The Problem With Placemaking

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Brain Drain And Return Migration

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

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

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

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

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

Steelers Diaspora

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

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

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

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

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

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

The Daily Mail picked up on a geographic oddity:

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

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

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

Pittsburgh Isn't Dying

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

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

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

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

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

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

China Is Dying

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

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

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

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

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

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

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

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

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

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

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

Britain Is Dying

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

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

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

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

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

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

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

Innovation Economy Is Dying

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

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

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

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

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

Brain Drain Boondoggles: Utica Shale and Youngstown

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

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

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

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

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

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

Tech Boom Pittsburgh

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

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

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

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

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

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

Another data point is venture capital:

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

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

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

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

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

Talent Retention And Displacement

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

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

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

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

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

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

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

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

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

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

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

Prototypical Pittsburgh

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

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

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

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

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

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

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

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

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

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

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

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

Viet-Kieu Economic Development

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

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

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

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

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

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

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

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

Boiling Frogs In Syracuse

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chicago And Economic Convergence

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Return Migration Ravaging Chicago

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

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

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

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

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

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

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

Big Fish Small Pond Talent Migration

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

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

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

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

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

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

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

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

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

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

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

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

Pittsburgh And Seattle

I was recently asked to name three cities that have the best chance to be the next Portland. That ship has sailed. We should be looking for the next Nashville. Moving up the urban hierarchy, where is the next Chicago (#2 US city behind New York)? That would be Washington, DC. It's a game of using the old regime to understand the new economic geography.

I'm in awe of Pittsburgh's transformation. Playing the same game, what might the city become? I've already answered the question, settling on Seattle. The more I learn about Seattle, the more apt the comparison seems. It has gone from Rust Belt dump to shiny tech town in matter of a few decades. Microsoft moved from Albuquerque to Seattle via return migration. Now add to that the power of melancholy:

Countless Americans (and innumerable French artists and writers) have done their best work under la grisaille, as Parisians call their leaden ceiling. Ireland surely has more good writers and dramatists per capita than any country in the world. And in Seattle, you can’t walk outside for a snort of espresso without bumping into a newly published novelist who finally finished the tortured tome after escaping from somewhere with too much distracting sun.

Pittsburgh has its own la grisaille. My wife, a native, loves the climate. When I met Randy Pausch, of "Last Lecture" fame, my lasting memory of him is his stated regret of wasting so much of his life in a place where one couldn't enjoy the outdoors. In that regard, he hated Pittsburgh.

Born in Erie, I've lived in some gloomy places. But I couldn't hack it in Olympia, Washington. The dreary winter was too persistent. I've never been so depressed. The short days and constant clouds were debilitating. However, I do respond well to melancholy-fueled creativity.  In Pittsburgh, I can be functionally glum. I've experienced a similar balance living in northern New England.

Embracing the environmental determinism, Pittsburgh has the same mojo blessing Seattle. Creative thinkers can and do thrive there. It's an inspiring place that attracts talent because it develops talent. People develop, not places.

San Francisco Is Dying

When I write "the Creative Class economy is dying" I mean the Innovation Economy is converging. More cities are getting in on the talent attraction game. The makes life tough on established Creative Class winners such as San Francisco:

San Francisco is using millions of dollars in federal grant money to help train and educate local residents to make them attractive hires for the booming technology industry.

As The City celebrates its emergence as a tech hub around industry heavyweights such as Salesforce.com and Twitter, city officials are emphasizing the need to make sure some of the benefits accrue for San Franciscans who don’t yet possess specialized technology skills.

“A significant portion of San Francisco’s worker population lacks the skills and educational attainment to access these opportunities,” a city grant application stated. Back in the dot-com boom of the late 1990s, San Francisco’s demand for IT workers was met through “in-migration,” the application noted.

San Francisco is getting a talent production bail out. "In-migration" doesn't cut it any more. Suck it, Portland.

