Creative Class

The new issue of BusinessWeek (December 22) finds economist, Michael Mandel digging into the jobs data. What he finds is very interesting: jobs in manufacturing, transportation, construction, and extraction are tanking – what he calls the “tangible sector” and we call the “working class” have cratered, but jobs in professional fields, management, and science and technology – he calls them the “intangible sector,”we say “creative class” – continue to grow. The U.S. economy has lost nearly two million jobs in the past year, close to the 2.2 million jobs lost in the 1973-75 recession (we’ll go past that benchmark soon if we haven’t already), and unemployment (as officially defined) stands at 6.7 percent. But unemployment in manufacturing is 9.4 percent and even higher, 12.1 percent in construction and extraction. Here’s the rub. Of nearly all the 1.9 million jobs lost, 1.8 million of them  were tangible sector jobs. The intangible sector actually added 515,000 jobs. The economic effects of the crisis remain very uneven for socio-economic classes and for regions.

The latest issue of Martin Prosperity Insights is out. Read it here.

Stimulus and infrastructure building are all the rage these days. Our project on the crisis and the future of Ontario tackles infrastructure options. Led by civil engineer Chris Kennedy, whose forthcoming book The Wealth of Cities examines the role of infrastructure historically in powering economic growth, the report provides a framework for thinking about and investing in the future. The Toronto Star’s Sandro Contenta reports:

The report estimates the total cost of infrastructure work at up to $27.5 billion. But they say their recommendations address the two most pressing issues today – global warming and global recession. The report proposes 560 kilometres of high-speed electric track that runs from Toronto north to Orillia, east to Peterborough and west to a corridor that includes Waterloo, Hamilton and Niagara Falls. It would take at least a decade to build and cost anywhere from $4 billion to $20 billion, depending on the route and technology chosen.

The rail system would help create a high-density “mega-region” by improving transportation and attracting what the report calls well-paid “creative” jobs, such as those in aerospace, finance and telecommunications. “A high-speed rail network knitting Ontario’s cities together could revolutionize the province’s role within the continental and global economic systems,” it says …

The provincial government plans a 15 per cent reduction in greenhouse gases, below 1990 levels, by 2020, and an 80 per cent reduction by 2050. The report describes Ontario’s plan to phase out coal-burning energy and Metrolinx’s proposed transit projects during the next 25 years as important steps. But it adds that Ontario’s population is expected to increase to about 15 million by 2021 – with half of the 2 million growth in the Toronto region – and more needs to be done …

A scenario in which 25 per cent of Ontario cars are plug-in hybrids would require an extra 2,500 megawatts of electricity during peak nightly hours, when most would be recharging their cars. It would cost between $5 billion and $7.5 billion to build the extra nuclear and wind power needed, spread over a 10-year period, the report says. The move could also put Ontario at the forefront of the emerging hybrid auto sector, it argues.

The report emphasizes “mobility hubs” built around high-speed rail stations that connect passengers to local buses, trains and subways. The government should zone land around these hubs to allow for a high-density mix of residential and commercial buildings, it says. Highway congestion would be reduced by high-speed trains that can travel, depending on the technology used, from 130 to 400 km/h, the report says. This high-speed link could eventually be extended to Ottawa, Montreal, Chicago and New York, the report says.

(Graphic via the Toronto Star).

Would a ban on fast food restaurants in our cities and towns help lower the rate of heart disease? Would a program to collect Dog DNA from poop left on our streets and sidewalks help us target negligent owners? Could we harness our own bio-mechanical energy to charge our cell phones, even our cars? Does ‘redshirting’ children, holding them back so that they can enter grade school at an older age, wreak havoc on social security programs? Would local stock markets for regions no larger than Barrie, or Muskoka, help citizens allocate capital more efficiently to businesses that need financing? Could we switch our dietary habits from cow to kangaroo to help save the planet?

If you think I’ve just stolen and plagiarized part of the manuscript for the yet unpublished Freakanomics 2.0, you’d be wrong. These are the hypotheses and real life programs that earn brilliant and bizarre minds recognition in The New York Times’ “Year in Ideas.” If these few examples tickle your fancy, try “spray on condoms” on for size (not literally- these bespoke coital solutions are not yet widely available). Human ingenuity never ceases to amaze, eh?

