Marcellus Shale Fueling Brain Drain

State U would like more funding. But college graduates are geographic whores. Why would residents pay higher taxes only to see the best and brightest flee?

On a smaller scale, empty nesters frustrate school district attempts to fund vital educational programs. I live in Loudoun County, Virginia. It's booming. It's wealthy, obscenely so. Yet austerity rules and foreign language instruction for elementary school students feels the weight of the ax. Why should I pay more property tax so your kid can learn a skill that will likely benefit some other community down the line?

Brain drain is a public relations problem for some. It's the ace up the sleeve for real estate developers and big business. I've enjoyed watching the Marcellus Shale Coalition (MSC) play both sides of this fence. Pennsylvania residents should allow drilling so young adults won't have to leave in search of work. Spin from last year:

With natural gas prices slightly more than half of what they were a year ago and drilling rigs moving out of the state to more lucrative plays, the Marcellus Shale Coalition is touting job growth for Pennsylvanians.

At a rally on the Capitol steps Monday, the industry group attempted to counter two of the most persistent criticisms leveled at its jobs claims: that the jobs are temporary, nonunion work and too often go to out-of-state workers from places such as Texas and Oklahoma. ...

... Mike Narcavage, an executive with Chesapeake Energy, a company drilling for gas in Pennsylvania, spoke of a brain-drain “boomerang.” People who had left Pennsylvania for work are returning because of opportunities that have opened up in the Marcellus Shale industries, he said.

Support shale gas development so prodigal sons and daughters will return home. That's funny. Like universities and local schools, the MSC has painted itself into a corner in order to fend off criticism. The Devil's due:

In fact, students trained in Pennsylvania are often flown to shale states like North Dakota for work, said Byron Kohut, the western hub director for the program, based at Westmoreland County Community College.

"It's just the nature of the business" to transport workers from state to state, Ms. Fisher said.

Several years ago, when drilling in the Marcellus Shale region began, one of the chief criticisms of the industry was its importing of trained workers from Texas and Oklahoma to Pennsylvania. Now that training programs are in place here, the ShaleNET organizers have found that students will often be flown to whatever state -- and shale formation -- needs them fastest.

College graduates leaving for greener pastures is an inconvenient truth for public higher education. The same goes for the itinerant energy industry. I blogged about it in 2010 (here and here). I'll quote myself from that second link:

As the global market recovers, itinerant workers in states such as Pennsylvania might be called to other parts of the world. I expect the demand for workers in the Pittsburgh region to increase dramatically even as the number of new drilling sites levels off (if that does indeed happen).

I didn't have a crystal ball. I wanted to understand the talent migration impact of the Marcellus Shale play. The MSC was making strong assertions in order to advance industry's policy positions. Playing fast and loose with the facts can backfire. A reminder about the propaganda used in 2010 to fend off a severance tax:

Yet as our production expands in Pennsylvania, the competition for the critical capital needed to produce a Marcellus well — each requires about $4 million — grows stronger and fiercer by the day. Other shale gas-producing states — particularly Texas, Oklahoma, Louisiana and Arkansas — want those investments, and those jobs, just as much as we do.

But we’re not just competing with other states for these opportunities. Poland, China, Canada and other foreign nations are working aggressively to secure the capital needed to expand their energy production, too. There’s a reason officials at the Kremlin read news clips from the Marcellus region every morning — and it’s not because they’re looking for coupons.

It’s no secret that our elected officials in Harrisburg are considering a new tax on shale gas production. Unfortunately, some don’t seem to understand that global competition for capital will react to the magnitude of the tax, evidenced by their consideration of a tax that would be the nation’s highest and least competitive.

If Pennsylvania taxes, then there will be a brain drain of investment capital. The assertion didn't make sense then. Now, the claims are comically phony. Brain drain hysteria muddies the policy waters. No one can see the schools of red herring.

To arms, environmentalists! Fracking causes brain drain. What's good for the goose is good for the gander, right Kathryn Klaber?

Rust Belt Chic Richard Thompson

I used to be a folk rock nerd. That was my gateway drug to more traditional folk music. If I had to put a label on the genre I most appreciate now, I'd go with "American Roots". This journey all started with guitarist Richard Thompson:

Thompson deserves that Americana songwriting award, and then some. Over the years, he's balanced black humor and straight-ahead lyricism, cynicism and idealism, and done it all with style. Electric may or may not be Americana, but it rocks hard, and Thompson's songwriting is at a peak. In late March, Thompson will embark upon a series of dates featuring his electric trio along with Emmylou Harris and Rodney Crowell. As you would expect from such an accomplished songwriter, he chooses his words carefully, and displays a dry sense of humor that is as bracing as his music. The Cream recently caught up with Thompson via phone, and you can see our chat below. ...

... You combined folk and jazz on one of my favorite records of yours, Industry, which you did with bassist Danny Thompson in 1997. Is it fair to say that it straddles the fence between populism and artiness?

I think so. That record speaks of our love of the industrial age, in the sense that I love communities that grew up because of industry — these amazing steel-working towns and coal-mining towns that were just extraordinary places, and [with] wonderful human beings. Even though the jobs were, in some cases, terrible, the communities were the opposite: The communities were extraordinary, people working alongside each other in dangerous situations. That tends to breed a certain kind of spirit, and a certain kind of music, and a real camaraderie that really is gone now from Britain. It just isn't there anymore. I think that was something that we missed, and that we wanted to pay tribute to.

It's similar to what the United States has experienced as the industrial Rust Belt has aged.

It's the post-industrial scene. But I kinda grew up in it as a child. To me, it was kind of a beautiful landscape, that industrial landscape, and I miss it. I really miss it.

Thompson is describing, unwittingly, Rust Belt Chic. The difference, for him, is that this romantic geography no longer exists. I think the spirit, music, and camaraderie live on. In fact, Rust Belt culture is all the trappings of industrial culture without the terrible jobs. What's really gone now from Britain and the United States is the concentration of manufacturing employment.

The optimism associated with the manufacturing renaissance in the United States is a longing for the past. For me, Rust Belt Chic is looking in the opposite direction. What will these extraordinary communities do next?

Future Of Professional Economic Development

One policy recommendation from Bart W. Édes, director, poverty reduction, gender, and social development division, Asian Development Bank (ADB), Manila, Philippines:

Change the 'brain drain' rhetoric: Many developing countries that have experienced strong growth are attracting home many skilled former emigrants who enhanced their human capital with education and skilled employment abroad. Further, along with other benefits of out-migration, including remittances, the resulting enriched commercial and social networks should be considered.

When I started my blog (almost 7-years ago), I was concerned with brain drain from Pittsburgh. The evidence of exodus was lacking. Many of the metro winners were, after looking at the numbers, domestic migration losers. Most brain gain anxiety was/is unfounded.

More recently, literature in the field of international economic development changed the way I look at brain drain. This perspective meshes well with the thesis that Pittsburgh out-migration during the 1980s was a boon to regional economic development. Do the fail.

While I understood that brain drain could be good, I didn't have a theoretical framework to figure out how communities might benefit from the best and brightest leaving. For domestic migration, there isn't a flow of remittances (at least, in the orthodox definition of the term). If the talent didn't return, then the economic development game was zero-sum. Austin wins. Pittsburgh loses.

Enter "income per natural". The quick and dirty explanation is people develop, not places. If someone moves and benefits economically, then how can that be a problem? Ding-dong! Geography is dead. All economic development in the United States is place-centric. Professionals labor to make a city or state better. Thus, brain drain is bad. Individual prosperity is at odds with community prosperity. That conflict of interest is what economic developers should be trying to solve.

The End Of Geography

One of the books I had to read in a seminar about globalization and democratization was "The End of History" by Francis Fukuyama. I didn't understand all the fuss being made about the argument, which you can read for yourself here:

What we may be witnessing in not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government.

The point isn't that we are done making history. At the global scale, the conflict over paradigms of international political economy has ceased. There is only economic globalization and democratization. Maggie Thatcher. T.I.N.A. There is no alternative.

With that debate settled, the graduate seminar moved on to the existential threats to the nation-state. Kenichi Ohmae has a similarly bold title. But we students were not convinced. With apologies to Thomas Friedman, the end of geography was far from nigh.