In contrast, witness the rise of Silicon Beach in Los Angeles:

L.A. has extraordinary resources to sustain and build upon its tech boom. Perhaps most surprising is its strong technology talent pool. UCLA, USC and Caltech collectively graduate more engineers annually than Stanford and Berkeley, major feeders of Silicon Valley. And L.A. tech staffers tend to possess more interdisciplinary skills than their northern counterparts, having developed expertise in cinema, communications, music, design and entrepreneurialism while pursuing engineering degrees.

Concerning talent production, :Los Angeles > San Francisco. L.A. tech firms aren't dependent on "in-migration". Thanks to Brian Kelsey (Civic Analytics), I got wise to U.S. talent production geography and L.A.'s importance to the pool of software developers:

And, if after all this talk about using labor market information to identify workforce availability in your region still doesn't produce the software developers you need, sign up for career fairs in Chicago, Pittsburgh, and Los Angeles. They led the U.S. in graduates prepared for software development jobs in 2006.

Better to be Chicago, Pittsburgh, or Los Angeles than San Francisco or Portland. Even if you don't buy my argument that the Innovation Economy is converging, San Francisco did apply for the grant. The in-migration of talent was deemed insufficient. Silicon Valley is sounding the alarm about return migration to India and China:

Friel stressed the importance of supporting education and training for the local population, "natural and immigrant alike," and doing whatever possible to keep the region attractive to talent from around the world.

At the same time, he said, "I don't think it's realistic or healthy to continue to rely on such a large inflow of engineering and science talent from abroad, particularly from Asia. This inflow has been the source of much of the Valley's historic edge in innovation, but conditions for these immigrants, support for their education, financing for their business ideas, have improved in their home countries and declined here."

Even as attracting and retaining top talent remains important to the region, California's investment in higher education is declining. While the total number of science and engineering degrees has leveled off, the percentage conferred to foreign students has been sliding in both the state and nation as a whole, the report notes.

Better to have a UCLA or a CMU than to be Creative Class cool. Talent attraction alone won't save your city. The economy is diverging to the places where the best talent is produced.

Peak Labor Force Pittsburgh

From Pittsburgh TODAY:

In fact, the total labor force figure of 1,265,110 is the highest labor force figure for the region ever.

Emphasis added. Ever.

China Is Dying

Silicon Valley is past its peak. That's the bellwether region for US economic convergence. The bellwether for global economic convergence is China. That country is past its peak:

More evidence of a shift in foreign direct investment away from China to other emerging Asian economies, headed by Indonesia, Vietnam, the Philippines and India.

HSBC says in a report that south east Asia’s share of global FDI inflows, which slumped from 8 per cent to 2 per cent after the 1998 Asian financial crisis, is back to 7.6 per cent – almost equal to China’s 8.1 per cent. With their young populations, these countries and India should see further FDI increases from companies looking to capitalise on low-cost labour, while Chinese inflows will slow as its population ages and its economy matures.

Author and HSBC economist Trinh Nguyen says that as well as the economic change in China, three global trends will drive FDI increases in the rest of Asia: cheap money in the advanced world, the renminbi’s appreciation, and economic stagnation in the developed economies.

Emphasis added. Inflows are slowing. The population is getting older. The economy is maturing. The action is diffusing to other upstart countries. Convergence.

Now the fun begins. Can China adjust? Economic activity is migrating away from legacy cost-burdened eastern coast inland to cheaper labor. Convergence is happening within the country, as well. For now, there appears to be enough frontier to keep things humming along.

Talent Attraction Crisis

There's war for talent within Silicon Valley. Then there is the war for talent with Silicon Valley. Immigrants are returning to China and India. More US metros are stepping up their game to attract and retain the best. The high cost of living, the crowds, and traffic are pushing people out of California. I assert that all of this has come to a head. The Creative Class economy is dying.

