Tuesday, October 30, 2012

Peak Labor Force Pittsburgh

As long as the regional population is growing, a shrinking labor force doesn't matter? Benchmarking from Pittsburgh Today:

Yep, that's another record for Pittsburgh. "Highest labor force figure for the region ever." Too bad that the only metric that matters is population. Voting with your feet means having more babies.

Monday, October 29, 2012

Mexican Talent Economy

Mexico wants to get in on the Innovation Economy. A lot of regions in the United States would like to do the same. The problem? There aren't enough good jobs available to entice the talent to stay:

But while the number of graduates in engineering has soared during the Calderon presidency, the number of Mexicans employed as engineers has grown only slightly, from 1.1 million in 2006 to 1.3 million in 2012.

“We’ve combined an aggressive government-sponsored production of engineers with no clear plan to put them to work,” said Roberto Rodriquez Gomez, a sociologist who studies education policy at the Autonomous National University of Mexico.

“The problem is that many companies in Mexico don’t want to hire an engineer who innovates; they want to hire a technician,” said Jorge Alcantara, 22, who commutes two hours each way to the National Polytechnic Institute.

Mexico is employing an outdated workforce development model. The goal is to train local people for local jobs. That was a great idea way back in 1910.

With excess engineers, Mexico should be more strategic about talent exports. If Mexican universities become well known in the United States for producing highly skilled employees, then the companies will move to the source of the graduates. The best way to get on the radar is to staff labor markets screaming talent shortage.

Saturday, October 27, 2012

Austin And San Antonio

Austin and San Antonio are siblings. The former is the most popular kid at school. The latter is a late bloomer, quiet and unassuming. Both metros suffer from the isolation that comes with sprawl. The talent pool gets scattered into shallow puddles around the region:

As African-Americans leave for the suburbs, East Austin — a traditional center of African-American culture — is also being gentrified.

Those two trends are fraying the ties that bind.

“People are very spread out geographically, particularly African-Americans,” said Belinda Matingou, who moved to Round Rock from Atlanta in 2005 to take a job at Dell. A member of the chamber’s diversity task force, Matingou said her first six months here were tough, juggling a new job, baby, house-hunting and getting her family relocated. ...

... Ferron said his family enjoys Austin, but “I wouldn’t want my child to grow up in a bubble” without exposure to black culture and arts.

“Outside of music, Austin doesn’t have much,” he said. “We are going to have to supplement the culture with travel and the friends we make.”

Emphasis added. Richey Piiparinen and I saw the same pattern in San Antonio. Newcomers regardless of race or ethnicity felt alone, struggling to connect with other like-minded people. The energy is spread out geographically. There are bunch of different communities living in a bubble with little idea what is going on in the rest of the metro, particularly in the urban core.

Using Census data, we saw a big boost of African-Americans in the Meadowbrook Neighborhood. It's a place of inexpensive housing that could be anywhere and nowhere. Walking is an adventure. You feel like you are on the edge of an abyss. Downtown San Antonio might as well be 1,000 miles away. Finding a cheap place to live isn't difficult. The inner ring neighborhoods are bleeding people. Gentrification is spotty, at  best. Why blacks are choosing Meadowbrook over some other part of San Antonio is a mystery.

What makes a city go isn't density or access to affordable shelter. The magic is migration and how this dynamic demographic can connect with people of similar experience. Geographically mobile African-Americans are having a tough go of it in Austin. There are more opportunities in San Antonio, a landscape still waiting to be defined.

Both cities are struggling with the isolation of sprawl. Austin's revamped urban core is a fait accompli. San Antonio is the future, a place that can be. Go there and make your mark.

Friday, October 26, 2012

The San Antonio Brain Gain – Bringing the Talent You Need or Taking the Talent You Want?

On November 15th, I will be discussing the research Richey Piiparinen and I have done on San Antonio talent migration:

Over the last decade San Antonio welcomed 180,000 new residents. Inside that group of newcomers there’s a statistic that surprised many business and civic leaders - San Antonio now ranks sixth in the nation for in-migration of college educated new residents with a bachelor’s degree or higher. That ranking puts San Antonio ahead of Dallas and Houston in highly educated migration.