The time has come to reconsider. I don't mean the world is flat and international borders have ceased to matter. Coming out of the last financial crisis, I see an epochal break on par with Fukuyma's End of History. The migration of talent is more important than the economic geography of nation-states. People develop, not place:

According to Hikmet Ersek, CEO of Western Union (who is himself Turkish), money is now starting to flow out of Turkey, not in. That is because Europe is ailing while the Turkish economy has boomed. So while Turks in, say, Germany used to send money to their families in Turkey, during 2012 families in the homeland often ended up helping their kin in Europe – creating outflows that are now estimated at about 30 per cent. Or, as Ersek told me on the sidelines of Davos last month, with a smile of pride and wonder, “It’s a huge change.” ...

... Four years ago, countries such as Spain were deemed to be “outflow” countries, because migrants from Mexico, north Africa and Latin America were travelling to Spain and sending cash home. Now, however, that outflow has slowed dramatically, and could soon turn into inflows, because migrants are finding it tough to get jobs in Spain – and young Spaniards are going to places such as Latin America and sending money back.

Another shift, Ersek says, can be seen in France and Germany: flows from those two countries have recently intensified to places such as Spain and Portugal, as workers from the periphery go to the core of the eurozone to hunt for jobs. However, flows around Greece have recently stabilised. And striking changes are afoot in the so-called emerging market countries such as Mexico, Korea and Indonesia: like Turkey, these are starting to be “outflow” countries, not “inflow” countries, as they attract migrant workers from elsewhere. Russia has seen a particularly remarkable turnabout: though it was an “inflow” country several years ago, it is now the third-largest “outflow” country, with 80 per cent “outflows”, because of the oil and gas boom (and, perhaps, a pattern of capital flight).

For any regular reader of my blog, none of the above should come as a surprise. I've been tracking the reconfiguration of global talent flows for a few years. Everything is upside down. People move from developed to developing countries. Remittances reverse course. The nation-state takes a backseat to the international migrant. This "remarkable turnabout" is the end of geography.

Richard Florida And Brain Drain Boondoggles

Rhode Island is in trouble. Richard Florida is the Pied Piper of Creative Class gentrification. The governor of the struggling state defines the crisis:

“We are in intense competition with Connecticut, New York and Massachusetts,” said Chafee, a 59-year-old Republican- turned-independent, ticking off three nearby states where gays can wed. “We are all in the same economy. We have to have the same welcome mat at our door that our neighbors have.”

Every New England state except Rhode Island allows gay marriage, as do Iowa, Maryland, Washington and the District of Columbia. Gay-rights advocates in five others, including New Jersey and Delaware, are pushing similar legislation this year.

I don't know about you, but I've heard this broken record before. The same argument is advanced concerning taxes and right-to-work legislation. There is a war for talent going on and Rhode Island is the odd one out. The best and brightest will bolt to the states with a more welcoming environment:

“Top talent might not want to work in a state where they are not wanted,” said Justin Nelson, the president of the National Gay and Lesbian Chamber of Commerce. “You can see a brain drain.”

You can see a brain drain? That city without a new stadium or casino, you can see a brain drain. I support gay marriage, but not because I want to stop brain drain. If two (or three) consenting adults want to get hitched, then more power to them. It's a cultural debate, not an economic one.

Governor Lincoln Chafee sees an economic rationale, something he learned from Richard Florida:

The governor’s thinking is in line with research conducted by Richard Florida, author of the 2002 book “The Rise of the Creative Class,” who has written that there is a correlation between gay communities and innovation.

“Gay-friendly places, because they are gay-friendly, are open to smart people who might be gay or straight,” Florida said in an interview. “They are generally more open-minded. With restrictive laws, you are hanging out a sign saying ‘geeks and entrepreneurs not welcome here.’”

Emphasis added. With higher taxes and strong unions, you are hanging out a sign saying "business not welcome here." The rhetorical ploy is a means to an end. If serving up red herring successfully promotes gay marriage, then so be it. But don't expect a Creative Class influx. Migrants of all types aren't easily dissuaded. With economic opportunity as a carrot, restrictive laws won't matter. Greater tolerance and diversity isn't a lure. It's the result of inmigration. Richard Florida can't help Rhode Island.

Urban Hierarchy Of Talent Production

There exists an urban hierarchy for talent attraction. The alpha global cities stand at the top, sucking up all the best brains from around the world. Any exception to that rule is worth noting:

The local unemployment rate of 6.2 percent in December was stable from a year earlier and well below the national rate of 7.1 percent. Out on the main street in a cafe and whiskey bar called Death Valley’s Little Brother that appears to have been dropped in from a fashionable part of Brooklyn, seats are scarce despite prices that could make a New Yorker wince.

Google’s logo on a former leather tannery in Kitchener, a relic from the region’s past as Canada’s shoemaking capital, provides a vivid illustration of the way that, when a company starts to slip, the best talent goes elsewhere. BlackBerry aims to reverse its fortunes with radically new smartphones and equally innovative software that runs them. It introduced the phones to the public last week to strong reviews.

Steven Woods, the director of engineering for Google in Kitchener, said that the search engine company established an operation here about eight years ago and expanded into the tannery building in 2011 as part of a broad plan to absorb foreign talent and sensibilities.

Most of the company’s other new operations were put in major metropolitan centers, including New York, London and Tokyo.

“Waterloo is different,” Mr. Woods said, sitting in a scaled-down version of Google’s Silicon Valley office, down to a gourmet, no-charge cafeteria. “It’s got this amazing university which has long been one of our top three recruiting universities for Google as a whole, worldwide,” said Mr. Woods, who earned a doctorate at Waterloo.

Kitchener is on Google's map not because it rates as a magnet for talent. It's not New York, London, or Tokyo on that score. But in terms of talent production, the University of Waterloo is world class. In the realm of talent migration, this little known fact is hugely disruptive.

It's also a new paradigm for economic geography. Richard Florida's map of the Creative Class is a relic of an economy in decline. More and more cities are getting in on the game of talent attraction. Joel Kotkin (New Geography) has noted the shift. My research revealed a similar trend benefiting San Antonio. That's increased competition for a talent pool already suffering from over-fishing. So, the likes of Google (e.g. Disney) go to the source where it is easy to poach the cream of the crop. Business chases talent not in Creative Class cool Portland. Instead, it is popping up in Rust Belt Chic Kitchener.

Puerto Rico Is Dying

You know the situation is dire when a story starts out, "Puerto Rico's population is dropping." I know what is coming. The other shoe drops, "According to the most recent census, the 4.6 million Puerto Ricans living on the U.S. mainland now surpass those on the island of Puerto Rico." Yes, Puerto Rico is dying.

On the other hand, Puerto Ricans are thriving. From the same four-part NPR series:

The opening of Disney World came at a critical time for Puerto Rico, as the 1970s saw the beginning of an economic slowdown on the island that continues to this day.

But Jorge Duany, a professor of anthropology at Miami's Florida International University, says the financial troubles arrived after decades of prosperity on the island — an era that greatly expanded the middle class.

"And there was substantial economic growth," Duany says. "The educational system expanded. So there was actually a large group of people who were then capable of investing, migrating or at least buying land in Florida so they or their kids could use it later on."

Emphasis added. Just like Pittsburgh, the exodus from Puerto Rico is a tale of success. No one notices because places develop, not people.

While "brain drain" has become synonymous with demographic decline, the term is to be understood more literally. People of means, wealth and education, migrate long distances. Strong migration from one place to another for economic reasons is indicator of substantial human capital.  It's akin to tracking the flow of foreign direct investment.

Lastly, the NPR piece offers another interesting tidbit that will fall on deaf ears:

Today, Florida replaces New York as the primary destination for Puerto Ricans coming to the U.S. In Osceola County, Fla., the population has tripled over the past two decades largely because of the migration. It's one of the nation's fastest growing areas, and about half of the population is Hispanic — most of them Puerto Rican.

New York City has ceased to be an aspirational geography for upwardly-mobile Puerto Ricans. Opportunity is elsewhere (i.e. Florida). This shift in talent migration is evidence of convergence, not divergence. The Creative Class economy that Richard Florida describes is dying.

Germany's Ann Arbor Dilemma

I'm fond of saying, "You go where you know."  It's a catch phrase that conveys an important migration concept and fleshes out rational choice theory, "Move to improve." A migrant has a number of places he or she could go for better economic opportunity. As a rule, most relocations cover short distances. Proximity is a good predictor of destination because people are risk averse. For someone in Cleveland, the economy might be better in Pittsburgh and Los Angeles. Because Pittsburgh is closer and likely more familiar, it is the more typical choice. You go where you know.

