Creative Class

Check out this map of job postings by metro area (h/t: Steven Pedigo).

The map controls for population.

D.C. has the most openings, and Baltimore is second. San Jose, Austin, Hartford, Seattle, Salt Lake City, Denver, Boston, Las Vegas, Charlotte, and San Francisco all are doing reasonably well, relatively speaking.

Detroit comes in dead last, with the fewest openings Miami. Buffalo, Rochester, L.A., and Chicago are doing poorly.

An interactive version and the full list of cities is here.

Yesterday, we looked at overall trends in U.S. innovation measured by patents. Today, we break out U.S. patents between U.S.-resident and non-resident or foreign inventors patenting in the U.S.

Numerous studies have shown that, over the past two or three decades, the role of foreign scientists, technologists, and entrepreneurs in U.S. innovation has increased. Recent studies by AnnaLee Saxenian and Vivek Wadhwa and others find that anywhere between a third and half of all Silicon Valley start-ups during the 1990s had a foreign entrepreneur or scientist on their core founding team. As I have previously argued, foreign-born scientists currently make up 17 percent of all bachelor’s degree holders, 29 percent of master’s degree holders, 38 percent of PhDs, and nearly 25 percent of American scientists and engineers. My earlier research shows that Japanese companies – and some European companies as well – chose to locate research labs in the U.S. to access a diverse mix of scientific talent they cannot attract in their home countries.

The graph below shows the overall trend in patenting for U.S.-resident and non-resident foreign inventors between 1980 and 2005. Non-resident inventors have just about pulled even with U.S. inventors in patenting, and their rate of inventive activity more or less tracks that of U.S.-based inventors. But here again, even with two dips since 2000, the rate and level of innovation over the past decade remains up.

Clearly, foreign inventors have become a key feature of the U.S. innovation system. Without them the level of innovation would be much lower. Another way of saying this is that the American system of innovation has become increasingly dependent upon non-resident inventors. Foreign inventors patent in the U.S. to secure intellectual property protection in the large U.S. market. Clusters of sophisticated and demanding consumers and end-users help make the U.S. the place to be for high-end innovation, as Amir Bhidé points out in The Venturesome Economy.

While foreign patenting boosts the overall rate of innovation in the U.S., there is a considerable chance that these patented innovations are commercialized and produced off-shore, and thus that the U.S. economy will accrue less overall economic benefit from those technologies. While this is not direct evidence for Mandel’s innovation interrupted thesis, it provides a possible mechanism that might limit the commercialization and overall economic impact of innovation in the U.S.

As we saw yesterday, Michael Mandel argues that commercial innovation in the U.S. has slowed in recent years. To shed light on this, my team and I tracked U.S. patent data for the past decade – and for the entire 20^th century.

The first graph above tracks patent applications and patents granted from 1980 to 2005. Overall, the trend-lines are up. The line is steeper for patent applications, but it also tracks consistently upward for actual patents granted. There are significant dips after the tech-crunch of 2001 and in the wake of the financial bubble, even before the economic crisis of 2008. But those dips do little to throw off the basic upward trajectory of American innovation. In 2007, the overall level of patents granted was significantly higher than a decade earlier.

The second graph below controls for population, tracking the trend in patents per 10,000 residents. The trend-lines tell much the same story. Despite two recent dips, the overall trend in patenting is up considerably over the past decade.

The evidence here does not support the notion of an innovation shortfall. The overall level of innovation is up over the past decade. The most we can say is that the rate of innovation has leveled off in recent years when we control for population. Nonetheless, the trajectory of American innovation remains consistently up.

As we will see tomorrow, the picture gets a bit more complicated when we parse patents by U.S.-born (resident) and foreign (non-resident) inventors.

In a widely read cover story published earlier this month, Business Week’s chief economist Michael Mandel asks, “To what degree has American innovation been ‘interrupted’?” Mandel argues that the economic crisis is partly the result of America’s failure to generate high-impact commercial innovations.

What if, outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted?