Concerning talent migration, what does all of the above portend? More places are competing in a talent pool that isn't getting any larger. The cost for innovation labor will impact the economic geography. The new firm location paradigm:

As in Pittsburgh, the Cambridge site began as a small operation near a major university that soon outgrew its space, turning into a name-brand presence designed to retain bright graduates who might have set their sights on Silicon Valley.

The Google Boston site -- sometimes referred to as Google Cambridge, with its address in Boston's brainy neighbor -- relies on a proximity to MIT. The school is a powerhouse supplier of Google candidates and plays the role that many experts say Carnegie Mellon will take here as graduates jockey to get an interview with one of the country's most distinctive employers. ...

... Months after Google announced plans to expand its Boston presence to a 60,000-square-foot space along the Charles River, competitor Microsoft said it would lease 136,000 square feet in a building that shares a subway stop with the Google office.

"One comes and then the other comes," said Mr. Anderson, who as a venture capitalist backed Pittsburgh-based ForeSystems, a tech business later acquired by Marconi.

But Google welcomed the new neighbor, said Steve Vinter, engineering director at Google Boston.

"I'm not worried about losing a candidate to Microsoft," he said. "I'm worried about the three candidates who leave for Silicon Valley."

It's a similar quandary in Pittsburgh -- a 2009 survey of electrical and computer engineering graduates of CMU found that while 49 percent of graduates found work in the Mid-Atlantic region, 24 percent moved to California, Hawaii or Nevada.

Emphasis added. To get a leg up on Silicon Valley competition, both Google and Microsoft put offices near where the most desirable talent is produced. Talent production attracts business. Better yet, exporting talent attracts business. Promoting brain drain is a serious economic development strategy.

That last sentence wouldn't make any sense a decade ago. A few places such as Boston, Silicon Valley, and Chicago were sucking up all the best talent. Your city had to be more than cool to lure the Creative Class. It had to be one of the few winners of agglomeration in a diverging Innovation Economy.

Today, the cool cities are where the talent is produced. That's Rust Belt Chic. It is a converging Innovation Economy and a diverging Talent Economy. Waterloo and Pittsburgh are ironic winners. Put a bird on it.

Brain Drain Boondoggles: Michigan Future

The pinnacle of brain drain hysteria is concentrated in three states: Michigan, Indiana, and Ohio. Every state complains about the outmigration of native sons and daughters. It's a product of our xenophobic tendencies. Politicians and policy advocates make a lot of hay exploiting these fears. In Michigan, Indiana, and Ohio, the annual cycle of brain drain boondoggles is alarming. The appetite for silver bullet retention efforts is insatiable. The latest rhetoric from Michigan:

Internships have been described as everything from slave labor to a gateway to success. For president of Michigan Future Inc. Lou Glazer, internships are a vital piece to Michigan’s economic success. ...

... Glazer’s Ann Arbor-based think tank, as well as many others across the state, view Michigan’s “brain drain” exodus of recent college graduates as something that can be combatted with the right combination of job opportunities and a cultural shift.

“Young people want to go where there’s good quality of place and where other young talent is concentrating. That’s what Michigan is having problems with and why so many of our talent young people go to Chicago.”

Combating brain drain undermines economic development. Any initiative that would decrease geographic mobility is anti-talent. An extreme example of Glazer's wrongheadedness is China's hukou system:

China has long forbidden such workers from putting down roots under a system of household registration, known as the hukou, developed to keep the rural poor from swamping the cities. Without a city hukou, migrant workers are forbidden from tapping local social benefits and have difficulty sending their children to local schools—with the result that many leave their offspring in the care of grandparents back home.

Economists and a rising number of Chinese policy makers say the hukou system gets in the way of turning migrant workers into a more stable, productive work force that could also further China's goal of rebalancing its economy toward more consumer-driven growth. The hukou system contributes to a shortage of workers in cities as it encourages migrants to return to the village when it comes time to raise a family.