Conversely, you don't go where you know if you have a negative perception of a place. You've seen all the Detroit ruin porn. There is no way you are moving there for a job, even if there are thousands of positions available in your field. Detroit's black mark extends to Ann Arbor, home to the University of Michigan. Despite being a lovely college town with a fantastic quality of life, Ann Arbor struggles to attract talent. I call this the "Ann Arbor Dilemma". Ann Arbor is cursed with the geographic stereotype (i.e. ruin porn) of Detroit.

Germany is cursed with its own Ann Arbor Dilemma. The OECD claims that the country desperately needs immigrants for economic growth. The relatively liberal immigration laws aren't helping:

The problem is perception, particularly on the part of employers reluctant to hire from abroad, as well as the notoriously difficult German language. Barriers include dwindling numbers of German speakers in the European Union – and fewer institutions offering German language training compared to English, Spanish, or French. ...

... But it’s not just highly-trained personnel the country needs. Drivers, laborers and hotel staff are also in demand. So why aren’t they coming in droves from euro-zone countries with high unemployment?

The short answer is they perceive the barriers – linguistic, regulatory, or cultural, as too high. And small to medium-sized enterprises lack awareness about how to hire them.

Instead of heading to Germany, young adults are heading from high-employment Spain to low-unemployment Mexico. This migration pattern is unexpected because the legal barriers are much lower within the European Union. Perceived barriers are more formidable than actual fences. Just ask Ann Arbor.

Germany has already lost the war for talent. Mesofacts are notoriously difficult to change. Mexico or Brazil are where it's at for the young and unemployed in Europe, particularly Spain. Where a few pioneers have ventured, thousands will follow.

Ironic Talent Migration: Spain To Mexico

Follow the talent. Conventionally thinking, migration is a lagging indicator. People leave in droves after the economy tanks. Workers follow jobs. President Barack Obama using talent migration as a leading indicator:

In a global economy, where the best jobs follow talent, whether in Calcutta or Cleveland, we need to do everything we can to encourage that same kind of passion, make it easier for more young people to blaze a new trail.

Figure out where the talent is moving and bank on the "best" jobs following. That model is too simple. However, the concept is useful. The buzz of migration signals a shift in fortunes:

"There are few people who have studied sound [engineering] in Mexico, and there are many in Spain," he said. Gil researched opportunities in Mexico, and within a few weeks of arriving in the Mexican capital, he found employment. "I have friends who stayed in Europe, [went] to London, but they're working as waiters."

Although many Spaniards would prefer to remain in Europe, where they would be close to family and friends, language is proving an obstacle. Maria Bahamonde, an architect from Galicia, arrived in Mexico City as a tourist, but is now looking for work there.

"My parents were afraid that there was violence because of the drug war, but that's not the case,” she said. "They would have preferred that I go to Germany or Switzerland, but unless you are fluent in German or English it's impossible to find comparable employment in those countries. After two months here, I feel confident enough that I can pursue my career professionally here."

Emphasis added. Europe is struggling. Mexico is booming.Talent is flowing from Spain to Mexico, instead of ending up in Germany. This migration is ironic. The geographic stereotype highlighted is a barrier to talent. You go where you know. But the struggles of friends and family in usual destinations such as London has Spaniards looking elsewhere.

For those who can look past the mesofacts about Mexico, there is tremendous opportunity:

Like many Americans, until recently, when I heard “Tijuana” I thought only of drug cartels and cheap tequila. “TJ,” though, is a city of more than two million people (larger than neighboring San Diego), and it has become North America’s electronics assembly hot spot: most of the flat-screen TVs sold in the United States, from companies like Samsung and Sony, are made there, along with everything from medical devices to aerospace parts. Jordi Muñoz, the smart young guy who had taught me about drones and then started 3D Robotics with me, is from TJ — and he persuaded me to build a second factory there to supplement the work we were doing in San Diego.

Shuttling between the two factories — in San Diego, where we engineer our drones, and in TJ, where we assemble them — I’m reminded of a similar experience I had a decade earlier. In the late 1990s and early 2000s, I lived in Hong Kong (working for The Economist) and saw how that city was paired with the “special economic zone” of Shenzhen across the border on the Chinese mainland in Guangdong Province. Together, the two created a world-beating manufacturing hub: business, design and finance in Hong Kong, manufacturing in Shenzhen. The clear division of labor between the two became a model for modern China.

Today, what Shenzhen is to Hong Kong, Tijuana is becoming to San Diego. You can drive from our San Diego engineering center to our Tijuana factory in 20 minutes, no passport required. (A passport is needed to come back, but there are fast-track lanes for business people.) Some of our employees commute across the border each day; good doctors are cheaper and easier to find in TJ, as are private schools, although it’s generally nicer to live in San Diego. In some ways, the border feels more like the notional borders of the European Union than a divide between the developed and developing worlds.

And it’s not just TJ. To the east, in Juárez, Dell computers are built by Foxconn, the company that manufactures more than 40 percent of the world’s electronics (including Apple’s iPhone and iPad). To the south, in Querétaro, a factory builds the transmissions that General Motors installs in its Corvettes. The design of General Electric’s GEnx turbine jet engine and the production of interior elements of Boeing’s 787 Dreamliner also happen in Mexico. Manufactured goods are the country’s chief export, with private investment in this sector among the highest in the world.

The notion that Mexico offers only cheap labor is just plain off the mark. Mexico graduates some 115,000 engineering students per year — roughly three times as many as the U.S. on a per-capita basis. One result is that some machine specialists are typically easier to find in TJ than in many big American cities. So, for that matter, are accountants experienced in production economics and other highly skilled workers.

Emphasis added. Tijuana's transformation into the next Shenzhen flies under the radar because of our preconceived notions about Mexico. The myths cut both ways. They hurt tourism in Baja. They also offer geographic arbitrage. Chris Anderson's company benefits from TJ's negative reputation.

Spanish talent moving to Mexico City is a harbinger of economic convergence. These desperate pioneers pave the way for others who aren't risk-takers. Eventually, transnational companies catch on to the trend. Jobs follow talent. People develop, not places.

Taxes And Migration

People move from high-tax states to low-tax states is a popular theory. This hypothesis is rational. Lower taxes spur economic activity which attracts prospective workers. Job opportunity drives migration. Without much rigorous analysis, the theory is an excepted fact of life. The conclusions reached are what Daniel Kahneman terms "System 1" thinking:

SPIEGEL: You say in your book that, in such cases, we leave the decisions up to "System 1."

Kahneman: Yes. Psychologists distinguish between a "System 1" and a "System 2," which control our actions. System 1 represents what we may call intuition. It tirelessly provides us with quick impressions, intentions and feelings. System 2, on the other hand, represents reason, self-control and intelligence.

SPIEGEL: In other words, our conscious self?

Kahneman: Yes. System 2 is the one who believes that it's making the decisions. But in reality, most of the time, System 1 is acting on its own, without your being aware of it. It's System 1 that decides whether you like a person, which thoughts or associations come to mind, and what you feel about something. All of this happens automatically. You can't help it, and yet you often base your decisions on it.

SPIEGEL: And this System 1 never sleeps?

Kahneman: That's right. System 1 can never be switched off. You can't stop it from doing its thing. System 2, on the other hand, is lazy and only becomes active when necessary. Slow, deliberate thinking is hard work. It consumes chemical resources in the brain, and people usually don't like that. It's accompanied by physical arousal, increasing heart rate and blood pressure, activated sweat glands and dilated pupils …

People moving from high-tax states to low-tax states appeals to our intuitions. So, it must be true. We accept the claim because our more skeptical/analytical self is lazy. Via Brian Kelsey, an academic stuck in System 1 mode:

We’ve all heard of the migration of U.S. population and jobs from the North to the South. Many of us are convinced it was because of the extra sunshine and warmth in the winter. Many think it’s because people no longer find shoveling snow attractive.

Add this into the mix as you seek to understand whether the southern states will continue to outpace the northern tier of the United States in the coming decade in terms of jobs and population.

Let’s face it. Employers come to Texas and other southern locations because they feel that they can make a higher profit. Taxes are a major consideration. So is the cost of labor. Clearly businesses are moving away from areas with a high concentration of unionized labor.

Dr. Mark Dotzour backs up his assertions by listing the states with highest and lowest concentrations of labor unions. Game over. Lower taxes and less unionization win.

