Thursday, February 28, 2013

Gender And Citizenship

The global norm is human rights for all regardless of race, ethnicity, sexuality, and gender. Concerning foreign policy issues, such as immigration and citizenship, all that goes out the window. Immigration and citizenship exist in between states, literally international. Within this liminal space, anything goes. State power is unchecked. The result is anachronistic legislation:

International law has never fully embraced multiple citizenship. Many countries frown on it, though others take a more relaxed attitude. Germany, however, manages to make it especially complicated for citizens of foreign origin. Its traditional approach goes back to a law passed before the first world war. Based on jus sanguinis (“right of blood”), it gave citizenship to anybody of German descent, but not to foreigners born in Germany, as countries such as America and France that practise jus soli (“right of soil”) do. Then, in 1999, a centre-left government added the two notions together. This would have let a woman born in Germany to Turkish parents be simultaneously German and Turkish. But that law coincided with a regional election in Hesse, where the centre-right Christian Democratic Union (CDU) seized on the issue to mobilise its conservative base in opposition. The CDU won the state and took control of the upper house, where it blocked the new law.

Emphasis added. While studying US immigration and citizenship law as a graduate student, the gender distinction surprised me. Why should male or female make any difference?

The answer to that question is culture. Women are not supposed to be geographically mobile. This bias is expressed in a number of ways from average commuting distance to international migration. Metaphorically, women are rooted to the soil, the earth of a nation. Men are free agents and should run off to sow their wild oats. Women more than men are stuck in captive labor markets. Those who are less able to move make less money.

Wednesday, February 27, 2013

Ironic Economic Development

With all the buzz about reshoring American manufacturing jobs, I've been on the lookout for ironic economic development stories. Let's play one of my favorite geography games, "Follow the Natural Resources." Dateline Mexico:

It is a contradiction in terms that Mexico, a major energy producer, now imports natural gas and gasoline,” says Mr Lozoya. ...

... He pulls out a map that shows one of two new gas pipelines that will bring cheap natural gas south from the US to feed Mexican industry and petrochemical development – especially of fertilisers.

“It is going to boost agriculture and heavy manufacturing, significantly,” he says. Then he adds, arching his eyebrows: “but most important of all, it is a two-way pipeline which will also allow us to send gas the other way.”

Emphasis added. I first stumbled upon this apparent paradox concerning Iran. I read that the country exported oil but imported gasoline. We tend to omit the role of refineries in the energy supply chain, creating a huge blind spot in our understanding of economic geography.

The Financial Times story about Mexico and Pemex should worry manufacturing boosters in the United States. The shale energy revolution is a game-changer. However, the benefits may accrue in ironic locations such as Mexico. A possible scenario is the export of raw resources south of the border and subsequent import of value-added products into the United States. Just something to think about the next time you see sensational headlines about shale gas and oil causing a jobs boom. Where will those jobs be created?

Tuesday, February 26, 2013

Emigration Economic Stimulus

Brain drain is positive economic development. Generally, migration is seen as a problem in need of management and mitigation. Cities are the ultimate geographic expression of migration and its benefits, whether talent is coming or going:

In terms of international migration there is a growing perception of the potential of international migration to induce positive effects in the “sending” countries through various channels, which include remittances, return migration, diaspora externalities and network effects, which may compensate the sending countries for their loss of human capital.

The increasing recognition of the potential of emigration in stimulating development in countries of origin is accompanied by a new push for engagement of migrants and diaspora organizations in development cooperation. Following the surge in remittances – which now amount to well over two times the value of official development assistance and tenfold of the net private capital transfers to developing countries –international organizations and governments are increasingly integrating emigration into development policies. There is particular focus on the macro-economic impact of migration, such as the importance of remittances for national accounts and their potential role in enabling business investments. Notwithstanding, these changing perspectives will need further studies to establish their real impacts.

Emphasis added. Outmigration is a component of economic development policies. For U.S. communities, the very idea is an anathema to place-centric/zero-sum thinking. The scope of this conversation is, as at the international scale, beginning to widen:

Nebraska's brain drain and its loss of young people are linked, according to Eric Thompson, director of the Bureau of Business Research at the University of Nebraska at Lincoln. "Young people are more likely to be college educated because it's more common now than it was 40 years ago to go to college," he said.

Thompson said he does not believe a lack of good jobs is entirely to blame for the flight of Nebraska's youth. "This is a great place to raise a family in an absolute and relative sense," he said. "In a relative sense, it's maybe not as great a place to be young and single."

Scott Fuess, chairman of the economics department at the University of Nebraska- Lincoln, was more blunt in his assessment of the state's appeal to young people.

"Why would talented young people not want to leave?" he asked, adding that Nebraska is one of the most remote and sparsely populated states in the country. "Why wouldn't a 22-year-old college graduate be drawn by the allure of life in Chicago or the Twin Cities or Dallas or Houston?"

Thompson agreed that young people are often attracted to large urban areas where they perceive more opportunities for themselves. "Research shows that there are advantages for young people living in larger cities," he said. "Their skill rises faster in cities."

Fuess said it's not surprising that young people want to strike out to pursue opportunities elsewhere, but, he said, "what you want to focus on is trying to lure them back when they're having families."

This is what economists refer to as the "boomerang effect." People move away from an area in their 20s to gain experience and learn new skills elsewhere, only to return in their 30s to settle down and raise a family.

Thompson said he doesn't think youth outmigration is a major problem precisely because many of those people are coming back to the state in their 30s. The key, according to Thompson, is to lure them back.

