Saturday, December 03, 2011

Put People Before Boundaries

There are a variety of approaches to economic development. There are niche considerations, such as technology-based. When I encounter a story about economic development, I think about whether it is place-based or people-based. The more common and conventional thinking concerns territory. How do we improve Pittsburgh or the State of Pennsylvania? We can, in part, solve this problem by investing in people (e.g. education). A better workforce means a better Pittsburgh. That's still place-based.

For people-based approaches, a better Pittsburgh means a better workforce. Pittsburgh's raison d'etre is personal economic development. You would move to Pittsburgh in order to maximize your own potential. The attraction isn't the availability of jobs. Let me use the gentrification of Brooklyn to help me explain:

When I moved to Brooklyn, Fifth Avenue, only three blocks from my house, was a bleak expanse of brazen drug dealing, liquor bodegas with cashiers sitting inside Plexiglas cages, and Salvation Army outposts. By the mid-1990s, the dealers and robbers and worse had been moved along, either to upstate prisons or to less antisocial activities. The avenue is now the very image of gentrification, overflowing with hip boutiques and restaurants, many owned by young entrepreneurs. About a mile away from me is Myrtle Avenue, a long stretch that people once called “Murder Avenue.” These days, the street is safe enough to attract young businesses, much as Fifth Avenue did a decade ago. The same goes for parts of Red Hook, Bushwick, Gowanus, and beyond. Only 15 years ago, Bed-Stuy was about as inviting to white-collar home buyers as Islamabad. After the 81st Precinct, which encompasses the eastern half of the neighborhood, saw a 64 percent plunge in violent crime between 1993 and 2003, the lawyers, editors, artists, and nonprofit administrators started venturing in.

Emphasis added. Using the place-based paradigm, transform Murder Avenue to Myrtle Avenue and gentrification will follow. A cool place will attract talent. To some extent, that's true. But that's only part of the story, the most recent development. The Park Slope pioneers who moved to Murder Avenue saw personal potential in a tortured landscape:

This new workforce needed somewhere to live. A surprising number turned up their noses at New Rochelle and West Orange. Perhaps their college social-sciences courses had taught them to write off the suburbs as “alienating.” Perhaps the influence of Kennedy-era European sophistication led them to scorn the purportedly tacky conformity of the bridge-and-tunnel crowd and to grimace at the sterile white-brick apartment buildings rising in Manhattan to house their kind. Unlike their immigrant parents, who associated city life with poverty, teeming tenements, and foul streets, they saw in the old urban areas the “authenticity” and “community” that the suburbs and the high-rise city lacked. They looked across the Brooklyn Bridge and found walkable, human-scale, leafy, and historic streets with houses displaying the craftsmanship of a seemingly more gracious age. (In reality, the elaborate woodwork in my neighborhood, at any rate, was prefabbed by Victorian developers.)

As their numbers increased, the professionals crossed Brooklyn Heights and trekked deeper into the blue-collar borough. Osman refers to the settlers as “romantic urbanists”; they—or should I say “we”?—were looking for an organic connection to history and an echo of rural life. With the help of a surging real-estate industry, we gave our new enclaves bucolic names—Heights, Hills, Gardens—and settled in happily, though uneasily, next to our less privileged neighbors.

The people come before the place. Or, the people make the place. Richard Florida has always had it backwards. The same goes for place-based economic developers. If you fail to go far enough back in a community's history, then you won't see the folly in your field of dreams. People develop, not places.

As will become evident later in this paper, whatever the stated purpose of industrial policies the effect has been to recompense individuals for staying where the jobs have disappeared—rather than helping them to relocate to where the new economic opportunities are emerging. That is precisely the opposite of the strategy that takes best advantage of nationhood. Being a sovereign country means that both labour and capital are able to move freely to where they can be best utilized. There are no border controls and no exchange rate considerations.

