Thursday, March 31, 2011

Stars Aligning For Pittsburgh

“Natural gas has been the most hated energy commodity of the past several years,” Holland said. That said, natural gas has been priced regionally and is starting to be priced on a worldwide basis, something Holland thinks will speed up as the world reacts to the nuclear energy problems currently playing out in Japan. “We’re still a couple, three years from [liquid natural gas] becoming part of the global energy trade, but we’re getting there every day.”

<---End Update--->

For the Marcellus Shale play, yesterday was full of good news. President Obama sent a strong signal to the natural gas industry. The market's response was overwhelmingly positive:

But [Obama] did include a couple of pearls that investors are paying attention to: a pledge to have federal agencies buy only alt-fuel vehicles by 2015 and a promise to expand U.S. oil exploration and production.

The former notion has kicked the natural gas complex higher, led by Westport Innovations, a maker of natural gas engines. Westport is up more than 13% on heavy volume. Clean Energy Fuels is up nearly 9% and Fuel Systems Solutions is up more than 7%.

To summarize, the federal government will get behind the effort to increase domestic demand for natural gas. Apparently, the nuclear disaster in Japan and the unrest in the Middle East trumps the public concern about groundwater contamination from mining shale (particularly the Marcellus Shale) for gas. Geopolitical events are conspiring to push through a favorable policy for hydrofracking.

Where does that leave Westinghouse and the nuclear industry? Surprisingly, all systems are a go:

For the United States, nuclear power has become an export industry. And here in western Pennsylvania, production is going full tilt.

Westinghouse, which two years ago moved into a 750,000-square-foot office complex here, looks more and more like Boeing or General Motors, a company that designs crucial parts, makes some and farms out the manufacture of others, and integrates components from all over the world. The four Chinese reactors have generated about 5,000 jobs in the United States, at Westinghouse and related companies, said Aris Candris, chief executive of Westinghouse Electric. The company had hoped for many reactors to be under construction in this country by now, he said, but “overseas projects are growing a lot faster than we are and are picking up the slack.”

Energy demand in developing countries is such that there is ample appetite for the hazard risks associated with nuclear power. Furthermore, Westinghouse is in a position to learn from Japan and build a much safer reactor. Contracts abroad are booming and show no signs of slowing down. In fact, exports should increase.

The future for energy jobs in Southwestern PA just got a lot brighter. Go ahead and roll the dice on Pittsburgh. It is a strong bet to attract a lot of talent over the next few years.

Wednesday, March 30, 2011

Minneapolis Is Dying

By most accounts, the Minneapolis-St. Paul metro is a success story. The 2010 US Census numbers support this perspective. That is, until you apply a finer-grained analysis:

Virtually all growth was on the suburban edge, while the central cities and most inner suburbs lost both population and relative wealth. Not only did the cities of Minneapolis and St. Paul fail to gain population, they are now fully 30 percent poorer than the metro region as a whole.

The Twin Cities are rotten at the core, mimicking hollowed-out Detroit. I tend to react to the despair as hyperbole. But Steve Berg, the journalist who wrote the piece, offers a troubling urban comparison:

Denver, Seattle and Portland offer a startling contrast. They are metro areas that MSP admires and regards as peers. Like MSP, all three are growing and thriving. But unlike MSP, their core cities are also thriving, adding big chunks of population. Each of the three peer metros grew by about 15 percent over the past decade. The cities of Denver and Seattle each grew by about 8 percent, each adding about 45,000 residents. Portland grew by about 10 percent, adding 55,000 residents.

Read the entire article. It is well written and reasoned. Like many others, I've looked at MSP through a lens of grass is greener. Time for me to rethink my geographic stereotype.

Talent Migration Models

Over the last few weeks, I've been reading research on return migration. I didn't expect to discover so many different theoretical models in play. Some of the debates are the garden variety battle of the paradigms. Consider the matter unsettled. That opens the door for the likes of the Martin Prosperity Institute at the University of Toronto:

While it is generally agreed upon that talent is a key driver of economic growth, there is a fierce debate surrounding the optimal set of factors that help to attract and retain individuals with high levels of human capital (‘talent’) and mobility. One camp argues that good quality jobs must be present before talent will migrate while another camp argues that talented individuals are attracted to locations that offer a rich mix of amenities such as theatre, musical venues, restaurants, and other opportunities for recreation. In reality, however, the nature of work and what constitutes a ‘job’ is changing and preferences for work are differentiated by occupation, gender, ethnicity, life cycle, and past experience. As a result, understanding the conditions that attract and ultimately retain talent requires a multi-stage analysis. To move beyond the aforementioned jobs vs. amenities binary, Martin Prosperity Institute researchers Brian Hracs and Kevin Stolarick have developed a conceptual model that includes different stages and allows for the expectations and preferences of individuals to evolve over time while taking into account the draw of both jobs and amenities.

The above passage is rife with misconceptions. The suggested model will result in poor policy decisions. I have to wonder if these researchers even bothered to review the literature. But that's not to say that the work is worthless.

The best model is the one that explains the most migration. The bulk of relocations are short distance moves. Proximity is an important variable. Lumping together the jobs vs. amenities binary still misses a lot of migration. There is a ton of error in that model.

I've argued that knowledge of place is a robust way to model relocation decisions: You go where you know. Hracs and Stolarick can speak to pioneer migrations: Far away and terra incognita. Few moves fit into that category.

What really strikes me is the enormous success of college towns. When I wrote Rise you could see the rise of Austin, Texas. Consider the South by Southwest festival, what it is was then and what it is now. A couple of years later we could see in our data the rise of Boulder, Colorado and it's now one of the leading places for startups. The place at the top of our metrics now is Ann Arbor, Michigan. Here's a city that's in the shadow of Detroit, which many people are saying is collapsing and decaying. It's a large college town that has everything in common with Palo Alto, or Boulder, or Austin. We can add to the college town list Ithaca, New York or Madison, Wisconsin.

I emphasized the part about Ann Arbor. I'll remind you of that place's talent dilemma. In that blog post I compare Madison to Ann Arbor, referencing an article that has heavily influenced my thinking:

And despite Ann Arbor's educated work force, employers here find Michigan's reputation as a failing manufacturing economy can deter potential hires from moving to the state.

At HandyLab, an Ann Arbor firm that makes a DNA-analysis device, Chief Executive Jeffrey Williams says he has had a hard time finding Ph.D.-level workers with highly specialized skills. His company, which has doubled to roughly 60 employees in the past year, has 10 job openings.

"It's definitely gotten much harder with all the stigma around Detroit," he says. "Somebody tries to pigeonhole us as Detroit, we say, 'No, it's Ann Arbor, it's a completely different environment.' "

According to Richard Florida, Ann Arbor should be a talent magnet. It isn't. My model can explain why. The Martin Prosperity Institute model cannot. Boil it down to proximity. Madison touts nearby Chicago. Ann Arbor frets about Detroit's bad reputation. What you'll find when you disaggregate the Michigan population story:

As a region, West Michigan showed stronger population growth between 2000 and 2010 than most other parts of Michigan, which lost population overall, according to U.S. Census figures released Tuesday.

Ottawa County grew the fastest among the state’s 10 most populous counties, adding 25,487 residents in the past decade.

The Lakeshore county’s population grew by 11 percent, fueled by strong growth in its suburban communities of Holland Township, Georgetown Township, Grand Haven Township and Allendale Township.

Welcome to the Michigan part of Chicagoland, a world away from Detroit.

Tuesday, March 29, 2011

Job Growth Pittsburgh

The Pittsburgh economy isn't supposed to accelerate out of a recession. Typically, Southwestern Pennsylvania endures a sluggish recovery. The latest numbers from PittsburghTODAY tell a different story:

Building on the good jobs news we reported earlier this month, February preliminary job numbers show that Pittsburgh had the highest job growth rate for a second straight month. The year-over-year increase was 2.18 percent or 23,700 jobs, the highest of any region. In addition, the two-year job growth rate was positive for the first time since perhaps the recession began.

Of particular note, private jobs were up 2.46 percent, goods-producing jobs were up 3.18 percent and service jobs were up 2.04 percent. Natural resources, mining and construction was up an astounding 7.17 percent, and leisure and hospitality jobs were up 4.62 percent. In fact, every sector had year-over-year gains except for Information.

