Sunday, September 30, 2012

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.

Saturday, September 29, 2012

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.

Thursday, September 27, 2012

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.

Wednesday, September 26, 2012

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.

Tuesday, September 25, 2012

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

UpdateCoincidentally, 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.

Sunday, September 23, 2012

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.

Saturday, September 22, 2012

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 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.

Friday, September 21, 2012

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.

Tuesday, September 18, 2012

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.

Saturday, September 15, 2012

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.

Friday, September 14, 2012

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.

Thursday, September 13, 2012

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.

Monday, September 10, 2012

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.

Sunday, September 09, 2012

Robotics Diaspora

Maryland suburbs should benefit from proximity to Baltimore and Washington, DC. While that's great for workers, businesses have different considerations. On that score, Northern Virginia is much more attractive. Before you get out the pom-poms for lower taxes and right to work, consider the allure of urban DC:

The District’s performance is especially noteworthy, given its past reputation as being unfriendly to business. The city suffered a decline in government jobs in the past year, but that loss was more than offset by creation of private-sector positions.

“The District of Columbia is emerging as the sleeping giant. Maryland had better watch out, because they’re going to turn around and find they’re the odd man out,” said James Dinegar, chief executive of the Greater Washington Board of Trade.

What about the politics? Which party gets to crow? That’s harder to sort out that one might think.

Suburban Maryland is overwhelmingly Democratic, and Republicans blame the anemic job growth on liberal tax and regulatory policies. Maryland also has strong labor unions, whereas Virginia is a right-to-work state.

But the District has lots of unions, and is even more Democratic than Maryland. It’s added jobs partly because rejuvenated downtown neighborhoods have become popular places for professionals in their 20s and 30s to live.

“They're just doing a really good job in attracting young talent to D.C.,” said Jim Corcoran, president of the Fairfax Chamber of Commerce.

Talent pool trumps regulatory geography, a case of jobs chasing people. Either way, economic development is a zero-sum game. When manufacturing was king, regions competed for factories. (i.e. smokestack chasing). While innovation is king, regions compete for talent. (i.e. brain gain)

Reciprocity is another way to look at the manufacturing and innovation sectors. The more trade of goods and talent, the better. Volume of trade is more important to growth than balance. Gross migration matters more than net migration. Either you buy into the concept of reciprocity, or you don't. Some folks will obsess trade deficits and brain drain despite mountains of evidence to the contrary.

Inspired by a Chris Briem (Null Space) Tweet, I want to explore talent production using the same above perspective. In the Talent Economy, this is what regional competition looks like:

In 2009, the Texas Legislature recognized the state's need for more Tier One universities by passing House Bill 51.

This serves as a framework for the state to provide funding and incentives for emerging research universities. There is a need for more Tier Ones in Texas because the state should lead the nation in research, venture capital investment, and graduate education programs.

It is estimated that at least 10,000 academically talented students leave Texas each year to enroll in graduate programs at Tier One universities in other states.

Only 4,000 students outside of the state choose Texas for their higher education.

Texas experiences a net loss, or “brain drain,” of 6,000 talented students per year, many of whom do not return to Texas after graduation.

Emphasis added. The bit about brain drain is a red herring, a straw man. Import more "talented students" than you export. Problem solved. Conceptually, we are still fuzzy about why hosting world class talent production is mission critical for economic development. The future of robotics:

On the West Coast, the Stanford Research Institute International has worked with local robotics companies to form its own group, Silicon Valley Robotics.

Ironically, Silicon Valley, like Boston and the Twin Cities, also seemed overshadowed by Pittsburgh. So the California group organized to allow local robotics companies to network, and last year, it got more exposure when it managed the first annual Robot Block Party event at Stanford University.

So how does Pittsburgh see the idea of a robotics incubator and research park?

"It makes sense," said Bill Thomasmeyer, executive director of the Robotics Technology Consortium in Pittsburgh.

If an area does not have a Carnegie Mellon or MIT, or a host of robotics companies already in place to anchor the region, a center could serve as a focal point, he said.

Major talent production centers serve as a "focal point" for cluster economic development. The above article is about developing a robotics cluster in the Twin Cities. Poaching, I mean learning, from Pittsburgh:

Nonetheless, Chuck Thorpe, who worked for more than three decades at the Robotics Institute at Carnegie Mellon in Pittsburgh, considered the nation's pre-eminent center for robotics, endorses the idea.

"There's a huge advantage to being in the same building where you bump into each other going to the same coffeepot and you share the same lathe," Thorpe said from his office as the provost of Clarkson University in Potsdam, N.Y.