The boomerang effect is the brain gain Ben Winchester has measured in his research on rural communities. We've tended to focus on the young adults who leave (and are most likely to leave, anyplace, even Portland), not on the people moving into town. Our default perspective is xenophobic. We ignore the return migration going on right under our noses.

Worse, we focus on urban amenities, density, and creative placemaking instead of geographic mobility. This is the Portland/Creative Class model of economic development. The usual spiel from CEOs for Cities and Joe Cortright:

If the [The New Geography of Jobs by Enrico Moretti] has a weakness, it is a chicken-versus-egg argument -- leaning on anecdotes rather than data implying that amenities and talent attraction have little or nothing to do with a city's economic prospects. To Moretti, urban amenities are an effect, rather than a cause, of growth (Seattle), and are ineffective in triggering economic growth (Berlin). Each of these examples is highly debatable, but more importantly, there's little question that the interaction between talent and amenities is a self-reinforcing virtuous circle: cities with great urban amenities attract talent; places with a strong talent base support urban amenities.

Emphasis added. There exists considerable question about urban amenities attracting talent. Moretti is aware of the academic literature. For example:

While clearly the presence of appropriately skilled and talented people is essential to innovation, it strains credulity to suppose that members of the creative class move about the economic landscape as though they were principally in search of amenity based gratification. Equally, we dispute the idea that bringing them together in particular places is sufficient in and of itself —and in the absence of further enabling conditions—to generate innovation and innovation-led growth in different sectors of the economy. In fact, innovation processes are always grounded in a much wider historical and geographic frame of reference.

Emphasis added. I highlighted the part of the passage that speaks to my recent posts about the cult of density gripping urbanism. There is a considerable chasm between urban policymakers and academic research. The drive for density and better urban amenities will make real estate developers happy. But the economic development arguments marshaled in support of these projects are superficial. The intuitive appeal won't survive closer inspection.

Cities without migration are not factories of human capital. Talent is not better off being packed into an urban neighborhood. It's the moving, in any direction, that matters.

Monday, February 25, 2013

End Of Density: Chinese Hukou System

China is home to some of the densest cities in the world. Yet these urban economic powerhouses are not as productive as they might be. Tom Miller with the skinny:

Fueled by the 250 million migrant workers moving to cities for the sake of a better life, the number has been projected to grow to an astonishing 1 billion by 2030, as described by Tom Miller in his first book, China's Urban Billion: The Story Behind the Biggest Migration in Human History, published in December.

The mass migration, which the author compares to the great immigration from Europe to the US a century ago, has impacted the country's economy, society and environment.

In the book, the Beijing-based British author, also managing editor at the China Economic Quarterly, expounds on the tough issues facing China, such as the hukou (household registration) system, the disappearance of arable land, possible property bubbles and the dysfunctional fiscal system which encourages local governments to sell land to make ends meet. ...

... "Up to 250 million people in Chinese cities do not live genuinely urban lives, because migrant workers from the countryside are not entitled to urban social security and face institutionalized discrimination in the cities," writes Miller, who has been in China for more than a decade.

"As temporary residents with few legal rights, most migrants remain trapped in low-income jobs, save as much as they can, and buy few goods or services," he writes. "For this reason, China has failed to reap many of the economic benefits from its huge surge in migration."

Emphasis added. As the World Bank reported, density, mobility, and global connectivity are reshaping economic geography. If only intuitively, the benefits of density are understood. Geographic mobility is another story. Mumbai is the densest city in the world. Once an open and cosmopolitan place, Mumbai now discourages migration:

Mumbai is a city of open arms. More than any other South Asian city, it has lured Muslims, Jews, Christians, Parsees and Hindus, aspiring taxi drivers and wannabe actresses, and melted them into an industrious whole. In a certain elite realm, freedom reigns; women dance on tables in nightclubs, and gays and lesbians flock once a month to a rather uncloseted party called Gay Bombay.

But Mumbai is also, today, teetering between its tradition of liberality and new tendencies toward intolerance.

In recent years, activists have driven into exile famous artists who offend them, closed down museum exhibitions and agitated to have movies banned. A minority of upper-caste Hindus has lobbied to cordon off whole sections of Mumbai as vegetarian zones, effectively excluding Muslims. And now politicians have revived a perennial cause: ridding Mumbai of migrants.

Looking at Mumbai, I'm not surprised that some would conclude that density makes a city go. With the crackdown on migrants, density will remain. Creativity and innovation will move somewhere else. The Mumbai magic will be lost.

For the fastest growing cities in the world, migration is a policy problem. The numbers leaving the rural for urban are jaw-dropping. But discouraging newcomers is counterproductive.

The primary challenge for planners and placemakers is managing migration. How can a city better integrate recent arrivals? Can we improve connectivity to the most isolated neighborhoods? Strategies that allow for greater density without spiraling rents afford a greater influx of talent, which will foster more innovation and economic growth.

Saturday, February 23, 2013

Density And Talent Supermarket Metros

We know cities make talent more productive. Concisely put, better to work in an urban area than a rural one. The returns are so much greater in a city. The density dividend:

In 1993, James Rauch wrote a seminal paper showing that holding individual education constant, wages rise with the skills of metropolitan areas. Enrico Moretti has taken over this topic and written sophisticated papers that look both across metropolitan areas and within firms, showing that supermarket workers get more productive when better workers are in their shift.