February 2011 Jobs

The Marcellus Shale boom appears to be showing up (about time) in the employment numbers. The two-year job growth rate is also worth discussing. The Pittsburgh region is the only benchmark metro to post gains. Only Boston comes close. The rest suffer from significant job losses. The benchmark average is -1.78%.

Finally, I'll underwrite the above data with a glowing anecdote in yesterday's New York Post:

Never mind that it’s half empty — of all the half-empty Rust Belt cities, none wear diminished status as comfortably as Pittsburgh. It is the master of keeping up appearances. The downtown, known as the Golden Triangle, remains one of the country’s best-planned and most walkable, with one pleasant streetscape after another. In some ways, it is like a mini-New York, streets filled with people on sunny weekdays, pouring off buses and a little subway in the mornings and back on at night. Pittsburgh feels busy, alive. Industry has given way to research, health care, education, the arts. Smart people are moving in or moving home. The city feels young again, promising, like a place that has a future, one brighter than just about any of its contemporaries.

Talent is flocking to Pittsburgh, where the jobs are.

Monday, March 28, 2011

Sun Belt Counties Dying

Texas is dying. Usually, such disparaging terms are reserved for Rust Belt states. The statistics tell the story:

"Texas is in many ways two states," said Lloyd Potter, a demographer at the Texas Data Center. "When we look at the counties west of I-35, the bulk of them, probably 60 of them are losing population. It's becoming sparse in the west and that is going to become even more common."

Wait, it gets weirder:

But natural decrease also occurs in rapidly growing counties in the Sun Belt, Johnson said, where large communities of retirees skew population statistics. In Charlotte County, Fla., on the Gulf Coast, deaths have outpaced births for 42 years. Between 2000 and 20009, almost twice as many people died (20,328) as were born (10,231). What's striking is that Charlotte County was growing at the same time. It gained 15,000 new residents overall because 25,000 new residents moved in.

That's right. A county with a growing population is actually dying. Keep that in mind the next time Forbes throws dirt on your city.

I'm not done. I've got more ironic population data. Boom goes New Haven:

A presentation by the Federal Reserve Bank of Boston, which you can view here, recently discussed the lessons that cities such as Hartford and Springfield can learn from so-called "resurgent cities" such as New Haven, Grand Rapids and Jersey City. (There's also a podcast available from a similar talk by the FRB at Community Intersections).

That's from a blog post titled, "Census 2010: New Haven Has Fastest Growth Rate Among Major Northeastern U.S. Cities". For those of you who don't know, "resurgent" Grand Rapids is in left-for-dead Michigan. How could a city in that state be growing?

I'm still not finished. I saved the best for last. Much of Rust Belt New York is celebrating the 2010 US Census:

In a stunning surprise to government leaders -- who expected new losses -- Central New York’s population grew by 1.4 percent in the past decade to reach an all-time high of 742,603 in the four-county Syracuse area, the 2010 Census showed.

Central New York is at an "all-time high" in population. My old haunt Schenectady gained 7%. That's serious Rust Belt country. People vote with their feet. Obviously, they prefer high taxes and a lousy climate. Go figure.

While everyone else is still celebrating the Texas way and the power of right-to-work to attract jobs, the demographic revolution is more evident in the Capital Region of New York State:

Locally, Albany County's Hispanic population rose 64.3 percent to 14,917 in 2010; Rensselaer County by 88.53 percent to 6,080; Saratoga County by 86.27 percent to 5,279; and Schenectady County by 90.27 percent to 8,827.

Hispanics are moving inland from the Northeastern Seaboard. Why? Edward Glaeser has an explanation:

Worcester County's substantially lower prices suggest that demand for homes there is weaker, but as long as they supply more housing, the area will grow. Worcester provides affordable housing for people who want an urban life and much of its growth reflects increasing numbers of Hispanics and Latinos.

That's what the Rust Belt has in spades, an affordable urban life. Only Hispanics and immigrants seem interested in moving there, at least right now. Whites are still cramming into the big coastal cities and displacing these other populations, who find refuge in places such as Reading, PA. The spillover from Boston and New York City is impressive.

But the diffusion only goes so far. More bad news for Buffalo:

A study by the Buffalo Mayor's Office of Strategic Planning suggested the city's population may dip to 250,000 or lower before growth resumes.

Mayor Byron Brown said that New York's status as one of the highest-taxed states has eroded many cities' populations but that he believes property tax cuts he has advanced, along with changes pushed by Democratic Gov. Andrew Cuomo, could help stem the losses in the next decade.

Yes, another politician erroneously blaming state policy geography for population decline. Mayor Brown should have looked at Schenectady before shooting from the hip while riding the straight talk express. The tax cut nonsense has to stop. A good place to start is with a more sophisticated understanding of the demographic challenges facing counties all over the United States.

Sunday, March 27, 2011

The Richard Florida Paradox

Richard Florida says he deserves credit for the positive "transformation" going on in the Rust Belt. He understood the value of Rust Belt Chic early on and promoted it:

As economies develop you get a bigger division of labor, not only in industry, but in geography. It's becoming more and more concentrated, but it has become so oppressively expensive to live in a place like London or New York or San Francisco. I said in the book, that if people in the great Midwest and Rust Belt cities, Pittsburgh and Cleveland and Buffalo, if the leadership would wake up and recognize the incredible asset they have of industrial architecture, this incredible place of authenticity and realism, that people would enjoy being there. They were leaving not because they didn't like it, but because they couldn't be themselves there.

I think it fitting that he highlights the retention part of the policy narrative. Cool cities, however you define "cool", don't keep people from leaving. Sticking around your hometown, wherever that might be, makes it hard to be yourself. It's a limiting experience.

The transformation of the Rust Belt is all about outsiders learning to appreciate the "authenticity and realism" of these shrinking cities. It is an environment about new possibilities. It is about personal development. As for the allure of global cities, you can lose yourself. You can reinvent yourself. You can't do either in your hometown.

In the war for talent, places are very similar to companies. Pittsburgh could learn a lot from Apple:

Eric Firestone began a new job at a Web start-up here three weeks ago, and he’s already thinking about what he might do next. But that’s just fine with his new employer.

The company, a service to turn cellphones into credit card readers, lured Mr. Firestone from Apple partly with an unusual pitch: it promised to give him weekly lessons about starting his own business someday, including how to find venture capitalists to finance it.

Mr. Firestone, a 28-year-old software engineer, said he could try to get financing for a start-up from venture capital firms now, “but I feel like I’d be having a hard time. Here you get to learn.”

Think of Apple as New York City or Washington, DC, to name two heavyweights in talent attraction. Pittsburgh is the Web start-up poaching Mr. Firestone. Pittsburgh succeeds because it can better develop the person and offers an exit strategy. The investment in human capital leads to greater geographic mobility. Cities aren't tar pits surrounding the regional watering hole. They are stepping stones to something bigger and better.

Apple loses because it won't offer the knowledge that would cause talent to, eventually, leave. Instead, it offers material incentives. This is akin to the urban amenities strategy that Florida is selling. Pittsburgh invests a lot of money and the people still leave. The boondoggle:

"Creating ‘cool cities’ is more than a catchphrase. It is an initiative that is imperative for us to undertake to grow our state’s economy and to keep our young, educated workers here," Granholm said. "The future economic success of our state is directly tied to our ability to attract and retain exciting new jobs and young workers who are hard wired into the knowledge-based economy."

The advisory group told the Governor that it wants ways to create communities that have a sense of place, are more walkable, and find new uses for historic buildings. The group also thinks cool cities must have business development that includes young people as a part of the economic community and recognizes their impact. They also want to link business development to the arts and culture and more affordable and diverse housing options.

Cool cities also have entertainment activities available at all hours, according to the advisory group members, and cities need to provide a welcoming place for performing arts and culture.

That was way back in 2003, 8-years ago this coming November. Did the initiative work? Whether it did or not doesn't seem to matter. Name a community that fits all the above criteria (e.g. "sense of place") of a Cool City. Then compare the outmigration rate of that place with that of a Rust Belt city. The coolest cities are hemorrhaging talent. The Creative Class is fleeing, some moving from Brooklyn to Cleveland.

