Creative Class

I’ve just read a fascinating book, The Age of the Unthinkable, by Joshua Cooper Ramo. Ramo is a managing director at Kissinger Associates, focusing on China. He’s a former foreign editor for Time magazine.

The Age of the Unthinkable talks about how uncertainty and interconnection is increasing in every aspect of our lives and in world politics. From the interplay of energy use and the environment to finance and mortgages, to diseases spread by travelers, to terrorists and weapons of mass destruction, the world is becoming unmanageable using old models.

Complex decentralized systems are not unmanageable. Think of the Internet or healthy ecosystems or financial markets (OK, there was mismanagement at some levels. But the system worked, trading can go on even with the overload of a crisis). The thing is, they’re not manageable by straight-line thinking and top-down control.

As you might guess from his background, Ramos talks a lot about international relations. He says the old institutions set up after WWII – from the UN, to the way the State Department is organized, to how foreign aid is distributed – are not only incapable of dealing with today’s uncertainly but are actually counterproductive. One reason is they’re all designed to confront perceived problems head-on, which often has the result of making them worse – think nuclear proliferation, the war on terror, the financial crisis.

To oversimplify, Ramos says we need to do a couple of things.

1. Build resilient systems at every level.

• To deal with bioterrorism or new virus strains, we could try to plan for every eventuality, develop and stockpile vaccines, etc. But a more effective plan would be to build a strong healthcare system, with an efficient and effective public health component, and be ready to react to whatever happens.
• On the financial crisis, he talks about America’s low savings rate as a reason why the meltdown is so hard on individual families. If people had adequate rainy day funds we’d be better able to ride out the inevitable  downturns.

2. Design for uncertainly by using the model of our immune system.

• Be ready to react to crisis and opportunity with flexible systems. He talks about involving people at every level of an organization, or of a society, in decision making. Great case studies from Hizb’allah to a company in Brazil’s 1980’s financial meltdown to AIDS care in Africa.

This seems to me to overlap with the transition to a creative economy and Richard’s mantra that every person is creative and we need to make all work creative.

(Interesting David Brooks piece about Iran in today’s NY Times along the same lines.)

Book Flack, Larry Hughes on things he’d “like to see on C-Span Book TV:”

8:00 pm: The State of American Publishing
Authors Nevada Barr, Richard Florida, Gary Indiana, and J. California Cooper compete in skeet shooting, track & field events, and Greco-Roman wrestling to determine who will claim this coveted title

Dutch start-up SellaBand has built a platform that allows artists to crowd-source funding from music-lovers around the world. Established in 2006 by two Sony-BMG music executives, it provides a Bowie-bond like process for up-and-coming bands to raise $50,000 to record their album by selling ten-dollar “parts” to online “believers.”

Economist Ajay Agrawal has been studying SellaBand’s business model as part of a new MPI program on Innovation and Creativity. He recently hosted an evening featuring a performance from the first Canadian to record with SellaBand, Angie Arsenault.

Ed Glaeser has some very sensible things to say about the shrinking cities brouhaha. Despite the growing hype, there’s not a shred of evidence that the Obama administration is considering bull-dozering anything. Glaeser says it makes a heck of a lot more sense to favor people over places. Invest in human capital and encourage people to be mobile, Glaeser contends, promise much better long-term economic payoffs than undertaking expensive and dubious strategies to try to revive dying places.

It’s useful to put the current debate in historical context. “Planned shrinkage” was originally proposed in the 1970s by then NY housing commissioner Roger Starr. Even earlier, the late Senator Daniel P. Moynihan advocated for the related idea of “benign neglect” as a pillar of urban policy. Both resulted in a slew of unintended and nasty outcomes – like increased arson and violent crime. And as the market for some central locations, like NYC, began to improve, a whole bunch of neighborhoods that were candidates for government-assisted “shrinkage” (read: slow demolition) once again became valuable – parts of Brooklyn, Queens, Hoboken, even Jersey City. Economics is a big part of their comeback. But this would not have happened if the building stock of those places had been allowed to completely decay or was demolished.