The crux of his argument is that many, if not most, of the big breakthrough innovations that were supposed to occur over the past decade or so have failed to materialize. His article provides a raft of compelling examples of once-heralded innovations – in areas from biotech to micro-machines – that have simply not panned out. This failure to commercialize and diffuse these new breakthrough innovations – America’s inability to set in motion the great gales of “creative destruction” identified long ago by Joseph Schumpeter as key to capitalist growth – he argues, is a key contributor to both the financial bubble and the economic crisis.

But since there is compelling evidence that the figures are overstated by the credit bubble and statistical problems, we can construct a plausible narrative for the financial bust that gives a starring role to innovation-or rather, to the lack of it. It goes something like this: In the late 1990s most economists and CEOs agreed that the U.S. was embarking on a once-in-a-century innovation wave-not just in info tech but also in biotech and many other technologies. Forecasters upped their long-run growth estimates for the U.S. economy. Consumers borrowed against their home equity, assuming their future incomes would rise. And foreign investors lent America money by buying up U.S. securities, assuming the country would come up with enough new products to pay off the accumulated trade deficit.

Mandel lists four areas in which America’s recent performance has been lackluster: stock market performance in the pharmaceutical, biotech, and life-science sectors; declining real wages for highly educated workers; a mounting trade deficit in high-tech sectors (which grew from $30 billion U.S. surplus in 1998, turning into a $53 billion deficit by 2008); and little improvement in the death rate (which he sees as a measure of the failure of breakthrough medical technologies to materialize) as evidence for the failure of American innovation.

It’s no secret that I’m a big fan of Mandel and I find his general thesis about lagging U.S. productivity and job growth over the past decade or so to be both intriguing and plausible. And since so much of my own work focused on the relationship between innovation and American competitiveness was flagging, I find myself particularly drawn to his most recent “innovation-interrupted” thesis.

My first book, The Breakthrough Illusion, written with Martin Kenney in 1990, argued that the U.S. system of venture capital-backed breakthrough innovation was skewed to encourage short-term super-returns from new breakthrough innovations, and was structurally ill-suited to capturing the longer-term wealth derived from developing these innovations into successful products and industries. That work drew upon the intriguing thesis of innovation theorist Henry Ergas, who argued that the U.S. had developed a shifting system of innovation geared to near-constant development of new products through new firms, as opposed to a deepening system (think of German cars) which continuously adds technology to upgrade existing industries. According to Ergas, the key to long-run prosperity lies in synthesizing both strategies – cultivating an economy which could deploy new technologies in new sectors while at the same time deploying them to upgrade and revolutionize old ones.

I opened my 2002 book, Rise of the Creative Class, with a time-traveler experiment. Someone traveling from 1900 to 1950 would be blown away by the varied technical marvels that surrounded them from televisions to airplanes. But while someone who time-traveled from 1950 to the 2000 would see a few new technologies, like the personal computer and the cell phone, he or she would likely be much more amazed by sweeping social changes. And in my 2004 book, Flight of the Creative Class, I argued that America’s innovative edge in the late 20^th century was inextricably tied to its ability to attract foreign scientists, technologists, and engineers. The combination of mounting U.S. immigration restrictions and growing efforts by foreign countries to retain their own best and brightest (and attract others from around the world), I suggested, was an under-appreciated threat to U.S. competitiveness and prosperity.

In fact, I found Mandel’s essay so compelling that I decided to take a look at the actual data. Mandel rightly says that we currently lack a comprehensive “innovation index” that tracks commercial innovation: “There’s no government-constructed “innovation index” that would allow us to conclude unambiguously that we’ve been experiencing an innovation shortfall. Still, plenty of clues point in that direction.”

True enough. But research into the economics of innovation has discovered at least one reasonable measure of innovation – patents. There are problems and biases with using patents as a measure of innovation, as economists who specialize in the subject have pointed out. Patents measure certain areas of technology more than others. In some areas of commercially important R&D, patents are rarely used. Other areas, including less commercially relevant ones, are awash in patents for minutiae. And patents are not synonymous with commercially relevant innovations. That said, patents do provide a consistent, broad-gauge indicator of the level and rate of innovation – one that can be tracked over long periods of time and be broken out by nation, city, and region, and by U.S. resident versus non-resident or foreign inventors.