Retention retards the development of people and Richard Florida fully understands the value of increasing geographic mobility. Then why does he preach about ways to keep talent from leaving? Because the underlying premise of Creative Class theory is wrong, which often results in Florida contradicting himself:

Cities like Detroit, Cleveland, and my current hometown of Pittsburgh were at the forefront of the organizational age. The cultural and attitudinal norms of that age became so powerfully ingrained in these places that they did not allow the new norms and attitudes associated with the creative age to grow up, diffuse and become generally accepted. This process, in turn, stamped out much of the creative impulse, causing talented and creative people to seek out new places where they could more readily plug in and make a go of it.

Florida was researching why talent was leaving Pittsburgh. But how do you explain all the migration to other cities with similar deficiencies? Why would you expect the most geographically mobile demographic cohort to stay put? The incoherent mixing of migration concepts is mind boggling. Florida is trying to stop the very trend he has brilliantly detailed and made famous.

Creative Class theory does explain (perhaps not as well as you think) why places such as Austin are a significant destination for talent in any region throughout the United States. It doesn't model why people leave. Yet that's the most popular application of Florida's ideas.

What the Creative Class does best is leave and head to places full of other people who also abandoned their hometowns. That's what Rust Belt cities lack. That's all about to change and Richard Florida had nothing to do with it.

Friday, March 25, 2011

Odd Economic Indicators

My preferred "economist" is the cab driver. You can learn a lot about a city and a region's vitality during the journey. Another unexpected economic indicator is prostitution. I learned about this metric from a high school friend who toiled as a cabbie in Burlington, Vermont. Apparently, prostitution in Pittsburgh is way up:

Similar scenes have been playing out increasingly in Moon, according to Police Chief Leo McCarthy. Last year, his department charged 54 people with prostitution-related offenses in the township. In 2004, the department arrested just one person for the crime.

"We have airport communities like Robinson, Moon, North Fayette, Green Tree -- and there's been a big expansion in prostitution, here and in southwestern Pennsylvania, in general," McCarthy said. "I don't know if it's because of the economy or the Internet. It could be because of a lot of things."

McCarthy said Moon's proximity to the Pittsburgh International Airport, along with more than a dozen hotels located in the township, make it a prime location for suburban prostitution.

The connection between travelling businessmen and the sex trade isn't news. My Burlington buddy said that it was riders from the airport who inquired about where to go (Downtown Radisson apparently was the hot spot). But what might explain the dramatic increase in activity in Pittsburgh?

Marcellus Shale.

Energy roustabouts pouring in from Oklahoma, Texas, and Colorado comprise the classic target demographic for sex services. The drilling jobs in particular continue to be filled by those from out of state. I don't think that is likely to change all that much, at least in the next few years. Keep an eye on the crime statistics for the communities around the airport.

Thursday, March 24, 2011

Pittsburgh's Image Makeover

Signs that the Pittsburgh geographic stereotype is changing for the better:

Las Vegas still holds the crown as American’s #1 favorite domestic city to visit in 2010 followed byNew York, Orlando, Chicago, and San Francisco while the city of Pittsburgh is slowly moving up to be one of the top 50 cities Americans love to visit.

Faint praise, but an important trend.

Wednesday, March 23, 2011

The Real Marcellus Shale Jobs Boom

Perhaps you've read the good news. From January 2010 to January 2011, Pittsburgh added the 6th most jobs. That's out of 372 metros. The top 10:

  1. Dallas-Fort Worth-Arlington
  2. Houston-Sugar Land-Baytown
  3. Chicago-Joliet-Naperville
  4. Washington-Arlington-Alexandria
  5. New York-Northern New Jersey-Long Island
  6. Pittsburgh
  7. Orlando-Kissimmee-Sanford
  8. Detroit-Warren-Livonia
  9. San Diego-Carlsbad-San Marcos
  10. Boston-Cambridge-Quincy

But that's the tip of the job growth iceberg. Wait until you see what is in the pipeline:

The Gulf Coast’s petrochemical industry is benefiting from the recent boom in U.S. natural gas supplies, which has lowered feedstock costs and improved odds that the region will get new plants and jobs in coming years, an economist for a leading industry group said Tuesday in Houston.

Capital investment is now being reconsidered,” said Kevin Swift, chief economist with the American Chemistry Council. “Ten years ago, it was largely being written off.” ...

... Chemical makers including Bayer, Chevron Phillips and Eastman Chemical Co. have said recently they may put mothballed U.S. production units back into service because of low ethane costs. Nova Chemicals Corp. has even proposed building a new ethane cracking unit in West Virginia.

Houston is the focus of this petrochemical renaissance. The rosy picture painted there applies to Pittsburgh, as well. Look to Sarnia, Ontario to understand what the Marcellus Shale portends for Southwestern Pennsylvania. I blogged about that region over a year ago concerning a Nova Chemicals Corp. proposed pipeline from Pittsburgh to Western Ontario.

While the Gulf Coast petrochemical industry waned, it boomed in Sarnia thanks to ample fuel supply in Alberta (Check out the Canadian pipeline maps here). Instead of exporting shale gas to Sarnia, why not locate production over the Marcellus Shale? I think employers such as Bayer is where you will see the most job growth thanks to shale gas.

When it comes to the the technology and infrastructure behind the transfer of those YouTube videos from data centre to laptop, what should be noted is how in some ways new social media is supported by older and simpler technologies. Yahoo's newest cloud computing centre in upstate New York, for example, was designed with a nod to old factories that once dotted the landscape around Buffalo and other rust belt cities. Those designs took advantage of cool and frequent winds from Lake Erie that prompted architects to place heat sources in the centre of buildings, where they behaved as a natural pump that moved air up and out of rooftop vents while they drew cool air out of the same buildings' sides. Such a design tackles one issue that flummoxed data centre managers while irritating these same facilities' critics: data centres often spend the bulk of their budgets on cooling systems because engineers were fearful that excessive heat would prompt these large systems to run ineffectively. Research has shown, however, that allowing outside air to cool a data centre can significantly reduce their energy consumption while slashing costs.

Location also has played a huge role in where in-house data and cloud computing centres were placed. The cost of land and electricity has often been a determining factor for a new build-out, but as companies became more conscious of their carbon footprint, they realised that operating a centre off of coal-generated electricity was not the strongest tactic to endear stakeholders. Regions with cooler climates or greener sources of energy have the opportunity to attract these centers and the jobs that come with them. The state of Washington has taken notice: the home of Microsoft and many tech companies gives tax breaks to data centres built in a central county that derives most of its energy from hydropower and even wind. The duo of technology and strategically-placed computing centres will ameliorate the impacts that our dependence on bits and bytes has on the planet.

The Rust Belt has cheap land and the cool air, but lacked inexpensive power. The shale gas revolution is the last piece of the puzzle. Cornell University recently switched from coal to gas for electricity generation. A similar kind of retrofitting could make the Eastern Great Lakes a hotbed of data centers. Again, I see Pittsburgh as the likely center for such economic development.

I'm sure there are other shale gas spinoffs I'm overlooking. All will help to make Pittsburgh a prime destination for talent.

Tuesday, March 22, 2011

2011 Metro Migration Forecast

I intended to write a pithy post about another indication that Pittsburgh's economy is accelerating out of the recession:

The report includes a comprehensive index of current retailer demand and ChainLinks Power Rankings for the top ten U.S. markets in terms of expected overall health for 2011. According to ChainLinks Research Director, Garrick Brown, “The Washington DC market topped our Power Rankings, not only because of the region’s low unemployment and shopping center vacancy rates, but because of continued high levels of retailer demand.” Among the other U.S. markets to land in ChainLinks’ Power Rankings are the San Francisco Bay Area, New York City, Boston, San Diego, Baltimore, Philadelphia, Seattle and Pittsburgh.

The report is available online and I decided to look deeper into the press release. Among economic indicators listed are numbers for "2011 Forecast In-Migration" from Moody's (Check out Moody's "Jobs Forecast" hosted at USA Today). Unfortunately, Pittsburg [sic] is N/A. The population is available (2,431,000) and looks like a projection. The 2010 Census count is 2,356,285. That's about a gain of about 75,000 people. I doubt that is from a boom in births.

You can take a look at the migration forecast for all the other cities. For example, Cleveland is expected to lose 11,000 people via churn. The jobs forecast for that metro is equally dire.

Rust Belt Reset: Windsor

Other Rust Belt cities should pay attention to the Pittsburgh-like renaissance going on in Windsor, Ontario. By now, the story is familiar. Region diversifies economy and begins to reap rewards. The surprising part is Windsor's ability to attract retirees:

The area has also recognized the up-side of low real estate values, and has pitched itself as an active retirement community to boomers in the Greater Toronto Area who are looking for a more affordable lifestyle in an area with one of Canada’s most moderate climates. ...