If you read that paragraph carefully, you should note there is no mention of a density dividend. The quality of the workers in the room or neighborhood makes all the difference. Yes, proximity matters. But that is a function of distance, not density.

If you are looking for better workers, hire international migrants. Just so happens that dense cities do a great job of attracting talent from a bigger geographic cache. That's the birthplace diversity dividend. The movers are the shakers.

Such observations lend themselves to natural experiments. Take a dense city, such as Nairobi, Kenya, and find the neighborhood with the most migrants. That's the urban economic engine:

Depending on whom you're talking to, the Eastleigh market is either a tangle of back alleys where Islamist terrorists and pirates go to launder money, or it's one of the brightest spots of African capitalism, a dynamic 24-hour shopping center that's the only place for hundreds of miles where you can buy new jeans and sneakers at 2 in the morning.

Part of the reason Eastleigh attracts such investment, and such suspicion, is that Somalis make up the majority of people doing business there.

"When you come to Eastleigh, you feel that you are in Mogadishu or in other parts of Somalia, so you don't feel that you are an outsider," says Mohammed Shakul. "You feel at home." ...

... "The Kenyan government started to actively question what is the nature of this money," Kantai says. "And part of the questioning was motivated by the American counterterrorism push in East Africa."

He says what a Kenyan audit uncovered was $2 billion being quietly piped into Eastleigh through Somali channels — this in a year when Kenya's total GDP was about $40 billion.

"In this way, the Kenyan government began to understand the size of Somali capital. And one of the reactions, and this is a natural reaction from any government, was absolute panic," Kantai says. "It's like, how is it possible, that there is this kind of money, floating about, and we don't know about it?"

He says Kenya's reaction did not have to be one of fear — it did, after all, discover that its economy was 5 percent bigger than originally thought.

The Eastleigh neighborhood is more open to global capital flows. That's the "Borderless Economics" dividend. You can find many other similarly dense places in Nairobi. They aren't producing 5% of Kenyan GDP.

However, better to have Eastleigh in a big, dense global city than in one of the globalization backwaters. Somalis are more likely to run into top tier talent from other parts of the world. The quality of collision is much better. The question of density is rather beside the point.

Thursday, February 21, 2013

The End Of Density

Cities are sacred and profane. As students of urban geography know, great density was abhorred. The masses crowded together and created a petri dish of disease. Thomas Jefferson extolled the virtues of the yeoman farmer:

He told James Madison: "I think our governments will remain virtuous for many centuries as long as they are chiefly agricultural; and this will be as long as there shall be vacant lands in any part of America. When they get plied upon one another in large cities, as in Europe, they will become corrupt as in Europe."

Jefferson disparaged the urban. In the Age of the Creative Class, great density is sacred. Jefferson's contemporary counterpoint is Jane Jacobs:

What are proper densities for city dwellings?  … Proper city dwelling densities are a matter of performance … Densities are too low, or too high, when they frustrate city diversity instead of abetting it …

Very low densities, six dwellings or fewer to the net acre, can make out well in suburbs …  Between ten and twenty dwellings to the acre yields a kind of semisuburb …

However densities of this kind ringing a city are a bad long-term bet, designed to become a grey area. …

And so, between the point where semisuburban character and function are lost, and the point at which lively diversity and public life can arise, lies a range of big-city densities that I shall call “in-between” densities.   They are fit neither for suburban life nor for city life.  They are fit, generally, for nothing but trouble …

I should judge that numerically the escape from “in-between” densities probably lies somewhere around the figure of 100 dwellings to an acre, under circumstances most congenial in all other respects to producing diversity.

As a general rule, I think 100 dwellings per acre will be found to be too low.

Jacobs turns American Exceptionalism on its head. The urbanist reverence for density is a geographic fetish, as was Jefferson's utopian ideal. Such policy thinking is density for density's sake. Tony Hsieh's magic number for innovation:

Tony Hsieh talks about his Internet juggernaut Zappos in the same way that urban planners talk about cities. In fact, the language is uncanny. He believes the best ideas – and the best form of productivity – come from "collisions," from employees caroming ideas off one another in the serendipity of constant casual contact.

This is only achievable through density, with desks pushed close together in the office, or – in the case of Hsieh’s ambitious plans to leverage the new Zappos headquarters to remake downtown Las Vegas – with company employees and community members colliding into each other on the street. For the kind of "collisionable" density he’s looking for in downtown Vegas around his company, he figures the neglected area (not to be confused with the Vegas Strip) needs at least 100 residents per acre. ...

... His evolution in thinking, he says, comes more from his earlier days as a party planner. Close one bar in the corner of a room for example, he says, and you eliminate congestion points and enable people to better flow through a party. The challenge is all about creating circulation and serendipity.

Emphasis added. Fittingly, Hsieh's density evangelism comes from a misunderstanding. How many people you pack into a room isn't important. It's all about circulation. A party with less density and better circulation is better for knowledge exchange. Isolation (i.e. corner office), not lack of density, is the problem. The redevelopment of downtown Las Vegas is based on a poorly understood metaphor.

North Korea could build the densest city in the world and it wouldn't matter:

Of the 70-odd countries I've reported from, North Korea is perhaps the most illuminating. The world's last Stalinist dictatorship is hermetically sealed from the outside world. Hardly anyone is allowed out, and hardly anyone is allowed in (it wasn't easy getting a visa.)

