” New York Daily News, 9/16/07): “It means the backbone of the city is weakening as hundreds of thousands of teachers, cops, firefighters, bus drivers, security guards, transit workers, barbers and administrators – a big slice of the people who make the city go – give up on New York every year.”

    The report also suggests that a lot of what people think they know about the supposed link between gentrification, housing prices and neighborhood change is wrong: “contrary to the tone of public discussion, New York City is not experiencing an influx of educated, affluent, working age residents.” Louis concludes:

    “Communities, and the city as a whole, thrive when we have many different income groups living side-by-side – civil servants near retirees, welfare moms next door to teachers and carpenters.
    “All are equally valuable, and all need to stay in New York. Inner-city areas especially need a critical mass of adults who can put in the enormous amount of casual time and volunteer effort it takes to raise a neighborhood’s children. The kids need to see – and learn from – all kinds of working people in the streets, parks and libraries. Schools that don’t get time, attention and pressure from middle-class parents are more likely to fail.”

    A Natural or Man-Made Trend?

    In a way this trend is natural, a tale of upward mobility: those who can move to a better neighborhood do. But why do middle-income neighborhoods “tip” towards rich or poor? Why this “big sort?”
    Public policy analysts scratch their heads. Some blame the loss of middle-income neighborhoods on the loss of the middle class itself, but that can’t be it: incomes for all types and in all income quintiles of households have gone up (except for single-female-headed households with kids), although they have gone up faster for higher income households. But there are natural reasons for that too: higher income households have more income earners, with higher skills, working more hours.

    Others blame the bifurcation of housing costs, that is, the lack of affordable middle-class housing. According to a New York University study, the likeliest households to exit in New York were those earning between $40,000 and $60,000 (the solidly middle-class in a city where the median household income is $40,000). Though these made up only 17 percent of non-elderly households in 2005, they accounted for 22 percent of those households that left.

    Any middle-class – or even upper-middle-class – flight is understandable given the chunks of income that New Yorkers pay on housing.

    Of the 110,663 Manhattan homes with a mortgage, nearly one fourth spend at least 35 percent of the household’s monthly income on housing costs, according to Census estimates. Of the 562,469 occupied rental apartments in Manhattan, over 34 percent spend at least 35 percent of the household’s monthly income on rent. Another 8.4 percent spend 30 to 34.9 percent.

    Of the 182,226 Brooklyn homes with a mortgage, over 46 percent spend at least 35 percent of the household’s monthly income on housing costs. Of the estimated 590,843 rental apartments in Brooklyn, nearly 42 percent pay at least 35 percent of the household’s monthly income on rent.

    Others blame sprawl, complaining that exurbs are bleeding cities of the middle class. But it is hard to argue that people’s freedom of choice about where to live is the problem, and that they should be forced to live in expensive, deteriorating cities.
    It’s middle-income jobs, stupid

    In a recent article in City Journal (Summer 2008), “Houston, New York Has a Problem,” Edward Glaeser compares Houston to New York and comes to the conclusion that Houston is preferable because it welcomes the middle class, while a heavily regulated and expensive New York drives it away. It is a devastating comparison:

    “Houston’s great advantage, it turns out, is its ability to provide affordable living for middle-income Americans, something that is increasingly hard to achieve in the Big Apple. That Houston is a middle-class city is mirrored in the nature of its economy. Both greater Houston and Manhattan have about 2 million employees.

    “In Manhattan, almost 600,000 of them work in the idea-intensive sectors of finance, insurance, and professional services; only 2% are in manufacturing, and fewer than that in construction. Finance increasingly drives New York City’s economy as a whole. By contrast, Houston is a manufacturing powerhouse that makes machinery, food products, and electronics, with a retail sector twice the size of Manhattan’s and lots of middle-class jobs.”

    New York used to be a place where a lot of middle-income jobs were created. That’s not happening anymore: from 1975 to 2005, New York City shrank as a regional job hub relative to 12 surrounding counties in Long Island, southern New York and northern New Jersey, according to the Center for an Urban Future.

    Back in 1975, New York City accounted for 53.1 percent of the 5,022,801 jobs in the New York region. By 1980, the city’s share of regional jobs had diminished to 50.5 percent. In 2005 – the last year the figures were tallied – the 12 surrounding counties accounted for 52.8 percent of the 6,171,642 jobs in the New York region.

    No middle-income jobs, no middle class.

    What the Middle Class Needs

    The real obstacle to a thriving middle class in New York is too much government involvement in people’s lives, writes Nicole Gelinas in The New York Sun.

    In housing, for example, constricting the supply of apartments through regulation makes rents, on average, more expensive, not less. As for schools, Medicaid, and other government programs, all of the $58 billion New York spends annually must come from somewhere, and it comes from high taxes. As the city’s independent budget office has noted, state and local taxes within the five boroughs are the highest in the nation, nearly 50% higher than in the average city. Due in large part to these high taxes, big corporations and small businesses alike have a hard time locating middle-class jobs here.

    Living cities must be growing cities that go through constant cycles of renewal of people, economies, and industries. Creative destruction is a necessary city dynamic. This means private-sector job creation. That requires healthy business growth, which adds to the tax base, not public sector job growth, which drains funds from the system.
    There is in fact a “Virtuous Circle” of metropolitan wealth creation: it starts with business growth, leading to job growth, leading to tax revenue growth, making more government services and infrastructure possible, enhancing quality of life for all inhabitants. We all draw from and contribute to this economic food chain. Without it, cities cannot have real life.

    The key to maintaining and growing a middle class is not the government provision of services, benefits and subsidies. It is government provision of the few things government is supposed to provide: protection of persons and property and a social and legal environment which promotes the pursuit of happiness and the general welfare – most fundamentally and importantly, the freedom to start and operate a business without onerous taxation and regulation.

    Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker [www.rogerselbert.com]. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American representative for its US Consumer Demand Index.