With my Prosperity Institute team – Charlotte Mellander, Scott Pennington, Dieter Kogler, and Patrick Adler – I’ve taken a look at the trends in U.S.-patented innovations. In a series of posts this week, I will report our findings. Tomorrow we’ll look at the trends in U.S. patents over time. Wednesday we’ll explore patenting by U.S. resident versus non-resident (foreign) inventors. Thursday we’ll examine the geographic distribution of innovation – tracking the rise of some innovative regions and the fall of others. And Friday we’ll discuss the longer-run historical relationship between innovation and economic crises.

Most people think the biggest threat to globalization is mounting economic nationalism and trade protectionism. That may well be true. But in a thoughtful and provocative article in the Harvard Business Review, George Stalk argues that globalization faces another threat – a looming infrastructure crisis that is creating huge bottlenecks in the flow of global products and services.

As supply and distribution chains have become longer and more complex, companies have begun to realize that increased logistics costs can reduce or even eliminate the benefits of manufacturing where labor is cheap. The congestion and bottlenecks of a transportation system strained beyond capacity compound the problem, making supply chains seem even longer and more unpredictable.

There’s a lot of talk about improving transport times for people, but at this time of rapidly falling imports and exports, there’s not much talk of increasing capacity for goods. High fuel prices are not the only issue here. It’s also the other costs of congestion: higher cost of inventory for goods that are locked up longer in transit; the costs of uncertain, more variable transport times; and the inability to react to changes in consumer demand.

Stalk argues that while the crisis provides a temporary reprieve, the stimulus is not addressing this looming longer-run economic threat.

If pre-recession trends reappear when the economy recovers, lack of infrastructure capacity, in combination with rising oil prices, will constrain global trade and drive up costs. The U.S. stimulus package, with its focus on “shovel-ready” projects that quickly create jobs, will produce newly painted bridges and newly paved roads but is unlikely to address the capacity problem.

In the wake of Michael Jackson’s death, there’s been no shortage of predictions about how his passing represents the end of the “age of celebrity.” The Wall Street Journal’s Daniel Henniger writes:

The Age of Celebrity died with Michael Jackson’s heart. Those of us dedicated to the zoology of celebrity should have known it was over when the death of next-to-nobody Anna Nicole Smith filled the airwaves in 2007 for a week. Celebrity had lost its meaning. We will bury its golden age in Jacko’s tomb.

Marketing runs the world now. Because of marketing the world is overflowing with people who are famous, or anyway familiar. These people aren’t celebrities. Not real celebrities.

Henniger ties Jackson’s celebrity to a major technological shift – the rise of cable television and MTV:

Michael is the last celebrity because he rose to fame in the 1980s, and in the 1980s there was no World Wide Web. We didn’t have 1,000 cable TV stations. But we did have MTV. MTV broadcast Michael Jackson’s “Billy Jean” video in 1983. Music videos helped make him a megastar, but Michael Jackson was the last one across the bridge from the world of celebrity to the media galaxy of bargain-basement fame.

And he argues the shift to digital technology works against the rise of another mega-celebrity:

It has taken some time to see how modern media squashed the life out of genuine celebrity. Web sites, TV and magazines shot Michael Jackson and his white glove into the sky like a Roman candle. But in the nature of fireworks, modern media then fired thousands of other people into the same sky – singers, actors, athletes, talk-show hosts, psychologists, comedians, models – and turned them all into . . . familiar faces…

A real celebrity is beyond reach. Today, to hang out with famous people all one needs is the ability to mouse-click. Constant clicking rubs the shine off anyone’s glamour. Beautiful people have become a dime a dozen.

Not so fast.

There’s good reason to suspect that, sooner or later, new technology will spawn an even bigger mega-star with even more global reach. That’s been the pattern in the past actually and there’s little reason to think it will end now.

My colleagues and I have been studying the implications of technological change and musical celebrity as part of the MPI’s Music and the Entertainment Economy project. Our work is still ongoing, but our reading of previous studies of music, popular culture, and technology, and our early findings, identify a powerful pattern.

