Building Industry Clusters Via Brain Drain

Talent migration is an economic link between two places. It's not a zero-sum game. There aren't winners and losers in a vote-with-your-feet race. When people move, people develop and two communities should benefit. How brain drain is building an industry cluster in Pittsburgh:

After seven years with Disney in California, Schell — a New Jersey native with a Carnegie Mellon University graduate degree — returned to Pittsburgh 11 years ago and began teaching at the university’s Entertainment Technology Center.

He wanted to keep working with many of the talented students graduating from the CMU program.

He started the company with five people and $10,000 of his own money for computers and other equipment.

“Our early projects were Disney projects, because they wanted to keep working with me,” he said. He recouped the $10,000 within six months. “More projects started coming our way, so we kept at it, and now we have 70 people.”

Some early creations: Disney’s ToonTown Online, which Schell developed while working at that company; and Pixie Hollow Online, featuring Tinker Bell, which debuted in 2008 as the first online world designed for girls. With millions of players, it’s likely Schell’s most-played game to date, he said. 

Emphasis added. Typically, the Jesse Schell migration tale is seen as a community shortcoming. Local university attracts out of state student, but fails to retain the graduate. Pittsburgh is dying. Time to pony up the jingle and get Richard Florida to save the day.

When Schell left the CMU program, Los Angeles was ready for him. Pittsburgh was not. When Schell returned, he was much more valuable to the regional economy than when he made his ambitious move to the Left Coast. He created Pittsburgh jobs that CMU graduates could fill. They didn't need to go to Los Angeles to work for a digital media company. Pittsburgh would be ready for the next Jesse Schell.

Looking at Disney Research, the link between Pittsburgh and Los Angeles is easy to see. That connection is a direct result of brain drain from Pittsburgh to Los Angeles. Not only does Pittsburgh now boast its very own Disney lab; its director also runs the one in LA (as well as the one in Boston).

Why are people leaving? That's the wrong question. Where is the talent going? Concerning economic development, that's critical intelligence. The economies of LA and Pittsburgh are becoming more intertwined. That's a good thing, for both places. I posted yesterday that telecommunications is finally catching up to the trend. Pittsburgh has major talent migration networks to manage in NYC and DC, as well as LA. The region is booming, thanks to brain drain.

RoData Is Rust Belt Chic

I consider Pittsburgh to be a model of a network economy. The outmigration of talent with a shared culture serves as infrastructure for commerce. These pathways are lines of trust that facilitate transaction. As Robert Guest argues in his book "Borderless Economics", trade follows people.

Missing from this abstraction is technological innovation. Transnational ties demand new forms of communication. Various social media platforms can support diaspora communities. Despite this evolution, face-to-face interaction still rules. Pittsburgh is a major exception. Wherever yunz go, you will find lots of other yinzers. It's a domestic version of China's talent export strategy. Geopolitical domination can't be far behind.

Located in Pittsburgh, Sharpsburg to be precise, is a company ready to put the region on the world map for the emerging Talent Economy. A little bit about RoData:

"The whole point of having a successful meeting is that the technology disappears" and lets content take center stage, said John Rodella, 55, the RoData CEO and other co-founder. He and Joe Rodella are brothers who grew up in Penn Hills.

They have evolved the business right along with the video-conferencing industry at large, steadily advancing the technology and scope of their full-service offerings. Even in the economic downturn, RoData has kept a 23-employee workforce and a book of 600 customers across the government, education and private sectors.

Last year, the video-conferencing industry generated revenue of $1.1 billion last year, according to International Data Corp., a Framingham, Mass.-based research firm. The industry is predicted to grow 18 percent this year to total revenue of $1.3 billion, IDC said in a March report covering North America.

The video-conferencing boom is transforming how we do business. The technology is geared towards transnational collaboration. It's tailor-made for Pittsburgh. For example, Polycom (a video-conferencing software company) made a major announcement yesterday:

Polycom, as part of a slew of announcements in New York on Monday, is stressing a new plan to do that. The company is unveiling what it calls its RealPresence CloudAXIS Suite, to help set up videoconferencing sessions among users of systems from companies such as Cisco, Facebook, Google, and Skype (now part of Microsoft).

The technology works by drawing information from what amounts to the user directories of the various systems. Connecting those users starts by sending them a link to join a conferencing session that takes place through a Web browser, rather than through proprietary software.

“We intend to frankly change the face of the collaboration industry,” says Andy Miller, Polycom’s CEO.

Emphasis added. Given the size and quality of Pittsburgh's brain drain, collaborative technologies should be a boon to the region. Over the years, a lot of talent has graduated from Carnegie Mellon University and headed out to Los Angeles. That migration has provided a huge return on investment. Aside from Pittsburgh serving as a set for major Hollywood films, the city boasts a nascent entertainment-tech cluster. Among the most visible evidence of this windfall is the Walt Disney research lab, which demonstrates the wide-ranging applications stemming from animation innovation. Jessica Hodgins is the director there. More germane to this post, she also oversees the Disney labs in Cambridge, MA and California. Pittsburgh is the hub, not another outpost.

RoData is selling what Hodgins could use to run those geographically dispersed labs. Thanks to talent production, Pittsburgh is an important node for many industries. The city would serve as innovation HQ for more than Disney given the development of video-conferencing technology (see above Polycom release). But that's not what drew my attention to RoData. I am attracted to Rust Belt Chic:

The Innovation Economy is shifting from divergence to convergence. The costs of innovation are hitting a ceiling that make Flat World Rust Belt cities attractive to companies such as Electronic Arts. I saw evidence of this yesterday in Sharpsburg, PA (near Pittsburgh) while touring RoData, which is housed in the old Fort Pitt brewery. I'll have more to say about that visit in a future post. Suffice to say for now that RoData is cashing in on the Rust Belt Chic dividend. Talent is ample and inexpensive. So are the gritty cool environs, where innovative talent wants to work. Leaving Silicon Valley for Pittsburgh never looked better.

This post is the future one I promised way back in August. RoData reminds me of how the Youngstown Business Incubator (YBI) has anchored that city's downtown revival. Sharpsburg is an undiscovered gem in search of an economic raison d'être. The Fort Pitt Brewery housing RoData is Art Deco cool. It's the kind of place that suits the next generation of knowledge workers. As more Rust Belt Refugees return home, Sharpsburg is the kind of place I imagine them living. RoData is where they will work.

The YBI is laser-focused on B2B software. It's a tech cluster. Likewise, RoData can serve as the foundation for what I have called distance trust technologies. The need for face-to-face interaction is a problem to overcome, not a law of geography. Sharpsburg could be the location of associated companies dealing with long-distance knowledge transfer. Different parts of Pittsburgh could specialize in different kinds of innovation. RoData points towards that neighborhood's competitive advantage, which is still in the wheelhouse of Pittsburgh's talent production competitive advantage.

To give you a better idea of the synergies, consider the future of telemedicine:

“Another revolution in the delivery of health care,” is how Christine Whipple, executive director of the Pittsburgh Business Group on Health, characterized telemedicine during the group’s annual symposium on Thursday at the Marriott City Center, Downtown.

A survey of businesses released last month by Towers Watson found that 9 percent of companies in the United States are planning to offer telemedicine as part of their health insurance plans next year. And 27 percent are considering adding it in 2014 or 2015.

Telemedicine, which is essentially an online video consultation with a doctor for non-emergency treatment, is gaining traction because it can help deal with two increasing problems in health care: Access to doctors and high costs, said Karl Ulfers, vice president of consumer solutions for Optum Healthcare Solutions, a company that provides telemedicine services.

Given Pittsburgh's demographic challenges, UPMC and Highmark must figure out ways to export services. Eds and meds need effective video-conferencing. Just when you think this boom must bust, along comes another disruptive technology. RoData helps to fill that niche. Developing such a cluster in Sharpsburg would be an even better boost to the regional economy.

Voting With Your Feet

You go where you know. That's not rational choice migration. It is "Thinking, Fast and Slow." I'm currently engrossed in Daniel Kahneman's book about how everyone struggles, among other things, to assess risk effectively. I had hoped that Kahneman could teach me a different way of understanding how people make relocation decisions. I'm almost halfway through and he hasn't disappointed. A better term for modelling migration is "irrational choice". You go where you know.