Who are these educated migrants, and how will the in-migration of talent impact San Antonio businesses? Will the newcomers change the focus of economic development strategies for the city to accommodate their sectors? Will the demand for talent change locally, as a result?

To answer those questions, the 80-20 Foundation in conjunction with SA 2020, has funded new research to determine who these new residents are, why San Antonio is succeeding in attracting them, what verticals they are working in and what local talent demands they have.

Join our panel we share the results of the new Brain Gain Talent survey, discuss the business sectors bringing - and needing - more talent and what the long term implications could be for San Antonio.

Also speaking will be Graham Weston, Chairman and Founder of Rackspace. "He will comment on the implications of the research for large and small SA businesses."

Thursday, October 25, 2012

San Antonio Youth Migration

Yesterday, I blogged about how the shale energy rush was positively impacting San Antonio's economy. Today, I look at the talent migration into the metro. I'll start with today's news:

Broken down by age and metro area, the Washington, D.C., area ranked at the top of destinations for young adults in the 2009-2011 period, rocketing up from 45th in 2006-2008. The area has been boosted by its promise of more plentiful government-related jobs, as well as a continuing influx of students attending area universities and its up-and-coming neighborhoods.

Texas metro areas including Houston, Austin, Dallas and San Antonio, which already were on the rise before the recession hit in late 2007, have remained a strong draw for young adults due to in large part to their thriving energy and high-tech industries. They ranked second, fifth, sixth and ninth, respectively, in terms of youth migration.

Denver and Portland, Ore., rounded out the top five at No. 3 and No. 4.

Emphasis added. There is the energy industry growth again. You may not know about the tech side of San Antonio. Companies such as Rackspace are drawing from a global talent market. The result is an influx of young adults with a college degree, a notable departure from past migration tends:

The Jurjevich and Schrock study breaks up the analysis into two time periods, 2005-2007 and 2008-2010. In the earlier frame, San Antonio is nowhere to be found in the top-15. The metro jumps to #6 as the economy bottoms out and begins to recover. As I recounted yesterday, the uptick in urban energy and buzz is recent. San Antonio is ascendant.

As geographic mobility continues to pick up, San Antonio is a hot destination. It used to be a forgotten corner of the Texas Triangle, overshadowed by Austin. A restructuring economy will favor a new group of winners. Seattle, Portland, and Denver are among the usual suspects. Louisville, Pittsburgh, DC, and San Antonio comprise the vanguard.

In this emerging geography is where you will find the semblance of the new economy, post-innovation. I think talent production will be the key feature. Surprisingly, there are over 100,000 college students in San Antonio. It doesn't feel like a college town and the post-secondary culture is scattered around the sprawling metro in isolated enclaves. Regardless, San Antonio already has the means to be a major talent production player, which will in turn attract more people and jobs.

Wednesday, October 24, 2012

San Antonio Boom

Like Pittsburgh, San Antonio is benefiting from its proximity to the shale energy revolution sweeping the country. The actual drilling is in the city's near abroad, counties to its south. The projected employment spillover:

San Antonio and Corpus Christi don't sit in the Eagle Ford Shale play, but you wouldn't know it based on the jobs numbers.

The two cities are in line to see some of the biggest jobs gains due to increasing oil and gas production in South Texas.

The shale play supported 4,290 jobs in Bexar County in last year, and that number should grow to 11,627 jobs by 2021, according to a [report] released Tuesday by the University of Texas at San Antonio.

Check out the map below:

The drilling itself is a short term boom. Many communities are familiar with the cyclical nature of an extraction economy. The gains in San Antonio are much more sustainable. As the play matures and infrastructure to move the resources around is put into place, there is a demand for white collar talent to provide the necessary support services. Also, Bexar County escapes the negative externality costs that stem from the rush.