Now for academics engaging in System 2 thinking. Do people really move for tax purposes? Conclusion:

"It is very difficult to see a migration response when you look at the people affected by the taxes," said Cristobal Young, an assistant professor of sociology at Stanford University, who has studied tax increases in California and New Jersey.

Not even the super-rich exit in large numbers after taxes go up in their states, according to a growing body of research that shows relocation decisions involve many factors beyond taxes. ...

... Critics argue that many other factors, including strong economies, drive population growth. In two separate studies - one of a 2004 tax increase for New Jersey residents earning more than $500,000 per year, and one of a 2005 California tax increase on those with income greater than $1 million - Stanford's Cristobal Young and Charles Varner of Princeton University found neither measure substantially impacted the supply of millionaires in those states.

In California, the pair found the highest-income Californians were actually less likely to leave after the millionaire tax was enacted than they had been before. One reason could have been that most Californians earning more than $1 million did so for only a few peak years, the authors said. So the added bite of the tax increase was brief.

Separate studies of tax migration in Canada, Switzerland and areas surrounding large U.S. cities have also found taxes played little part in location choices, which involved factors such as commute times, community attachments and real estate costs.

Migration to warm-weather states including Texas and Florida goes back at least 50 years, noted University of Connecticut tax law expert Richard Pomp. Back then, some of the states people were leaving, including his own, had no income tax either.

On the whole, taxes do not have a material impact on where people choose to live, said Mark Zandi, chief economist for Moody's Analytics.

"People live in California for lots of different reasons," he said. "It's very difficult for them to find somewhere to go that's comparable to that state."

Dotzour's rhetorical salvo is exploratory. He makes a case for researching the question. Cristobal Young and Charles Varner take up that challenge. The results are ironic. But Richard Pomp is the best example of triumphant System 2 thinking. He poses a natural experiment that controls for tax regime variation. This simple test reveals the influence of climate on migration, something Edward Glaeser has emphasized.

Most policy debates are in the realm of System 1 thinking. My experience is that bold statements about talent migration rarely survive scrutiny (i.e. System 2 thinking). Unfortunately, concerning economic development, intuition usually prevails:

Tax-cut advocates in Kansas, Nebraska, Missouri, Oklahoma and Louisiana have voiced concern that their states are not competitive with nearby no-tax states, such as Texas and Florida, and that the imbalance chases away citizens and jobs.

A test is coming in Kansas City, which straddles two states: Kansas, which cut its top income tax rate to 4.9 percent from 6.45 percent on January 1, and Missouri, where the top rate remains 6 percent.

"It remains to be seen what will happen with Kansas, but people are watching," said Missouri state Senator Eric Schmitt, a Republican, who has sponsored one of several tax cut proposals now pending in that state house.

"People are rational economic actors and they are going to make decisions that are best for themselves."

Emphasis added. Who can argue with that straw man? We vote with our feet. Seeking lower taxes is a rational choice. Kansas will win. Missouri will lose. Actually, I wouldn't be surprised if that is how things turned out. Proximity is an important variable for modeling migration. Within a region, tax geographic arbitrage can make a huge difference in residential decisions. The problem comes when we take that experience and map it onto a larger (i.e. inter-regional) scale. Eric Schmitt is guilty of sloppy, lazy System 1 thinking.

The Problem With Placemaking

People develop, not places. Economic development is place-centric. We compare metros, states, and countries. Some places are doing better than other places. Young, college-educated talent is moving from decaying Pittsburgh (brain drain) to cool, hip Austin (brain gain). That's Richard Florida's archetypal Creative Class migration. It's a place-centric understanding of talent relocation. Thus, Florida offers the following advice for a Des Moines (i.e. Pittsburgh) aspiring to be a Chicago (i.e. Austin):

What can they do? As I argued long ago, Number 1 is to try to stem the losses. Figure out ways to retain that age group. I'm not saying that only that group matters, but if they cannot be kept or captured it will be hard to stem the sorting problem, as you describe. In fact, this is exactly the problem both Boston and Silicon Valley confronted a half century ago — talented young people were leaving Cambridge (MIT, Harvard, etc.) and Stanford for better jobs, etc., elsewhere. This is why university leaders (not mayors and economic developers) decided to support high-tech development. It could provide a source of employment for these new grads.

From a place-centric perspective, the policy prescription makes sense. From a people-centric position, it's a disaster. That's why I claim Richard Florida is wrong. He's offering bad advice.

Similarly, I've taken placemaking to task. That post has caused a [very] minor stir. At Project for Public Spaces, Brendan Crain (whom I know well from The Where Blog) responds:

Like Russell, many people today are beginning to voice the concern that Placemaking is “counterproductive” to economic development, because they’ve been led to believe that the process is simply about cutting and pasting things that worked somewhere else into struggling spaces. But great places and strong local economies are created in the same way: by getting people together to define local challenges and come up with appropriate solutions to address them. Placemaking makes tangible the opportunities inherent within a place so that they might be taken advantage of. People develop places; thereafter, places develop people.

I'm not an expert on placemaking. I'll concede that I have poor grasp of what placemaking is. I'm critiquing placemaking that purports to influence talent attraction and retention. At the heart of my argument is the fact that these initiatives are intrinsically place-centric. Instead of place-centrism, I'm looking at talent migration through a lens of people-centrism. Hence, people develop, not places.

What does that mean for placemaking initiatives? I'm convinced that placemaking is useful, but not for talent attraction/retention. People move for purposes of personal economic development. A great place to be for that express purpose is a city with tremendous birthplace diversity. But even as Richard Florida has noted, this talent clustering poses its own set of challenges:

On close inspection, talent clustering provides little in the way of trickle-down benefits. Its benefits flow disproportionately to more highly-skilled knowledge, professional and creative workers whose higher wages and salaries are more than sufficient to cover more expensive housing in these locations. While less-skilled service and blue-collar workers also earn more money in knowledge-based metros, those gains disappear once their higher housing costs are taken into account.

The movers and shakers who roll the dice on a long-distance migration (a journey of economic development benefits like going to college) stand to gain a lot. But for the rest of the people stuck in that place, your only reward is higher housing costs.

Migration is good for people. We shouldn't try to discourage it. However, a bunch of people moving in from elsewhere erodes social capital and can negatively impact a community. There are costs and benefits to increased geographic mobility. I think placemaking can help mitigate these costs and enhance the benefits. More from Brendan Crain:

For every person who thinks that you can ‘placemake’ unilaterally by dropping in cool amenities, there is another who believes that Placemaking is as much about the discussion that participants have with each other as it is about whether a space contains public art or picnic tables when all is said and done. The physical attributes of the space in question are important, but they are the means, not the end. If you’re not building social capital in the community where you’re working, you’re not Placemaking; you’re just reorganizing the furniture.

Emphasis added. Gentrification is reorganizing the furniture without building social capital. It is also the result of people (not places) developing. Gentrification is not a cause of economic development. It is an effect of migration that negatively impacts people who are unable or unwilling to move. The tension between native local and inmigrant is palpable. Don't Californicate Colorado:

We used to be a good mix of libertarian liberals and conservatives with a live and let live attitude. Not anymore.  We’re now getting stupider, and this is being powered by the mass influx of east coast and west coast liberals into the liberal loon town of Denver.  You can see evidence of this in on-line forums.  Enlightened progressives sing Obama's praises and remark what an east coast feel Denver has, and they are right.  It is now easily the least "Colorado" part of the state.

How can Denver continue to be a great place for talent to develop without alienating the rest of the state? Denver is tolerant because so many outsiders have moved there. Migrants dominate the city. It is cosmopolitan. It is booming. If you are part of that tribe, life is great.

For those driving along the Front Range with "NATIVE" bumper stickers, life isn't great. Outsiders have taken over. You can't get a good job unless you think like a liberal loon. The two worlds never meet. Might this be something good placemaking could address?

Brain Drain And Return Migration

When the prodigal daughters and sons who leave come back, brain drain becomes brain circulation. In rural Minnesota, just call it brain gain. But what happens when there isn't enough circulation? Higher education crisis in India:

A recently released study by Wan-Ying Chang and Lynn M. Milan of the National Science Foundation found that only 5.2 percent of Indians who study outside their home country to earn doctorates in science, engineering, and health return home. These numbers, which are based on a 2008 survey, are substantially lower than the 20.4 percent of foreign graduates who reported working or living in their countries of origin.

The NSF study also shows that China and countries of the former Soviet Union have lower return rates than India. But in the case of China that may be changing. Rajika Bhandari, a deputy vice president for research and evaluation at the Institute for International Education, told Nature recently that “China and South Korea have done a much better job of deliberately creating well-structured incentives and opportunities for students to return back home, than, say, India.”