One thing that stood out for me while reading these stories was how many of these truly remarkable ideas came from Canadians – three from Toronto academics and scientists alone. For The New York Times, where Canada’s parliamentary crisis earlier this month barely registered a blip on their radar, that is a pretty impressive showing from the Great White North, and I believe it speaks to the creative incubator that Toronto has become. Read the article and take notice of where many of these ideas began. There is perhaps no better indication of a “creative city” than the brilliant ideas it fosters and develops, and some of my favorite creative cities – San Francisco, Montreal, Washington, D.C., Minneapolis, and Boston, as well as my hometown, the T-Dot, get plenty of love.

Kevin Drum thinks maybe the rush to stimulus ignores the deeper problems facing the U.S. economy.

I continue to wonder if a massive stimulus package that spurs domestic consumption means that just as we propped up the economy in 2002 by replacing the dotcom bubble with a housing bubble, we’re now propping up the economy in 2008 by replacing the housing bubble with continuing support for our ever-ballooning trade deficit bubble …. See Tim Duy for more on this. I don’t know if he’s right, but I don’t feel too bad for bringing this up since no one else really seems to know either.

In any case, I do know that pretty much every economist in the country agrees, in general, that eventually U.S. consumption has to go down, savings have to go up, and we have to start exporting more than we import. It’s just a question of whether we can afford to worry about that with the economy collapsing around our heads. Still, here’s a thought: if this is a serious long-term concern, shouldn’t we at least try to construct a stimulus package that stimulates export industries more than other sectors of the economy? If so, how would we go about doing that? And what else should we be doing to prepare for the day when the current panic subsides, the great T-bill bubble bursts, and the rest of the world decides that 0% yields on treasuries suck and they don’t want to buy any more of them? And what they’d really like instead are some tangible goods and services…?

I don’t know. Maybe we really can’t worry too much about this at the moment. But the trade deficit bubble is going to pop eventually just like the dotcom bubble and the housing bubble. We at least ought to be thinking about this a little bit.

Yeppers. And here he is on the bailout “prepackaged bankruptcy” option.

It actually sounds like a decent compromise to me: it keeps the companies from imploding in the middle of a huge recession, but at the same time it gives a bankruptcy court considerable leeway to impose serious restructuring of the kind that a political process probably can’t. The end result — if it’s done right — is a pair of companies that will end up smaller but still viable in the long term, and an economy that takes only a moderate hit instead of a killing blow.

I mainly agree, but am much less optimistic on their long-term prospects. The key will be how to minimize such “incumbent claims” politically and shift investments to the new idea-driven economy.

Economists have long argued that wages are sticky. I think it was the late John Dunlop who first discovered this. He told me once that Keynes actually sent him a letter congratulating him on that. Fed Ex has just announced big wage cuts. Felix Salmon says it may be class warfare time.

There’s been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now. It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts.

Hmmm… cutting wages in a downturn when folks say there’s a need to stimulate demand and consumption. And double hmmmm… locked up credit markets where people can’t get loans. Try it for yourself, go out there and try to get yourself a mortgage on the buy-of-a-lifetime house. Boy oh boy, quite a vicious set of collective action problems we’re confronting. Not to worry: we have the stimulus and the auto bailout coming (ahem …).

I’m a member of the Net-Generation, people born between 1978 and 1997. At first glance, my cohort seems tailor-made for a decentralized and “flat world,” so we shouldn’t care so much about the place where we work. After all, the internet, like no other technology, has lowered geographical and temporal barriers for communication and collaboration, and N-Geners, like no other generation, are the most comfortable and capable working, learning, and communicating online. Case in point: I recently found myself collaborating on a project with two college pals on Skype (the free online video phone application): one in Palo Alto, California, the other in Alaska, while also chatting and sharing photos with a friend who was in an internet café in rural Vietnam.

However, while technology has lowered barriers and allowed people all over the world to participate in the global economy, it’s a mistake to suggest now that ‘place’ is no longer important for today’s emerging creative workers. Indeed where one works matters now more than ever.

Whether interested in finance, law, politics, computer programming, consulting, or medicine, young friends and colleagues of mine are drawn inexorably to the epicenters and major nodes of their respective fields; in cities, suburbs, and exurbs that also happen to score very high on the creative class index. This is certainly true for my friend in Palo Alto, a city straddling the area between San Francisco and Silicon Valley. He is a talented computer programmer working for an internet start-up. But what about my friends in Vietnam and Alaska, you ask? Did Google just open a server farm in Juno? Is rural Vietnam the new Silicon Valley? Why do your friends want to live there? Truth is they don’t.