The Eagle Ford Shale is just the cherry on top of an already surging regional economy. I'm fresh off a business trip to San Antonio, my first visit to the city. Over the last few months, I've been looking over the migration numbers and noticed an ironic bump in college educated residents. The trend is encouraging, but I needed to see physical evidence. A bunch of neighborhoods, especially King William and Lavaca (Southtown), are rapidly gentrifying. I conducted a focus group of recent transplants (e.g. return migrants) and they confirmed that the shift and palpable energy are recent. It reminded me of Austin before the Slackers took over. I make the comparison reluctantly. San Antonio is one of the most unique cities I've experienced. I'm still trying to figure out how it has stayed off the mental maps of hipsters for so long.

The architecture is wonderful and bizarrely eclectic. As Colin Woodward ("American Nations: A History of the Eleven Rival Regional Cultures of North America") might remark, the cultural streams of Greater Appalachia and the Deep South collide with El Norte in Bexar County. The mash-up is visually arresting and creatively stimulating.

The rub is that the metro is as parochially atomized as Pittsburgh is. Focus group participants talked about bubbles and vortexes. You get lost in one world and have no idea what is going on in the rest of San Antonio. The downtown is for tourists, not residents. The massive sprawl makes for a long journey to the core with little apparent payoff for your troubles. The recent influx of people with college degrees gets lost in the wash. They aren't connecting with each other. There's a buzz, but you can't quite put your finger on the critical mass. Where do you go to plug into all this energy? That's unclear.

As a geographer, San Antonio is difficult to get to know. It's a black box. Moving around the metro is intimidating and disorienting. I struggled to locate the pulse. Yet the allure was undeniable. I've put off travelling to San Antonio because I didn't think there was anything worth seeing. I was wrong. It's a gem, in league with New Orleans, San Francisco, and Pittsburgh. I like it much better than Austin. I'm glad I was able to see the city before the inevitable influx.

Friday, October 19, 2012

Oilfield Trash And Flash Migration

Migration is mental. You go where you know. Others are looking for a yet-to-be-discovered boom town. We move like a herd of cattle. The stampede to North Dakota:

For the women playing volleyball at the Raymond Family Center recreation facility, concerns about the speed of change are coupled with a desire to be open to newcomers. “Last year was crazy”, says Cheryl Powers, an oilrig supervisor. “When [CNBC television host] Jim Cramer told everyone to come here, people just showed up with nothing but backpacks.” ...

... The history of the American frontier is the transformation of nowhere to somewhere. “He must abandon the old ideal and the old gods,” wrote Jack London about the Klondike gold rush in the late 1890s. Change is often violent, but soon becomes the norm. In Williston, long-time residents are in shock at the pace of change but few wish the oil was put back in the well.

At the recreation centre, Ms Powers explains that she was called “oilfield trash” when she arrived here during the previous boom. “I understand the concern. But eventually oilfield trash becomes your neighbour.”

Emphasis added. I'm fascinated with leaping before looking migration. I've been that person tumbling into an unfamiliar place with just backpack. My only rationale was buzz, word of mouth relocation. That was Austin two decades ago. It was Portland over the last decade. For the next 10-years, Pittsburgh?

In every boom town, there is a xenophobic backlash.Oilfield trash. Californicator. Flatlander. Carpetbagger. Hillbilly. Okie. Buckeye. Vagrant. Domestic migration is a story of overcoming intolerance. We go where the natives hate us. The Creative Class in particular seems to move to neighborhoods where they are least welcome. As for the cities rolling out the red carpet for this favored demographic (e.g. Memphis), they continue begging in vain. Tolerance is not a talent attraction strategy.

Thursday, October 18, 2012

Leading Back To Bangor

Innovative talent development initiative:

Young Bangor-based politicians and business leaders told Bangor High School seniors to feel free to travel and experience new places and interests, but when it comes to settling down and thinking about a career and family, to consider coming home.

While freshmen, sophomores and juniors were filling in answer bubbles on standardized tests Wednesday, seniors met with eight members of Bangor’s professional community during a seminar titled “Leading Back to Bangor.”