Because North Korea shuts out people, it shuts out ideas. That's one big reason why it is a starving backwater. Its more open cousin, South Korea, which welcomes foreigners and sends hordes of students and businesspeople abroad each year, is 17 times richer.

South Koreans worry whether their children will make it to the right university; North Koreans worry whether their children will make it to the age of five.

The central message of my book, Borderless Economics, is that when people move around, they spread new ideas, mostly for the better.

For example, the world's cheapest fridge was born of a marriage of minds between Indians in America and Indians in India. Three Indian-American engineers (Uttam Ghoshal, Himanshu Pokharna and Ayan Guha) were working on a cooling device, based on technology used to cool laptops, that they thought might work in a fridge. One of them had trained at IBM, so he knew a thing or two about computers.

While back in India visiting relatives, they decided to show their design to an Indian manufacturer called Godrej and Boyce. It so happened that Godrej was already working on a super-cheap fridge for poor rural Indians. The two teams joined forces and produced a little fridge called the Chotu Kool that will sell for a mere $70 - less than half the price of rival fridges.

The circulation of people will beat density every time. There is nothing inherently magical about cities and density. Through people, a collision of two places can happen. Such serendipity is much more likely in South Korea than North Korea, density be damned.

Ethnic Social Hall Revival

Rust Belt suburban brats are moving back home to ironic locations. Instead resettling in neighborhoods like the ones where they grew up, they seek out the places their parents or grandparents worked so hard to leave. Rust Belt culture is not working class culture. The ghettos and Pittsburgh potties are relics that stoke the fires of nostalgia and pride. Being Polish and from Cleveland is authentic. It's cool. It's Rust Belt Chic:

And while many ethnic social halls sadly are dying off, some are being reborn. Rick Semersky, the new owner of Sterle’s, has reinvigorated the decades-old restaurant by adding craft beers and bringing in music that appeals to a younger clientele. As "Rust Belt Chic" gains popularity, so too it seems does the polka revival.

The unlikely comeback couldn’t occur at a better time, says Andrew Votaw of the radio show Polka Changed My Life Today, which airs weekly on WRUW 91.1. Many of Cleveland’s once-ubiquitous ethnic social halls now struggle with attendance. Votow hopes the revitalized polka scene will inspire more young people to take an interest.

“The challenge is to get the younger crowd to show up at an actual polka dance at an ethnic dance hall," says Votaw. "Usually, I’m the youngest person at the event. There’s a polka event going on most nights of the week here -- you just have to search for it.”

Votaw, who was recruited as co-host when he began calling in as "Andrew the Mailman" (he’s an actual mail carrier in Lakewood), says his own greatest regret is not celebrating polka music with his grandparents before they passed away. “They spoke Slovak,” he recalls. “They always had polka music blasting in their house.”

A Rust Belt Chic venue is where the eldest and youngest generation of adults come together and party. Hit up the Cadieux Cafe in Detroit. Mingle with the two martini lunch crowd and University of Minnesota art students at Al Nye's Polanaise. Boogie down at the Pittsburgh Banjo Club.

With all due respect to the above, Bat Shit Crazy Cleveland is king. If you like Richard Florida urbanism, he's building a Creative Class theme park in Miami so he can chest bump nightly with Akron's Lebron James. Many of us from the Rust Belt prefer the budding scene at ethnic social halls over Brooklyn boutique. This is where the next great innovations will occur and why President Obama is touting Youngstown, Ohio in his State of the Union address. Na zdravie!

Tuesday, February 19, 2013

Brain Drain And Xenophobia

Local jobs for local people. This mindset fuels xenophobia. Matthew Yglesias making a false distinction between fear of immigrants and fear of outsiders:

When people hear about a town that's attracting many new residents, they say it's "booming" not that the newcomers are poaching a fixed supply of jobs. Nobody in Texas seems to have proposed trying to close the state to migrants from the Northeast and Midwest; rather, they see the state's attraction to migrants as one of its strengths. The "foreign-ness" of newcomers from other countries distracts people from fundamental dynamics that they understand in other contexts. 

Domestic xenophobia, from Okies to Hillbillies, is alive and well.

You were born here. Used our hospitals and schools. Once graduated, you will toil and pay taxes. Talent, we (i.e. the community) own you:

When Mr. Szabo, 24, graduates soon from law school, he will be free to go wherever in the world he wants. But Mr. Birtalan, 18, was required to sign a contract at the beginning of his first year as a sociology major because of a new rule introduced in September. As a beneficiary of the state-funded university system, he will be obliged to work for two years in Hungary for every year of his subsidized studies. ...

... The Hungarian government sees the contracts as necessary means to combat “brain drain,” said Zoltan Balog, the government minister in charge of human resources, referring to graduates’ choosing to work abroad.

“How can it be that we are training several hundreds of doctors every year — which costs the taxpayers a whole lot of money — who after graduation immediately go to Norway, to Sweden, to England?” Mr. Balog said in an interview.

“I don’t want to enslave them,” he said of Hungarian students. “I want to have a balance between the individual interest and the national interest. This country is investing in higher education, so whoever graduates should also use their knowledge to further the interest of the country.”

I've heard it all before, ad nauseum. Wait a second ... How did I get from fear of Hillbillies taking over Chicago to the connection between talent retention slavery and xenophobia? Local jobs for local people.

Three people apply for a position. One is foreign born. Number two is from out of state. The last is born and raised in Middleamericaville. Who should be hired?