... Real estate investment in the area from that cohort alone is estimated to already be $110 million. Since the initiative was launched in September 2008, 278 Ontario families have moved to the area – two-thirds from the Toronto area. Perhaps more surprising is the power to draw from the West. Krista Del Gatto, Executive Officer of The Windsor-Essex County Real Estate Board, notes that fully 28 per cent of the arrivals – 103 families – are from Alberta and B.C. Even 200 retirees have been courted away from the pricier West Coast.

Boomers are in an excellent position to employ geographic arbitrage and many Rust Belt cities deliver excellent real estate value at a fraction of the cost. In fact, all adult demographic cohorts are beginning to cash in on the cheap digs.

Via Twitter, Aaron Renn posted links to two articles that get to the heart of this talent migration trend. One concerns the turnaround for a town in Western New York:

The $100 rents he offers, he insists, are not charity. He makes money, too, as much as $500 a month, from the apartments upstairs. In remaking Mount Morris, O’Connell is revisiting his own playbook, the one he used to rehabilitate Brooklyn’s once-deserted waterfront Red Hook area. It was a project that lasted decades, one that put O’Connell on the map and made him a millionaire many times over. Starting in 1982, the year after he retired from the N.Y.P.D., he began buying run-down buildings in Red Hook, then an area known for its drug addicts and prostitutes. He renovated one building at a time, before moving on to the next. He saw the area’s potential before anyone else did and bought his properties — many from the city, which no longer wanted them — at nominal prices. “You’ve got to buy things right,” he says. “You’ve got to be 15 to 20 years ahead of the trends.”

The Rust Belt is the new gentrification frontier for urban success stories. Real estate refugees from New York City are pouring into Northeastern Pennsylvania, an area that has experienced a surprising increase in population over the last decade. Close proximity to a global city has been a boon for many struggling regions.

When I moved here last summer, all I could see were the changes in my neighborhood. I’d attended Howard University from 2002 to 2006, and while I knew that the city was where I wanted to stay, I got a job in New Jersey and worked there for a few years.

It was pure luck that when I made it back, I found a house for rent in LeDroit Park, right around the corner from my old dorm. The change that had occurred in four short years was stark.

To put it bluntly: There were white people, everywhere. Now, they trek between Bloomingdale and U Street NW by way of the busy intersection of Georgia and Florida avenues, where just nine years prior, it was a place where black college students butted up against unemployed brothers lingering on corners.

That story is full of interesting themes to explore. I'm highlighting the connection with the champion of Mount Morris. Going to college provided the knowledge of the geographic arbitrage opportunity. People won't fall out of the sky and repopulate Cleveland. There has to be a prior experience with the landscape. That's why so many people from Ohio end up in South Carolina:

Our charming neighbor to the north, Myrtle Beach, the Redneck Riviera (a.k.a. the gateway drug for Ohioans to Charleston), is particularly good at enticing beach-goers from the heartland. The Myrtle Beach Chamber of Commerce runs a 60-second TV spot in the Toledo and Youngstown markets in Ohio. They also have a significant online and TV presence on the CNN-style Ohio News Network channel. Myrtle Beach Chamber Public Relations Manager Kimberly Miles reports, "We just dropped a small property insert into Canton and Cleveland newspapers, which went to a combined 143,000 insertions, and on March 5 we dropped the eight-page vacation planner insert in Columbus."

Much of the Rust Belt-to-Sun Belt migration is made up of those seeking a year-round spring break experience. They get to a know a place while on vacation or perhaps a friend recently moved there. They aren't in the market for lower taxes or a right-to-work state.

Your Rust Belt city will need more than rock-bottom real estate prices. The missing ingredient is intimacy with the landscape. That's true at any scale and why some neighborhoods offer incredible bargains. Perception is reality. Those are the mesofacts that drive migration.

Monday, March 21, 2011

Hispanic Migration To Pittsburgh

Game on. Latinos have discovered Southwestern Pennsylvania:

"We certainly have noticed an uptick in the number of Spanish-speaking residents," said borough manager Terry Hazlett. Canonsburg's Hispanic population rose by 100 residents since 2000, to 162, representing a 161.3 percent increase. ...

... "I had to find the crew chief to find somebody to speak English," Hazlett said.

Throughout Washington County, the Hispanic population grew to 2,366 as of 2010, rising 102.7 percent for the decade.

Yes, the absolute number of more Hispanics is small. But the relative gains suggest a pioneer migration to Washington County that will attract much greater numbers in the future. The pathway of inmigration is established.

A few years ago, I rode a bus from Akron to Pittsburgh. There were many Hispanics on board, but I didn't see any get off in Pittsburgh. Given the above data, I'd bet that has changed. The Pittsburgh boom continues.

Exporting Shale Gas

The Financial Times has two articles that should interest anyone living above the Marcellus Shale. The first one details how two energy production disasters impact the natural gas industry. The analysis is in line with what I posted over the weekend. The second piece weighs the prospects of the United States exporting its glut of shale gas:

“I don’t see a strong push to import US LNG,’’ says Paolo Dutto, associate director with Arthur D Little Energy Practice. He notes that Australia and the Middle East were among those with huge gas resources that were preparing to export LNG. “It will be very hard for the US to compete with other regions.’’

Particularly, he says, since those countries are closer to Asia, the primary import market and, therefore, cheaper for importing.

“The long-term economics don’t support it,’’ says Andy Steinhubl, Houston partner at Bain & Co.

He believes the US will start using more of its gas with a recovery in the economy, which will promote power use, and the fact that it is cheaper to build gas-fired generating capacity than coal-fired.

That does not mean gas will displace current coal-fired capacity. Even at these low rates, Mr Steinhubl says, gas prices are not low enough to take out existing coal-fired capacity.

It would take much lower gas prices to do that. Nonetheless, he says, a carbon tax would put pressure on the installed coal base. It would take a charge of $35-$50 a metric ton to make it uneconomic to run existing coal.

But Mr Souki insists that in the past 30 years the US has not increased its domestic gas consumption and even if it moves to do so, there will be more than enough gas to fuel the domestic market as well as to be exported. He notes that 33 US states are gas producers and that number might well grow.

There is a tension between a possible increase in domestic demand and the well-established global demand. Everything I'm reading points to a coupling of the United States with the global market for natural gas. Such a development would likely raise the price of natural gas in the United States, which clouds the picture of fueling power generation. Will gas remain cheap enough to displace coal?

Exporting LNG is a ways off in the future. Politics are about the here-and-now. I think the push for more natural gas power plants will win the day. Only a strong backlash against fracking a la what has besieged the nuclear industry will quell the energy boom in Pittsburgh.

Saturday, March 19, 2011

Nuclear Fallout For Shale Gas

The disaster in Japan has strongly affected energy markets and well as the industry. The public is once again strongly risk averse to nuclear power. On the one hand, that's bad news for Pittsburgh and Westinghouse. On the other, shale gas companies must be licking their chops:

"Natural gas may end up having a much bigger role in power generation in Europe than people were expecting a couple of years ago," says Mr. Yergin.

That's partly because there is a lot of it about. The development of technology to extract so-called unconventional or shale gas out of sedimentary rock has resulted in a sharp increase in U.S. production of natural gas.

This has displaced liquefied natural gas from other parts of the world, including the Middle East, that would have gone to the U.S. but now has to find buyers in other parts of the world. World spot prices have, partly as a result, fallen sharply in recent years.

Europe is also looking to increase pipelined supplies of natural gas from the east, to diversify away from its current dependence on Russia.

And there's a joker in the pack: Europe's own, as yet untapped, supplies of unconventional gas. One industry insider says companies that have found such gas are not advertising it, but Mr. Yergin says his organization has done a study of 55 potential unconventional gas plays "that shows Europe has almost as much unconventional gas as North America."

Both shale gas and oil portend a dramatic shift in US economic geography. The growing concerns about nuclear power almost certainly take that option off the table for the near term. Even prior to the shale gas boom, the fuel was seen as an attractive alternative to coal for generating electricity:

Paul Smith, vice chairman of Tenaska Energy, said his company predicted four years ago that natural gas would become the dominant fuel in the power sector. At that point, company forecasts put the price of natural gas at between $7 and $8 per thousand cubic feet, he said. Today, amid abundant supplies, the price is roughly half that level.