“Everywhere, we have students that are at a point where they’re making decisions about postsecondary careers, postsecondary college,” Principal Paul Butler said. “We never think it’s too early to start sending a message about returning to Bangor for work once they’ve made their way.”

Encouraging outmigration is as attending college. Bangor is trying to figure out a way to generate ROI from brain drain. The community is light years ahead of cities such as Detroit and Portland. Next problem, how does Bangor lure them back after planting the seed?

Wednesday, October 17, 2012

Rust Belt Chic Development: Grand Rapids

About the Koehler Brewery, in Nashville:

I’m just a local Nashville home brewer.  I know there used to be a Koehler ‘s beer brewed by the old Erie Brewing Company in Erie, Pennsylvania. It went out of business in 1978, just before I was born. I have no connection to the old Erie Brewing Company, though I am originally from Western Pennsylvania. So I don’t have any special information about the old brewery or their Koehler beer. I have a few pieces of memorabilia I got from my grandfather who kept them because of the shared name, but that’s about it.

I was born in Erie, PA, before the brewery went out of business. I remember digging up Koehler flat tops in the woods near my house in Millcreek. I collected beer cans, an odd hobby for a kid all of 7 years. I was aware of this country's geographically diverse brewing traditions at a young age. Fitting that the Erie name would live on outside the Rust Belt.

Thanks to the craft beer revolution, many historical brands are being revived. It's a cultural trend, Retro Renovation. It's Rust Belt Chic development. The window is closed for Erie. The brewery building was demolished. The name, as you now know, migrated to a cooler city. Grand Rapids is undeterred by the mistakes in the past:

“When we started, there was definitely a sense of wanting to bring back the tradition of brewing in West Michigan,” said Engbers, who spent time researching the city’s old braumeisters at the Grand Rapids Public Library while trying to find a business name he and partner Mike Stevens could agree on.

In today's Rust Belt, one doesn't raze breweries (if you can find the financial capital) to make way for urban renewal. Brownfields are the new greenfields. You mine your community's history and build a business:

Bar owners Mark and Michele Sellers, who purchased the assets after the storied brewing franchise closed on 28th Street last year, is rebooting the brand this year with a new brewpub located at the entrance to the city’s entertainment district on Ionia Avenue.

“With a name like Grand Rapids Brewing, it should be downtown,” said Mark Sellers, who has had success as owner of Hopcat, Stella's Lounge, The Viceroy, McFadden's and part of The Pyramid Scheme under his Barfly Ventures LLC holding company.

“I had that in mind when I bought the name.”

Sellers’ new brewpub will be an anchor tenant on the ground floor of the Hawkins and Gunn Company buildings between Van Andel Arena and the new Buffalo Wild Wings.

The historic buildings, at 1 and 7 Ionia Ave SW, are being functionally combined into one under new owner Derek Coppess of 616 Development, who is spending $7.5 million to convert the upper floors into offices and 26 market rate apartments that will be available this fall.

The Grand Rapids brewery was demolished during the 60s, the age of logical positivism and social engineering. Make way for the future. People did, by moving to the Sun Belt. But the culture was still there, in downtown Grand Rapids, a few feet below the pavement:

Most people don’t realize it, but the city surface we walk on, in some places, is about 15 to 20 feet above the original streets of downtown.

Down below, remnants of the city’s brewing history are buried in the dirt of progress, waiting for someone like Steve DeBoode to find them.

DeBoode, of Jenison, was there when excavations began for Van Andel Arena and Plaza Towers. Among the artifacts unearthed by crews readying the riverfront site for skyscraper construction in 1989 was something previously thought to be nonexistent.

Pulled from the mixture of dirt, old hay and buried barn beams was a glass bottle bearing the name G&C Christ Brewery. One of the earliest beermakers in Grand Rapids, it opened on Ottawa Avenue near the present site of the Grand Rapids Press turned MSU Medical School building not long after the city incorporated in 1850.

“Nobody up to that point had ever seen a Christ bottle before, and suddenly there it was,” said DeBoode. “You sit there thinking, ‘Wow, nobody has touched this since the guy who drank it and pitched it.’”