You vote with your feet. This is rational choice migration. It dominates our thinking and informs our perception of brain drain in the face of numbers that suggest otherwise. A region is experiencing demographic decline. There must be something wrong. You calculate where life is better. You move there. You vote with your feet.

Where life is better, the population is increasing. Kahneman would have a field day with this conventional wisdom. System 2 is lazy. Figuring out why people move where they do is a difficult question to answer. We settle for heuristic analysis. You vote with your feet instead of you go where you know. Therefore, the migration to Reading, PA is ironic:

In the economically ravaged rustbelt city of Reading, Pennsylvania, ranked as the poorest metropolitan area in America, the majority Latino population is suffering from the double blow of vanishing jobs and poor education. Almost half of the 87,000 residents – 58% of whom are Latino – are living below the federal poverty line.

"Reading is the face of America," said community leader and former city councilman Angel Figueroa, the first Latino elected to the council. "And if we can fix Reading as a mid-sized city we can fix many mid-sized cities in the country." ...

... Two decades before the current economic crash, Latinos from New York and other north-eastern cities came to Reading, lured by a steady job market. Reading's history is infused with the stories of Latino immigrants from Mexico, Puerto Rico and the Dominican Republic who, since the early twentieth century, have moved into the city to work the mushroom fields and manufacturing jobs.

The above migration doesn't, on its face, appear ironic. Reading didn't become a Rust Belt city thanks to the current economic crash. From 1987-2007, Latinos were lured from New York City to Reading because life was better in Eastern Pennsylvania? Looking at the unemployment rate history, the attraction is plausible. After the economic crash, such a journey ceases to make sense. Using IRS data via Telestrian for 2007-2010, the migrants are still coming from NYC and Philadelphia. Over 6,500 on net arrived in Reading from those two metros. Furthermore, Reading's poverty problem preceded the crash. Things were really bad locally before they got really bad nationally.

Migrants streaming in from New York City were exacerbating poverty rates in Reading. People kept coming despite the problems. Population growth over the last Census decade wasn't a vote of confidence in the regional economy. What may have begun as a rational choice has long been an irrational migration. You go where you know.

Another Pittsburgh Labor Force Record

Another month, another historical high (1,255,751) for the Pittsburgh metro labor force:

Attractive Pittsburgh Promise

Perhaps you have heard of the Kalamazoo Promise. If your children attend the city's public schools, they will go to college for free. The method to the madness:

Putting kids through college is viewed as a means to an end. "It was primarily seen as an economic development proposal by the donor," said Mr. Bartik.

The program is an arrow in the quiver of economic development pros, said Mr. Lee. The pitch: "If you put a business in Kalamazoo, Mich., any employee has the option of having the college tuition guaranteed for their children," he said.

As yet, no big business has moved its headquarters or opened a new plant in Kalamazoo as a result of the promise. School district enrollment, though, has jumped by 987 new students, to 11,367.

Unintended benefits aside, the Kalamazoo Promise is an attraction strategy. The Pittsburgh Promise was modeled on Kalamazoo's initiative. Mayor Luke Ravenstahl sold the program as a means to retention. He wanted to arrest the population decline of the City of Pittsburgh. All hail the brain drain boondoggle.

Today, The Atlantic Cities takes a look at the Pittsburgh Promise and its struggles. I want to highlight the comments of John Austin and Alan Berube:

“You need a program that’s simple, blunt, and elegant,” Austin says, which is why the Kalamazoo Promise seems to have worked well in Kalamazoo though it’s been less successful in places such as Pittsburgh and New Haven. "The obscurity and opaqueness of some of these other college guarantees - which aren’t understood by everybody and not everybody qualifies - doesn’t become the economic development success it can be."

And ...

"Cities try all sorts of stupid economic development projects in an effort to grow jobs and grow residents," Berube says. "They build convention centers and hotels and they throw money at developers for stadiums when research has shown that none of those things have proven to provide any real long-term economic success."

Austin questions the marketing strategy. Berube takes on the efficacy of the program. Are both Promises empty? He leaves that as an open question:

"At least they’re aiming at the right thing. Whether they’re effective in growing that thing in the long run? We don’t know that yet."

I think both Austin and Berube miss the point. With the Promise, Pittsburgh isn't aiming at investing in human capital. As for the marketing problem, the goal is wrong. A focus on attraction instead of retention would result in a different campaign. Along comes a different campaign for the Pittsburgh Promise:

Predicting that its $40,000 college scholarships will be a powerful draw, The Pittsburgh Promise today will announce a campaign to attract Hispanic immigrants to the city and the Pittsburgh Public Schools.

Saleem Ghubril, the Promise's executive director, said the goal will be to recruit immigrants now living in cities within a 300-mile radius of Pittsburgh. The announcement will be made at the Promise's annual report to the community, scheduled for 10 a.m. at the South Side offices of American Eagle Outfitters.

The initiative could help the Promise address the thorny challenge of boosting school district enrollment. It also complements recent efforts by other groups, including Vibrant Pittsburgh and Pittsburgh Metropolitan Area Hispanic Chamber of Commerce, to boost the city's foreign-born population.

I suspect this is what Berube would call a "stupid economic development project" to grow residents. I have a different angle. I recently completed some research for Global Cleveland about attracting more Latinos to Northeast Ohio. Latino domestic migration tends to be overshadowed by immigration. And when we talk about workforce development, we think locally. I told Global Cleveland that everyone was overlooking a tremendous opportunity.

A Penn State Lehigh Valley study ("2008 Portrait of Latino Business Owners and Professionals") detailed intergenerational mobility aspirations among Latinos residing in the area. Latinos were leaving cities such as Allentown out of frustration. An academic article (“Immigrant Gateways and Hispanic Migration to New Destinations”) confirmed this observation as a nationwide pattern. Latinos are moving to improve family human capital and economic status.

Pittsburgh Public Schools need fixing. There are other programs addressing these problems. Meanwhile, Latinos are relocating in search of upward mobility, for themselves and their children. The Pittsburgh Promise is an attractive carrot. The target market just switched from Pittsburgh city neighborhoods to Eastern Pennsylvania. It may or may not increase the foreign-born population (many of Latinos migrating domestically are already second or third generation immigrants). Does it matter?

Latino ambition can find expression in Pittsburgh's urban neighborhoods. This, not increasing enrollments, is economic development. In a sense, Berube and I are on the same page. I'm casting a wider net when I talk about improving human capital. That's how I think when I focus on talent attraction instead of retention.

Tom Corbett, Delta, and Pittsburgh

What follows is speculation. I haven't heard anything or found a smoking gun. I'm connecting dots with dashes, in pencil. The big news out of Pittsburgh today is an extension of the Delta Air Lines direct flight to Paris:

Delta began the nonstop Paris flights three years ago under a $9 million subsidy from the state and a regional economic group. The flights will again be offered from May to October next year, five days a week up from four this year.

Emphasis added. I don't want to overshadow the contribution from the "regional economic group." My aim is to highlight Pennsylvania's ante. As I related on Saturday, that's not the only love that Governor Tom Corbett has showered on Delta:

In a move from somewhere out in left field, Delta Air Lines decided in late April to tackle energy risk management head-on by taking a rather unorthodox step of managing their fuel cost exposure by…purchasing a refinery. $150 million later (after a $30 million subsidy from the Commonwealth of Pennsylvania), Delta bought the Trainer refinery just south of Philadelphia, which produces 185,000 barrels a day. In addition to the purchase, they are now retrofitting the refinery (to the tune of $100 million) to maximize its jet fuel output.

Emphasis added. Are the two subsidies related in any way? The point I was trying to make this weekend concerns funding education, which is taking a big hit around the country (not just in Pennsylvania). That's a lot of love for one company given the fiscal constraints of the day. The better return comes from investing in people, not chasing smokestacks.

The cynic in me sees the refinery deal as an exchange for direct flights to Europe. The two might seem unrelated save for Pennsylvania giving two subsidies to Delta Air Lines. That's a sweet deal for Delta. I'm not sure Pennsylvania gets much out of it.

Whether the two are linked or not, the policy still stinks. Pennsylvania should be doubling down on education, not pandering to CEOs. Corbett is mortgaging the future for a few shiny political pieces that he can cash in now. Delta's shareholders should not have a vote in the next gubernatorial election.