Such low prices make fracking less profitable, yet the end of the glut is nowhere in sight:

With the natural gas trading below $4 per million British thermal units, the standard volume measure for the industry, there’s pressure to drive costs lower. The company currently spends between $8m and $11m on a well that should provide gas for about 30 years.

“The most time-honoured way to reduce your drilling costs is to reduce your cycle time,” Carpenter says. Shell doesn’t disclose whether it’s currently making money from its North American shale operations. But like rivals that are gambling on shale, Shell will be hoping that new regulations force the closure of more coal-fired power stations, lifting both demand and prices for natural gas. The US Energy Department forecasts that shale will account for 45pc of all natural gas production in the US by 2035 compared with 14pc in 2009.

One of the cheapest places to drill is in the Marcellus Shale. Rock bottom prices aren't scaring away energy companies:

National Fuel Gas Co. has agreed to sell its oil and natural gas wells in the Gulf of Mexico in a $70 million deal that will raise additional money for the Amherst energy company’s accelerated drilling plans in the Marcellus Shale in Pennsylvania.

Moving from one to play to another is big news. Everyone is heading for Pennsylvania. The main threat to this talent flow is regulation:

“The industry is definitely under attack,” said Stacy Schusterman, CEO of Samson Investment Company, during a panel on the third day of IHS Cambridge Energy Research Associates’ CERAWeek conference in Houston. “But I think the bulk of that is happening in states like Pennsylvania and New York, where the amount of drilling growth is something they haven’t seen before and the system is not really set up to handle the volume of activity from the public’s perspective.”

I have the sense that the entire world is watching and waiting for political events to unfold in Pennsylvania. Is the extraction of shale gas safe? There are similar questions about any energy source. The more important consideration:

How does shale gas compare to nuclear power?

Wednesday, March 16, 2011

Allegheny County College Education Trends

The Chronicle of Higher Education has posted an interactive map that displays percentage of adults with college degrees. It spans 1940-2010, revealing how educational attainment changes over each decade. You can disaggregate by gender, race, and ethnic group. I looked at how Allegheny County measured up to the national average from 1970 to today. The national average is in the first column and Allegheny County is in the second column below:

1970: 10.7% 11.08%
1980: 16.2% 16.50%
1990: 20.3% 22.62%
2000: 24.4% 28.34%
2010: 27.5% 33.46%

Allegheny County trends along with the entire country in rising percentage of college graduates until 1990, when brain gain Pittsburgh begins to take off. That gap will get a lot wider over the next decade as talent continues to concentrate in the region.

Tuesday, March 15, 2011

A Suburban Recovery: Job Sprawl

Urban boosters will want to stop reading right now. From the Wall Street Journal: "Sand and Surf Help Spur Real-Estate Revival: Sunny Santa Monica, Calif., Stands Out in Luring the Talent That 'Does Not Like to Work in High-Rise Office Buildings'":

Nationally, the office market began to recover in 2010, with the U.S. vacancy rate dipping to 17.7% in the fourth quarter from the recession's peak of 17.9% in both the first and second quarters, according to Grubb & Ellis. In 2009's fourth quarter, the rate was 17.4%.

The national market has been lifted by a return to job growth, although the nearly one million jobs added in 2010 contrasts with nearly nine million lost in the downturn, said Grubb & Ellis Chief Economist Bob Bach.

A number of other markets outperformed the overall market. In the San Francisco Bay area, Palo Alto's office vacancy rate of 9.9% in the fourth quarter was lower than those of most other cities, including San Francisco's 15.5%, according to CB Richard Ellis. The main reason, brokers say, is that Palo Alto is home to fast-growing tech firms.

Elsewhere, CB Richard Ellis said, the financial-market rebound helped pull New York's vacancy rate to 8.4% in the fourth quarter, while biotechnology growth helped reduce vacancies in the middle area of Cambridge, Mass., to 6%, compared with a Boston metro rate of 13%. In the Pittsburgh suburbs of Beaver and Butler counties, growth in energy and technology reduced vacancies to 4%, compared with a metro rate of 11.2%.

I emphasized the Pittsburgh part of the passage. The news is that office real estate is doing better in the suburbs than in the urban core. The not-so-subtle underlying message is that the Creative Class is choosing sprawl over city working. The analysis is superficial at best.

In some ways, the jobs are moving to where the people live. Suburban counties sport most of the population growth in any region. Much of the residential migration is within the region. I'd expect the same is true for the business migration. In terms of attraction strategies, that pattern is important to remember.

If you want more people and jobs in the urban core, then your target demographic/business is currently located outside of the region. Long-distance movers are more likely to appreciate what your city has to offer. Local perceptions aren't going to change. Trying to convince regional suburbanites to embrace density is a waste of time.

I think separating migration incentives into two categories would be useful. Within the city, you want to encourage the residents (or businesses) you have to stay put. You don't want them bolting for the burbs. Retention makes sense on this scale. However, trying to keep people (or businesses) from leaving the entire region is unlikely to work and undermines economic development.

If you want to attract more talent, then you must look beyond the pale. Forget booming Butler County. I'd bet Pittsburgh could attract people from suburban Detroit to live in the city. The flow can go the other way, too. One model I have in mind is boomerang migration:

  1. Suburban brat leaves Rust Belt region for Cool City
  2. Cool City hipster feels the tug of home and returns to live in the urban core

Yes, I would bet expatriates could repopulate shrinking cities. I'd guess that this is already happening on a bigger scale than anyone realizes.

Turning back to the original subject of the post, a closer look at firm migration holds a few surprises:

In a study released last year, Jed Kolko of the Public Policy Institute of California examined business relocation and homegrown jobs in the United States between 1992-2006.

Although his primary focus was California, he found that, throughout the nation, business relocation across state borders accounts for a very small portion of job loss or creation for individual states.

“Even the places where relocation accounts for the highest share of job gains or losses, it’s still well under 10 percent. Aside from Washington, D.C., it’s under 5 percent,” Kolko told the Press & Dakotan in a telephone interview. “The vast majority of jobs that are gained come from new businesses being born and existing businesses expanding. On the other hand, the vast majority of jobs lost are because of businesses closing or contracting. It’s not because businesses are moving in or out of the state.”

Interstate firm relocation garners all the press. Hence, all the talk about tax policy and right to work legislation. It doesn't pass the sniff test. Proximity matters much more than policy geography. From the same article:

Thus, Delaware; New Jersey; New Hampshire; Washington, D.C.; and Connecticut make up the top five states for job gains due to business relocation from outside their state borders.

How does Kolko explain these figures? He theorizes that states with the highest percentage of losses and gains have large amounts of economic activity that occur near their borders.

“It makes it easier for businesses to move out but also makes it easier for businesses to move in,” Kolko said.

Like people, businesses are risk averse concerning migration. The apple doesn't fall far from the tree. We go where we know. We eschew the road less traveled. Cities don't attract firms so much as they give birth to them. The game is one of job creation, something the suburbs will struggle to achieve.

Post-Recession Pittsburgh

Pittsburgh didn't bust during the Great Recession because it didn't experience a boom. That's one way to dismiss the economic success of the region. Other cynics and skeptics are waiting for the rest of the country to catch up and surge past this dying city. Eventually, the Rust Belt loser will show its true colors.

Betting against Pittsburgh, selling it short, is a mistake. It was just named the 9th best place to find a job:

Each of the cities on the list boasts an unemployment rate of 8 percent or lower, below the current national average of 8.9 percent. In determining the list, Ajilon also considered a number of factors, including the diversity of industries in the city, cost of living, the range in size of companies offering employment, and level of higher education among its residents.

I emphasized what I think is the most important metric. Keep that in mind while reading the latest MetroMonitor from Brookings, tracking the recovery during the fourth quarter of 2010. You have to boom in order to bust:

Nearly all the metropolitan areas whose economies have suffered the most since the start of the Great Recession are ones that experienced a large house price boom and bust or that depend heavily on auto or auto parts manufacturing. Nearly all those whose economies have suffered the least rely substantially on government (e.g., Washington and several state capitals), health care (e.g., Baltimore and Pittsburgh), education (e.g., Pittsburgh and Austin), or oil and gas (Denver).