With every new technology – from the rise of film, recorded music, talking pictures, transistor radios, FM radio, cable TV, and now the digital revolution – experts have predicted the death of celebrity. But each advance has generated celebrities bigger than the past. New technologies, as the work of German economist Peter Tschmuck has shown, open up new distribution channels and new markets that give birth to ever bigger stars.

The first big star was Rudy Vallée, whose soft singing voice was amplified by the invention of the electric microphone. He inspired other crooners like Bing Crosby, whose 500 million records sold make him one of the top five selling artists of all time. Next came Frank Sinatra – a true mega-star whose scores of bobby-soxer followers helped solidify the notion of teen pop culture and who was one of the first to capitalize on tie-ins between radio, albums, and feature films. Then came Elvis Presley, the King who took teen culture to a whole new level – his hip-swiveling appearances on Ed Sullivan making national news – and sold more than a billion records over his career.

Noted rock critic David Marsh has said that Elvis ushered in the first major shift in modern popular music culture. The second shift came with the Beatles (who also sold a billion+ records) and the British Invasion, which augured the shift to album-oriented rock featured on FM radio. Michael Jackson defined the third major revolution in popular music, selling some 750 million records and, according to Marsh, giving rise to the heavily produced pop form which is with us to this day. MJ can count everyone from Madonna and Justin Timberlake to Beyoncé, Britney, and Lady Gaga among his disciples.

But it’s a mistake to see MJ as the end of the line for celebrity.

The big mistake of most chroniclers of popular culture is that they see only one side of digital technology. It is true that new technology enables niche acts to reach larger markets, giving rise to the Long Tail phenomenon identified by Chris Anderson. But the long tail is only part of the story of the transformation wrought by high-speed digital networks. Anderson’s theory is based on a family of statistical distribution curves called the “power law” that are characterized by thick heads and long, trailing tails. All kinds of social and economic phenomena from the distribution of baby names to the distribution of city populations have been found to conform to these basic curves. Now, Harvard’s Anita Elberse and PRS’s Will Page are finding that, in the digital age, even though the tail is long but thin, the head remains “fat.” In fact, if you take power laws seriously, the head of the tail should grow in proportion to the length of the tail – getting fatter as the tail gets longer.

The digital revolution – from Facebook and Twitter to YouTube – creates a powerful platform for instantaneous global reach that goes beyond what radio, TV, and even cable TV can offer.

My hunch is that sooner or later we will see a new mega-star on a truly global scale. Not arising in one country like Elvis from the U.S., or the Beatles coming from the U.K. to “invade” America, or Jackson, an American conquering the world. This will be a celebrity who emerges simultaneously on a global scale – a person less tied to one country of origin who will be seen from the outset as a world mega-star.

Henniger curiously mentions Barack Obama (as well as Mark Sanford, Arnold Schwarzenegger, and Mike Huckabee) as a new kind of celebrity, saying attention has shifted from pop culture to the sordid, hyper-real, sometimes surreal world of politics. Politics lacks the visceral excitement and appeal to launch a mass superstar, but Obama himself provides some contours of a world star. He is a global person – the product of a Kenyan father and white American mother, born in Honolulu, raised in Indonesia and Hawaii, schooled at Columbia and Harvard (among the most global of universities), and a Chicagoan before taking up residence in the White House.

Glimmers of the new age of global celebrity are peeking through. “Jai Ho,” the theme song for the mega-hit Slumdog Millionaire, features lyrics in Hindi, Urdu, Punjabi, and Spanish and has been covered by Americans the Pussycat Dolls and Snoop Dogg. Its composer is A.R. Rahman, a star film composer who has already sold over 200 million records in a career that began only in 1992.