Heritage Foundation Fails Geopolitics 101

The battle over Marcellus Shale drilling has taken a number of bizarre turns. For environmentalists, the propaganda focus is one of doom and gloom. If we extract natural gas, then we will have no water to drink. Industry is no less hysterical. When the City of Pittsburgh banned drilling, it was a matter of national security. How the shale gas rush impacts geopolitics is complicated. That makes it a useful to tool for those with an ax to grind.

The latest drama surrounds the film, "Promised Land." Matt Damon and John Krasinski were on set in Western Pennsylvania for a few weeks late last spring. The trailer for the movie was recently released, once again stirring up drilling controversy. I have a hard time imagining Hollywood providing a balanced view of the issues. I wouldn't expect the preview to be well received. Still, I was blindsided by the flimsy support for the xenophobic critique of one of the producers of the film, Image Media Abu Dhabi:

While left-leaning Hollywood often targets supposed environmental evildoers, Promised Land was also produced “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, according to the preview’s list of credits. A spokesperson with DDA Public Relations, which runs PR for Participant Media, the company that developed the film fund backing Promised Land, confirmed that AD Media is a financier. The company is wholly owned by the government of the UAE.

The UAE, a member of the Organization of Petroleum Exporting Countries (OPEC), has a stake in the future of the American fossil fuel industry. Hydraulic fracturing has increased the United States’ domestic supply of crude oil and natural gas in areas such as the Bakken shale formation and has the potential to increase domestic production much more in the foreseeable future. That means more oil on the market, and hence lower prices for a globally traded commodity.

Fracking is boosting the country’s natural gas supply as well. While the market for American natural gas is primarily domestic, the Energy Department recently approved Cheniere Energy’s plan to export about 2.2 billion cubic feet of liquefied natural gas per day from Louisiana. The Department is considering LNG export applications from seven other companies.

A strong global market presence for American natural gas could also work to the UAE’s disadvantage. The Arab nation ranks seventh worldwide in proven natural gas reserves. For instance, Japan’s energy imports are expected to rise significantly over the next five years. The country is currently a major importer of UAE natural gas. If it decided to import more LNG from the United States to accommodate its increased energy demands, it could deal a blow to the UAE economy.

Another source of competition might come from other industries that use natural gas to manufacture other products. As American gas grows cheaper the United States becomes a more attractive destination for industries that manufacture petroleum-intensive products. The UAE, meanwhile, has invested billions attempting to shore up its own share of the plastics and chemicals markets, both of which rely on petroleum products and are likely to gravitate towards the cheapest sources of those products.

All of this suggests a direct financial interest on the UAE’s part in slowing the development of America’s natural gas industry. Pop culture can be a powerful means to sway public opinion. While Promised Land, like anti-fracking documentary Gasland, appears to inflate the dangers of hydraulic fracturing, it may have an impact on the public’s view of the practice.

Before I shred the above nonsense, I want to point out the lousy journalism of CNBC's John Carney:

The UAE has the world’s seventh largest oil reserves, according to the CIA Factbook. It is ranked ahead of Russia and just behind Kuwait in proven oil reserves. It is the fourth largest exporter of oil in the world. And, of course, it is a member of OPEC.

Very obviously, the UAE has an interest in slowing down the expansion of hydraulic fracking that has created an energy boom in the United States. A popular film—there’s even talk of it being an Oscar candidate—might give a boost to the opponents of fracking.

Emphasis added. Very obviously, John Carney is a hack. He repeats misinformation uncritically. His reasoning is specious. The UAE's position on hydraulic fracturing is not so clear cut. In fact, the UAE may benefit from the glut of natural gas locked up inside the US border. Carney is toeing the line for The Heritage Foundation.

The line for The Heritage Foundation is that the UAE supports the anti-drilling movement in the United States. Why?  Shale oil poses no threat to state revenue. There's a demand side to the equation. I guess Heritage needs a refresher in basic market economics. The biggest blow to the UAE would be if the United States stopped consuming oil. That would free up the Bakken for export while blowing a huge hole in global demand. As it stands now, whatever the US won't buy, China will. Furthermore, the main markets for UAE oil are Asian (Japan, South Korea, and Thailand). The oil rationale for anti-fracking doesn't hold up to minimal scrutiny.

What about UAE natural gas? We live in world of spot pricing because natural gas doesn't travel well. All Heritage can do is speculate about a time that the United States might export LNG and how that might undermine UAE revenue. As I indicated, it might benefit the UAE. Two graphs for your inspection (from the EIA):







Due to rising domestic consumption, the UAE is increasingly dependent on natural gas imports. This is confusing. The UAE is a net importer of LNG. Yet, the country continues to export to Japan. What gives?

Below is a map (Bloomberg News) of spot prices for natural gas around the world:



Say the UAE could import LNG from the United States. That much cheaper natural gas could be used domestically. That frees up UAE reserves for export to Japan where the resource fetches a much higher price. Right now, the UAE is getting LNG from somewhere else that is less in price than what UAE gas will fetch in Japan. Because the UAE is a net importer of LNG, the US glut actually helps the country. As in today. Heritage, that's called arbitrage. You need to learn about the concept.

The Heritage Foundation is preying upon American unease about foreign direct investment. The UAE is awash in petrodollars. Investing that money in global industries is a smart move. Movie making is a global industry that can generate nice returns. Back to our CNBC hack:

The more interesting twist here isn’t in the move—it’s in the movie’s creation. The film was produced “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, as first reported by the Heritage Foundation. Abu Dhabi Media—which has never had a role in a major American film before—is wholly owned by the government of the United Arab Emirates, a small but extremely wealthy federation of absolute monarchies along the southern coast of the Persian Gulf.

Emphasis added. Bold claim, John Carney. Care to back that up with a little research? Took me about 90 seconds to find this:

Abu Dhabi reached the pinnacle of motion picture recognition yesterday, winning its first ever Oscar for “The Help” at the 84th Annual Academy Awards in Los Angeles.  The Award was given to Octavia Spencer for Best Actress in a Supporting Role for her portrayal as Minny Jackson, a headstrong and outspoken African-American maid in Mississippi at the dawn of the Civil Rights era.

Image Nation co-produced the film with Participant Media. Image Nation’s Chairman Mohammed Al Mubarak said, “We are extremely proud for Abu Dhabi to be associated with such a successful and recognized film. I want to extend our heartiest congratulations to Octavia and all involved. In 2011, we were happy to have the film’s producer Brunson Green in Abu Dhabi to meet with aspiring filmmakers and we expect him to return in the near future to share his experience in the film industry. Brunson is a perfect example of how our international partnerships provide guidance and support to aspiring filmmakers from the U.A.E.”

Image Nation CEO Michael Garin said, “Current Oscar not withstanding our commitment to Abu Dhabi and building the foundations of a motion picture industry remain the focus for Image Nation.  We hope that one day one of our Emirati filmmakers could be on stage accepting on Oscar for him or herself.”

Very obviously, Carney has zero interest in doing any investigative reporting. He's using CNBC as a soap box to promote his own agenda. But don't take my word for it. Go ahead and peruse Abu Dhabi Media's press releases to get an idea about their portfolio.

When the mainstream press starts promoting xenophobia, we have a problem. The Heritage Foundation spewing propaganda is par for the course. The organization is acting irresponsibly. It is partisan. As for CNBC, the news agency is held to higher standard of journalistic integrity. Carney is paid to report the facts, not make them up.

Marcellus Shale Shame

This week, Kathryn Klaber (Marcellus Shale Coalition) is pitching Pennsylvania's shale gas revolution to Philadelphia:

Today, thanks to the tightly regulated development of American natural gas, our region's economy is on the upswing. ...

... Philadelphia's refinery sites are experiencing new life that few could have predicted just a few years ago - buoyed by abundant supplies of natural gas, a fundamental building block for a strong manufacturing sector.

Energy Transfer Partner's acquisition of Sunoco and the Carlyle Group's Sunoco investment are proof of the undeniably positive impact that shale-gas development continues to have on greater Philadelphia's economy. Thousands of jobs will be saved. The prospects for leveraging Marcellus Shale natural gas are indeed promising for Sunoco's Marcus Hook refinery, especially in light of this week's announcement, and may well be a lifeline for hundreds of jobs.