It’s abundantly clear that the contemporary shrinking cities movement in the U.S. and Europe is much more sensitive to urban conditions. These contemporary approaches recognize that globalization and market forces work against some older locations. They sensibly suggest that such places would be better served by proactively managing the process of economic transformation and adjustment. Flint and Youngstown provide useful models of how older communities can strategically adjust to the strong forces of economic concentration and spiky globalization. Pittsburgh’s economic transformation – feted by Newsweek’s Howard Fineman among others as a model for Detroit and other places – is a case study of how to shrink smart and strategically.

The most successful shrinking strategies, like Pittsburgh’s, are not top-down affairs driven by all-knowing governments, but organic, bottom-up, community-based efforts. While Pittsburgh government and business leadership pressed for large-scale urban renewal – stadium-building, convention centers, and more far-fetched schemes for local mag-lev trains – its real  turnaround was driven by organic, bottom-up initiatives. Community groups, local foundations, and non-profits – not city hall or business-led economic development groups -  were the driving forces behind neighborhood stabilization and redevelopment, university-based economic development, water-front revitalization, park improvements, and green building among others.  This kind of bottom-up process takes considerable time and perseverance. In Pittsburgh’s case, it took the better part of a generation to achieve stability and the potential for longer-term revival.

All of which brings us back to a big question: What about people versus place strategies? I agree with Glaeser: people must be the priority. Especially in tough economic times, public investment should flow toward people. Early childhood investments, as James Heckman has shown, are the most important, longest-running and highest-paying investments we make.

But places also matter. Sure, there are plenty of things that urban policy has done wrong – like large-scale, top-down urban renewal – things that we need to stay wary of and not repeat.  That does not mean public policy should ignore places.

The quality of the place we live is a key component of our happiness and subjective well-being. We now have solid empirical evidence about what people want and need from places: safety and security, good schools, economic opportunity, the ability to connect to other people, ethical and forward-looking leadership, opportunities for civic engagement, a place that gives everyone a go with abundant green space, a clean environment, and a strong sense of its own history, among other things.

There are plenty of small-scale, locally rooted investments that can and do make a difference – the kinds of things Jane Jacobs and others have long advocated – that don’t cost an arm and a leg and which provide broad public goods kinds of benefits: improving run-down buildings and community sore spots, encouraging community engagement in schools, upgrading parks and open space, planting trees and urban gardens, adding bike lanes, widening sidewalks to encourage both pedestrian use and outside activity, updating zoning and building codes to enable upgrading of commercial strips, live-work conversion and mixed-used development.

As with so many things in life, it’s the small stuff that can really make a difference – in this case not just to cities, shrinking and otherwise – but to the quality of life and happiness of the people who live in them.

Globalization skeptics have long complained about the alleged out-sourcing of good, high-paying American jobs. But even globo-optimists, like Tom Friedman, have conceded that U.S. jobs are vulnerable with the rise of a flat world. In a 2006 essay in Foreign Affairs, Princeton economist and Obama adviser Alan Blinder argued that globalization would likely bring about a mass off-shoring of American jobs. Blinder later used Bureau of Labor Statistics data to estimate that some 30 to 40 million U.S. jobs, 22 to 29 percent of all, including significant numbers of jobs in knowledge work and high end services were “potentially off-shoreable.”

International economist Richard Baldwin takes a close look at the actual figures and finds a very different trend. Examining IMF data on the dollar volume of trade in services originally compiled by economists, Mary Amiti and Shang-Jin Wei, Baldwin plots the dollar volume of out-sourced U.S. service work against the dollar-volume of service work that has been attracted to or in-sourced by the United States.

As the chart shows, the U.S. is a net in-sourcer of service jobs, with the U.S. in-sourcing gap actually increasing over time. Based on this, Baldwin concludes that:

The US, as it turns out, is a net “insourcer.” That is, the world sends more service sector jobs to the US than the US sends to the world, where the jobs under discussion involve trade in services of computing (which includes computer software designs) and other business services (which include accounting and other back-office operations. … Blinder is right in that the US importing an ever-growing range of commercial services – or as he would say, the third industrial revolution has resulted in the offshoring of ever more service sector jobs. However, the US is also “insourcing” an ever-growing number of service sector jobs via its growing service exports. The startling fact is that not only is the trade not a one-way ticket to job destruction, the US is actually running a surplus.