My students tell me that the mixed-race (black/Chinese/Jewish) reggae artist Sean Paul is almost as popular in India as he is in his native Jamaica. And Grammy and Academy Award-nominated rapper M.I.A.’s persona is equally rooted in London and Sri Lanka. TIME magazine ranks her as one of the world’s 100 most influential people and sums up her global appeal:

She’s a Sri Lankan refugee who didn’t speak a word of English before she was 10, yet she’s also a child of Chuck D and the Pixies and Fight Club and MySpace. There are no borders for her. . . You don’t have to be from the West to have a favorite Biggie song. We are all listening to the same music.

These artists hint at the global reach of the new generation, but they’re they’re just inklings of the much bigger possibility to come.

Maybe celebrity and the power law that defines its mega-stars will end forever with Jackson’s passing. But I doubt it. In each previous epoch, the rise of a new technology has led to a celebrity even bigger than the last. Digital networks and social media are platforms with such enormous potential and global reach that they are tailor-made for the Next Big Thing.

Nashville may be the center of the recorded music industry and, while it has attracted scads of musicians over the past several decades, it remains a narrower kind of music scene compared with say Brooklyn, according to analysis by my U of T colleague Dan Silver. In an earlier post, I explored Jack White’s move from Detroit to the Music City. Silver picks up on the Punch Brothers‘ Nashville-to-Brooklyn relocation, making an important distinction between music industry dynamics and music scenes.

This is not about comparing New York and Nashville in particular. My point is more general: we need to think not only about music industries, but also about music scenes as a factor in attracting musicians to cities and sustaining their creativity once they’re in place.

Punch Brothers leader Chris Thile was a bluegrass prodigy in the “progressive bluegrass” trio Nickel Creek. Based in Nashville, the platinum-selling group was famous for mixing bluegrass with diverse genres and covering songs by non-bluegrass artists like Pavement, Elliott Smith, and the Jackson 5. But after Nickel Creek came to an end in 2007, his new act Punch Brothers chose to make its home in Brooklyn.

While Nashville is full of industry opportunities and plays host to a dynamic live scene, it tends to value expertly played country and pop-rock sounds over more unconventional musical risk-taking. In NYC, Thile feels at home incorporating prog rock, chamber music, and klezmer into the Punch Brothers’ more adventurous sound.

Silver, who plays a key role in our MPI Music and Entertainment Economy Project, explains why Nashville, despite its widespread opportunities, is not always the best home for musical omnivores like Thile:

There is likely a symbiotic relationship between recording industry infrastructure and music scenes, as scene members work session gigs by day and clubs by night. And yet, on the other hand, there may be a negative influence whereby heavy industry concentration creates an over-professionalized environment that is not open to some kinds of musical innovation. The grunge sound of ’90s Seattle and Olympia grew up where there were few recording studios, and the scene made a virtue out of the unprofessional sound that emerged.

Check out Silver’s analysis here – an analysis with which, interestingly enough, the alt weekly Nashville Scene appears to generally agree.

Even with the bursting of the housing bubble, it still costs a whole lot more to live in some places than others. New York City, Washington, D.C., L.A., and San Francisco, for example, remain much more expensive than most other U.S. cities and regions. But why?

There’s the old real estate adage: location, location, location – people pay more to be in more central and better places. But that still begs the question of what makes certain places better?

The clustering of people and firms in cities, as Jane Jacobs and Robert Lucas famously have written, surely plays a role. And successful cities seem to speed up productivity and innovation benefiting from faster rates of urban metabolism: New Yorkers, it’s often said, talk faster and walk faster than others. Some cities also benefit from higher quality of life – warm, sunny climates, great coastlines, greater scenery – and amenities like great cultural institutions and restaurants – which enable them to attract affluent, ambitious, and talented people. How to parse the relative effects of productivity and quality of life?

Fascinating new research by David Albouy of the University of Michigan does just that, creating new measures of quality of life and looking closely at the relationship between productivity and amenities. He finds that amenities really matter to the location decisions of people, and that there is a relationship between productivity and quality of life. San Francisco, L.A., New York, and Boston are some of the cities that sit atop his list of high quality of life, high productivity places.

US News and World Report has a nice summary of his research. A paper on measuring quality of life is here; another examining the relationship between quality of life and productivity, here.