East Coast refineries are on the ropes. Pennsylvania Governor Tom Corbett is bailing out Philadelphia. In a sense, he's subsidizing Delta Air Lines:

In a move from somewhere out in left field, Delta Air Lines decided in late April to tackle energy risk management head-on by taking a rather unorthodox step of managing their fuel cost exposure by…purchasing a refinery. $150 million later (after a $30 million subsidy from the Commonwealth of Pennsylvania), Delta bought the Trainer refinery just south of Philadelphia, which produces 185,000 barrels a day. In addition to the purchase, they are now retrofitting the refinery (to the tune of $100 million) to maximize its jet fuel output.

Corbett would rather invest in industry than people. Klaber and Corbett are selling snake oil at the expense of tax payers. From former Secretary of the Pennsylvania Department of Environmental Protection and Commissioner of the Pennsylvania Public Utility Commission John Hanger:

Pennsylvania's string of bad economic numbers drives home the point that the gas boon alone is not enough to bring prosperity to Pennsylvania, especially when state government slashes budgets for education and does not make needed investments in transportation. The gas industry provides a welcome, needed boost. But it cannot erase strategic budgeting and economic development mistakes.

Emphasis added. Corbett shorts education in order to hand Delta Air Lines $30 million. Quid pro quo, selling out Pennsylvania's future:

We've written before about the declining support by Midwestern states for the state colleges and universities -- especially the big research universities -- that bear their name. A new report has just documented just how sharp this decline has become, why it's a national problem and what it means for our ability to support ourselves in the future.

The report is called "Diminishing Funding and Rising Expectations: Trends and Challenges for Public Research Universities" and is the result of a study by the National Science Board, an arm of the federal National Science Foundation.

Basically, the report says that most states -- including all Midwestern states -- are cheaping out the universities and research that will be their key to competing in a global economy.

Saving refinery jobs makes for good publicity. Klaber is trying to cash in on the "good" news to help the flagging reputation of the energy industry. She gets a pass because she is just doing her job. Corbett, on the other hand, is supposed represent PA residents. He's more beholden to Delta shareholders. Corbett appealing to talent to stay in Pennsylvania:

Speaking to a packed ballroom in Southpointe Thursday evening, Gov. Tom Corbett stressed his commitment to keeping young professionals in Pennsylvania and growing the industries that give them the kind of career opportunities that previous generations had to leave the state to find.

Corbett was a guest speaker at a Young Professionals in Energy event and addressed his audience as workers “who are the tip of the spear in our New Industrial Revolution.”

He repeated his mission to “put this state on sound financial ground,” ensure that every Pennsylvanian who wants a job has one, and that citizens of this state are trained to the “careers of this new century.”

Corbett is old school. He privileges industry over talent. He's a smokestack chaser. He's drunk on brain drain hysteria. He doesn't want his progeny to leave, so he doles out millions of dollars. Meanwhile, education goes begging. In terms of economic development, Corbett is a failure. He's living in the past. Pennsylvania is bent over for business.

Pittsburgh Downtown Apartment Boom

Rents are going up, way up. Supply isn't keeping up with demand in Downtown Pittsburgh, which has made apartment real estate a hot commodity with out-of-region investors. What's driving the rush? The economy:

Institutional buyers like the Pittsburgh market because of its high level of rental consistancy in recent years and it’s emergence as an energy market. Apartments in Pittsburgh, and others nationally, are attracting higher prices, Willett said.

Many developers are interested in building apartments in the Pittsburgh region, but often can’t find adequate land, he said.

“Pittsburgh’s apartment market is very strong, with a vacancy rate significantly lower than those nationally, and rents have been trending upwards,” said Ryan Severino, senior ecomonist with Reis Inc., a New York real estate research firm.

“Also, Pittsburgh’s economy is diversified with its universities, medical and financial services. It has been good reinventing itself,” he said.

Pittsburgh isn't Portland cool, so it has to rely on economic development to attract residents. The bet is paying dividends for the metro and the urban core. Slow and steady wins the race.

More telling is the talent strategy. Portland relies on imports. The Creative Class is notoriously fickle. Emerald cities are hot now. What about tomorrow? EMSI has an instructive post about the alleged shortage of IT workers:

The Washington, D.C. metro has by far the largest undersupply of IT workers (though it imports much of its talent from other areas), and three metros you’d probably expect to see are next — Seattle, San Francisco, and San Jose. Are all heavily concentrated in tech industries and hubs for computer-related innovation.

The biggest surpluses, not including Phoenix, are mostly metros with more traditional, manufacturing-based economies: Chicago, Pittsburgh, Philadelphia, Milwaukee, and Detroit.

EMSI misses the mark characterizing the surplus metros. Los Angeles also has a glut of IT workers. For the industry, LA is a talent producer. Portland is a talent importer, which is a precarious strategy that provides short term results. If more firms relocate to where the talent is produced, Portland is screwed.

Hence, Pittsburgh is a better real estate investment. Portland is a fad, a fetish. Hard to say where rents will be in three years. That region is coasting on positive mesofacts. The momentum of talent migration is still favorable. Beware of Rust Belt Chic.

Ironic Migration: Poles Return To Britain

When the financial crisis hit, Poles hurried home. Poland weathered the storm well. The dark times are over:

“The primary reason for migrating is a chance to get paid far more than you do in Poland, even if it means coping with a higher cost of living,” said Maciej Bukowski from Warsaw’s Institute of Structural Research.

The average Polish salary comes to little more than £635 a month, compared with almost £2,000 in Britain, and with the price of food and amenities on the rise, Poles have little money left to spend.

“In Poland I worked for a security company and earned about £153 a month,” said one migrant called Barbara who has lived in England for seven years.

“When I arrived in the UK I worked as a cleaner and I’m now the director of the company. In Poland, if I wanted to pay all the bills and have little left over for fun I worked out I needed £765 a month.”

On top of poor salaries, Poles also want to get away from the red tape they say stifles careers and opportunities in the former Communist state.

“People want a better life,” said Professor Krystyna Iglicka and expert in demographics who has studied Polish migration to the UK.

“They don’t want to live in Poland: a country where reforms are stopped by bickering, entrepreneurs are blocked and at every step you encounter bureaucracy.”

Almost a decade after Britain opened its doors to Poles, many towns and cities now have established expat communities.

With most Poles knowing somebody who lives in Britain, moving there and finding work and accommodation presents few barriers.

Emphasis added. I could highlight the network migration and exceptional geographic mobility. Here we have a leading indicator of recovery. More interesting to me, given my fascination with Enrico Moretti's book ("The New Geography of Jobs"), is the attraction to the UK and the ironic geographic arbitrage in play. Moretti explains that living in spiky cities is the way to go despite the high cost of living. The Polish migration supports the claim.

The attraction isn't low cost of living and/or high quality of life. Amenities don't matter. It's upward mobility, stupid. Portland is great if you were born with a silver spoon in your mouth. For those with a fire in their bellies, life is elsewhere and you'll do anything to get there. Paying through the nose for the privilege isn't a problem. Cool cities need not apply.

Visualizing Convergence Of Innovation Economy

"The New Geography of Jobs" has affected the way I see the world. I've tried to apply the concepts of convergence and divergence so I might better understand Enrico Moretti's book. Aaron Renn (The Urbanophile) has a meaty review that can help illuminate the theoretical framework:

I wonder too whether the trends Moretti cites, while valid over a 40 year cycle, are less true today. One way economists measure clusters is by using a metric called Location Quotient. This measures the concentration of employment in a particular industry in a specific industry relative to America as a whole. But the math works for lots of things. So we can look, for example, at literal clusters of talent by looking at the location quotient of college degree attainment. [Here is a map of changes in the location quotient for college degree attainment from 2000 to 2011.]

This is certainly interesting. Many of Moretti’s talent hubs actually are less concentrated in brainpower relative to America today than they were in 2000. Out of 51 metro areas with more than a million people, Austin ranked 50th on this metric. San Jose and San Francisco were 42nd and 43rd respectively. (Pittsburgh was #1, incidentally).

Emphasis added. I wondered the same thing. Moretti (and Richard Florida) is describing yesterday's dominant economic geography. Winds of change are blowing. "The California Rust Belt":



The graph explained:

I collected data on startup businesses from Form D filings made with the Securities and Exchange Commission for the last decade (2002-2012). These filings are made by startup companies that raising funds in private markets, especially companies in California’s hallmark high-tech and venture capital sectors. The companies that file Form Ds are the Googles and Facebooks of the future, as those companies’ pre-IPO Form D filings can be found here and here. Thus, these filings provide a unique and previously unexamined source of information into the geographical distribution of startup companies raising funds in private markets—a window into what a state’s economic future might look like.