This archaeological dig is the essence of Rust Belt Chic. We excavate in order to create, the first rule of economic development.


Monday, October 15, 2012

globalization Is Dying

Long live Globalization. While at the University of Colorado, I participated in a graduate training program called Globalization and Democratization (GAD). There is an ebb and flow to both globalization and democratization. You can download a Shockwave Flash animation of the diffusion of democracy here. Globalization and democratization expand and contract, with each successive expansion covering more territory. Concerning globalization, we are entering into a period of contraction:

Cross-border, private-capital flows continue to be disappointing. Flows to emerging markets, for instance, fell sharply in the summer last year and remain stalled. Investors appear cautious, notwithstanding central bankers' ceaseless efforts to tempt them to buy riskier assets by suppressing yields of government-backed securities.

Investors are also demonstrating increasing home-country bias, disproving the theories that emerging economies would be immune to global weakness. Companies are similarly exercising considerable self-restraint in their investment in long-lived assets, such as factories, at home and abroad. The massive provision of public funding cannot mask the shortfall in private investment flows.

Many of the world's largest banks are forgoing their global ambitions. Conflicting capital requirements and massive regulatory complexity across jurisdictions render global banking a less attractive aspiration. Serial bank bailouts have given greater impetus to governments to direct the activities of their domiciled banks. Many big banks are now state-owned, and many more find themselves in limbo. They are quasi-public utilities, trying to serve the wants of their governments and the demands of their supervisors, leaving the remnants for private shareholders. The resulting bank deleveraging is reducing credit to the real economy, exacerbating economic weakness.

Trade is the glue that connects the global economy. Trade has grown much faster than economic growth for most of the last few decades, thanks largely to the globalization wave. Only twice since 1982 has global trade growth trailed economic growth.

But trade has weakened over recent quarters. According to the International Monetary Fund, trade growth volume is projected to slump to 3.2% this year, down from 5.8% last year and 12.6% in 2010. The World Trade Organization recently cut its forecasts for global trade by more than a full percentage point for this year and next. Absent fundamental policy changes, these data mean that the IMF's global GDP forecasts for this year (3.3%) and next (3.6%) are challenging to meet.

I'll spare you the doom-and-gloom editorializing that follows the above analysis. The reaction to the crisis, withdrawing from the world, is a lagging indicator. One hopes that political instability won't prolong the dark times. But a new era of globalization will emerge and lay claim to a greater share of the globe (e.g. Middle East). Depending on the scholar you reference, we should be entering Globalization 5.0. It will be more of the same, but different.

What will Globalization 5.0 look like? Mexico:

Here is Uncle Sam’s Latin American reality. First, Mexico is rapidly becoming as important to the US economy as China. There has been much excitement in recent months about the possibility of “reshoring” manufacturing jobs from China to America. If you broaden the destination to North America, the trend is already under way. Mexico is now vying with China as the manufacturing hub of choice for US and other multinational companies – it is as economically integrated with the US as any two members of the eurozone are to each other. ...

... Second, America’s demography is changing at vertiginous speed. Many focus on the distant horizon of 2050, when Mexican-Americans are projected to account for a third of the US population. But today’s numbers are dizzying enough. In Texas and California, America’s two most populous states, a majority of schoolchildren are now Hispanic. They are tomorrow’s voters. It is doubtful they will tolerate a US-Mexican relationship that is largely couched as a law and order issue.

Mexico, a country lost in all the BRIC sensationalism, is ready to boom. And don't sleep on Canada, still America's largest trading partner. NAFTA already dwarfs China. However, the treaty isn't binding together the fortunes of these three countries. Migration is the agent. More from the Financial Times:

As a result of their country’s manufacturing boom, Mexicans are no longer quite so hungry to work on US construction sites or pick fruit in California and Florida. Contrary to what the US election debate would imply, illegal immigration to the US has been in reverse for several years. Ten years ago, roughly 800,000 Mexicans crossed the border every year to the US, mostly illegally. Today the flow is the other way. The greatest peaceful emigration in the history of immigrants is over. Neither Mr Obama nor Mr Romney appears to have received that memo, although the president has assisted the trend by deporting almost 1.5m illegal immigrants – more than George W. Bush and Bill Clinton combined.