One consequence of the economic crisis is that the rate of home ownership has been slipping, as the chart below shows (via Calculated Risk).

A growing number of economists and urbanists question whether the United States has put too much emphasis on homeownership and over-invested in housing. Ever since the Great Depression, America has generously subsidized homeownership through the tax code and by other means. Housing does take up  a significant share of U.S. investment comparatively speaking; and, in some regions, real estate, housing, and construction made up a huge share of the local economy, as high as 25 to 30 percent at the height of the bubble, bigger than education, health-care, government, or manufacturing. I’ve argued elsewhere that the two American dreams – of homeownership and of unfettered economic mobility – may be in conflict, as homeownership, especially in downturns like today, impedes mobility and makes it harder for individuals to move to work and the labor market on the whole to adjust.

The benefits versus costs of homeownership is an important debate. On the pro-side, Joel Kotkin makes the case for homeownership in his recent Forbes column. Stephen Slivinski provides a thorough review (via Tyler Cowen) of the downsides of what he calls America’s homeownership bias.

Simply put, Americans may have overinvested in housing. This has been a worry of economists for a while. It’s a concern based on what they see when they compare the rates of return – profit per dollar invested – for a variety of capital types …  “When you observe that the measurable rates of return are different across the sectors,” said the Dallas Fed study author, Lori Taylor of Texas A&M University, “you either have to conclude that there are substantial unmeasured returns across the sectors or you have to conclude that society would be better off with a reallocation of resources.” These unmeasured benefits would have to be very large – at least $3,600 per homeowner in America – for the investment imbalance to be explained …

Robert Shiller, an economist at Yale University and an expert on national housing markets, has estimated that “from 1890 through 1990, the return on residential real estate was just about zero after inflation.” Throw in the costs of maintenance of the property and it’s easy to see how renting could certainly be cheaper than owning, even if you include the tax advantages. Yet the opportunity cost of those home investments – the foregone investment opportunities elsewhere – go largely unseen …

Being tied down to a house tends to make people less likely to leave an area in which employment prospects are deteriorating …A seminal study by British economist Andrew Oswald of the University of Warwick traced the link between unemployment and homeownership. Oswald looked at the United States, the United Kingdom, France, Italy, and Sweden between 1960 and 1996 and discovered that, on average, a 10 percentage point increase in homeownership tended to correlate with a 2 percentage point increase in the unemployment rate.

Recent studies of European data discover that you don’t see these sorts of correlations in areas with higher concentrations of renters. Renters are simply more able and willing to move away when their community hits the economic skids. In addition, workers who aren’t likely to move from a specific location might create frictions in the markets for labor skills. It’s a cost to the economy when people live in an area in which their skills are no longer valued. But there is a potential personal cost too: The overall welfare of that worker may suffer. Homeownership also tends to contribute to adverse political incentives. Incumbent homeowners have an interest in keeping their property values high and have been shown statistically to have a bias in favor of land-use regulations. These restrictions limit the number of houses that can be built in any geographic area and, consequently, keep housing inventory low and property values artificially inflated.

It appears that the crisis is causing a shift from homeownership to rental, as the graph below (also from Calculated Risk) shows. This trend may end up being a good thing for certain homeowners and for the flexibility of the U.S. economy as a whole.

One thing we know about crises is they frequently bring about significant changes in the system of housing tenure. The Great Depression and New Deal innovations in housing finance and housing policy, plus the post-war boom and infrastructure building, brought a massive shift toward single family homeownership. My hunch is it’s time for new hybrid forms of housing tenure which mix the benefits of ownership with the flexibility of renting.

Were you – like me – ever amazed at how so many people could afford bigger and bigger homes, New England beach houses and Florida condos, expensive cars? The answer, according to a terrific article by Ben Funnell in the Financial Times, is simple: cheap, available credit.

Debt, he says, is “capitalism’s dirty little secret.” Cheap mortgages, cheap car leases, and the use of home as veritable ATM’s created fictitious living standards for the middle class and the bulk of the population at a time of low productivity and paltry growth in incomes, and where the bulk of the gains in wealth were scooped up by the top fraction of households.