Emphasis added. Someone correct me if I'm wrong. This looks like the picture of convergence. The upward trend of New York State and the downward trend of California provide a stark contrast, a sudden shift in economic gravity. All hail Greater Greater New York.

I'm convinced that the status quo of divergence is breaking down. Divining where we are headed is a free for all. Suffice to say, "The New Geography of Jobs" is now the old geography of jobs.

Redux: Brooklyn Is Dying

Talent is fleeing US alpha global cities. The rent is too damn high. Immigrants are also leaving in droves, pushing up the population in struggling cities such as Reading and Allentown. The streets aren't safe and the schools are broken. Via Aaron Renn, Joel Kotkin tells Brooklyn's dirty little secret:

Immigration and new births have supported Brooklyn’s population numbers, up 40,000 over the past decade, but as rapid outflow of Brooklynites has continued: over 460,000 more residents left than other New Yorkers or Americans moved in between 2001 and 2009, the largest loss of any borough.

For many metros, removing natural increase and immigration from the equation reveals large net outmigration. People of all classes want out. What's driving this? Globalization.

In global cities, spectacular wealth is juxtaposed with grave poverty. The rent isn't too damn high if you are willing to live in the wrong neighborhood. For many, the costs outweigh the benefits. The result is a larger scale gentrification of Rust Belt cities such as Cleveland. Hipster moms are giving up New York City for Philadelphia. Brooklyn is dying.

Geographic Mobility And Beer

I love beer. I was lucky to be born in a great country. The cost of immigration regulation per liter:



The more geographically mobile labor is, the more power it has buy beer.

Bowling Alone Urbanism

Update: Coincidentally, Next American City serves up some evidence that is a counterargument to my position.
**********************

Subsidizing home ownership in the city is a bad idea. Among urban renewal policy wonks, conventional wisdom holds that helping lower income families secure a mortgage will improve a neighborhood. You care more about that which is yours. Social capital increases in distressed areas. A virtuous circle helps to spiral people out of poverty (and into the suburbs). That may be exactly what happens. It's still wrongheaded.

My beef with this approach has been that it stifles geographic mobility and individual economic development. Place is put in front of people, community first. I contend I'm correct to criticize, but offer the wrong rationale for my thinking. The problem is too much social capital.

I'm currently reading "Soft City" by Jonathan Raban. Raban wrote an article for the Financial Times that has influenced my view of the Rust Belt urban frontier. What made the city so liberating is the lack of social capital. You were anonymous, a tabula rasa. For Raban, social media is today's Soft City:

Now, in Seattle, I watch my nearly-16-year-old daughter lost to MySpace and Facebook. Her time is spent in an elective community of exactly the kind I once sought in the big city: she's "social networking" with friends in Seattle, New York, San Francisco, Copenhagen, Tokyo, along with a multitude of places I've never heard of. That freedom to experiment with personae, to play out fantasies of self, once the unique gift of the metropolis, is available on everyone's laptop, as they masquerade anonymously behind screen names and avatars.

Cyberspace is lamentably short of restaurants and drinking clubs, and its two-dimensional architecture doesn't strike me as much fun, though its fine retail district combines the virtues of Old Bond Street and Petticoat Lane. You can't eat dinner there but it meets, in virtual form, almost all the conditions of a true soft city, and does so on a global scale, as cosmopolitan as any provincial isolate could dream of. In Concrete, Washington, or in Goole in Humberside, you can enter it with a mouse-click; so maybe, thanks to the internet, we're all freed - somewhat - of the burning necessity to move to South Ken.

Emphasis added. Globalization punishes places that amass too much social capital. The only solution is to leave, head to big (soft) city. No longer. You can get online in rural North Dakota and surf the Kondratieff Wave.

Parochial problem solved? Perhaps not. To the heart of the Eurocrisis:

Maria Adele Carrai has two master's degrees from Italian universities in economics and Asian languages and is now earning her Ph.D. in international law in Hong Kong. Her linguistic credentials are formidable: Besides native Italian, she has nearly flawless English, a rarity in Italy, as well as French, Arabic, Japanese and Mandarin.

But the 26-year-old from a family of physicians in a small town near the Adriatic Sea, lacks an increasingly crucial key to unlocking the door to work in Italy: a "raccomandazione." It's Italian for the right word from the right person to get you hired, even if you might not be the best one for the job.

As Europe's economic crisis darkens the future of millions of youth, the culture of connections that has lain at the heart of hiring practices in much of the continent is becoming ever more entrenched, even as it harms prospects of recovery. It is blocking young talent or driving it overseas, and contributing to a vicious circle of stagnation that threatens to leave Europe behind in the game of globalization. ...

... Carrai, the linguist and aspiring international law expert, ruefully learned how much connections count even in the rarefied world of academia. She moved to Hong Kong to escape the stifling atmosphere of university nepotism: "I saw how it worked. I didn't want to stay in Italy and stick with this system."

"`Raccomandazioni' are to a certain degree a normal, human," she said. But cross a certain line "and it becomes corruption."

Raccomandazione is too much social capital. The Soft City should be the solution. In Southern Europe, perhaps in all of Europe, it didn't turn out that way. Why? Lack of geographic mobility is one explanation. The urban is parochial instead of cosmopolitan. Immigrants are stuck and isolated in the banlieues. You have to move to Hong Kong to get in on the game. Dynamic Europe, with few exceptions, is abroad in places with weak social capital. Italy's cities aren't soft enough.

Once again, I'm left with the magic of migration. Owning a home in a city is a double whammy. You live in a neighborhood of increasing social capital; locals only and migrants keep out. You are tethered to a mortgage that precludes you from chasing a job halfway across the country. This is a poverty trap, the worst of two worlds (city and country). To Robert Putnam: Bowling alone saved America. We need more soft neighborhoods.

War For Talent: Detroit

Detroit has a vision problem. What's the standard for recovery? Billionaire entrepreneur Dan Gilbert cites talent retention:

When we know that the vast majority of our brain talent that’s coming out of University of Michigan or Wayne State talent is staying here — that the first thought is not moving to New York or L.A. or San Francisco, or when that’s the small minority — then I think that we’re taking major steps at least.

And … did you meet any of the interns we have down here? We brought in 600 interns from 157 colleges and universities around the country.

Of all the things we’ve done, there’s nothing more important. In a speech I did last Friday, I put some of the comments from the interns, saying things like, before I wouldn’t have considered Detroit, now I’m going to stay. That’s the biggest most important thing you can do … get those young people.

Gilbert aims low and errantly. That's poor leadership. Think Chicago. Be a destination for talent, not a better mousetrap.

Detroit isn't alone. Hipster magnet Portland suffers from a similar affliction:

Given that trajectory, Lightner and Ricker's attempts to make it in New York present a potential problem for Portland, a city that has staked part of its economic future on being able to lure and retain creative people, including chefs. Are we a national-caliber restaurant city, or are we the small-market team, destined to have our best players poached by the New York Yankees? Or, to put it another way, how can we keep ambitious young talent satisfied?

Portland is a national draw. In the urban hierarchy scheme of things, it can't possibly compete with New York. Portland will never be that kind of crucible. But it is already an ideal, a destination for the Big Apple weary. Don't worry about who is leaving. Focus on the people who would like to move there. The circulation of chef talent between Portland and New York, as well as San Francisco, is world class. If anything, Portland needs to do more exporting and develop into a site of talent production. The city has a long way to go to catch up to Detroit.

Our obsession with brain drain sets communities up for blackmail and boondoggles. The same is true for businesses and the competition for CEOs:

New research by Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, and Craig K. Ferrere, one of its Edgar S. Woolard fellows, begins by attacking this conventional wisdom. Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another. In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up.

Understand that Detroit? Check your numbers, Mr. Gilbert. The brain drain threat is bogus. Gilbert's worldview is reinforced by the same faulty thinking inflating CEO compensation. Furthermore, aggressive talent retention (i.e. noncompetes) undermines innovation and economic development. Meanwhile, executives thinking about relocation are more concerned about quality of place:

You don’t find a lot of businesses relocating from Nevada to Massachusetts. We have a reputation for being a very high cost state for doing business, so what has been your experience?