Okay, so India needs to do a better job of promoting return migration. But that's not the problem. The issue is how we understand economic development. People are not sovereign commodities. India does not own the talent born there.

People should go where their talent can be best developed. Places should learn how they can benefit from migration, regardless of the direction of the flow. People develop, not places.

Steelers Diaspora

I'm a Steeler fan. That's how I became interested in the Burgh Diaspora. While in graduate school, I noticed a similarity between diaspora networks and Steeler Nation. Wherever you go, you can find a number of people who belong to the same tribe. To see what I mean, check out this analysis of NFL fandom using Facebook data:

In some cases, whole states and even entire regions of the country uniformly support a single team.  For instance the Vikings are easily the only game in town in Minnesota, while New England (minus New York) appears to be comprised of entirely Patriots fans except for a small portion of Connecticut.

There are some states which are divided into regions by teams.  Florida has three teams--the Tampa Bay Bucs, Miami Dolphins, and the Jacksonville Jaguars--and Facebook users there seems fractured in their support, with some counties even defecting to teams from the North. Ohio is another interesting story, with the Cleveland Browns in the North, Cincinatti Bengals in the South, and Pittsburgh Steelers fans occupying the middle of the state.

Some teams, like the Steelers, Cowboys, and Packers, seem to transcend geography, with pockets of fans all over the country. On the other end of the spectrum, the Jets have to share New York with the Giants and are only the most popular team for a single stronghold county in Long Island.

Emphasis added. Fans of the Cowboys and Packers transcend geography because they are successful franchises. The same explanation applies to Steeler fans. But that's only part of the story. Pittsburgh excels at talent production. As a result, the brain drain during the 1980s was epic.

There might be a great outmigration for each decade of US history. As noted above, the exodus from Southwestern PA defined the 80s. In the 90s, it was Californication. The noughts birthed the Katrina Diaspora. Steeler fans are the Okies of today. Neither group was welcome in their new place of residence.

The Daily Mail picked up on a geographic oddity:

An enclave of Pittsburgh fans in Oregon? The surprising map that shows how the country is divided over the NFL

Someone responded on Twitter with an answer for the question, "Not surprising at all. Combo of all-time success plus 70s-80s rust belt diaspora."

That Tweet is what brought the map to my attention. It is a strange enclave of Steeler fans. I doubt the 80s exodus has anything to do with it. If a different NFL team drafted Troy Polamalu, then the Oregon enclave would be a different color.

Pittsburgh Isn't Dying

Aside from a few metros in Texas, you would struggle to find a place doing as well as Pittsburgh. This fact is hard for the libertarian crowd to swallow. Taxes are high. Pennsylvania isn't a right to work state. The population is in decline. I expect Jack Welch to rush in at any moment and claim the federal government is cooking the books. Reluctant confessions from the Allegheny Institute for Public Policy:

In terms of job growth, the Pittsburgh region‘s long-dominant education and health care sectors have a new challenger: professional, technical and financial services, recent employment data show.

“Eds and meds” institutions still employ the biggest slice of the seven-county region‘s 1.18 million jobs, say economic experts, but “pros and techs” are gaining.

“The leadership in job growth has changed from eds and meds to financial services and professional and technical services,” said Jake Haulk, economist and president of the Allegheny Institute for Public Policy, a think tank in Castle Shannon.

Eds and meds isn't the only game in town. Along with the tech boom, there's a glut in financial services job openings. Heck, according to the same article, there's a glut in eds and meds job openings. Pittsburgh is hiring!

The rub is that the local labor supply can't keep up and all those naysayers have built up a formidable barrier to inmigration. Pittsburgh is on the national mental map, in a negative light. The city is in the Rust Belt. It is dying. That puts an upward pressure on wages, which is a lot scarier to a business than the red herring of high taxes.

China Is Dying

Population decline is an indicator of economic decline. That's conventional wisdom. Clearly, China is dying:

The demographic dividend that China has enjoyed in recent decades has kept wage rates low and saving rates high. With fewer children per worker, China has enjoyed a higher income per head, a large chunk of which it has been able to save and invest. The shrinking of the working-age population will put downward pressure on the saving rate and upward pressure on wages, as coastal factories have already found. According to Mr Laurent, the number of 15- to 24-year-olds will shrink particularly quickly, dropping by 38m, or 21%, over the next ten years.

Emphasis added. The highlighted sentence is a more sophisticated demographic analysis than typically explored in the United States. Workforce trends are hidden below the changes to overall population. Is Tampa growing thanks to more retirees? A bigger population is not necessarily better.

Both positive and negative trends can be lurking underneath the usual indicators. That's why Richey Piiparinen and I have developed the lens of ironic demographics:

As residents left Cleveland and Cuyahoga County in unprecedented numbers last decade, one group defied that trend assertively. Young adults, minorities in particular, moved in eye-opening numbers to some urban neighborhoods of the city and its inner-ring suburbs, according to a new report. ...

... "We're talking about an infusion of fresh blood," said Richey Piiparinen, a Cleveland policy researcher who specializes in the economic power behind demographic patterns. "Circulation of people is something we've been languishing in. That may be changing."

Piiparinen makes that argument in report he wrote for the Center on Urban Poverty and Community Development at Case Western Reserve University: "Mapping Human Capital: Where Northeast Ohio's Young and Middle-Age Adults are Migrating."

The migration of young adults into the urban core of a dying city is unexpected, challenging the dominant perception of Cleveland as plagued with brain drain. Everyone is leaving.

What does Cleveland have to do with China? Back to the demographic "crisis":

Since 1995 China’s economy has grown at an extraordinary rate, expanding by 9.8% a year on average. But its ascent relies less on raw human effort than many people think. By Mr Kuijs’s calculations, the mere expansion of employment has contributed only 0.7 percentage points of its annual growth. The movement of labour from agriculture to other, more productive parts of the economy has contributed twice as much. But China owes the bulk of its growth not to adding labour or moving it, but to augmenting it—raising its productivity within industry. The secret of China’s success lies not in the workers it adds, but in what new capital, technology and know-how adds to its workers.

Emphasis added. That's a major paradigm shift. The enhanced quality of the workforce contributes more to economic growth than the increase in workforce quantity. In Cleveland terms, a shrinking city may indicate substantial brain gain. People develop, not places.

Britain Is Dying

Britain is poised for a "triple-dip recession". As I would expect, the rhetoric about brain drain is on the rise. Politicians carp about the talent exodus when they are helpless to do anything about the moribund economy. Also, they scapegoat the foreign born. The anxiety about brain drain is a form of xenophobia. Simply put, outsiders are lesser humans:

Writing for telegraph.co.uk, Mr de Bois warned that the current political focus on cutting immigration has meant not enough attention is paid to the impact of emigration.

“Lost in the debate is the enormous damage being done to our economy by migration from the UK,” he said.

Ministers must do more to persuade high-achieving, highly-mobile workers that Britain remains the best place in the world to work and prosper, he said.

“Work needs to begin on keeping people here and not relying on importing others to fill the gap,” he said.

Emphasis added. In my book, importing more talent than you export is brain gain. That's true even if more people are leaving than ever before and the population is in decline. Heeding the advice of Mr. de Bois would do enormous damage to the UK economy.

Britain should do the exact opposite and privilege foreign born talent over native talent. Encourage outmigration. Facilitate more migratory churn. Consider this policy to be a geographic mobility stimulus. People develop, not places.

Innovation Economy Is Dying

The rise and fall of an economic epoch is measured by employment. The convergence of agriculture and manufacturing don't concern production. When less people are needed to produce more goods, the economy has peaked. The workforce needs retraining. In his book "The New Geography of Jobs", Enrico Moretti argues that the Innovation Economy is still diverging. Regional job growth is dependent on creative industries such as Apple:

Apple, Moretti says, employs 13,000 directly in Cupertino but has spurred 70,000 indirect jobs in the region. Two-thirds of American jobs are in the local service sector, he writes, and “the almost magical economics of job creation” are that “for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters).” What’s more, innovation “has a disproportionate effect on the economy of American communities. Most sectors have a multiplier effect, but the innovation sector has the largest multiplier of all: about three times larger than that of manufacturing.”