Pittsburgh sports two industries that were notably recession resistant. A third, oil and gas, is on the rise thanks to the Marcellus Shale. The diversity of industry in Pittsburgh compares favorably to any US metro. In fact, Pittsburgh may sport the most resilient economy you can find anywhere.

The pessimists cling to one hope, a slow rate of recovery. Traditionally, Pittsburgh is slow out of the recession's nadir. You have to bust in order to boom. If you think of the early 1980s as Pittsburgh's great bust, then imagine today as the resulting boom:

Chris Briem (Null Space) cautions against over-interpretation. I'd invoke Ben Schulman's "Magic of Failure":

Maybe it's time to look towards Pittsburgh, a magnificent failure that now seems to be a wondrous place to do business in, a place to create in, a place to live. Riding the steep funicular incline to rest atop the city's Mt. Washington neighborhood, and taking in the vista of its Golden Triangle, some could even say a place of magic.

The bump in job creation didn't come out of nowhere or even out of the ashes. If you look, then you'll find impressive economic diversity and a strong foundation for the post-recession world. The workforce is smart and talented. The setting is dramatic and beautiful. The Great Reset favors Pittsburgh.

Monday, March 14, 2011

Engineering Talent Migration

There is a exodus of talent from the United States. The commonly cited cause for this brain drain is immigration policy. Sanjay Saigal contends otherwise:

[Vivek] Wadhwa's article jars especially because he has convincingly documented, e.g., here, that immigrants are not being driven home by visa issues or other negative motivations. Instead, his research points to reverse migration as a positive decision. Returnees are being pulled by exciting business environments in their home countries that are getting better all the time, and to the comforts of settling back in a familiar cultural milieu.

There's an easy test to figure out who is right. Pick another policy geography, particularly one held up as a positive example of immigration done right. O Canada:

Asian countries with promising employment opportunities and strong economic growth have replaced Canada's reputation as the "land of opportunity" for many, immigration experts say, pointing to the numbers of young Asian Canadians emigrating to the home of their forebears.

Return migration, the phenomenon of people migrating back to their countries of origin or their families' country of descent, is picking up in popularity. The movement has been steadily increasing in Canada since 2006, said Graham Johnson, a University of British Columbia professor who specializes in immigration and multiculturalism.

"Something is going on with respect to the economic potential which is much greater now in East Asia than in Canada.

More welcoming and tolerant? You betcha. Same brain drain, too.

The boomerang migration from Canada gravely undermines the argument for policy reform in the United States. I think there is a lesson in there for Rust Belt talent attraction, as well. That's not to say that nothing can be done. But hunting for snipe isn't the answer.

Saturday, March 12, 2011

Talent Attraction Paradigms

Get ready for another round of Richard Florida versus Joel Kotkin. The Wausau Daily Herald boils it down even further, to cool city versus inexpensive city:

Rebecca Ryan, in her book "Live First, Work Second," put some of Florida's ideas in more specifically generational terms. The book, the subtitle of which is "Getting inside the head of the next generation," discussed specific differences in attitude between baby boomers, Generation Xers and millennials. Ryan identified strongly with Florida (he wrote the foreword of her book) and argued that cities that became "cool" would do a better job of attracting young people. ...

... In July, Kotkin wrote a story for Newsweek called "Why the Great Plains are Great Once Again" that presented Fargo, N.D., as one model of economic growth. Kotkin attributed this growth largely to the low cost of living and the growing energy economy -- not to Fargo's ability to attract Bohemian creatives or appear hip to young professionals.

If you want a cool city, then it is going to cost you. I don't see the two talent attraction paradigms as mutually exclusive. To illustrate, I'll return to the rant posted at Rust Wire I blogged about yesterday:

It’s nearly a certainty that we will have to relocate (or at a minimum expand ) our business out of Michigan if we want to grow. People – particularly affluent and educated people – just don’t want to live here. For example, below are charts of migration patterns based on IRS data Black is inbound, red is outbound. Even though the CA economy is in very bad shape, there is still a mass migration to San Francisco vs. mass outbound migration from Oakland County (most notably to cities like SF, LA, Dallas, Atlanta, NY, DC, Boston, and Philly) San Fran only seems to be losing people to Portland, a place with even more open space and higher quality urban environments.

Talent is moving from San Francisco to Portland because it is similarly "cool" but significantly less expensive. Portland gets to join the spiky club because the world is flat. In other words, talent is seeking geographic arbitrage opportunity. Interestingly, California serves as a muse for both Kotkin and Florida. That state's migration history makes both public intellectuals look smart.

Neither critic has much good to say about uncool, but definitely inexpensive Rust Belt cities. Both worry about the declining population numbers. Both subscribe to the metaphor that people vote with their feet. So, how could St. Louis be winning the place election? Let me count the ways:

The deals include a decision by Unisys to locate a new software center in a century-old building a block from the riverfront and the expansion of several large data-center operations by other companies. The Unisys project in particular is seen by city officials and developers as a coup because St. Louis edged out the Minneapolis-St. Paul area and Salt Lake City to win the project.

Ted Davies, the president of Unisys’s federal systems business, said two factors were important in the choice of St. Louis. The first is proximity to the Rural Development agency at the Agriculture Department, which has a sizable office in the city and is expected by Unisys to be one of the new center’s main customers.

The second concern was the cost comparison between St. Louis and Reston, Va., where Unisys’s federal systems division has its headquarters. “We looked at labor and real estate and found the arbitrage to be about 25 percent,” Mr. Davies said.

The new center opened in November and occupies about 10,000 square feet at 555 Washington Avenue, a five-story former department store building with an elaborate ornamented facade. The center will eventually have about 300 employees.

“We wanted a ‘cool’ building,” Mr. Davies said. “We are hiring a lot of younger folks, and they like the look and feel of being downtown.”

St. Louis is cool and inexpensive. Reston isn't cool and is very expensive. Companies are beginning to understand the value of dying cities. Edging out Salt Lake City and Minneapolis is more surprising. Those two regions have already sucked up thousands of real estate refugees and are still relatively affordable.

On the balance, I think Kotkin is more right than Florida. Like most urbanists, Florida extends the economic geography prior to the Great Reset into the future:

The Rust Belt in particular looks likely to shed vast numbers of jobs, and some of its cities and towns, from Cleveland to St. Louis to Buffalo to Detroit, will have a hard time recovering. Since 1950, the manufacturing sector has shrunk from 32 percent of nonfarm employment to just 10 percent. This decline is the result of long-term trends—increasing foreign competition and, especially, the relentless replacement of people with machines—that look unlikely to abate. But the job losses themselves have proceeded not steadily, but rather in sharp bursts, as recessions have killed off older plants and resulted in mass layoffs that are never fully reversed during subsequent upswings.

I think we are ushering in a period of new long-term trends and cities such as Pittsburgh are emblematic of the new normal. There is an emerging urban aesthetic among Millennials that neither Richard Florida nor Rebecca Ryan appreciates. Who knew that Detroit is full of cool buildings and authentic culture that would attract the Creative Class? And you don't have to pay San Francisco-like rents to live there.

Friday, March 11, 2011

Rust Belt Population Fetish

The Rust Belt is shrinking. The hysteria in the wake of the US Census release is the result of misinformation and misunderstanding. An exodus isn't necessarily to blame for population decline. And net outmigration doesn't necessarily mean brain drain. Finally, today's negative publicity says more about shocks a generation ago than it does policy over the last decade.

Migration myths abound and inform bad policy. A good example of the confusion can be found over at Rust Wire:

Our problem is access to talent. We have high-paying positions open for patent attorneys in the software and semiconductor space. Even though it is one of the best hiring environments for IP firms in 40 years, we cannot fill these positions. Most qualified candidates live out of state and simply will not move here, even though they are willing to relocate to other cities. Our recruiters are very blunt. They say it is almost impossible to recruit to Michigan without paying big premiums above competitive salaries on the coasts. ...

... There’s a simple reason why many people don’t want to live here: it’s an unpleasant place because most of it is visually unattractive and because it is lacking in quality living options other than tract suburbia. Some might call this poor “quality of life.” A better term might be poor “quality of place.” In Metro Detroit, we have built a very bad physical place. We don’t have charming, vibrant cities and we don’t have open space.

Talent attraction is front and center. Michigan cannot draw the workers companies need. As far as Rust Belt struggles are concerned, that's progressive thinking. However, the explanation as to why Michigan fails to attract talent is wrong.