I say the company should be able to hire whomever it sees fit to hire. Who cares where they were born? If you worry about brain drain, then you care. You are a xenophobe. Such xenophobia informs ridiculous policies such as the one in Hungary.

By hook or crook, carrot or stick, trying to stop brain drain is wrong. Helping someone through school doesn't give you a claim on what that graduate does. Restricting geographic mobility does a world of harm. Promoting geographic mobility unleashes economic growth.

Those who seek to plug the brain drain are no better than the folks chanting anti-immigrant slogans.

Monday, February 18, 2013

Southern New England Is Dying

In Rhode Island and Connecticut, finding Brazilian expats used to be easy. Danbury, CT was one of the better known centers for immigrants. The sudden decline is palpable:

"It started maybe two years ago," Jimenez said of the disappearance of the Brazilian trade. "I've lost a lot of customers." He and his brother Juan say that loss is about 25 percent of their business.

Anyone who did business with the wave of Brazilian immigrants that rolled into the state beginning in the 1990s and peaked in the early 2000s, agrees that the wave is receding. The Brazilians are going home.

In Danbury, that's meant failed businesses and empty storefronts in the city's downtown.
At Eliza's Store on Main Street, its owner, Cleantes Xavier, pointed out that he and his wife, Eliza, used to have three stores on Main Street. They now have one; Eliza is working in Brazil.

"I think, maybe 80 percent of the Brazilians who were here are gone," he said.
It's showing up in city schools as well.

"It used to be skyrocketing," Augusto Gomes, administrator of the English as a Second Language, Bilingual and World Languages program in the Danbury school system, said of enrollment of Brazilian students in the city. "They were coming here by the truckload. Now, it's stagnant."

The explanation for the exodus is one part American decline, another part Brazilian boom. Welcome to the Age of Return Migration. Talent is fleeing the winners of agglomeration, heading back home where better opportunity awaits.

The return migration trend is many years in the making. I don't expect the pre-recession status quo to be reestablished once the global economy fully recovers. More likely, we'll spend a number of years catching up to a new set of mesofacts.

Sunday, February 17, 2013

Marcellus Shale Propaganda

The Pittsburgh Business Times accused me of irrational discourse given my attack on how the Marcellus Shale Coalition (MSC) has handled the Act 13 issue. I'll cop to crossing the line between strongly-worded and uncivil conduct. But my main point stands. The MSC has polluted the waters of debate with misinformation. I called it "shameless propaganda" because that's what it is. My conclusions are rational even if my behavior is uncivil.

The MSC may be more civil. It is certainly less rational. The arguments advanced in support of industry positions don't survive scrutiny. There are many assertions and little support. The logic is tortured. The issues are more confused.

I've spilled enough ink about the MSC. My column that ruffled feathers is mostly about Pennsylvania politicians and Governor Tom Corbett. The catalyst for this Sunday morning rant is State Representative Gordon Denlinger. I could quibble with his gushing love letter to Act 13. He makes some good points and contributes to the rational discourse about the energy economy. I would have let it pass without so much as a peep save for the how he decided to end the essay:

People sometimes forget that manufacturing declined in Pennsylvania and the Rust Belt not because of cheap labor overseas, but because federal Environmental Protection Agency regulations for factory emissions became so strict that the only way to meet them was to use natural gas. But because natural gas was too expensive in the United States and energy was cheap overseas at that time, away those manufacturing jobs went.

We've entered Tin Foil Hat territory. How does printing lies serve rationale discourse? How does that help Pennsylvania residents come to a consensus? Ah, the civil tone makes all the difference. As for my uncivil tone (see "Tin Foil Hat territory"), I'm clearly irrational:

When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector. This meant that we needed fewer industrial workers and thus many workers were pushed out of industry. At the same time, we were still getting wealthier and demanding more services, and slow productivity growth in this sector meant that to provide these services it had to pull in the workers shed by industry.

Both push and pull forces were present in both periods. But, pull factors (i.e., the increased demand for services) was the predominant cause of decreasing industrial output and employment before World War II while push factors (i.e., rapid productivity growth in industry and slow productivity growth in services) dominated after the war.

The decline of manufacturing started long before the Environmental Protection Agency existed (born in 1970). Often overlooked are the gains in productivity and how that has impacted employment. Less labor is needed to produce more goods. Something else to chew on are the innovations in shipping:

Just as the computer revolutionized the flow of information, the shipping container revolutionized the flow of goods. As generic as the 1's and 0's of computer code, a container can hold just about anything, from coffee beans to cellphone components. By sharply cutting costs and enhancing reliability, container-based shipping enormously increased the volume of international trade and made complex supply chains possible.

"Low transport costs help make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics and American colorants, and ship them off to eager girls all over the world," writes Marc Levinson in the new book "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger" (Princeton University Press).

For consumers, this results in lower prices and more variety. "People now just take it for granted that they have access to an enormous selection of goods from all over the world," Mr. Levinson said in an interview. That selection, he said, "was made possible by this technological change."

Without the shipping container, you can forget about the differences in costs of labor and regulation. Now use that same lens to better understand the economics of the Marcellus Shale. Natural gas doesn't travel as well as oil does. It's more expensive to transport. Hence, there is a huge variation in pricing around the world. Furthermore, it is cheaper to extract the gas in Pennsylvania than just about anywhere else on the planet. That means Pennsylvania could squeeze a lot more revenue out of industry and pile on more regulation without killing the goose laying the golden eggs.