Regarding economic development, the strategy is clear. Innovation jobs are the Holy Grail. That's great until the Innovation Economy starts converging. The Economist weighs in on this economic epoch's iconic company:

Yet even if it produces a cheaper iPhone, pushes deep into China and wows the world with a smart TV, its shares will not reconquer last year’s peak. Competition is now tougher in its core markets. Rivals will not let it disrupt new ones so easily. Apple may dip into its $137 billion cash lake to boost its share price by paying fatter dividends or buying back more stock. That would delight some investors, but others would see it as a tacit admission that the firm’s great innovation engine has stalled. Apple won’t crumble, but it has peaked.

Emphasis added. Since I've read Moretti's book, I've compiled a lot of anecdotal evidence that the Innovation Economy has commenced convergence. The conclusion that Apple has peaked is icing on the cake. Silicon Valley is the next Detroit.

Brain Drain Boondoggles: Utica Shale and Youngstown

Developing the gas and oil locked up in shale makes a lot of sense. I think we can extract these resources without destroying the environment. The economic development upside is tremendous. Then why do politicians and other industry boosters have such hard time making the case for drilling? In Youngstown:

“Shale gas could really turn our economy around and produce jobs in the future,” Charles Sammarone, the mayor of Youngstown, says.

The city council recently approved an ordinance to allow the lease of the mineral rights of 180 acres of city-owned land. The potential revenue, the mayor hopes, could fund the demolition of abandoned houses and buildings and give Youngstown a facelift. A 2010 survey by the Mahoning Valley Organizing Collaborative showed that there are 3,246 vacant structures within the city limits, or about 44.8 structures per 1,000 residents, a figure 20 times the national average.

At the same time, unemployment has been kept relatively low at 7.9 percent, the national average, but only because so many people have been leaving the area. “We want to clean up our neighborhoods, so we can keep people from moving out,” Sammarone says.

Emphasis added. Okay, I buy the revenue windfall benefit. The mayor should stop there. Those concerned about drilling aren't de facto pro-brain drain. Boondoggle.

I doubt the mayor understands the issue. That's the reason he played the brain drain card. He doesn't know why drilling should be allowed. Fracking will stop our children from leaving. The Utica Shale solves everything.

Tech Boom Pittsburgh

Pittsburgh is a top-notch producer of different kinds of talent. Companies from all over the United States come to the campus of Carnegie Mellon University looking for superstar tech employees. Local employers also benefit from the supply pipeline. The glut of talent has suppressed wages. That advantage is eroding:

According to the latest salary survey from Dice.com, an online technology careers site, Pittsburgh’s tech professionals saw their salaries rise 18.1 percent for 2012-2013 over 2011-2012.

The average salary for a Pittsburgh tech professional is now $76,207, according to the survey. The latest data from the Pittsburgh Regional Alliance, which covers 2010, puts the average earnings per job in the Pittsburgh region at $51,718. ...

... The salaries here might be the fastest growing, but they are still below some other areas of the country, which is one of the selling points for companies to set up shop here. If talent can be found, it can be cheaper than elsewhere and the cost of living here still affords people the chance to buy a house and live pretty well.

In Silicon Valley, the average tech professional salary is $101,278, according to the report. In Boston, the average salary is $94,742; in Los Angeles, $92,498; in Austin, Texas, $89,680; and in New York City, $89,669.

Given that Pittsburgh salaries are the fastest growing in the country, I figure demand is outstripping supply. But Pittsburgh tech firms have a long way to go before they can compete with the ones in those other cities listed for talent produced elsewhere. Regardless, safe to say that there is a shortage. Why pay more for workers than you have to pay?

Another data point is venture capital:

Venture capital investment across the region continued to climb steadily in 2012 with 79 deals that totaled $168.97 million, a 7.9% increase over 2011 when $156.53 million was raised and spread over 55 deals.

The news in Pittsburgh was a bright spot; nationally VC figures declined by 10 percent from the prior year. All figures are from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. ...

... The strongest showing in Pittsburgh was the life sciences and software sectors. More than 23 companies received funding in life sciences, predominantly medical device companies, and 19 software and IT services companies were funded. The number of software company deals last year is a sign of the region’s strength in this sector since software companies generally don’t require large infusions of cash, noted Terri Glueck of Innovation Works.

Emphasis added. Software companies need tech talent. If you are looking for a job, then move to Pittsburgh. This tech boom is a result of talent production. The Innovation Economy is converging. Salaries matter. CMU is a reliable pipeline that will curb costs for software companies, which in turn lessens the risk for venture capital.

In tech, Pittsburgh is a strong bet. Talent production anchors the regional economy. In terms of talent attraction, the worm is turning. Next stop, Seattle.

Talent Retention And Displacement

In an attempt to stop brain drain, the same failed policies are recycled. Internships are hot right now. You can be sure that a bigger and better pool of interns will help businesses. The labor is free or very cheap. You can try out an employee with little risk. The problem is measuring the program's efficacy:

One of the biggest challenges in designing social programs is to make sure you’re not just rewarding people for doing what they were already planning to do.

When designing, say, a mortgage-interest tax deduction to promote homeownership, you want to encourage people who otherwise would rent to buy, not just give a tax break to people who would buy homes anyway. You also don’t want to keep the number of people doing the subsidized activity the same, and just change who is doing it. Economists refer to that phenomenon as “displacement.”

I don't know how much actual cost goes into a concerted effort to cull more or better interns. Retaining someone who would have stayed regardless isn't a win. How do we know that the scheme has worked?

Displacement is the main reason I favor attraction strategies over brain drain plugs. Talent born elsewhere is better for economic development than hiring locals. Don't impede outmigration. Seek birthplace diversity:

We …find a positive and robust correlation between birthplace diversity and productivity. This association is particularly strong for the diversity of immigrants, especially for skilled immigrants in richer countries. Expanding the diversity of skilled immigration by one standard deviation (e.g., from Iran to Ireland, or Ireland to US) increases long-run real income by a factor of 1.2 to 1.5.

Stopping brain drain decreases birthplace diversity. It undermines productivity. In essence, Richard Florida's advice is harmful:

Dear Atlantic Cities,
My home state of Iowa is surrounded by states with bigger cities acting as bigger magnets for its college graduates. Within a few years of graduation, nearly all of my friends and acquaintances had fled the state, and a few years later I joined them. It seems unlikely, particularly in that context, that Des Moines is ever going to "catch up" to Chicago, or even Minneapolis or Kansas City.
What should these states do, from an urban future-centric perspective? Are they simply obsolete as polities, should they just be decertified and folded into neighbors which won the city race?
-Matt Kuhns, Lakewood, Ohio

Richard Florida: Matt, you've hit upon what urbanists sometimes call the giant urban sorting machine. The problem for cities like yours is that young people are the most likely to move. A 25-year-old college graduate is three to five times more likely to move as someone in their 50s. Many cities think they can lure young people back as they get older and have families, and while this may work to a certain extent, the simple math suggests they can never recoup their losses of young people.

What can they do? As I argued long ago, Number 1 is to try to stem the losses. Figure out ways to retain that age group. I'm not saying that only that group matters, but if they cannot be kept or captured it will be hard to stem the sorting problem, as you describe. In fact, this is exactly the problem both Boston and Silicon Valley confronted a half century ago — talented young people were leaving Cambridge (MIT, Harvard, etc.) and Stanford for better jobs, etc., elsewhere. This is why university leaders (not mayors and economic developers) decided to support high-tech development. It could provide a source of employment for these new grads.

Stemming the "sorting problem" is a lot like discouraging a high school graduate from going to college. Everyone loses. Struggling cities should do the opposite of what Richard Florida recommends.

Prototypical Pittsburgh

Pittsburgh is unique. Sure, Providence has its own brand of Rust Belt Chic. The urban culture of Pittsburgh sets the standard. San Antonio discovering its inner Burgh:

“San Antonio is always reinterpreting its past,” says historian Jesús F. de la Teja, who’s been writing about the city for 30 years. “In the process, it’s turned into one of those distinctive American cities like New Orleans or Santa Fe. It continually sharpens its image.”

Despite all the sprawl, San Antonio is indeed distinctive. While researching the metro's talent migration patterns, I toured the funky neighborhoods. They oozed a strong sense of place, authenticity. As a diamond in the rough, I was reminded of Pittsburgh. The Pittsburgh Regional Alliance (PRA) recently picked up on the comparison I am making:

A recent article published on Texas CEO Magazine’s website talked about the “brain gain” in San Antonio, citing a rise in the number of talented young people with college educations choosing to move to that medium-sized city – particularly to its more urban neighborhoods — to live and build their careers.