Nowadays, Mexicans are as likely to cross the border to the US to invest. As my colleague Adam Thomson has reported, there is a boom in Mexican corporate activity north of the border.

In Mexico, they jokingly call it the reconquista – the country lost a huge amount of territory to the US in the war of 1846. In the US, they still think of it as a law and order problem. But the significance of US-Mexican integration is economic. Companies such as Cemex, which is the largest cement maker in the US, and Grupo Bimbo, which recently acquired Sara Lee for almost $1bn, are leading the way. Univision, which is now partly owned by Televisa, the Mexican broadcaster, is now the fifth-largest television network in the US. Soon it may break into the top three.

Demographically, Mexico is much more important to the United States than China. Instead of the exchange of goods and services, we should track talent churn. Is there a more dynamic pair than Mexico-US? This is where I expect Globalization 5.0 to spring.

Thanks to return migration (and remittances), Mexico is becoming a major market for US goods and services. The burgeoning middle class will need more petrol. Domestic production is declining. The Bakken is ready to fill the void. China has no such luck in the game of energy security. The diffusion of globalization will exacerbate the demand for fuel. Middle Eastern exporters will become major consumers. The market will get tighter. Supply uncertainty will increase. You might want to reconsider you child's Mandarin classes. Viva la globalizaci√≥n!

Friday, October 12, 2012

Rust Belt Chic Development

What would Rust Belt Chic urban planning look like? Let's start with what it doesn't look like. Cleveland's University Circle district:

In a recent piece on this website about Cleveland’s University Circle district, just as one example, writer Mark Byrnes describes Cleveland’s ed’s and med’s hub using a clear renewal meme. He highlights the "flashy" new contemporary art museum created by Iranian starchitect Farshid Moussavi before ticking off other urban planner wet-dream gems: condos, bus rapid transit, biotech incubators, and so on.

This kind of development is an expression of globalization, the diffusion of a cosmopolitan aesthetic that renders a part of Cleveland palatable (and comprehensible) to Eurotrash. The rest of the city might be burning. The economy is still humming in this neighborhood. You are anywhere but Cleveland. The renewal of Cleveland is the exclusion of Cleveland.

Communities are trying too hard not to be Rust Belt. Rust Belt-ness is an asset. Being from the Rust Belt is a point a pride instead of a mark of shame. For me, Rust Belt Chic is about coming to terms with my heritage. Sometimes it takes an outsider to see the beauty we miss daily:

The best description of Pittsburgh that Brian Mendelssohn ever heard is "it's like an old blues record."

"It's scratched, but has so much soul," said Mendelssohn, 35, of Lawrenceville.

The Carnegie Mellon University graduate made it his personal and professional mission to maintain that soul while smoothing some of those scratches. Mendelssohn is principal of Botero Development, a firm dedicated to rejuvenation of the Lawrenceville community. ...

... Mendelssohn graduated in 2000 from Carnegie Mellon with a degree in material science and engineering. He moved to Lawrenceville in 2003. His affinity for the community mirrors his feelings for Pittsburgh as a whole.

“What other cities are trying to create — authenticity — Pittsburgh already had,” said Mendelssohn, who lived in Miami and Chicago. “I fell in love with the opportunities Pittsburgh presents itself.”

That article, from today's Trib, inspired a hunt to uncover other press about Mendelssohn. Who is this guy? Last spring, from the Post-Gazette:

A native of Miami, he came to Pittsburgh for college, receiving a bachelor's degree in material sciences and engineering from Carnegie Mellon University. Meeting his wife, a Shaler native, helped persuade him to stay. But what really captured him was the vibe of neighborhoods like Lawrenceville.