The gist is that if Detroit were more like San Francisco, all the brains would be moving there. In particular, suburban sprawl is spotlighted as the culprit. Towards the end of the letter, the dreaded brain drain is invoked:

The people who put together that website must live in a different cultural universe from the high income/high education people streaming out of Michigan for New York, Chicago, and California. Not only is there no plan to address these issues, I fear that the public and their elected leaders in Michigan don’t even recognize the problem or want change.

Why people leave isn't necessarily the same as why people don't come to Michigan. Lumping talent attraction in with talent retention is a mistake. I'd start there, disaggregating the migration numbers, before seeking a solution. Cities such as New York, Chicago, and San Francisco are domestic migration losers. What's wrong with them?

Regarding the Michigan talent attraction issue, I've posted frequently on the subject. As Aaron Renn (The Urbanophile) argued, Detroit has a powerful brand. But the region doesn't leverage this advantage. Instead, it tries to undo what it perceives as a negative stereotype. If you don't believe Renn, then perhaps you might consider what Patti Smith said last year:

When she was done answering Lethem's questions, she picked up her guitar and sang a song about William Blake. Then she answered questions from the audience. One woman asked if it was still possible for a young artist to come to New York City and do what young artists did when Smith was starting out.

Patti recalled coming to New York without money, when it was "down and out," and you could get a cheap apartment and "build a whole community of transvestites," artists or writers, or whatever.

Today, she said, "New York has closed itself off to the young and the struggling. But there are other cities. Detroit. Poughkeepsie... New York City has been taken away from you... So my advice is: Find a new city."

While doing some research for cityLAB Pittsburgh, I became aware of anxiety in Brooklyn about retaining creative talent. Stoking those fears was an article in the Wall Street Journal:

Last month, artists Michael Di Liberto and Sunia Boneham moved into a two-story, three-bedroom house in Cleveland's Collinwood neighborhood, where about 220 homes out of 5,000 sit vacant and boarded up. They lined their walls with Ms. Boneham's large, neon-hued canvases, turned a spare bedroom into a graphic-design studio and made the attic a rehearsal space for their band, Arte Povera.

The couple used to live in New York, but they were drawn to Cleveland by cheap rent and the creative possibilities of a city in transition. "It seemed real alive and cool," said Mr. Di Liberto.

Given what I know about Rust Belt cities, I figured that either (both) Di Liberto or Boneham was familiar with Cleveland and what it has to offer. Di Liberto is from Northeast Ohio and is one of the thousands of Rust Belt refugees who repatriate every year. This is an established pathway of talent migration and Detroit could do a much better job of enhancing this trend.

I'm not the only one evangelizing this idea. A new dawn for St. Louis:

So are there currently any coordinated efforts to engage the St. Louis diaspora in ways that are intended to bring them back to the region? There probably are, but I'm not aware of them, and there is surely room for more. Outreach along these lines does not seem that difficult to implement, and would probably pay some dividends over the long haul (for example, between now and the next census). It is just one of many "low investment, high yield" efforts that, if sustained over a long period of time, could end up making a big difference in perceptions of (and hopefully the population of) St. Louis.

There are variety of applications for such an initiative. Tell me about your talent needs and I'll engineer the migration. The best part is that Rust Belt Chic is in right now. Both Detroit and St. Louis has what young talent wants. It's much more than an inexpensive cost of living and dirt cheap real estate. The primary impediment to more inmigration is perception. Get to work selling your city's unique brand.

And remember ... People develop, not places.

Thursday, March 10, 2011

Rust Belt Reset: Manufacturing

Hot off the presses of The Economist:

For the first time in many years, American manufacturing is doing better than the rest of the economy. Manufacturing output tumbled 15% over the course of the recession, from December 2007 to the end of June 2009. Since then it has recovered two-thirds of that drop; production is now just 5% below its peak level (see chart 1).

Factory employment has been slower to recover than output, since productivity has risen. Nonetheless, that too is growing. In February factory payrolls rose by 33,000 from January. In the past year manufacturing employment has gone up by 189,000, or 1.6%, the biggest gain since the late 1990s. Total employment rose just 1% in that period. Unemployment has fallen more sharply than the national average in Illinois, Ohio and Michigan, which are relatively dependent on manufacturing.

America still makes things, even for export. But number of people required to make those things continues to drop. A reinvestment in manufacturing will not fuel a job recovery.

That lesson seems to be tough for Rust Belt states to learn. Those waiting for the return of manufacturing aren't paying attention. The output never went away. On the other hand, the jobs most certainly did.

Wednesday, March 09, 2011

Rust Belt Baltimore

More than most shrinking cities, Baltimore has worked hard to shed the Rust Belt label. With the US Census dumping data daily, the population vigilantes are out in force. Baltimore is seeking solace in schadenfreude:

Holy cow. Cleveland lost 17 percent of its population in the last decade. About 82,000 people. Since Baltimore was one of the first rust-belt cities to have its 2010 Census results announced, I've been waiting to see how our peers fared.

That's the Baltimore Sun defining the urban peer group, not I. The Charm City's soul is rust colored. Misery loves company.

Rust Belt Crisis

America's decline is a hot topic these days. I've heard it all before, back in the early 1990s. The End-is-Nigh crowd, it seems, peaks at some point in every decade. Joseph Nye takes issue with the naysayers in Foreign Policy and his last paragraph (if not the entire piece) applies equally well to the Rust Belt:

The greatest danger to America is not debt, political paralysis, or China; it is parochialism, turning away from the openness that is the source of its strength and resting on its laurels. As Zakaria says, in the past, worrying about decline has helped avert it. Let us hope that his intelligent though darkly drawn picture will yet again start that healthy process.

Relative to the entire United States, the Rust Belt is closed. That is the source of its weakness. The concern about decline results in greater withdrawal. Power is more tightly concentrated among fewer people. As Sean Safford observes, the community is strangled by too much social capital:

In Chapter 4 of Why the Garden Club Couldn’t Save Youngstown, I talk about the differences between how immigrant workers were treated in Bethlehem and Youngstown. In both places, local elites saw the arrival of new immigrants as a threat. But they defined the threat differently. In Bethlehem, the threat was seen as the break down of community. And so business and civic leaders took action to create bridges to immigrant groups (largely through religious outreach: that is, through organizations like the Young Men’s Christian Association). This had the effect of forging ties both between the elites and the working classes and among the various ethnic immigrant communities that made up the working class.

Elites in Youngstown interpreted the threat, not in terms of community, but in terms of elite’s interests.

The response of the elites served to make the neighborhoods of Youngstown more parochial, more isolated. The city was Balkanized. I see the same thing happening in the Rust Belt today. The reaction to fiscal and economic crisis is all too familiar. Does that mean another lost decade for the band of shrinking cities?

Tuesday, March 08, 2011

Burnt By The Sun

As the US Census numbers trickle in, we see that the Rust Belt is still shrinking (i.e. dying). The Sun Belt is still booming. Business as usual, right? Wrong:

"There's an extraordinary potential for 'sunburnt' cities to embrace the idea of smart decline" — doing more with less, whether it's fewer people, fewer home buyers or fewer jobs, says Justin Hollander, urban planning professor at Tufts University and author of Sunburnt Cities, which was published March 1.

Boomtowns that have been scorched by the housing crisis could learn from struggling Rust Belt communities, Hollander says.

Sunburnt cities have a chance to limit growth for growth's sake by allowing dense development and reducing parking requirements to encourage walking, public transportation and more green space, Hollander says.

"In each place there are a lot of opportunities to think smaller," he says. "It hasn't happened yet. Largely, these cities are in denial."

There is ample room for a debate about whether or not the Sun Belt will regain its swagger as the US economy rebounds. I'm in Hollander's camp. I view the latest recession as informing a "new normal". I foresee the slump in Florida lasting decades.

One reason the deck is stacked against the Sunshine State is ironic, to say the least. The lack of affordable housing:

Given its high volume of housing vacancies, Orlando seems an unlikely backdrop for any discussion about more housing. The same could be said for any of the economic boom's high-growth areas now experiencing unprecedented home foreclosures and sharply depressed home prices.

However, the issue of work-force housing is not about a shortage of housing in urban areas. It's about a shortage of affordable housing where it's needed in urban areas, including those hardest hit by the housing crisis.