Hukou effectively clamps down on brain drain. More people remain in rural areas. Return migration is all but guaranteed. Instead of hukou, Glazer promotes internships. The desired result is the same.

The policy goal of talent retention is perverse, akin to encouraging someone to skip college. It's good for local businesses because the glut of talent suppresses wages and makes headhunting less expensive. Community interests trump individual ones. The bigger picture is a less vibrant national and global economy. We all lose so Ann Arbor might gain.

A better internship program would focus on attracting graduates from out-of-state schools. A prototype is Bulldogs in the Bluegrass, which brings Yale college students to Louisville, Kentucky. The very act of migration is economic development. Michigan would benefit more if it focused on talent attraction in lieu of retention. More people would realize that Ann Arbor is a great place to live and work, instead of the geographic stereotype of ruin porn Detroit. People develop, not places.

Chicago Is Dying

I've covered Chicago's decline, but not as exhaustively as Aaron Renn has done. Chicago remains an important global city. The core is world class. The size of the metro economy and the wealth that has agglomerated there are redoubtable. To be even more diplomatic about the problems, paraphrasing Aaron, the city is in relative decline. I want to consider the prospects of absolute decline. Economic convergence is killing Chicago:

Their children, Mexican-born, still consider Chicago their home and long to return. One wears his Chicago school sweater over the uniform issued by his Mexican school. His classmates, noting his fluency in English, call him gringo. But his parents are certain they have made the right choice, even if the boys were on a path to qualify for legal status in the U.S.

In Chicago and across the country, immigrant families are making the same calculations. Their American dreams have clashed with the reality of low-paying jobs that offer little chance for advancement or middle-class security. ...

... The people leaving Chicago all have a story of their own. Many, like the Barcenas family, sought safety and opportunity. Their children grew up in Chicago, melding into the city's schools and playgrounds as generations of Poles, Irish and Italians did before them. And, they hoped that Chicago would be where they would find happiness and a home.

Now those dreams lie elsewhere. ...

... In an increasingly global economy that is less dependent on the U.S., they told their children, success is possible anywhere.

In Mexico, "we know how to move the levers," Xochitl Barcenas said. "We know the system."

"If you want to return to the United States, you can return with an international company," her husband told their sons. "Or, if you prepare well, you can fit in anywhere."

The Mexicans fleeing Chicago and returning to their home country are indicators of a tectonic shift in the global economy. Many US cities that thrived during the Innovation Economy may find the going tough in the post-financial crisis world. Chicago is on the wrong side of this divide.

Whether you are from Mexico or Iowa City, you no longer need to move to Chicago to make your mark. If you are gung ho to leave, you'd be better off in New York, DC, or Philadelphia. Return migration is devastating Chicago.

I expect the brain drain to pick up pace over the next decade as more people figure out the opportunities available in Pittsburgh, Cleveland, and San Antonio (three places I've studied). The emerging Talent Economy favors such metros. Chicago has a long way to go towards understanding how to grow economically in the face of demographic decline. It knows how to be a talent magnet, not much else.

Yet there sits a global city on the shores of Lake Michigan in defiance of all the critics and alarmists. Mexico's rise doesn't matter. Life goes on inside the Loop, where everything seems as good as it ever was. As you were.

Cleveland Is Dying

Brain drain is the first step towards brain circulation. What good is brain circulation (i.e. return migration)? Three conclusions from empirical research:

We find that:

• When individuals with foreign experience join the board of a company, the firm’s valuation improves;

• Its total factor productivity increases; and

• In the subsequent years, the firm’s profitability increases.

We also show that these improvements in performance are accompanied by changes in corporate policies that are generally set by the board:

• Firms’ propensity to manage earnings decreases and CEO turnover following low profits increases, indicating that corporate governance improves

• Among the firms that make mergers and acquisitions, the ones with board members with foreign experience are more likely to make an international merger or acquisition.

