Monday, October 04, 2010

Urban Networks And Donuts

Within a region, economic development is limited. The interaction between regions is where much more growth can occur. To put it another way, parochial attitudes construct an unnecessarily low ceiling on local prosperity.

Pittsburgh is a place that has almost maxed out its own opportunity. One example is talent retention:

I also wonder how much better we can ever possibly do at 'keeping' people here given that we do ok in general right now. At the margin the potential for keeping more people here has to be pretty minimal... diminishing marginal returns being what they are in most any endeavor. Hard to imagine we are going to become an outlier on the high side at keeping all the local graduates here. It's probably an impossible task in general, but it's an even harder goal today as local institutions continue to improve their ability to attract matriculating students from outside the state and region.. thus bringing in the students that are most likely to leave when the graduate.

The pool of college educated will always be bigger than the one in your backyard. Trying to keep natives from leaving is spending a lot of money for a small catch. Doing so is popular (a different sort of return on investment), but it is a strategy that cannot scale. Good enough is the best you can manage.

I kid at Pittsblog about the Cupcake Class, but the real point of that idea is regional income: In aggregate terms, Pittsburgh does *not* have the levels of income to support lots of new companies selling primarily to local customers. Take Dozen, a local company that started by selling cupcakes but succeeded by growing out of the cupcake business. (That may well have been the plan all along.) Dozen is a baker and a caterer. Dozen still sells cupcakes, but Dozen also sells lunch at the Warhol. It's a diversified enterprise. Why diversify? My guess is that the margins in cupcakes are good, but a Pittsburgh company can't sell enough cupcakes -- and just cupcakes -- to make the business go and grow. Pittsburghers are happy with donuts. I am not talking just about retail and end-consumers. The only firms in town that I hear about really kicking down doors with new business, new customers, and new hires are selling to -- China. That's not just Westinghouse. Every time I turn around in my own neighborhood I'm listening to tales of business trips to China. That's where the money is.

What should Pittsburgh do about that? Stop obsessing about nonstop flights to Paris. Figure out a way to increase nonstop flights from PIT to the West Coast -- Seattle, San Francisco, and Los Angeles. From there, it's easy to hop on a flight to Beijing or Shanghai.

Local college graduates are a lot like donuts. Subsidized nonstop flights to Paris are a lot like sports stadium boondoggles. It's all about hometown pride, not economic development. There is plenty low-hanging fruit. But Pittsburgh has to go it alone. Autarky rules.

That brings me to Aaron Renn's latest post, "Megaregional Migration". Aaron looks at a new metric of metro prosperity, domestic migration connectivity. Along the lines of greatest churn between your city and another, is the potential for tremendous growth. That would require setting aside urban rivalries., swallowing your civic pride. All those Pittsburghers leaving home for Washington, DC is a great success story.

Pittsburgh has a strong domestic network. It has a very weak international network. Why not leverage another city's international network to grow regional business? Instead, Pittsburgh aims to be more cosmopolitan. That's great, but is a waste of resources. Trying to be more like New York won't help. Instead, let the global cities manage the overhead of worldwide connectivity.

That's a lot like poaching talent from other regions. Tax dollars in other states are flowing to your city. Niche expertise is expensive to cultivate. And many of workforce development bets might miss. Anticipating where the economy will be in 5 or 10 years is extremely difficult to do.

I would look at places where the region might benefit from sending more graduates. If China is hot, then send talent to Seattle and Portland. As for current growth opportunities, check out where Pittsburgh already enjoys the greatest churn. Those metro migration pairs are an important part of the Pittsburgh market. We should stop thinking in terms of traditional regional geography and embrace the urban network realities of today's economy.

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