I hear that a lot. The reality is people want to come work here. The schools, the students in the universities around the area, produce often some of the best technical talent. Despite the weather, despite the Red Sox, people actually want to live here. That gives us the ability to attract some terrific talent.

You saw some of the technical production talent, but the leadership talent, too. I lived in Nevada for nine years — a beautiful, natural environment — but attracting executive leadership talent to move their families to very rural areas is a tough spot.

That's where urban amenities come into play. It's a boutique migration, a very old story. The new stadium is about corporate suites, not rank-and-file fans. Your legacy institutions of opera and symphony orchestra? That's what yesterday's Creative Class demanded. Your city is held hostage by c-level executives. They command direct flights for uneconomical destinations. CEOs threaten to leave and take their headquarters with them. Bogus blackmail.

This kind of stickiness retards growth. The constraints on the expansion of the gaming industry in Austin:

Frank Coppersmith, chief operating officer of GameSalad Inc., which helps people create and publish games, spoke of his own challenges in that department.

While GameSalad started in the Austin Technology Incubator and raised its initial money from connections at the South By Southwest festival, Coppersmith said he eventually made a foray to the West Coast.

"Was it a disadvantage to you in raising (Los Angeles) money, that you were based here?" Strama asked him. "Did they try to move you?"

"I think it was a very significant barrier to our ability to raise money on the West Coast," Coppersmith replied. "Though I think not so much because we're far away, but ... when a (venture capital firm) looks at the value that they bring to a company, it's because they don't just bring money. They bring networks of people, and expertise. And if you're in Texas, those networks don't necessarily extend to Austin, so they don't know how to optimize you."

Coppersmith also admitted that GameSalad moved its corporate headquarters to San Francisco – although the majority of its operation is still local.

"It was just essential to get that on-the-ground visibility in California," he said. "I'm sorry to say that."

Emphasis added. The depth of the talent pool takes a backseat to the location of the headquarters, which is largely an executive driven decision.  The folks pulling the strings are well aware of the financial benefits of stoking the fires of brain drain anxiety. Austin might be more cost effective. But it isn't San Francisco or Los Angeles. It becomes almost impossible for an urban upstart to amass the necessary networks of expertise.

Enter Rust Belt Chic.Today's urban pioneers are tomorrow's executives. Headquarters are already moving from suburban tech parks to downtown. The new aesthetics of place will inform a different relocation geography. The Innovation Economy is converging. The expensive real estate and associated higher salaries matter. The playing field is tilting towards cities such as Detroit. Too bad the Dan Gilberts of the world are obsessed with brain drain.

Eds And Meds Pittsburgh

Pittsburgh has emerged from the last recession as an ironic boomtown. The Marcellus Shale deserves some credit, but not much. Eds and meds are at the heart of the regional economy. Energy is a welcome sideshow. Over at New Geography, Aaron Renn serves warning to Pittsburgh and other cities that are too reliant on the industry:

Regardless of how it plays out, when you look at spending in aggregate in America, it's clear increases in health care and higher education spending cannot keep increasing at current rates.  This means that it just isn't possible for all the cities out there dreaming of eds and meds glory to realize their dream. America simply can't afford it.

This bubble is going to pop. When it does, whither Pittsburgh? Perhaps, but I don't see that threat as the central concern. There are a bunch of metros, as Renn mentions, looking to pull a Pittsburgh:

One of the richest, most powerful people in Buffalo stood before a crowd of hundreds Thursday and said the region could be more like Pittsburgh, with its burgeoning health care sector that has made it one of America's most successful regional economies during the recession (for the sake of inclusion, he mentioned Cleveland, too).

Eds and meds Pittsburgh is unique. The local industry exports its expertise outside the market. Decades of a shrinking population have forced the adjustment. UPMC is well aware of the pitfalls:

Today, from his suite on the 62nd floor of downtown's tallest building, once owned by U.S. Steel Corp., UPMC Chief Executive Jeffrey A. Romoff has a wide view of the city's cleaner skies and rivers — and of much of his $10-billion empire.

The company has about 20 hospitals, 3,300 doctors and 1.8 million health plan enrollees. It employs about 55,000 people, more than any private employer in Pennsylvania, including No. 2 Wal-Mart Stores Inc. Over the last 15 years, UPMC's annual revenue has grown 13% on average, and its employment has increased 17% a year.

But Romoff, 66, readily acknowledged that was not a sustainable pace.

He knows his researchers can't count on continuing to win half a billion dollars in grants yearly from the National Institutes of Health, given federal budget constraints. And significant changes are likely in store to keep Medicare and other public health programs in check.

"What we will be doing is drastically investing and changing the way we do business," Romoff said, explaining that UPMC had opened hospitals in Italy and Ireland and joined withGeneral Electric Co.to make disease-detection gadgets for exports.

UPMC and other health firms in Pittsburgh and around the country also are merging or buying smaller enterprises to build scale and become more efficient, sometimes leaving patients caught in the middle.

Eds and meds Pittsburgh isn't sitting around getting drunk on good times. That will make it much tougher for the likes of Buffalo to horn in on the action. The looming constraints, the bubble popping, apply everywhere. UPMC is already eating your lunch. Again, Aaron Renn with the keen insight:

The vast bulk of cities are likely to be disappointed in their long term eds and meds growth. I strongly advocate cities to look at other sectors where they can grow and thrive unless you think you’ve got something very special going, as with Boston and biotech.

Concerning eds and meds, Pittsburgh has got something very special going. Which is to say, each city would be better off finding something else. For Cleveland, I recommend a talent recruitment cluster. Milwaukee is reaching for the brass ring, aiming for freshwater research and development. Albany has nanotech. Buffalo shouldn't try to be the next Pittsburgh. Other cities should be vying to be the next Buffalo.

Talent Recruitment Cluster

Once a vexing liability, Rust Belt outmigration is turning into an asset. Return migrants are leading the charge. Concerning talent, it is better to give than receive. Cleveland's nascent talent recruitment cluster:

On Wednesday, members of that pitch team joined Gov. John Kasich and Mayor Frank Jackson in celebrating the win during an afternoon event at the Great Lakes Science Center.

They talked about the potential for Alexander Mann, which handles interviewing, hiring and promotions for blue-chip clients, to help improve workforce-development efforts in Northeast Ohio. And they pointed to the Alexander Mann deal, a cooperation between many players, as a model for future successes.

"Where there's one company like this, there are others," said Ed Crawford, chairman and chief executive officer of Park-Ohio Holdings Corp. in Mayfield Heights. "Let's take full advantage of it."

Owned by London private-equity firm Graphite Capital, Alexander Mann is quiet about its financial health. On Wednesday, Blair and John Collington, the company's new chief operating officer, said the business posted double-digit growth in sales and profits during the last four years, despite the global recession.

North and South America represent 7 percent of the company's sales, but Blair sees "significant" growth opportunities. Alexander Mann entered the Americas at its clients' behest and employs 62 people in the United States. Employees are working with five big names: financial-services provider Credit Suisse Group; Cobham, an aerospace company; Nike Inc.; pharmaceutical giant Novartis; and Rolls-Royce.

Blair said she is confident Alexander Mann can serve all of North America from Cleveland. And she's increasingly sure the company can hire the right people here to staff clients in South America. One Northeast Ohio native, who had been working for Alexander Mann in Brazil, recently moved home.

Emphasis added. Just Northeast Ohio? That's small ball. Cleveland is the US headquarters for Alexander Mann. The company could act as an anchor for an emerging cluster around talent recruitment and workforce development. To think even bigger, why not aim to be a global center for such services?

Brain drain Cleveland gives Alexander Mann an extensive network to leverage. On the whole, the Rust Belt is excellent at developing talent that finds success around the world. Outmigration is a form of workforce development. In international economic development circles, that's obvious. In domestic regional economic development, that's heresy. The mantra is to poach from thy neighbor, zero-sum thinking. The suburbs steal from the urban core. Businesses move back to the city. The shell game continues.

To abstract, geographic mobility (like education) empowers workers. Generally, communities are anti-labor. Footing the workforce development bill comes with strings attached. The talent must stay. Retention creates a glut and depresses wages. Sorry, Portland, that's not attractive:

[The researchers’ review] found that Portland is a magnet for the young and college educated from across the country, even though a disproportionate share of them are working part-time or holding jobs that don’t require a degree.