This suggests that these firms are able to access a broader range of investment opportunities. Similarly, firms with board members with foreign experience are able to access more sources of external financing, as they are more likely to engage a foreign investor when raising capital through private placements than other firms without directors with foreign experience.

Third, firms that hire directors with foreign experience start exporting more.

Putting a return migrant instead of a local on the company board is better for the business. I conducted return migration focus groups for Global Cleveland. Many participants expressed frustration with the lack of opportunities. The networks of power were parochial. Locals only. Too much social capital was (still is) killing Cleveland.

Return migrants are social capital rich, outside of their hometown. These networks could serve as a catalyst for entrepreneurship and economic development in Cleveland if the community would do a better job of recognizing the value of this talent pool. A good place to start is stopping with the population obsession. People develop, not places.

Rethinking Pittsburgh

I have a love/hate relationship with place PR articles that show up in venues such as airline magazines. You see what civic boosters want you to see. Their job is to sell the city to business, talent, and tourists. Discerning the real from the hype is difficult. But that's not to say these puff pieces are useless. Pittsburgh in the latest issue of fDi (a Financial Times publication):

Although financial incentives since the 1980s have been attracting entrepreneurs,finding skilled workers or persuading them to move to Pittsburgh has proved to be difficult. “When I was recruiting people in the late 1980s, the standard response was ‘I do not want to move here’. Attracting talent was a challenge then,” says Mr Yablonsky, who at that time was managing Carnegie Group, a software solutions company.

To attract skilled employees to his Carnegie Group, Mr Yablonsky says that he“started a ‘boomeranger’ strategy”. The main premise of that initiative was targeting people who had links with Pittsburgh, either because it was their home town or where they went to school, and persuading them that Pittsburgh was a perfect place not only to work, but also start a family. “Eventually our company grew to total of 250 people, out of which ‘boomerangers’ constituted one-third of the total headcount,” says Mr Yablonsky.

Now Mr Yablonsky applies that strategy in his role in the city’s economic development agencies and says that a lot of businesses in Pittsburgh recruit their employees by searching for ex-Pittsburghers. Mr Yablonsky himself could be described as ‘boomeranger’. Born in Pittsburgh, he worked for many years in Cincinnati, Ohio before returning.

Emphasis added. I'm surprised that the fraction of boomerangers employed was so small. Pittsburgh has an image problem that still persists. Attracting outsiders is tough. It is what I call the "Ann Arbor Dilemma". Ann Arbor is in Michigan, near Detroit. Executives and other talent fear ruin porn. No matter that Ann Arbor is an attractive college town. It's in the Rust Belt, a hell hole.

The geographic stereotype sets up the Pittsburgh surprise, if you can convince the skeptics to do a little digging:

At the heart of the Pittsburgh revival story lies a strong research funding backing and a score of incubators helping local businesses to grow.“At the end of 1990s, I was aware there was a stream of research funding in south California and that it creates the environment for companies to grow. And I found out that Pittsburgh actually receives more biomedical research money than California. I checked it and it turned out to be true,” says Thomas Petzinger Jr, executive vice-president of Knopp Biosciences, a Pittsburgh-based pharmaceutical company that works on treatments for Parkinson’s disease and sclerosis.

Emphasis added. Pittsburgh? Yes, Pittsburgh receives more biomendical research money than California. All of California? Ask Petzinger. Definitely ironic if factual.

I sense the negative mesofacts impeding migration to Pittsburgh are quickly retreating. Newcomers will outnumber boomerangers. Inflows of venture capital will grow dramatically. The mental map of globalization will be amended. 2013 will be a great year. Suck it, Portland.

Creative Class Mesofacts

Yes, geography still matters. But that doesn't mean the world is getting spikier instead of flatter. And even if the world is getting spikier, that doesn't preclude it from getting flatter at some point in the future. Transformation takes time. Mesofacts are facts that are no longer true. Today's migrants are chasing yesterday's dream city. The Creative Class economy is dying.