My Alaska friend was working for Mark Begich, a Democrat, who defeated the incumbent Senator (and convicted felon) Ted Stevens. If ever there was an appropriate time to say “got out of there like a bat out of hell,” Jeff’s escape from Alaska after the big victory was it. Jeff is passionate about politics, and he is now in Washington, D.C. looking for full time work. Truth is he would rather struggle for a little while in D.C. than be instantly employed anywhere else. After all, every politically engaged young person he and I know wants to be in the U.S. Capitol and, as a result, a burgeoning social scene of smart, creative, and ambitious young people has flourished there. Dave, my friend in Vietnam just graduated from McGill’s School of Management and is wandering Southeast Asia barefooted and bearded trying to ‘find himself,’ but really he’s just on vacation. Like me, he will soon find himself up to his elbows in financial statements and spreadsheets. He is returning to Toronto to work at a boutique private equity group. Jeff was drawn to the epicenter of the political world. Dave, a former business student with an entrepreneurial streak, will return to Toronto- Canada’s financial capital, because he knows the city offers great opportunity for a person with his interests (it also helps that he is a die-hard Leafs fan). In both instances, the where did not merely influence their decisions, it determined them. If anything, their stints in Alaska and Vietnam simply reinforce the notion that the Creative Class, and young people in particular, travel and move throughout the world with increasing ease.

Though not identifying it as the “Net Gen” specifically, Richard Florida presciently foresaw the emergence of a new generation of the “Creative Class” in The Rise of the Creative Class, a theme that has surfaced in ensuing works. His experience interacting with students at Pittsburgh’s Carnegie Mellon University revealed that young people are drawn to certain hubs, crowding together in thriving and diverse places where like-minded individuals share lifestyles, cultural tastes, and work interests. While the moniker ‘Creative Class’ is not generation-specific, by 2018, when all members of my cohort will be of working age, the Net Generation will, simply put, dominate the creative class. As Boomers retire and Generation Xers fill the ranks of senior management, there will be an overwhelming demand for these young, highly educated people. Attracting them to companies and regions where they can thrive and prosper will be the next great imperative for today’s corporate leaders and politicians.

I encourage everyone to share your thoughts and opinions with me.  If a conversation begins, I will be happy to engage in it with you.

Ralph Gomory weighs in on bailout absurdity.

Read the whole thing here.

Not Steve Jobs, jobs-jobs. My old friend Greg LInden and a team of UC Berkeley researchers crunches the numbers (via Michael Mandel).

[W]e estimated that the iPod and its components accounted for about 41,000 jobs worldwide, of which about 27,000 are outside the U.S. and 14,000 in the U.S. (Table ES1). The offshore jobs are mostly in low-wage manufacturing while the jobs in the U.S. are more evenly divided between high wage engineers and managers and lower wage retail and non-professional workers. As a result of this, and of cross-country wage differences, U.S. workers earned $753 million, while workers outside the U.S. earned $318 million … While China accounts for the largest number of jobs outside the U.S., Japan earns by far the largest share of the non-U.S. wage bill ($102,380,000) because of its role in supplying key components like small hard-drives and displays. … [T]he iPod supports nearly twice as many jobs offshore as in the U.S., yet wages paid in the U.S. are over twice as much as those paid overseas. The most important factor is that Apple keeps most of its R&D, marketing, top management and corporate support functions in the U.S., creating over 5,800 professional and engineering jobs for U.S. workers that can be attributed to the success of the iPod.

These findings clearly show America’s very advantaged position in what geographers call the “spatial division of labor,” and show why bailouts of production operations promise far fewer economic benefits than investments in innovation. We need stop trying to slow down the process of creative destruction. The world has a complex globe straddling division of labor. More innovation creates more jobs here and good manufacturing jobs abroad. Seems like a win-win to me.

The UK-based, independent, National Endowment for Science, Technology, and the Arts (NESTA) has released a new report on the influence of arts and humanities research on innovation. Their work explores how arts and humanities interact with science and technology in the innovation process and infrastructure. Check out NESTA’s site and view the full report:

But innovation does not happen in isolation. It requires cooperation between government, universities, third sector organisations, entrepreneurs, businesses and consumers.

Innovative performance depends on their relationships and on the quality of the overall system. Innovation flourishes when there is a strong knowledge base combined with a culture of tolerance that embraces novelty and a diversity of ideas.

Traditional understandings of innovation emphasize the importance of science and technology research. In contrast, this paper investigates the role that arts and humanities research plays in the innovation system.