In short, young college grads are moving here, and staying, because they like the city’s amenities and culture, not because they’re chasing jobs. Their participation in the labor force tracks with other cities, but they make 84 cents on the dollar when compared to the average of the 50 largest metropolitan areas, the research found.

“You put all of that together, and it suggests that young people are coming here and they’re trying to make the best of it,” said Greg Schrock, an assistant professor in urban studies at Portland state. “They’re committed to working, they’re committed to trying to make ends meet, but they’re more committed to living in Portland.”

Emphasis added. What this suggests to me is that the talent sticking around isn't all that innovative. Retention shouldn't be a policy goal. It should be a means to some end. Portland has no idea what that end would be. Great, your city is a talent magnet. Now what? I'm hoping that thanks to Alexander Mann, Cleveland will be the place where Portland can find that answer.

Brain Drain Is Better Than Foreign Aid

Exporting higher education is the centerpiece of the emerging Talent Economy. What about developing countries that lose these superstar students? Have no fear, opening up the borders is the best thing we could do for economic development abroad:

Exporting education opens possibilities that extend outside the US to the world at large. Beyond educating foreign students in existing programs, the US can draw on a major strength—entrepreneurship—to create new programs aimed at educating entrepreneurial students from countries that could greatly benefit from enterprise-driven growth. Research has shown that face-to-face interaction with seasoned entrepreneurs is key to the effective training of budding ones, and the US has a wealth of highly successful entrepreneurs, many of them originally from developing countries, who can help universities train students from developing countries. Furthermore, bringing ambitious and entrepreneurial students to our shores delivers a compounded effect on the U.S. economy. Even when they leave and start businesses in their native countries, they expand US exports. The brain gain/brain drain debate is in the past. Opportunities have dispersed; “brain circulation” is the new reality.

The U.S. already has the financial resources to strengthen its universities—we need only follow the history of our own economic progress, achieved through entrepreneurial efforts rather than state-led programs. We waste hundreds of billions of dollars on foreign aid to governments, through policies first used during the Cold War that now serve only to centralize power and stall bottom-up progress. Today, remittances sent by immigrant workers and the spread of the Internet and cell phones should render state-to-state management obsolete. Indeed, even the State Department is looking to promote entrepreneurship in developing countries.

Instead of aid, we should redirect money to U.S. universities for program expansion to accommodate 3 million new foreign students and have a much more tangible and beneficial effect on the rest of the world. These redirected funds could be used to create capacity for the new foreign students without taking away spots from American students, both by expanding existing universities and creating new ones, while also creating scholarships to enable talented students from developing countries to attend.

Encouraging brain drain is a smart economic development strategy. Youngstown is a good domestic example of this approach. Return migrants are fueling the Mahoning Valley's revival:

"I'm a 'boomerang,'" said Eric Planey, vice president of international business attraction with the Youngstown/Warren Regional Chamber.

The Youngstown native explained that he returned to his hometown three years ago, giving up a banking career in New York City, so that he could renew ties to a once-prosperous steel town that he had left two decades earlier.

Planey's worldly experience is helping his hometown take full advantage of the Utica Shale rush. His broader horizons allow for a useful analogy that would be lost on someone who has never left the region:

"We probably won't be 'Houston North,'" Planey concluded, referring to a nickname that some have given to nearby Pittsburgh, Pa. "But maybe we'll be 'Odessa North' or 'Oklahoma City North.' We could be a second satellite city."

Talent is cycling back to the Rust Belt. I heard an economist on a Cleveland radio station claim that Youngstown is Ohio's boom city. Brain circulation has a lot to do with that reversal of fortune.

Yes, the United States should import foreign born college students instead of sending aid. US cities should encourage the best and brightest to leave. Seeking to retain talent is a mistake, economically counterproductive. Time to update the economic development playbook.

Buffalo Chic

Before Rust Belt Chic, there was Buffalo Chic. A reader alerted me to a Dar Williams song, asking if it could be considered Rust Belt Chic. "Southern California Wants To Be Western New York." Plastic LA wishes it had Utica's soul. Did Williams really mean it?

Answering that question was beyond the means of Google. Way back in 1996, a piece in the Buffalo News had the city "adopting" the song as an anthem. Turns out that the muse was Utica. The sentiment applied equally well anywhere Upstate:

"Western New York is the epitome of something," Williams said this summer in a phone interview from her office in Massachusetts following her European tour. "That something is what I write about: true life, unmeditated. Cues taken not from TV, but landscape and history and tradition and architecture.

"That phenomenon of reality is found in Western New York."

Of course, Utica isn't usually included in the Western New York area. But the values of both areas are quite similar: Both Western New York and areas such as Utica and Binghamton -- another source of inspiration for the song -know the importance of history and find beauty in that tradition, she says.

Who cares where Western New York ends and central New York begins? That isn't the point. The point is that where tradition is found, so is a deeper understanding for one's self -- and the notion that heritage is more important than a new minimall. And, Williams added, she did drive through Buffalo once.

Maybe she groups the two areas together because compared to Westchester, the New York City suburb where the singer was raised, Utica is Western New York.

Whatever the reason -- if all else fails, call it artistic license -Williams found a beauty that most people don't see. She describes the coffee house with an affectionate tone to her voice:

"The house was creaky," she says. "There were soggy marks on the wall from the spring thaw, and rust stains under the faucets. And the owners didn't apologize."

Words that may seem insulting instead convey thoughts of security and comfort.

"Things that were usually called messy or cluttered or imperfect were more beautiful and had more meaning," she says.

Want to absorb the true beauty, poetry and charm to her song, and at the same time see Western New York in an entirely different way? Put it on the car stereo and drive through the streets of Buffalo. It's like a living video taking place outside your car window.

Williams describes an urban aesthetic that I have traced back to 1970s New York City. I write about the history of Rust Belt Chic in a just-released anthology that explores the concept through a Cleveland lens. To me, Buffalo Chic bridges the gap between the violent urban frontier of New York and the return migration gentrification of Cleveland. In New York, Rust Belt Chic was an ironic appreciation of blue collar culture that caused Harvey Pekar's wife to use the term as a derisive epithet. Via Dar Williams, Buffalo natives took ownership:

Lockport native Tim Wendel, senior writer at Baseball Weekly, saw her solo acoustic show at The Ark in Ann Arbor, Mich., earlier this year.

"She did the song, and she blew us away," says Wendel. "We suddenly felt we were back at the Anchor Bar or staying up late on Elmwood Avenue. She hit all the bells and whistles, especially that part about the raised tubs."

"I think the crowd was split between those who knew Western New York and were emphatic with their applause, and those who were scratching their heads over it," he says.

Wendel says he has given "Mortal City" to friends he knew in Buffalo who have moved away. At least once, the song has brought tears to their eyes.

If you are from there, you get it. Rust Belt Chic is best understood by the people who left and miss home. Why does Buffalo, of all places, exert such a strong pull on someone's soul? That personal connection is now enjoying a broader appeal. That broader appeal has informed a critical backlash.

Ruin porn is not Rust Belt Chic. Being proud of your hometown, moved to action, is not exploitation. To Buffalo ears, suburban brat Dar Williams isn't a phony. The griping about trendy Rust Belt cities is petty and pointless. Buffalo isn't for everyone. But for those who can appreciate the city's charms, it can be a special place to live.

Place-Based Economic Development

I'm not a fan of place-based strategies to improve communities. Invest in people, not places. Kalamazoo's spin on that idea:

“Other communities invest in things like arenas or offer tax incentives for businesses or revitalize their waterfronts,” says Michelle Miller-Adams, a political scientist at the W. E. Upjohn Institute for Employment Research, which is located in the city. “The Kalamazoo Promise tries to develop the local economy with a long-term investment in human capital that is intended to change the town from the bottom up.” In this regard, the Promise can be seen as an exorbitant ante, staked by private funds, that calls to Kalamazoo’s better angels. It stokes hometown pride, prods citizens to engage and pulls businesses and their leaders into the public sphere. To date, Miller-Adams says, Kalamazoo’s Promise has inspired donors in 25 other cities and towns around the United States — including Pittsburgh, New Haven and El Dorado, Ark. — to start, or consider starting, similar programs.