2013 will be a year of reckoning for Creative Class mesofacts in dire need of updating. Richard Florida made too much of CMU graduates bolting Rust Belt Pittsburgh for cool Austin. The Steel City didn't have enough rock bands and gays to cut it. It still doesn't, but now Pittsburgh is cool. The buzz will likely attract rock bands and gays, proof that world is spiky.

Yes, the world is still spiky. Pittsburgh is proof that it is getting flatter. You needn't live in Los Angeles to work for Disney. The entertainment technology industry is diffusing (i.e. converging). A similar story is developing in Brighton, U.K.:

A modest office block around the back of Brighton train station looks an unlikely place for Disney’s European base for its hit kids’ games website, Club Penguin, but inside there is a clue. National flags for Spain, Portugal, France and Germany mark out how each area of the brightly-coloured office caters for a different language.

Many of the young staff of around 60 people, who sit at computer screens, managing the online chatter between kids who play on Club Penguin, have been recruited locally.

Brighton’s youthful cosmpolitan population — there are a string of language schools as well as two universities — was a big attraction for Disney when it expanded Club Penguin beyond North America in 2008. “We knew we’d be able to hire the key people with language skills,” explains Simon Pollard, a manager at Club Penguin.

“We could have chosen London,” he adds, but there was a cultural fit with Brighton as Club Penguin itself was founded in a small city, Kelowna, in Canada. And Disney already owned a computer games studio in Brighton, Black Rock, which it bought in 2006.

In the digital age, where anyone with a broadband connection can have global reach and talent is mobile, being based in a major city like London is no longer essential for a media company. Ricochet, the TV firm behind Supernanny, Gok Wan’s Style Secrets and Blood, Sweat, moved to the South Coast for just that reason.

“This used to be a London company with a Brighton outpost,” recalls Ricochet managing director Jo Ball, thinking back a decade, when founder Nick Powell pushed for the relocation because his home was in Sussex.  “Now it’s a Brighton company with a small toehold in London.” Significantly, US giant Warner Bros, which bought Ricochet in 2010, hasn’t wanted to change it.

Brighton’s seaside charms and its reputation as a liberal, party-loving town have always appealed to creative types. That has only increased as living costs in London have soared.

Emphasis added. Talent is geographically mobile. The technology exists that would allow this talent to live anywhere and still lead highly productive lives. Then why was this talent agglomerating in a few cities such as London? That's the Creative Class paradox.

Agglomeration can't go on forever. At some point, the rent is too damn high. London is at that point. Brighton is the beneficiary. The world is getting flatter.

Pittsburgh Over Portland Hype Continues

Around this time in 2012, Pittsburgh was "in" and Portland was "out". New year, same story:

WE FOUND THEM TO BE ABOUT HALF PRICED.GOT A DECENT HOTEL ROOM FOR ABOUT $100 A NIGHT. >> ANOTHER PLACE THAT A LOT OF PEOPLE DON'T TYPICALLY THINK TO GO ON VACATION THERE IS PITTSBURGH, PENNSYLVANIA. >> RIGHT. >>xx THIS IS REALLY MAKING A COMEBACK. >> IN THE TRAVEL INDUSTRY WE'RE LOOKING ALWAYS FOR THIS HOT NEW AMERICAN CITY.PORTLAND, OREGON, HAS HAD THAT CROWN FOR MANY YEARS.PITTSBURGH MAY STEAL THE CROWN. >> PITTSBURGH IS THE NEWPORT LAND. >> YES.IT HAS ITS OWN MINI SILICON VALLEY.IT HAS GROWING RESTAURANTS, MICROBREWERIES.AGAIN, AFFORDABLE.DEFINITELY WORTH A LOOK. >> OVERSEAS TRAVEL, MARSAILLES,

That's the unedited closed captioning from the TODAY Show clip for hot destinations in 2013. You can view the entire segment here. (Pan down to the bottom of the article for the embedded video.) For some reason, Kate Maxwell's (Jetsetter.com) slip up of "Liberty East" is omitted. That's the location of the "mini-Silicon Valley". Pittsburgh is the hot new American city, displacing Portland. Put a bird on it!