The data only cover the period 1980 to 2003, so it is certainly possible that the trend-line has changed since then, but Baldwin argues that the logic of trade in services suggests this basic trend will continue.

Since services are highly differentiated products, and indivisibilities limit head-to-head competition, my guess is that we shall see a continuation of the trends in the chart. Lots more service jobs “offshored” and lots more “onshored”. What governments should be doing is helping their service exporters to compete, not wringing their hands about one-way competition from low-wage nations.

Richard Florida will appear on ABC’s 20/20 speaking with Dan Harris on the economic crisis and the “New Normal.” The interview will air June 19.

Below are two photos of the taping in the show’s Manhattan studio.

Tune in and tell us what you think of the interview!

Some topics, like some years, seem never to go out of fashion. So with the ranking of cities. This is in part due to the almost endless ways in which the pie can be sliced and the endless interest in the different types of fruit. Surveys throw up different results. In one of the newer slices, Tyler Brule ranks the most livable cities in the world in the FT. The index is based on Monocle’s “world’s most livable cities.”

Zurich, Switzerland wins as the most livable city in the world followed by Copenhagen and Tokyo. But Copenhagen is the most interesting result. I have spent some time in Copenhagen recently and have been curious about several things. The Danes are the happiest people in the world, are the most entrepreneurial, and now have one of the most livable cities. Curious. I wonder what the Baltic states have that the rest of us do not? Is it the homogeneous culture, is it the low level of stress? In the sixties the Danes decided not to teach children how to read because it was too stressful. College students get a stipend to go to school. And the city, well it is also a very livable place with almost everyone on bicycles, including women with babies in the winter.

Crosscut argues that it’s time for Seattle and other cities to learn from NYC’s example and start turning old elevated structures into parks and other good uses (pointer via Planetizen).

[T]hink a bit about the advantages of elevated linear parks. They can provide remarkable views, often through the slots of the cityscape. They open up access to back-door and upper-level spaces. They make connections with gritty urban history. The design experience is not the usual bland blend but instead has the visual excitement and tension of green spaces set amid rusting iron forms. The Seattle aesthetic has been to make open space as green and pastoral as possible, as if blotting out the city. Time for a richer palate, a more dissonant and beautiful chord.

(Image from thehighline.org)

Entrepreneurship seems to be the cure all for almost everything including the common cold. In a recent paper, the Kauffman Foundation found that the number of Fortune 500 companies and Inc 500 companies were founded in bear markets. A bear market is when stock prices are more or less falling and a bull market is one in which they are rising. Now this seems counter-intuitive at first. Would you not start a business when times are good? In bad times, if other firms are having trouble selling goods and services, why would you start another one? However, there is another aspect to this. If you lose your job you might have to start a business (a necessity entrepreneurship). But I do not think many of these would grow up to be Fortune 500 companies.

So how do we explain the Kauffman finding? Well, a quick look at bear and bull markets reveals a very interesting finding. Over the whole of the 20th century we found about three bear markets (the market rising) and about three bull markets (the market falling). Each is about 15 years, give or take a little. Keep in mind that a bear market does not mean recession. Recessions are short, but bear markets can last a very long time. In fact, the current bear market stated about 2001 so we are about halfway through if you take the more or less 15-year average. So it is not surprising if about half of businesses are started in bear markets. In fact, a quick look at the statistics suggests that the start-up rate of new firms is not very sensitive to recessions. They are around eight percent. They never fall by 50 percent and never rise by 50 percent.

So what does this finding tell us? Nothing I am afraid. It is business as usual. In good times and bad times Americans will start businesses. I would suggest that the creative class start-up rate is also very steady in the recession. The regional variation of this might also be very interesting.