I would call that "people-based economic development." The above article terms it as place-based. The distinction is important. It's about goals, changing the town from the bottom up. Put all your eggs in the human capital basket. Improve your hometown.

The Kalamazoo Promise aligns individual and community interests. People-based economic development can benefit a place. By extension, so can outmigration. Place-based economic development is designed to stop that; plug the brain drain. Such an approach is destructive, not constructive. Urban amenities are more a distraction, than a fix. But building a park or a bike path is a lot easier than tackling educational reform. Results are faster, more tangible. Ribbon cuttings make for great political theater. The goal is a better place, not better people. That's a shame.

Preretirement Pittsburgh

Forget the Baby Boomers and the wonders of Geriatric-Burgh. Think over-educated and underemployed and not quite yet 40. Imagine Portland but with a diverse economy and actual jobs. Picture the face of the un-Creative Class with throngs of hipsters that Richard Florida can't possibly explain. The research:

For more than 50 years, Jurjevich says, people in this country consistently have moved to places where they were more likely to get jobs. Not now, and not in Portland. Jurjevich calls it “a new frontier in migration patterns.”

Those new migrants are coming to Portland and staying despite the fact that they are making 84 cents on the dollar compared to college grads in other U.S. cities. On average, a college-educated young Portlander makes about $8,000 less per year than a counterpart in Seattle doing comparable work.

The PSU report notes that young college-educated Portlanders have an unemployment rate 20 percent to 30 percent higher than the average for the nation’s 50 largest metro areas.

The educated young are coming to Portland, the PSU study suggests, for the cheaply obtained quality of life.

Which makes it unsurprising that the young creatives aren’t proving to be the economic engine the city had hoped. Multnomah County ranks second to last in job creation among 194 metro-area counties in the West during the past decade. Since 1997, Multnomah County has lost more than 26,000 private-sector jobs.

Emphasis added. Portland isn't the only city sitting at the new frontier of migration patterns. Jurjevich lists the top-10:



A few surprises, no? All hail the Texas Triangle, including my new favorite metro, San Antonio. And then there is, of course, Shittsburgh. Portland, that has to sting.

Joe Cortright isn't worried. I sure would be. Companies can find a similar talent pool in Pittsburgh and, increasingly, in San Antonio. Both cities have a blue collar work ethic. Why would I move my business to where workers are only semi-interested in a job? Why wouldn't I relocate to Louisville? Portland's self-delusion continues.

Innovation Economy Diverging Or Converging?

The world is spiky, not flat. Geography matters more than ever. If you believe that, then you should heed the advice of Enrico Moretti. Go where the well-paying jobs are already clustering. But what if you believe that the world is getting flatter? You listen to Andrew Yang:

But while Venture for America boasts about how it catalyzes entrepreneurship, it’s also primed to have an indirect impact on the cities where its fellows are based. Cluster theory would suggest the smartest graduating seniors should all head to Boston or San Francisco where the salaries tend to be higher and a pre-existing entrepreneurial network is strong, but Yang sees things differently. “If you are a young person who wants to have an opportunity to start a business, these are cities are more fertile. And if you start a company in Cleveland instead of Silicon Valley, you can become quickly visible to leadership and local institutions.” Venture for America’s six host cities in 2012 — Cincinnati, Detroit, Las Vegas, New Haven, New Orleans, Providence — all could use the kind of economic boost that growing, small businesses provide.

But it’s not just the cities that are benefiting. These cities have what Yang calls a high “resources-to-talent ratio.” In other words, young entrepreneurs who might get lost in the shuffle in New York would more likely stand out in Cincinnati. Even without a broad employment base, cities like Detroit and New Orleans have companies and foundations with deep personal and financial resources that can help lift up talent.

Cities participating in Venture for America could stand to gain much-needed population. Venture for America’s ultimate goal is to create 100,000 jobs by 2025. If spread across the country evenly, that number would barely move the needle in any one city. But if Yang continues to focus on cities like Baltimore, Cleveland and Pittsburgh — all of which are in the running for VFA’s expansion in 2013 — the program could have a big impact. Indeed, while many cities are now growing faster than their suburbs, that’s not the case in Baltimore, Cleveland, Cincinnati or Detroit.

Emphasis added. Moretti is describing divergence. Yang is touting convergence. The only critique I have of Moretti's book ("The New Geography of Jobs") is that it doesn't consider the prospect of the Innovation Economy peaking (i.e. moving from divergence to convergence). There are cities on the fence. Which club will they join, the Innovation Economy winners or losers?

Yang contends that there is an advantage to be had outside the winner's circle. I think he's right and I'm seeing evidence in migration patterns. You can have all of New York City for the price of Philadelphia. That trend is picking up speed. The convergence is quickening.

Suburbia Is Dying

Every economic epoch comes with a signature migration pattern. The Manufacturing Economy informed the Great Migration. Suburbanization is linked with the Innovation Economy. The move back to the city is the hallmark of the Talent Economy:

The new interest in downtown marks a big shift from the late 1990s, when the area's software and multimedia firms flocked to suburban offices along Loop 360 (Capital of Texas Highway), where office developments offered an abundance of affordable space. Downtown didn't offer much of a draw anyway — the central business sector became a virtual ghost town when office workers cleared out at day's end.

But downtown's transformation over the past decade — bringing a growing collection of restaurants, bars and shops, as well as an explosion of condos and apartments — has made it the preferred destination for young companies, real estate brokers say.

"If you want to attract and retain that young, highly educated workforce, you want to be in the center of where things are happening," said Jeff Pace, a veteran real estate developer and senior vice president of Jones Lang LaSalle's Austin office. "Parking issues and higher costs scare some away, but a lot of companies are deciding they want to be part of the energy and the creativity that's there. As startups and companies compete for talent, being downtown has become a competitive advantage."

Odd to see Austin as trailing a fad. But there you have it. The dominant economic geography of the Innovation Economy is the suburban tech park. Austin might be the poster child for this spatial fetish. From yesterday's post, Rust Belt Chic economic development:

Thorpe, who visited the Twin Cities last year to tout robotics, said he sees potential for companies serving different markets to share research facilities if they have common underlying technologies.

He said the Twin Cities, like Pittsburgh, has an academic anchor in the University of Minnesota, which has a strong robotics department. It's so strong that it has lured some prized professors away from Carnegie Mellon, he said.

The other thing that Pittsburgh had decades ago were empty spots that could be the shells for small robot startups, Thorpe said.

That's where Street is starting. She's been touring empty buildings across the Twin Cities as possible sites for GRIP.

Emphasis added. Those empty spots are artifacts of suburban migration and the ascendance of the Innovation Economy. That's the crucible for the Talent Economy, something Austin and the Twin Cities would like to emulate. The transformation is well-heeled in Pittsburgh and just getting going elsewhere. Still, the evidence of suburbia dying isn't strong. Yet.

Brain Drain Wisconsin

Like every other state, Wisconsin has a brain drain crisis. Or does it? The Wisconsin Policy Research Institute digs into the data:

A study conducted by the Wisconsin Policy Research Institute showed 62 percent of respondents perceived a “brain drain” at UW, UW spokesperson David Giroux said. However, according to Giroux, that perception is falsely concluded, as the numbers from a UW Alumni study reports, debunking the notion of a brain drain.

“Simply put, eight out of 10 Wisconsin graduates stay [in Wisconsin],” Giroux said. “That is not the kind of brain drain people think. …We are holding on to a good proportion.”

This is becoming an annual refrain in Wisconsin. At stake is higher education funding. Why give tax dollars to universities if all the graduates are moving to Chicago or Minneapolis?

Tying funding to talent retention is foolish. In the same article, Madison Mayor Paul Soglin regurgitates Creative Class dogma and conflates retention with attraction. Soglin needs to justify his own expenditures, brain drain boondoggles. Voters aren't interested in non-local talent. Retention sells.

Higher education needs to make a better case to the people. Graduates will leave. That's a public good. Geographic mobility catalyzes economic growth. Wisconsin's problem is that there is too little outmigration. Inert communities will struggle. Individuals and families will suffer.

A college degree will a make a person more likely to leave Wisconsin. You want your high school graduates to stay? Put them to work before they go to college. Keep them away from higher education. That will fix your brain drain problem.