At ULI, we learn from development mistakes as well as successes. And this is a lesson learned from the past two decades: The ever-expanding urban edge — driven by workers seeking housing they could afford — wound up being a costly location choice, in terms of living expenses.

The recent spike in gasoline prices should make the issue clear. Pay is not keeping up with the journey to work costs in sprawling Orlando. The residential geography is out of step with the emerging economic geography.

More ironically, it is the Rust Belt cities of the Sun Belt benefiting from the new normal. I think these places are the best example of how the landscape has been tilting in a different direction for a few years. Consider talent attraction Birmingham (apparently still the Pittsburgh of the South):

Birmingham was ranked the sixth best "brain magnet" in the country, according to a recent report by Joel Kotkin, a fellow in urban futures at Chapman University in California and executive editor of The report ranked the 52 metro areas with more than 1 million people based on gains in people with college educations between 2007 and 2009 compared to the overall population older than 25. During that time, the Birmingham-Hoover metropolitan area gained 21,111 college graduates, almost 3 percent of the people older than 25.

Birmingham trailed only New Orleans, fueled by people moving there after Hurricane Katrina; Raleigh, N.C.; Austin, Texas; Nashville, Tenn.; and Kansas City, Mo., in the greatest percentage gain of graduates.

"Birmingham's strong showing on this list is likely due to the rapid growth in its surrounding suburban counties," the report said. "One big development sure to lure brains: the rapid expansion of the University of Alabama's medical center and surrounding private medical industry."

Birmingham is a steel bust-town with a crushing municipal debt. Yet the college-educated are flocking there. The growth in Birmingham should be cause for grave concern in Orlando. Migration patterns are slow to change. Even if Sunburnt cities do recover, Birmingham will still look relatively more attractive in terms of opportunity. As the economy improves, the exodus often picks up speed. People are less risk averse and more willing to move. For Florida, the darkest days are still ahead.

Monday, March 07, 2011

Talent Retention Pittsburgh

Over the past few years, I've noted a trend in policies designed to plug the brain drain. Internships appear to be an effective tool for retaining college graduates that a region attracts. This is a great way to match the talent needs of industry with people studying at local institutions of higher education.

Internships would seem to explain Pittsburgh's impressive ability to retain talent, a trend I discussed last week. From today's sweep of the news:

The U.S. News internship survey showed that, of the 692 schools that responded, 36.8 percent of 2009 graduates had received an internship.

That tells us a few things. One is that most students do not get internships, even among universities that are happy to fill out surveys about such things. Looked at another way, you’d have to say that getting an internship is not a huge advantage if only more than a third of students at these 692 universities had one. No one going after a job is content to be in just the top third. The University of Pennsylvania, at the top of the U.S. News list, reports that 90 percent of its 2009 graduates had worked internships.

While ahead of all the other universities, Penn students are tied with each other — unless they get multiple internships. The Penn system obviously works well in getting students work experience, but even there, the student who hustles will rise above the rest.

Tuition and fees at Penn, a private university, are $40,514 this school year, according to U.S. News. And that is the $ factor.

Eight of U.S. News’ top 10 internship-producing universities are private. By definition, that makes them more expensive than public universities. The top internship-producing public universities on the U.S. News list are the Colorado School of Mines and the University of Pittsburgh.

Pennsylvania colleges and universities do a great job of attracting students from other states. Philadelphia (see the tidbit about Penn) has made a concerted effort to keep this talent around after graduation. Everything I've read recently indicates that the initiative is working. As for Pittsburgh, I'm not surprised to discover that Pitt excels at placing students in internships. The region struggles with anemic inmigration and a declining population. Most workers must be locally trained or educated in order to fill the demand for talent.

Bottom line: If you want to move to or back to Pittsburgh, then enroll in one of the region's great colleges or universities. That's the best way to find a job in Southwestern Pennsylvania.

Sunday, March 06, 2011

Pittsburgh's Unconventional Economic Boom

Pittsburgh is the next Calgary. What does that mean? Expect more inmigration than you ever thought possible for a Rust Belt city supposedly dying. The main attraction will be the energy industry, namely the Marcellus Shale and its wealth of natural gas reserves.

Hydrofracking is literally an economic earthquake. The unconventional gas and oil revolution has plenty of boosters and skeptics. The truth is that no one is sure what is going on and what will happen next. What we do know is that the world of energy is morphing faster than we can make sense of the new terrain. From Der Spiegel:

In addition to changing worldwide energy markets, the emergence of new gas sources is leading to shifts in the global balance of power. Indeed, the dominant position of classic production countries, especially Russia, could soon erode strongly. Poland, on the other hand, could become a relevant player in the global market. Polish Foreign Minister Radoslav Sikorski already envisions transforming his country into the "next Norway" -- rich, important and independent -- particularly of its giant neighbor Russia.

Poland is the next Norway. Pittsburgh is the next Calgary. The above passage is innocuous enough. It is just speculation. In the context of the entire article, it seems more like a foregone conclusion. If you are living above the Marcellus, I encourage you to read it.

Friday, March 04, 2011

Rural/Urban Brain Drain

Motown to Tree Town weaves together Aaron Renn's (The Urbanophile) discussion of the Brookings mobility bank idea and a review (from Rust Wire) of Edward Glaeser's new book, "Triumph of the City". What drew me to the blog post is a quote from Glaeser used as an introduction:

(P)ublic policy should help poor people, not poor places.–Ed Glaeser, Triumph of the City

I first came across this policy paradigm back in 2007 in this Glaeser authored article, "Can Buffalo Ever Come Back?":

Probably not—and government should stop bribing people to stay there.

That provocative tagline sparked outrage in Buffalo. I doubt any civic booster bothered to digest Glaeser's analysis. For me, his thinking was (still is) a revelation. I had Glaeser on my mind when I blogged about Richard Longworth's review of "Hollowing Out the Middle" and Matthew Kahn's reflections on Appalachian talent outmigration:

The focus is on retention. Longworth isn't suggesting this policy approach. But if you read Kahn's research, then you'll see something similar to the conclusions drawn in "Hollowing Out The Middle." Kahn's point is that these towns and cities in Appalachia are unlikely to attract the kind of talent that most typically leaves the region. The same is true for the rural Midwest. At least, that's the perception.

The popular and most common reaction to "Hollowing Out the Middle" concerned what Longworth termed "civic suicide". That is, rural communities were encouraging young adults to leave. One of the authors, Maria Kefalas, recently attempted to clarify the conclusions drawn in the book:

"We don't want young people to abort their dreams to stay in rural America," she said. Later adding, "What we're saying is you have to stop assuming that the best kids are going to leave and the kids who aren't so good are going to stay and that [the towns] will somehow be OK."

Small towns are facing many more issues outside of the brain drain, like the loss of manufacturing jobs, outdated infrastructure, staggering unemployment, and the inability of small businesses to receive bank loans. But looking at the rural brain drain, Kefalas said it starts with college students.

"Of course kids are going to leave, we don't want them to stop leaving," she said. "But we need to invest in the kids who stay, and make it more tempting for the kids who are thinking of leaving."

That brings me back to Glaeser as his advice for Buffalo:

No mayor ever got reelected by making it easy for his citizens to move to Atlanta, of course, even when that might be a pretty good outcome for the movers themselves. But just because local pols will eagerly seek federal place-based spending doesn’t mean that the feds should comply. A sensible federal approach for upstate New York would invest in people-based policies that improve the economic futures of the children growing up there. Education is the best tool we have to fight poverty. If the children of upstate cities were better educated, then they would earn more as adults—whether they stayed in their hometowns or moved to Las Vegas. And people-based policies may actually motivate states and cities to spend more wisely, in order to retain their newly educated and mobile residents.

I still bristle at the mention of policies designed to retain talent. But the main point is important. Invest in people, not places. If a place is good at developing people, then it will be a desirable residence. That's how I view suburbs. A great school district is a powerful attraction, the long commute and high real estate prices be damned.

For some, the climate or the built environment is more important. Both variables influence migration. However, most people will tolerate bad weather, a high cost of living, and an ugly built environment if it translates into personal or familial development. Migration is still primarily a matter of economics.

What Glaeser doesn't mention is that leaving Buffalo is more advantageous for the individual than staying, controlling for educational attainment. Increasing geographic mobility promotes economic development. Rural communities committing civic suicide understand this. Policymakers need to catch up.