Sound familiar? It should, as we’re seeing those same trends in the Pittsburgh region, as I’ve noted here before. Similarly, the Alamo City is also seeing strong “return migration” of native sons and daughters who went away for college or to launch their careers. (We call them boomerangers, or as a colleague prefers, gumbanders.)

Pittsburgh is my muse. Studying the region's alleged brain drain problem led me to a new way of thinking about economic development. Focus on the people, not the place. That lens illuminated the flow of return migrants. Speaking in generalities, the gumbanders want the opposite of the suburbs.

Like cool cities sucking up all the college-educated talent, return migration to historic urban neighborhoods is indicator of the post-Innovation Economy. More from the PRA:

As a model for this new “talent economy,” the article cites Pittsburgh and specifically Carnegie Mellon University. It notes that instead of trying to lure graduates away in competition with other firms and locales, companies like Google and Disney are relocating right on campus. (Google has since moved to Bakery Square.)

The production of talent attracts innovative businesses. In the Innovation Economy the widget is knowledge and talent attraction is the name of the game. In the Talent Economy the widget is talent and brain drain is the name of the game. The outflow of CMU graduates to Los Angeles is what enticed Disney to set up shop in Pittsburgh. Jobs are following return migrants back home.

The same potential exists in San Antonio. The PRA piece notes a major impediment to the Talent Economy:

And while I am sure University of Texas in Austin has some powerful spinoff benefits, San Antonio does not have a CMU or a Pitt. Their major research university is one of the University of Texas Health Science campuses, which does about $200 million in R&D. In fiscal year 2010, that figure in the Pittsburgh region was just over $1 billion.

This is the Rust Belt advantage. Legacy costs are now legacy assets. Brain drain becomes brain gain. The quality of San Antonio's talent exports isn't as good as Pittsburgh's. If San Antonio wants to attract more business, then it will have to do a better job of producing talent. Develop people, not place.

Viet-Kieu Economic Development

Talent is returning to the places their parents left behind. The trend is evident in the Rust Belt. It's also a global phenomenon. See the exodus from Chicago. Add to this emerging narrative of globalization the reverse migration from the United States to Vietnam:

Here, I can be noticed because I read stuff in the U.S. faster, and then I can adapt it here and say, “Okay, in America they're doing this, and this is how it applies in Vietnam,” and that's a big part of what my career has been in Vietnam. It's like creating opportunities versus copying opportunities. It’s almost how I would categorize it here.

Chris Tran is describing the same kind of economic boom Robert Guest explores in his book, "Borderless Economics." Migration is not a zero-sum game. Brain drain doesn't exist. Two worlds are connected. Both benefit.

While there are important difference between transnational talent flows and domestic migration, growth from connectivity is universal. Tran's career is in between Vietnam and the United States. Similarly, Bob Collins (subject of yesterday's post) straddles Syracuse, NY and Berkeley, CA. The Rust Belt never lost him. But Syracuse doesn't know how to leverage that talent migration. Vietnam does:

Ling: In fact, Park says, foreign governments are purposely making it more attractive for Americans of their ethnic descent to move back. Thanh Nguyen is founder and CEO of a professional networking website in Ho Chi Minh City. It's aimed specifically at professionals with business interests in Vietnam. She says Viet-Kieu, the term for Vietnamese who live overseas, are welcomed with open arms.

Nguyen: So if you are Viet-Kieu and you come here with certain advantages in terms of knowledge and experience, but you compete to a local one, then you have more advantages to get a good job, especially in the sectors had mentioned before like hospitalities, in service, I.T., finance, and maybe media.

In the Rust Belt, return migrants are not welcomed with open arms. In fact, most shrinking cities have no idea these repats are back in town. The centerpiece of workforce development is talent retention. Outmigration, brain drain, is a failure.

Cities such as Syracuse are ignoring economic development opportunities. Don't plug the brain drain. Leverage it.

Boiling Frogs In Syracuse

My Rust Belt reference point, the landscape of my childhood, runs from Erie, PA to Schenectady, NY (1974-1984). My father worked at General Electric in both cities, getting out of Erie before the layoffs really ravaged that town. Of course, Schenectady was stumbling down the same path. The annual Thanksgiving pilgrimage along the New York Thruway passed another GE plant in Syracuse. That was my first lesson in globalization. I remember vividly my dad pointing at the complex and remarking that the production of televisions had ceased. The company of Edison, my old man's hero, was dying.

For those of us who grew up during that time, the Rust Belt was a place you left. Japan was better at everything. The Soviets were going to annihilate America. I was reminded of all of that each time we passed the Electronics Laboratory just outside of Syracuse.

Today, the Rust Belt is a place where I want to raise my children. The rebuilding and revitalization have been so slow that no one seems to notice. For those of us who know shrinking cities intimately, our memories are fraught with contradictions. The negative dominates:

As I started, I remember growing up in the west side suburbs not far away, and recalled the smell in nearby Solvay, an overwhelming odor of , well, cleanser. These factories were primarily responsible for nearly killing  the lake. And that was kind of the memory for me in 70s Syracuse; a lake that smelled like Borax, a decaying downtown, one largely there for boozy nights watching the likes of Cheap Trick and Foreigner at the War Memorial, a crumbling hulk of a football stadium , and a baseball stadium with, remarkably, no seats behind home plate (due to a fire, it stayed that way for 30 years). But it was the lake that symbolized Syracuse , a beautiful resource destroyed, broken, and in true Syracuse fashion, like the hole in the baseball stadium, it just sat there for years.

My childhood Erie is similar. Lake Erie was a cesspool. The bumper sticker of the resident sea monster was made of tires and other discarded manufactured items, junk. But there is also the Rust Belt of awe and wonder that you bury below the story about Love Canal:

But, (I argued with myself ), the fact remained that downtown IS unique, there was no place like it in the region. Downtown was an exciting place when I was very young, a portal to a strange and compelling world out there, one very different from my secure suburban home. In those times, downtown visits were a treat, even if they were just a trip to the dentist. But just as often, a visit to Mom or Dad at work, an exciting downtown lunch, or maybe a trip with my grandmother to buy shoes.

Then it all came back when I came upon the old State Tower Building. In my oft-exaggerated  memories,  it IS a soaring 50 story edifice, not, the modest depression era office building one sees often in cities of this ilk. But with slender proportions, it did soar to the 5 year old. It was home to my dentist, who was one thrilling ride up its art deco elevators. The tallest building for miles!

And you can go back and revisit the splendor. Much of that Rust Belt still exists. It is the core of a different kind of community, one that is ascendant:

A few years ago, I came down here with my Dad. Like me, he had his own memories of the place, but much deeper. He also grew right here- on the Near Westside, right across the creek, in a dirt poor Irish Catholic household of 12 kids.

On this day, his old neighborhood not seen for 30 years, was unrecognizable to him. The area had been to war and back, sort of. It was re-emerging, with new housing being built near downtown for the first time in decades- block by block.

He was startled to see this. I could tell he couldn’t quite compute it all, it rustled the recall of his own palaces. He knew it was a good thing, as change came often to inner city neighborhoods, but still.

The Rust Belt refugee comes full circle. One generation works desperately to get out of the city and move to the suburbs, the geography of success. The next generation grows up in the suburbs and yearns for the authenticity of an urban neighborhood. Offspring moves back to the place their parents left behind.

Syracuse is changing, slowly. But our geographic aesthetic has flipped, almost overnight. The rejection of suburbia has been around awhile. More recent is the preference for Pittsburgh over Portland. "Emerald city" is a pejorative. "Rust Belt" is chic.

Lagging are geographic stereotypes and economic conditions. The former is a barrier to return migration, a lake that smelled like Borax and a decaying downtown. Syracuse is dying. The latter is a diverging Innovation Economy. You need to live where the jobs are.

On a recent visit to your hometown, it hits you. You remember the palaces of Syracuse, "built to last." The attraction is rekindled. What about employment? The world is getting flatter. The economy is converging. You can keep your San Francisco job and live in your dad's old neighborhood near downtown. Each year, you notice exponentially more people making the same return migration. Kiss the frog.

Chicago And Economic Convergence

Last November, I was in San Antonio as a presenter at a Texas CEO Magazine Enlightened Speaker Series event. Rackspace chairman Graham Weston, via his 80/20 Foundation, commissioned me and Richey Piiparinen to study San Antonio talent migration. Over breakfast, I shared with the audience our preliminary findings. Weston's reaction:

“Going into it, I thought the data would show we were losing brain power and we were experiencing a brain drain,” Weston said. “As it turns out, San Antonio is a prosperous and exciting place.”