The omission of this kind of discourse from the debate about shale gas is, to say the least, suspicious. I don't expect the MSC to shoot itself in the foot. Keep the cost of doing business as low as you can. But don't make things up in order to advance your cause. The EPA is a straw man and a red herring. Prior to Act 13, the shale gas industry boomed in Pennsylvania. We have to ignore history in order to appreciate industry's position. That is what the Pittsburgh Business Times calls rational discourse.

Saturday, February 16, 2013

Ironic Brain Drain

Britain is dying. The recovery, if one can call it that, continues to muddle along. Nativism is reaching a feverish pitch. Talent is fleeing for Australia, the United States, or Canada. Oh. I left out the most important destination, Nigeria:

After benefiting from Britain’s world-class education, amassing post-graduate degrees and acquiring a wealth of experience working in top companies, the worldwide recession and the search for something different has prompted these second-generation British-Nigerians to leave Britain behind.

Although there are no figures to measure how many are moving back, anecdotal evidence shows that a large number of them – many of whom had never visited Nigeria prior to their big move – are choosing to ‘come home’ for several reasons including personal ambition, entrepreneurial success, marital considerations or just the sheer adventure of experiencing where their parents came from.

While thousands of young people regularly leave Nigeria to school abroad, and after a few years return home to continue their careers, for those that call England home, making the transition from their first-world comfort zone to their third-world origins can be both daunting and rewarding. 

Literally, this isn't your father's return migration. When people move, two places are linked. It isn't a zero-sum game. But go ahead and call it brain drain, if you must. London is failing to develop people:

“Lagos is such a dynamic city with a hustler’s heart. If you have an idea then this is the town to explore and experiment with it. London on the other hand can appear to be a saturated market, especially for those with an entrepreneurial spirit.”

She may have found success in Nigeria, but does she miss London? “I have good and bad days, but all in all I could never have had the experiences I have had these past five years had I remained in England. I also try to return every three or four months and I hope to one day have a work structure that affords me the opportunity to spend a few months in the summer there annually, while being based here the rest of the year. But England will always be home for me no matter how long I am away.”

As I see it, the U.K. is in a unique position to benefit from the rapid development going on in Nigeria. As Richard Florida would see it, London is a Creative Class loser and Lagos is a Creative Class winner. The not so spiky world of China:

Are the jobs in more advanced cities better than anywhere else? Perhaps not. According to Beijing Business Today, a man from Hunan Province who works in Beijing said he can earn 3,000 yuan ($481.40) a month, but spends half of that on rent.

A survey by, a recruitment website in China, found that only 4 percent of people who left their hometown for work are earning the salary they'd hoped for, plus they have higher living expenses. Many of these people are not happy in these big cities, but they dare not go back home because their family is proud of them.

The reform and opening-up focused on developing certain areas first, then spreading prosperity throughout the country.

As China's uneven development gets addressed, there are many new opportunities available in small cities and rural areas. While some are hoping to escape first-tier cities due to high housing prices and cost of living, most are still struggling with the "big city" halo.

Migration is restructuring Chinese society and reshaping social concept about "home." Working in China's top cities is certainly an attractive option for many, but perhaps not the best choice for everyone.

Emphasis added. The urban agglomeration economy has started to unravel. The "New Geography of Jobs" is already the old geography of jobs. Innovation is happening where the migrants are going. More people would leave Big City if they could or if they knew they could make it work elsewhere. Word is getting out, and so is the talent.

Friday, February 15, 2013

Brain Drain Champion Pittsburgh

At first blush, brain drain is an indicator of place failure. If everyone is leaving, then there must be something wrong with the city. However, all economically vibrant metros bleed thousands of people every year. New York City is dying.

Pittsburgh is dying. That's the good news. Richard Florida is on record espousing "Pittsburg's" shortcomings. A lack of talent and tolerance were killing the region. Florida is mistaken:

It is a story that the city knows well by now, as it has transitioned from one of the great hubs of corporate and industrial America to a new economy based on small technology and medical companies with unfamiliar names. It is only somewhat of a coincidence that on the same day as Heinz’s announcement, US Airways, which grew out of the old Pittsburgh carrier Allegheny Airlines, said it was merging with American Airlines, a Texas-based company.

Heinz is the latest in a long list of prominent American companies that have significantly reduced, or all together eliminated, their presence in the Pittsburgh area, including erstwhile giants like U.S. Steel and Gulf Oil, which were among the nation’s 10 largest in 1955, according to David Hounshell, a professor at Carnegie Mellon University. Now there are none among America’s 100 largest companies.

But in the course of reducing it reliance on industry and big corporations, Pittsburgh has become one of the more envied stories of urban revival in the Rust Belt. The proportion of Pittsburgh’s work force in manufacturing is now actually lower than the national average, according to Christopher Briem, a University of Pittsburgh professor. But so is its unemployment rate, at 7.2 percent.

Emphasis added. The corporate (and talent) exodus is a Pittsburgh strength. The urban revival doesn't tip its cap to the horribly confused Creative Class policy recommendations. The brain drain, something Richard Florida himself tried to address, is the real Pittsburgh success story. Miami and Windsor, take note.