Thorpe joined the Robotics Institute as a graduate student when it was new and was its director from 2000 to 2004. He left, returned to Pittsburgh in 2010 and last year was the White House adviser on robotics technology.

When he took over the Robotics Institute, Thorpe said, he created a "virtual center" for advancing robotics in Pennsylvania but never an actual physical space.

"We already had a bunch of small companies scattered around, and it was too late to pull them all together," he said.

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.

Emphasis added. Zero-sum game. I see good news for the robotics industry, which is still small. Pittsburgh (i.e. CMU) will be the talent production hub. It will continue to "overshadow" the other developing robotic clusters. The secondary talent production centers will grow the industry, thus cementing Pittsburgh as the center of something globally significant.

Success in the Twin Cities is great for all the players. The number of people employed in robotics will grow, as will the demand for this kind of esoteric talent. By itself, Roboburgh had limited impact. In concert with other talent production clusters, Pittsburgh can reclaim its position as a global city.

Friday, September 07, 2012

Many Boomtowns But Only One Pittsburgh

The more distinctive the better. That's the current rage in place aesthetics. The world has finally come around to appreciating Pittsburgh:

Some of those looks are magnificent. From the top of Mt Washington, the city is quite beautiful. Skyscrapers, including a marvellously odd glass ‘castle’, soar in a central triangle, created by the convergence of three rivers. Dozens of eye-candy bridges peel off to the sides.

This may come as a surprise to anyone who lumps Pittsburgh in with struggling northern industrial cities such as Detroit and Buffalo. In truth, Pittsburgh’s a bit of a chameleon that doesn’t quite fit anywhere. It’s too inland to be east coast, but not quite far enough to be mid-West. And it’s too prosperous to be ‘Rust Belt’. Despite being in a northern state, it’s only narrowly above the Mason-Dixon Line — and its rivers eventually flow into the Mississippi rather than the Chesapeake Bay.

Emphasis added. That oddball look and feel is what makes Pittsburgh, to my geographer's sensibilities, so wonderful. There's no place like it, anywhere.

Pittsburgh doesn't have to try to be weird or quirky. It just is that way. Larryville might have shed its parochial soul. That still leaves 2,000 other authentic neighborhoods for you to explore.

Thursday, September 06, 2012

Ohio River Valley Rebound

Let's start this economic geography journey at the eastern terminus of the Ohio River. Via Chris Briem, Pittsburgh is booming:

Pittsburgh's economy, in particular, has become a darling of the Great Recession because of its relative strength, supported mainly by educational and health care jobs. Rockwell said it's an example of the potential for Buffalo.

The potential for Buffalo is a bigger, non-local market for health care services. Pittsburgh is an industry exporter in the eds and meds sector. That, not the Marcellus Shale, explains why the region is doing so well. Heed my warning, John Kasich.

As I've blogged about before, Pittsburgh isn't the only Ohio River city enjoying good times. Since then, I've taken interest in the barge traffic and track the news coming from this part of the country:

The iron castings are evidence of a seminal economic transition that is unfolding in the six-state Ohio River Valley, a region that once encompassed much of what used to be called the Rust Belt. “The coal trade is way down,” said Mr. McKinney, 54, who has spent more than 30 years moving bulk cargo on the Ohio River. “But we’re doing a lot more commercial cargo now. We’re seeing more steel, more rock, more concrete. Somebody’s making money.”

Business at the iron and steel foundries in Kentucky and Ohio is soaring. Automakers are ordering more steel. Steel pipe and steel construction equipment are needed to tap the deep natural gas-saturated shales of Ohio, Pennsylvania and West Virginia. General Electric has an $800 million program in Louisville, Ky., to retrofit buildings to make new types of appliances. The company said it had hired nearly 900 workers this year and would hire several hundred more.

There are many ways to assess economic performance. On Wall Street and in Washington, data about product inventories, plant openings, business starts and employment are assembled into economic assessments, many of which report that the national economic recovery has sputtered and nearly stalled.

But those same conventional metrics tell a more encouraging story for the Ohio River Valley. Between June 2011 and June 2012, Ohio generated 100,000 new jobs, the fourth leading state in job generation behind California, Texas and New York, the Bureau of Labor Statistics found. In one month, from this June to July, Indiana generated 12,500 new jobs, ranking it fourth among states in that period. Ohio’s unemployment rate dropped 1.7 percentage points between July 2011 and this past July, a larger percentage drop than all but three other states in that period. West Virginia’s unemployment rate in July was 7.4 percent, according to bureau figures, nearly a full percentage point below the national rate of 8.3 percent.