Current strategies subsidize inefficiencies; create labour shortages and bid-up wage rates in growth regions; and inflate public sector employment. Often the chief beneficiaries are the multiplicity of local and regional development bureaucracies. The fundamental question to be addressed is whether individual Nova Scotians believe that they are better served by accepting 90 percent of the national income to remain in stagnating industries or whether they would prefer relocation assistance to move to growth centers and experience substantial income enhancement.

To put it somewhat differently—current strategies run a risk of putting geographic regions ahead of individual fulfillment.

Emphasis added. In the United States, I've noticed libertarian think tanks putting "geographic regions ahead of individual fulfillment" as a rule. State policy is paramount. There are migration winners and losers. Outmigration is a problem that libertarian policies can address. The think tank sponsoring the above paper also has a history of talking out of both sides of its mouth:

It must be nice to work for AIMS. On one day you can complain about the government for trying to do things that restrict out-migration and on the other you can hammer them because of the results of out-migration. Cake and eat it too. Where do I sign up?

AIMS refers to Atlantic Institute for Market Studies. I'm convinced that AIMS is only interested in stopping government from picking winners and losers. I can see a possible thread of logical coherence. I don't see any evidence of AIMS making such a case. In fact, the author of the AIMS paper makes a strong argument for government intervention. Government should assist people, not attract industry. That's a heavy, visible hand guiding the labor market:

The most constructive people-oriented strategy of government should be to help create an inclusive labour force with appropriate skills and the flexibility to locate to where their personal economic and social wellbeing is maximized. If that proves to be outside the province, it may be a loss to Nova Scotia—but to those individual Nova Scotians it would be a personal gain.

Championing free trade and all that, I figure one is familiar with the concept of reciprocity. I guess not. Modelling the talent trade as a zero sum game is a mistake. Amusingly, AIMS is wide of the mark. The paper fails to move beyond criticism of the status quo and point the region in a more constructive direction. I doubt AIMS gets much traction.

There are numerous reasons for the disappointing employment stats. For one thing, Brooklyn’s young companies often appeal only to niche markets, usually people like their owners. For another, they benefit from the technology-improved productivity of manufacturing throughout the United States; it takes fewer workers to produce beer or chocolate than it did in the past. And if the firms do grow and hire a lot more workers, chances are that they’ll relocate. It’s extremely expensive and endlessly aggravating to transport raw materials into, and finished products out of, a borough strangled by the Brooklyn-Queens Expressway. Young businessfolks also face the familiar hurdles of all New York City firms: high taxes and burdensome regulations. It’s enough to bum out even the most idealistic hippie-entrepreneur.

This is a great example of legacy thinking, stubborn mesofacts obscuring a geography of opportunity. Brooklyn's most important product is talent. The borough is a factory and the widget is people. The raw material is the well-educated, the value add result is a successful freelancer. From the Free Exchange blog:

What Mr Katz describes is a world where a good job is not lifetime employment, where your employer takes care of you from age 20 until death (with a very generous pension). He describes people responsible for their own economic destiny. That may seem unsettling, because the old regime appeared to offer more stability, though that stability may have been an illusion. Actually the new way may offer more certainty because people look out for themselves, rather than being vulnerable to changes that impact their employer. The nature of work constantly evolves. The company man was a post-war construct. The self-sufficient artisan is actually more consistent with historical labour markets.

I think this bodes well for the younger generation. Having spent most of the 1990s hearing that my generation was made up of lazy, slackers doomed to failure (we showed them!), I hate it when uniform characteristics are foisted on an entire generation. But I did enjoy Noreen Malone’s recent New York Magazine article chronicling her generation’s economic woes. Millennials get a lot of grief for allegedly being hard-working, yet entitled and self-involved. But in order to build your human capital and be that modern, competitive worker it seems you must believe you’re a little special. The company man was content to be a cog in the machine, the modern worker must take pride in his talents.

Emphasis added. A better Brooklyn means a better workforce. In order to build your human capital, you move from Paducah, KY to Williamsburg. You become a successful freelancer and then return home to raise a family, bringing your Brooklyn network with you. Those Brooklyn-born firms that do grow have to relocate somewhere.

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