Thursday, February 14, 2013

Innovation And Density

Toronto is dying. The bellwether is the condo market, which is suffering from too much supply and not enough demand. The demand side of the equation is disconcerting:

In a recent report, the Canada Mortgage and Housing Corporation discussed the effect of slowing population growth on real estate in Toronto:

“At least part of the reduction in ownership demand (in Toronto) over the second half of 2012 can be linked to weaker migratory flows into the region. Net migration for Ontario over the past year ending in September 2012 declined by more than 20 per cent as a decreased number of people from other countries came to live in the province and an increased number of Ontarians migrated out. This suggests that the GTA (which doesn’t have updated data for 2012 but represents roughly 70 per cent of the province’s migration flows), saw the number of net new people decline to below 60,000 for the first time since the late 1990s.”

Everyone is heading to Alberta, where the jobs are. Toronto isn't the draw that it used to be. The Innovation Economy is converging.

The other factor is agglomeration pushing people out. The rent is too damn high. Exodus California:

An analysis by Jed Kolko, the chief economist at Trulia, a real estate data company, argues that the crucial driver of out-migration from California toward states like Texas is home prices, not taxes. He bases this argument on a few important findings. First, while California has significant net out-migration, it experiences very slight net in-migration by households making more than $200,000 a year. The biggest out-migration is by poor and middle-income cohorts. This is inconsistent with the theory that California drives rich people (or “job creators”) away with high top-income-tax rates.

Additionally, Kolko looks at the relationship between the California home price premium -- the difference between average home prices in the state and the national average -- and out-migration, finding that as home prices fell in California relative to the country, out-migration fell, too. A regression analysis showed that the home price gap was a much stronger predictor of out-migration in a given year than the difference in tax burden, though both mattered.

Conservatives and liberals both tend to have the wrong reactions when confronted with this analysis.

Everyone is heading to Texas, where the jobs are. California isn't the draw that it used to be. The Innovation Economy is converging.

The good news for Toronto is that falling condo prices should make the metro attractive again. Same goes for California's big cities, right? That's the theory:

This would have been a good opportunity for Cox to reference Ryan Avent’s excellent book The Gated City, which argues that the U.S. would yield significant economic benefits if its highest-productivity regions had a lower cost of living. But because many high-productivity regions have a high cost of living, many households, particularly less-educated and less-affluent households, have migrated to low-cost regions — some of them in Texas — that have a lower level of productivity than, say, the San Francisco Bay Area and the New York city region.

And this is why those of us in the pro-urbanist camp favor density in high-productivity, high-amenity, high-cost regions. By building more housing units in currently capacity-constrained regions like southern California and Boston and New York, we can reduce the cost of living. This in turn will mean that less-skilled workers will be more likely to remain in these regions, and to find more lucrative service sector work than if they migrated to (relatively) low-productivity regions.

I should add that Texas’s leading metropolitan regions are becoming more productive, and there is every reason to believe that they will converge on the productivity leaders over time. But that doesn’t change the fact that affluent coastal regions can learn a lot from the Texas model, which I take to be Cox’s basic point. It’s just that expanding outward is not as viable an option in these regions as expanding upward.

Emphasis added. That's the problem for the winners in the New Geography of Jobs. Converging metros will also compete for talent. Cheaper condos may not be enough to save Toronto or San Francisco. More importantly, sprawling Texas metropolitan regions are becoming more productive. What's all this fuss about the magic of density?

Alberta and Texas are attracting a lot of migrants. Birthplace diversity is increasing, rapidly. Up goes productivity and innovation. The magic is migration, not density.

We needn't worry about cramming more people into Toronto or San Francisco. The spiraling cost of real estate is forcing relocation, across all incomes. People of modest means are fleeing Los Angeles and putting down roots in San Antonio. Yet the urban core is hollowing out in that Texas metro. San Antonio isn't booming, converging in terms of productivity, because of density. Talent is pouring in from elsewhere. People develop, not places.

Tuesday, February 12, 2013

Zero-Sum Creative Class

I highly recommend watching the American Experience episode about Silicon Valley. It's all about talent migration. Specifically, you'll learn how brain drain is an engine for talent attraction:

The eight were Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce, and Sheldon Roberts. They contacted the New York investment banking firm of Hayden, Stone & Company because Kleiner’s father had an account there.

They asked the bank to help them find a corporation interested in hiring the group of them to help establish a semiconductor operation, preferably, on the San Francisco Peninsula. This attracted the attention of Rock, an analyst at the investment bank. Rock in turn introduced them to Sherman Fairchild, who at that time was IBM’s largest shareholder. Fairchild was interested in redirecting his camera company towards the field of electronics and data processing. Together they created Fairchild Semiconductor in Palo Alto in 1957, the first venture to work solely with silicon.

Over the years, the departing “Fairchildren” helped to create the semiconductor industry. Between 1966 and 1969, no less than 27 new chip ventures were formed by Fairchild émigrés. Two the eight, Noyce and Moore, started Intel Corporation in 1968 and Rock also funded them with $2.5 million.

The novelty of Fairchild Semiconductor concerned talent management. Rigid hierarchies and employee loyalty were the norm. That legacy lives on via noncompete agreements. Brain drain is bad. The company that develops human capital owns that human capital. For Silicon Valley companies, brain drain is good. The Fairchildren changed the world.

The contemporary example of Fairchildren is the Google Diaspora. Ex-Googlers are changing the world. That can't happen in places such as Boston where brain drain hysteria is a chronic affliction. Instead, metros look to Richard Florida and his zero-sum thinking about the Creative Class:

In Miami, we talk a lot about the “brain drain”, where we lose talented people to places like New York and Los Angeles —

Florida: The overriding concept I like is “brain circulation”. It’s not brain drain, it’s not brain gain, it’s brain circulation. So what I think Miami should do is bring people in and send people out. The more people who go out and say, “Miami is this amazing laboratory for urban transformation, and I thought it was fabulous,” the better for Miami. My hope would be that some of those people figure out a way to incubate start-ups [in Miami]. Not just high-tech start-ups — social innovation, social enterprise, urban transformation, arts and cultural organizations. ...