Rust Belt Chic > Creative Class Chic. Instead of imposing high-brow urbanism on a city like it was a blank canvass, Mendelssohn enhances what is already in place. He polishes the diamonds in the rough:

Mendelssohn, principal of Botero Development, which focuses on Lawrenceville real estate, bought the Arsenal Bank building last year; built in 1885, the three-floor structure has hosted everything from banks to a pet-photography studio. He's in the process of renovating the entire building to hold lofts and a restaurant space. In the meantime, though, Mendelssohn — whose music-scene c.v. includes a second life as a soul DJ and whose wife, Rebecca Morris, runs crafty gift shop WildCard — thought it would be the perfect spot for a party. ...

... Mendelssohn is a Carnegie Mellon grad who moved here for school in the mid-'90s and lived in and out of town for years before settling in with his development business. He says that in the late 19th century, when the Arsenal Bank building went up, it wasn't unusual for a bank to have something along the lines of the ballroom that's being showcased.

"Back in that day, there weren't a lot of restaurants to go out to, there weren't dance clubs," he explains. "There weren't a lot of ways to entertain. The banking world requires a lot of entertaining. So they did it themselves. We found a lot of examples in New York City where banks had their own ballrooms — you'll see photographs of people in top hats sipping on cocktails and stuff like that.

"This particular space," he adds, "is completely intact, the way it was in the 1800s. It hasn't been altered, except for the bathrooms."

"When I first stepped into the building," Brunner says, "I was blown away by the architecture — the ceilings and floors, and the windows overlooking the city. It's just stunning."

Emphasis added. The back story of banks and ballrooms is exciting. So is the contemporary use of the space for dance parties. What was old and overlooked becomes a calling card for Pittsburgh's urban scene. A Rust Belt city finds new life on its own terms.

Thursday, October 11, 2012

Proximity Dividend And Indiana Politics

Indiana Governor Mitch Daniels is a zero-sum thinker. In the Rust Belt, he's the King of Schadenfreude. His state looks downright Sun Belt by comparison. That's not a compliment. I can hear the City of Gary from DC, "Gee Daniels, thanks for nothing."

For all the good that is Indiana and Indianapolis, Daniels can thank Chicago:

At any rate, to even talk about an “Indiana economy” poses a lot of difficulties. In a way we’re a “southern state” — gaining low-paying service jobs, farm jobs, non-union manufacturing. That seems to be something the plans and efforts we hear these days want to perpetuate.

But up in our corner of the state, things are more complicated. In Indianapolis, if someone from Indiana graduates from college and moves to Chicago, it’s “brain drain.” In Northwest Indiana, if someone does the same, is it? Not really. Our area is so much part of the Chicago region that economic activity there is in many ways more important than economic activity in Indianapolis.

If a Subaru plant in Lafayette announces significant job hirings, and if a Ford plant in the south suburbs announces the same, which is “economic development” for Indiana, and which is for Northwest Indiana? In real ways, both are economic development for each. But that’s not necessarily the way policy makers and statewide politicians look at it.

With all due respect, the dominant mental map in Northwest Indiana should be the one for the entire state. Talent migrating from Indianapolis to Chicago isn't brain drain. It's an indicator of the strong ties between the two metro economies.

For the most part, Governor Daniels gets all the spillover benefits from Chicago without any costs. Indiana is living fat off of Illinois. If Chicago sneezes, Indianapolis will catch a cold. Indiana takes but adds very little to Chicagoland. Yet despite playing parasite, Daniels will leave the state in worse shape than when he started his stint as governor.

Wednesday, October 10, 2012

Building Industry Clusters Via Brain Drain

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

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

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

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

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

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

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

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

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

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

Tuesday, October 09, 2012

RoData Is Rust Belt Chic

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sunday, October 07, 2012

Voting With Your Feet

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

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

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

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

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

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

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

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

Thursday, October 04, 2012

Another Pittsburgh Labor Force Record

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


Attractive Pittsburgh Promise

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

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

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

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

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

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

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

And ...

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

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

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

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

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

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

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

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

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

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

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

Monday, October 01, 2012

Tom Corbett, Delta, and Pittsburgh

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

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

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

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

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

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

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