By virtue of transporting the basic bulk materials that make the country work, Mr. McKinney and the rest of the Mike Weisend crew members are afforded a closer and, arguably, more immediate weekly measure of the economy. The details they are piecing together as they drop tows of steel at modern plants in Kentucky and West Virginia, and pick up tows of chemicals and grain in Ohio and Illinois, are evidence of the steadily strengthening and modernizing economy evolving along the Ohio River Valley after decades of Rust Belt decay.

I think the Mike Weisend crew are watching the birth of a new global economic epoch. The Ohio River Valley is the cradle of this transformation. Pittsburgh is the centerpiece.

This story portends an accelerating recovery. The Ohio River Valley is leading the country out of the Great Recession. America's future can be found here. The Rust Belt has come a long way over the last two decades.

Tuesday, September 04, 2012

Global Talent Convergence

Because the world is ruled by mesofacts, migration is a lagging indicator. A big shift in reputation, place brand, is a game-changer. We're seeing a restructuring of global talent migration. The macroeconomic forces shaping these new patterns are at least a few years old. People are responding to a morphing landscape:

Other countries, meanwhile, have positioned themselves to benefit from the talent we’re turning away. Australia allows in almost as many skilled workers annually as the U.S., despite having a fraction of the population, and Canada has aggressively courted the highly skilled, nearly quadrupling the percentage of permanent visas it grants for employment.

Emphasis added. The author of the above is trying to persuade readers to loosen up US immigration policy. Ironically, the first two paragraphs push the argument in the opposite direction:

If one of the big stories of this year’s Olympics was Team U.S.A.’s return to the top of the medal charts, London also showcased another impressive American feat: we trained many of the best athletes who competed against us. Nearly four hundred Olympians who this year represented other countries went to school in the U.S., and many other foreign athletes live and train here—like the British runner Mo Farah, who won gold medals in the five and ten thousand metres after moving to Portland last year to work with the legendary marathoner Alberto Salazar. In effect, the U.S. helps global talent develop the skills needed to beat us.

This is not a phenomenon confined to the Olympics. The U.S. is the world’s most popular destination for foreign students, hundreds of thousands of whom go to college and graduate school here. This is all to the good: just as the Olympics are more exciting when lots of countries have top-level competitors, the global economy is more dynamic when knowledge is more widely distributed. But there’s also a missed opportunity for the U.S.: many of these foreign students would prefer to stay and put their skills to work here after they graduate, but they can’t get work visas. What’s more, studies estimate that hundreds of thousands of highly skilled immigrants already working here find themselves stuck in immigration limbo for years, waiting for visa and green-card applications to be approved. These are well-educated, motivated workers who want to play for our side. Yet we’re making it difficult for them to do so.

Emphasis added. Talent migration is converging. Innovation is diffusing. Talent production is still diverging. If you want to develop your talent, you do it in the United States. Tuition is skyrocketing  The foreign born keep coming to our universities. So what if the sea turtles make their way back to China? So much the better, for both countries.

America's competitive edge is in higher education, not innovation. The Innovation Economy will continue to converge. The appeal of geographic arbitrage will grow. Talent production is king.

Yes, "the U.S. helps global talent develop the skills needed to beat us." That's true for innovation. If the Innovation Economy were still diverging, I'd be worried. I'm not worried. Global return migration favors the United States. Domestic return migration favors the Rust Belt. I think I will live to read and hear, "We don't innovate here any more."

Building Clusters Via Talent Exports

Talent is still chasing jobs. Eventually, the talent pool itself will attract employers. Portland is banking on that happening. I doubt the scheme will work. Firms can choose from a number of well-educated places. Well-educated people are geographically mobile. There are a slew of lovely locales they can call home. There's more to the relocation picture than Portland will allow.

Like places, talent pools should aim to be more distinctive. In Albany, you'll find nanotech expertise. That's great news for growing nanotech companies. These jobs aren't going to follow college-educated twentysomethings to Portland. But how can a region stock esoteric talent without the right opportunities already in place? Graduates will go where the opportunity is.

Albany is a story of talent production attracting employers. Jobs chase superstar professors and top-notch research programs. Economic development professionals are wise to this game. That's why you see multiple places competing for the same cluster. There's a smarter way to skin this cat. Exporting talent:

As part of a 2009 agreement, UGA and the University of Liverpool have conducted collaborative research on African diasporas, migration, genomics, marine science and many other subjects. They also operate student and faculty exchanges, according to Jane Gatewood, UGA's director of international partnerships.

This week, the Athens Downtown Development Authority approved $10,000 in funding for an Athens franchise of Liverpool Sound City, a three-day festival started in the U.K. that melds music, media, technology and entrepreneurship.