... The concept of brain circulation is very interesting because we tend to harp on the “drain” part of the cycle.

Florida: I just look at the people I know that are choosing to live here. The net in is better than the net out. So I think Miami is winning. It’s really quite amazing, our ability to do brain circulation, and I think we minimize that. We look at every young person who leaves as a big loss, instead of saying, “They’re going out, they’re getting skills, they’re learning the world, and we’re attracting a lot of people.” There are very few regions in the world that have this net in that we do.

That's an odd answer coming Richard Florida. Just a few weeks ago, he stated the following at Atlantic Cities:

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.

Emphasis added. I guess what is good for Miami is bad for Des Moines. Richard Florida is having a hard time keeping his ideas straight. For place-centric thinkers, talent migration is a zero-sum game. Miami is a winner. Des Moines is a loser. Listen to Richard Florida so your city can win, too:

When I wrote The Rise of the Creative Class and I identified these three Ts — technology, talent, and tolerance — I said cities that did all three had an economic edge. And I said that’s Silicon Valley, Austin, Boston, Seattle, on and on. And I used Pittsburg as an example of a city that had great technology but lacked tolerance and talent. And I used Miami, in that book, as an example of a city that was tolerant in lifestyle but lacked technology.

Ah yes, Florida conflating correlation and causality. Again. Cities don't have agency. People do. Talent that migrates, particularly across international borders, has an economic edge. Wherever they end up, talent always wins and the global economy is better for it.

Sunday, February 10, 2013

Ironic Talent Migration: NYC To Denver

To make it in this world, you must leave New York. The Innovation Economy is converging. "Go West, Young Band":

The Lumineers’ success — their album has sold about 900,000 copies — leveraged Denver’s cozy, supportive local scene with East Coast ambition. Until Mr. Schultz and Mr. Fraites picked up and moved to Denver, the Lumineers had been, in Mr. Schultz’s blunt term, a “failure.”

Mr. Schultz and Mr. Fraites grew up in Ramsey, N.J. and have been writing together since 2005. Along the way, Mr. Schultz said, he changed from being a wordy singer-songwriter to prizing melody first.

“Your melodies make people want to hear what you’re saying,” he said. “They’ve got to be open to hearing it, almost hum it. And if they want to go deeper there is something there.”

Trying to get noticed they played open-mike nights in New York City and aspired, in vain, to move up to the small clubs on the Lower East Side. “We always wanted to play the Living Room, or Pianos, or the Mercury Lounge, but we never got anywhere close to that,” Mr. Fraites said. “We thought that was like Madison Square Garden.”

At the city’s coldly competitive open-mike sessions, “everybody comes in and sees their friend’s band and shuffles out,” Mr. Schultz said. “It was impossible to build, to break through that.”

Mr. Schultz, now 30, was living in Brooklyn and scrambling to pay the rent. When Mr. Fraites, who is 27, graduated from college, they decided to move elsewhere.

They considered London, Philadelphia and Boston. “And then,” Mr. Fraites said, “we said, in our ignorance and naïveté: ‘Let’s move to the middle of nowhere. Let’s go to Denver.’ The idea was to eliminate distractions. It wasn’t necessarily Denver.”

This is the world of ironic demography. Shrinking cities are getting smarter and younger. Rapid aging grips boom towns. The biggest, baddest cities spit out more people than they take in. In order to get ahead, you move down the urban hierarchy.

Steel sharpens steel. "Coldly competitive" begets "East Coast ambition." Rust Belters run roughshod over Portland:

I found getting work ridiculously easy; I had a job within a week. But a lot of people here really struggle. I work with 28-year-old people who make $8.50 an hour and smoke pot all the time and come to work and they're lazy. You could not go to Wooster, Ohio, and do what people do here, or Columbus or Cleveland. I don't understand the structure of it, or why people would want to do it. In five years, what are you going to have, if you're not building real relationships, if you're just doing what you feel like doing? I hired (a guy) at Grand Central. He's one of the nicest people, but he's 42 without any roots. He has no savings; he's living on his sister's couch. He's the quintessential Portland person. If Portland is Neverland, he's Peter Pan. 

Is density the magic of cities? No. The greatest density in the world can't hold a candle to migration when it comes to creativity and innovation. Move or die, Brooklyn.

Marcellus Shale Fueling Brain Drain

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Saturday, February 09, 2013

Rust Belt Chic Richard Thompson

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

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

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

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

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

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

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

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

Future Of Professional Economic Development

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

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

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

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

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

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

Friday, February 08, 2013

The End Of Geography

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

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

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

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

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

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

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

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

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

Thursday, February 07, 2013

Richard Florida And Brain Drain Boondoggles

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

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

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

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

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

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

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

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

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

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

Wednesday, February 06, 2013

Urban Hierarchy Of Talent Production

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

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

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

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

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

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

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

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

Tuesday, February 05, 2013

Puerto Rico Is Dying

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

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

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

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

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

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

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

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

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

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

Monday, February 04, 2013

Germany's Ann Arbor Dilemma

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

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

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

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

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

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

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

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

Sunday, February 03, 2013

Ironic Talent Migration: Spain To Mexico

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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