Rather than building from a declining foundation, Weston sees San Antonio building from strength. “Especially when considering all the other cities in the country – the ones that are struggling with unemployment, and we’re not; those struggling with foreclosures, which we’re not; ones that are struggling with keeping their young people and keeping their college educated children, and we are not,” observed Weston.

Of the top 100 metros in the U.S., San Antonio ranks as number six in brain gain – those over the age of 25 with a bachelor’s degree or advanced degree who have moved to the city. To realize the full potential of a talent economy, as Pittsburgh has done, San Antonio will need to produce talent. “It shows you how important our universities are and how the decades ahead are so important to rise to even greater promise. We have to have an educated population and this is an invitation to all the universities in town to up their game,” observed Weston.

Weston has a lot at stake in the brain gain – Rackspace hired about 800 employees in 2012 and tends to focus on recruiting people to San Antonio because Rackspace cannot fuel that growth purely from the San Antonio population. “What I’ve learned is,” said Weston, “the idea of return migration is a more powerful and better long term approach because we know when we find people in Silicon Valley, New York or D.C, if they have a tie to Texas there’s a very good chance we can recruit them.”

Weston said talent must be grown at home. “We can’t recruit our way to greatness.”

Emphasis added. I talked about the convergence of the Innovation Economy and the divergence of the Talent Economy. As a regional economic development imperative, talent production is replacing talent attraction. But that doesn't mean talent attraction is no longer important. San Antonio is heavily reliant on the talent development prowess of Washington, DC.

I've taken to contrasting DC and Chicago in order to understand how talent migration patterns are shifting. In terms of development, DC has supplanted Chicago as the #2 city in the United States. I wouldn't be surprised to see, in the near future, DC challenge the prowess of New York City on that score. The strong connectivity with DC is a great economic asset for San Antonio. That said, Chicago is still a prize.

For all the talk of Chicago's decline, the city remains a magnet for college-educated workers. DC is catching up, as opposed to Chicago falling back into the pack.With the recent trend of return migration, I'd say that Chicago's talent churn is improving and there's considerable upside to the exodus. Regardless, Chicago's brain gain does not appear to be abating.

Something I haven't discussed is how the convergence of the Innovation Economy can benefit Chicago. Knowledge production no longer begins and ends with Silicon Valley. The world is getting flatter:

Chicago isn't flyover country anymore, says AOL founder Steve Case, who now runs Revolution Ventures.

Mr. Case says his Washington, D.C.-based venture fund eventually expects to make 80 percent of its investments outside Silicon Valley in places such as Chicago, where he's already invested in BenchPrep, an online test-preparation service.

“Silicon Valley will remain the cornerstone of the entrepreneurial economy and a magnet for talent,” Mr. Case said Monday in a call with reporters. “But what we're starting to see, and will see, accelerate is this regional 'rise of the rest.' ”

The "rise of the rest" is convergence. More metros will compete for the best talent. That's why I recommended to San Antonio better talent production. That's why I'm bullish on Pittsburgh and bearish on Portland. The talent production strategy can work as long as there are places for graduates to go, like Chicago. Few cities do a world class job of developing talent.

If Chicago is to reinvent itself yet again, then the leadership must understand the city's position in the Talent Economy. Brain drain (i.e. return migration) is economic development, an asset for Chicago. Talent moving back to Des Moines or Krakow is not a zero sum game.

Return Migration Ravaging Chicago

The emerging Talent Economy does not favor Chicago. Last week, the Chicago Tribune did a story on Mexicans leaving Chicago and going back home. Over the weekend, an article about the Polish exodus:

During the global financial crisis in 2008, Poland was the only EU economy to avoid recession. While the U.S. economy shrank, Poland's continued to grow at a robust 5 percent and soon became among the fastest-growing in Europe. The gap between the countries had begun to narrow, and all at once, the forces that had guided generations of Poles toward America shifted into reverse.

Then, Poles in Chicago began doing something that was once unimaginable. They began packing up and going home. According to the U.S. Census Bureau, the number of foreign-born Poles in Chicago dropped by 23,000 from 2000 to 2010.

At the Polish American Association, the entry-level ESL classes that were once packed with newly arrived Poles are now nearly empty. Attendance at Polish Saturday schools, where children learn to speak Polish, has dropped by 1,000 students over the past five years. And Polish travel agents, who once did a brisk business booking vacations, now advertise rates for shipping containers that can be used to send entire households back to Poland.

Across the city and the country, other immigrants were coming to similar conclusions. As Poles boarded one-way flights back to their homeland, so too did Mexicans.

Over the past few years, many Poles have gone home. Return migration is iconic of the post-Great Recession world. It's a global trend impacting a lot more places than just Chicago. However, cities that benefited the most from the influx of talent will be disproportionately impacted by the flow reversal.

The migration pattern is domestic as well as international. Chicago's regional draw is spitting talent from whence it came. Back to Iowa and Michigan they go, much more valuable now than when they left.

Big Fish Small Pond Talent Migration

Boston twentysomethings wish the city was more like New York, alive 24/7. The silver bullets for Rust Belt cities are greater tolerance and more diversity. Portland went all in on the urbanist utopia in order to woo talent. Schemes, such as cooler urban amenities and creative place-making, to win the great brain race abound. The common theme is making your town more attractive.

I have a different approach. What if communities focused on developing people instead of place? All of the above are about developing place in order to attract/retain people. I've concluded that place-making doesn't work. Worse, it is counterproductive. We need a new theory of talent migration.

The ball got rolling once I realized that Richard Florida's ideas about tolerance and Creative Class migration didn't make sense. I've moved to and lived in a few cool cities. They were not particularly welcoming. Quite to the contrary, I found them to be downright xenophobic. I reconciled that anecdotal impression with the horror stories of making a go of it in talent attraction champion New York City. Domestic or international, migrants overcome a lot of adversity in order to succeed. Nothing would stand between them and personal economic development.

Another clue is that the biggest winners are also the biggest losers. New York's appeal to talent is above reproach. Ironically, NYC tops the list for negative net migration. Every year, thousands more leave than arrive. New York is dying. People vote with their feet. Shrinking city. All nonsense. For every college-educated person New York attracts, the metro spits out two without a degree. There is brain gain in the face of demographic decline.

College-educated people leave New York, too. Many of them return home, literally richer for the experience. New York, perhaps better than any other city in the world, develops people. That's the attraction. That's why migrants put up with all the adversity and high cost of living. It's worth it.

That said, why would anyone swap "San Francisco, Seattle and New York for the Rust Belt"?

In Detroit, so down on its luck for so long, never underestimate the sheer joy the sound of jackhammers brings. "You are seeing construction. It is pretty exciting," said Jim Xiao, a financial analyst for Detroit Venture Partners, the driving force behind the M@dison and an investor in new tech firms in the city.

Xiao, a 24-year-old who evaluates tech firms for DVP to finance, has trouble concealing his enthusiasm. He lives in one of the converted buildings nearby, socialises at the new downtown bars and has a keen sense of mission about tech's role in the city's future. "Where else in the country can you make an actual impact on a whole city when you are in your 20s?" he said.

As a former resident of Seattle and Microsoft employee, Xiao is typical of the breed of tech engineers and entrepreneurs popping up in Detroit.

Emphasis added. Big fish, small pond talent migration. People develop, not places. It isn't the urban amenities. It isn't the tolerance and diversity. You don't move to Detroit to live out your Portland fantasy on the cheap. You certainly don't leave Seattle in hopes of a place-making upgrade. You migrate for opportunity, despite the challenges and the warts. Detroit offers something that New York does not.

Xiao's migration doesn't make any sense in a Creative Class context. Swapping Seattle for Detroit doesn't lend itself to a spikier world. Seeking geographic arbitrage isn't an indicator of agglomeration. It's a sign of economic convergence. Sticking with the "New Geography of Jobs" terminology, talent is moving from a thick labor market to a high-risk locale. The rationale is difficult to fathom in a place-centric world.

Talent is slamming into a ceiling in the thick labor market metros. They can find a better return on their skills in Rust Belt cities such as Detroit. Each migration is a brain gain. In a people-centric world, there is no brain drain. Talent attraction and retention are of no consequence. Place-making, in its current incarnation, is a waste of resources.