"It's access to markets. It's access to capital. It's access to expertise," said Kristen Hirst, who represents Liverpool Vision, the city's economic development arm, in Atlanta.

Liverpool sends its best and brightest to the University of Georgia. At some point, graduates return home and start businesses. Talent migration is reciprocal, not a zero-sum game. The journey links two places economically. This is the geography of the emerging Talent Economy.

Liverpool doesn't have to be all things to all local aspiring college graduates. It can build up a unique talent pool abroad, the kind of expertise that will attract a certain kind of company. Atlanta and Liverpool are talent trading partners. Both economies grow because of this exchange. It's not density. It's not urban amenities or cool. It's migration. People develop, not places.

Sunday, September 02, 2012

Giving Up New York City

The thinking behind a relocation to New York City is well understood. Leaving is entirely different matter. Domestically, many more people exit Gotham than pray at the feet of opportunity. Get out. Now:

It turns out that a lot of those who are pulling it off—in real estate and beyond—are originally from here. Indeed, the trend has accrued such critical mass that at least in the Department of Commerce’s Office of Business Attraction and Retention, some officials have cooled their long-held efforts to stymie Philly’s braindrain. “Let them go and do time in New York or Los Angeles, let them gain business and life experience,” director Karen Randal explains. “When they’re ready, they come back and realize what a great city Philadelphia is, and they bring their expertise, business and enthusiasm back here and help pump in new life.”

Emphasis added. Philadelphia is one cog in the big wheel of NYC outmigration. "Brain drain" is one word and desirable. Go to Big City and steal some business contacts for you hometown.

What all of the above means is that paying the price to be in New York City isn't worth it. Richard Florida has no clothes. Cash in now and split your dismal Toronto time with cool South Beach.

I'm not telling you to stay in Philadelphia or whatever pathetic backwater you hail from. Move or die. Your stint in Alpha Global City is temporary. New York is the Alpha but not the Omega.

The Omega is the Rust Belt. You will return to your spawning ground and catalyze world trade. That's not a directive. It's an observation. New York, even Austin, is what is making Pittsburgh great.

Saturday, September 01, 2012

Rust Belt Chic Pueblo

There are a bunch of Rust Belt cities outside the Belt. These post-industrial archipelagos are a thorn in the sides of libertarians arguing for lower taxes and right to work legislation. A city's dependence on coal for manufacturing is a better predictor:

We followed the intuition of Chinitz (1961), who argues that industries dependent upon mineral and coal deposits, like steel, involve large companies that create executives, not entrepreneurs. We use the presence of mineral and coal deposits in 1900 to provide us with variation in the level of resource-intensive industries. These deposits are associated with larger establishment sizes and lower birth employment shares in the 1960s and onwards. Using this spatial proximity for instruments, we continue to …nd a signi…cant link between our measures of entrepreneurship and urban employment growth.

The big concern with this variable is that it is quite plausibly correlated with aspects of the local economy other than entrepreneurship, such as manufacturing decline. We tried to control for these factors with city-level variables, region …xed e¤ects, and so on, but we recognize that our measures are far from perfect. We focused then on industries that were not directly related to mining, and on industries that were highly concentrated spatially, which suggests that they do not depend on a local market. We also focused on warmer cities, which should be less sensitive to the decline of the Rust Belt, and we modeled city growth projections. Our core results remain unchanged.

Emphasis added. Path dependency, not state policy, calls the tune. Sorry, Indiana. That also means you'll find Rust Belt culture in unexpected places. Óxido Correa Chic Pueblo:

In some respects, Pueblo is like a pint-sized Rust Belt city. It's a steel town that was once more prominent than it is today with strong ties to the Old World -- something that's still obvious when you visit Pueblo's Italian and Slovenian bakeries and markets.

The town's Arkansas River served as the U.S.-Mexico border in the mid-1800s, and Pueblo was a prime Colorado business center before the decline of the American steel industry in the 1970s and '80s resulted in tough economic times.

With that sort of rise and fall, it's easy to see parallels to the Rust Belt's past. But those similarities evaporate when you consider Pueblo's most famous food item -- the Pueblo green chile pepper.

Emphasis added. I respectfully disagree. Green chile is a different Rust Belt Chic accent, the spice of choice for working class food. Anthony Bourdain is salivating thinking about the mash-up with Slovenian cuisine. Spain is part of the old world, too. Don't sleep on Portugal and the blue collar ethos found in Southeastern New England. The cultural connection is global, "Символы нового мира. Чем унитаз лучше больной души."