Population And Immigration

Ohio is dying. At least, that's the dominant narrative. The press and politicians recycling outdated mesofacts:

In addition, the Census data show that Ohio continued to lose residents as people move elsewhere in the nation. While the state gained more than 33,000 people from international migration during the last two years, the data show, it lost 84,528 people who moved to other states.

The total migration loss of more than 51,000 people was counteracted by the state having about 60,000 more births than deaths from April 1, 2010 to July 1, 2011.

“Without question,” Nichols said, “until Ohio has a sustained period of economic growth and job creation, this will remain a concern.”

Ohio’s population growth is so weak that it is likely inevitable that the state will soon see population loss for the first time in its history, said Mark Salling, research associate with the Maxine Goodman Levin College of Urban Affairs at Cleveland State University.

“If the economy were to pick up, especially in Ohio, we might avert this eventual loss of population,” Salling said. “But without being able to foresee any major changes in the economy, the loss has got to happen soon. But then again, five years ago I was saying it would happen any year, and it still hasn’t happened.”

Population growth, not economic growth, is the policy goal. If we looked at domestic migration (ignoring immigration and natural increase), then we see a surprising group of losers. The only thing that seems to matter is net migration. People vote with their feet. The winners are where the population is increasing, regardless of the reason behind the boom. Population up, good. Population down, bad.

I use Reading, PA to point out the absurdity of this perspective. Much of the eastern part of the state is growing thanks to an influx of Hispanics. This supposed change of fortune has given rise to the idea that immigrants can save the Rust Belt. I investigated the hype for Global Cleveland, an organization dedicated to bolstering Northeast Ohio's population. What I found was not immigration, but domestic migration. Hispanics are fleeing the high rents and low quality of life in New York for the opportunity landscape of Rust Belt cities. The Creative Class economy is dying, not Ohio. Domestic migration and natural increase are boosting the numbers, not immigration.

I'll return later in this post to the Reading case. I've emphasized "natural increase" in view of demographic convergence evidence:

Latinos suffered larger percentage declines in household wealth than white, black or Asian households from 2005 to 2009, and, according to the Pew report, their rates of poverty and unemployment also grew more sharply after the recession began.

Prolonged recessions do produce dips in the birthrate, but a drop as large as Latinos have experienced is atypical, said William H. Frey, a sociologist and demographer at the Brookings Institution. “It is surprising,” Mr. Frey said. “When you hear about a decrease in the birthrate, you don’t expect Latinos to be at the forefront of the trend.”

D’Vera Cohn, a senior writer at the Pew Research Center and an author of the report, said that in past recessions, when overall fertility dipped, “it bounced back over time when the economy got better.”

“If history repeats itself, that will happen again,” she said.

But to Mr. Frey, the decrease has signaled much about the aspirations of young Latinos to become full and permanent members of the upwardly mobile middle class, despite the challenges posed by the struggling economy.

Regions attracting Hispanics can no longer bank on a demographic dividend. The birth rates for Hispanics are more in line with the rest of the US population. Going forward, the number boost will be much more muted. Frey's analysis dovetails well with my own research. Hispanics are migrating for upward mobility opportunities, which is what I recommended Global Cleveland extend to potential migrants in areas such as the Lehigh Valley. It's a residual flow that is short on population growth but long on economic development.

Circling back to Reading, Hispanic migrants are being pushed there. Lacking is an economic pull. Poverty rates have skyrocketed in Reading along with the population growth. Opportunities are limited. Economic activity in population moribund Pittsburgh beckons. More people is not, in and of itself, a good thing. People develop, not places.