Creative Class

The economic crisis appears to be causing a slight but noticeable shift from the suburbs to the cities, according to an analysis of recent Census data by Brookings demographer William Frey, reported in the Wall Street Journal.

“The central-city population in U.S. metropolitan areas with more than one million people (excluding New Orleans …) grew at an annual rate of 0.97% between July 2007 and July 2008 …That compared with a growth rate of 0.90% in 2006-2007, and growth rates around 0.5% in the years between 2002 and 2005, when the robust real-estate market led to new jobs and new housing developments outside the cities, where open land is more plentiful … Population growth in the cities has translated to slower growth in the suburbs. U.S. suburbs in metro areas greater than 1 million people grew at a 1.11% annual rate in 2007-2008, the same as a year earlier and down from growth rates between 1.29% and 1.48% between 2002 and 2005.”

The combined effects of the recession, job loss, and the housing crisis have made it more difficult for many to sell their houses, in effect locking them in place and slowing rates of residential and geographic mobility. Frey points out that:

“This shows cities were reviving at the end of this decade, and they are also surviving a recession that has been a lot harsher for other parts of our landscape …Cities are big enough and diverse enough that they are able to survive these ups and downs in the economy a lot better.”

And this is especially true of the biggest and most diverse cities, like New York and Chicago, which are hubs of large mega-regions, as well as magnets like greater D.C. and Silicon Valley which continue to draw in highly skilled and ambitious people from the U.S. and the world. Large Rustbelt cities, like Detroit, continue to lose people, and rates of growth in housing-driven Sunbelt cities have slowed considerably.

Two of my favorite management thinkers, John Hagel and John Seely Brown, have just released an important new study, The Big Shift. I’ve read the research, which expands on some of my own constructs, and had a chance to talk with Hagel about it at length last week. One of the most important findings is that return on assets for American companies has been declining for decades. Here’s a short-form version that appeared over at Harvard Business Review online.

The 2009 Shift Index reveals a disquieting performance paradox in the US corporate sector. On the one hand, labor productivity has nearly doubled since 1965. During those same years, however, US companies’ Return on Assets (ROA) progressively dropped 75 percent from their 1965 level.

How can firms be getting lower returns even as they’re becoming more efficient? The answer resides in the heightened competition among firms. Competitive intensity nearly doubled between 1965 and 2008, forcing firms to compete away the benefits of productivity gains, which were instead captured by creative talent in the form of higher compensation and numbers of consumers through increasing performance/price ratios and wider choice.

It’s little surprise to find also that the highest-performing companies are struggling to maintain their ROA rates and are increasingly losing market leadership positions. Taken as a whole, the findings portray a U.S. corporate sector in which long-term forces of change are undercutting normal sources of economic value. “Normal” may in fact be a thing of the past: even after the economy resumes growing, companies’ returns will remain under pressure.

To respond to this performance challenge, U.S. companies will need to let go of industrial- era organizational structures (and the reporting relationships, incentive systems, and managerial processes that go with them) and operational practices in favor of the new institutional architectures and business practices needed to create and capture economic value in the era of the Big Shift.

Companies must move beyond their fixation on getting bigger and more cost-effective to make the institutional innovations necessary to accelerate performance improvement as they add participants to their ecosystems, expanding learning and innovation in collaboration curves and creation spaces. Companies must move, in other words, from scalable efficiency to scalable learning and performance. Only then will they make the most of our new era’s fast-moving digital infrastructure.

The full report is here. The section on creative cities begins on p. 60. It shows strong relationships between cities with high scores on the Creativity Index and economic output (measured as GDP), returns to talent and economic freedom, as well as a large performance gap between high and low scoring cities on that index.

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.

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.

We always think of urban planning as the preparation for population and job growth. But, should some cities  plan for population and job decline?

Today, I was on NPR’s To the Point to discuss shrinking cities and the idea of planning for communities that are experiencing significant population decline. For today’s conversation, Flint, MI served as an intriguing case study. Some communities like Flint, MI are actively practicing land banking.

Take a listen.

NPR’s To the Point: Honey I Shrunk the City: Bold Ideas for Declining Urban Centers

“For years, urban planning has been all about growth. But in recent years, with the decline of American manufacturing, a whole new school of thought has emerged. It’s all about shrinking, not growing. As more and more metropolitan areas lose populations and healthy tax bases, guest host Sarah Terry looks at how are cities coming up with new solutions to control the change, instead of simply trying to cope with it.”

Listen here.

Profile here.

Should cities and communities plan for shrinking populations? Can this be part of a comprehensive economic development plan for declining communities?

Business Week examines how Gen Y is coping with the crisis. Boulder, San Francisco, and D.C. top the list. College towns and big cities dominate the list prepared by Kevin Stolarick and our MPI team.

So we dug into some Gallup data on what Gen Y wants in cities and here’s what we found:

Jobs are clearly important. Gen Y members ranked the availability of jobs second when asked what would keep them in their current location and fourth in terms of their overall satisfaction with their community ….

[T]he highest-ranked factor was the ability to meet people and make friends. Makes perfect sense, since Gen Y intuitively understands what economic sociologists have documented: Vibrant social networks are key to landing jobs, moving forward in your career, and one’s broader personal happiness. They not only desire a thick labor market but what I have come to call a thick mating market, where they can meet new people, go out on dates, and eventually find a life partner. They recognize what psychologists of happiness have shown. It’s not money per se that makes you happy; it’s doing exciting work and having uplifting personal relationships …

Where older Americans see high-quality schools and safe streets as key, Gen Y understandably ranks the availability of outstanding colleges and universities higher. Many are likely to go back to graduate school, and having great programs nearby is a big plus. When it comes to their overall community satisfaction, access to open space, being in an aesthetically beautiful city, and having access to vibrant nightlife are also quite important; Affordable housing, air and water quality, and availability of religious institutions matter too but slightly less so.

When we look at the factors that affect the likelihood Gen Ys will stay in their current community, the beauty of the place again mattered, along with its climate, the ability to get around easily with little traffic, and affordable housing.

This is important, because Gen Y members are considerably less attached to where they live than other Americans. About a quarter (26.5%) of them said they were extremely satisfied with the place they currently live, compared with nearly half (47.4%) of all Americans. Twentysomethings are on average three or four times more likely to move than forty- or fiftysomethings.

Mysociety.org has created this amazing application to help citizens in London determine where they can live based on commute times, affordability and “scenicness.” The program is in beta but this short video below demonstrates its awesome potential. (To take the Who’s Your City? place finder, click here.)

This is the potential open data can unleash. Because MySociety can access transit and train schedules as well as real estate prices, they are able to mash up this data and create this map. Still more interesting is how they crowd-sourced the collection of a new data set. Those who watched the video may have noticed how the “scenicness” of an area came from people voting on how nice photos of different neighborhoods looked.

Mysociety also does maps that just show transit times and they are looking for funding to build them out in different cities.

Of course, the job is made a whole lot easier - and can be kept up to date - if the data is being shared in a format that constantly allows for updates. Just another example of how Open Cities can again better serve their citizens.

(via BoingBoing)

Vancouver ranks first, Toronto fourth, Calgary fifth. Melbourne, Perth, and Sydney all make the top 10. Vienna, Helsinki, Geneva, and Zurich round out the top 10. Props to my former hometown Pittsburgh, which topped the list of U.S. cities coming in 29th on the global list. Here are the top and bottom 10 from The Economist.

Map courtesy of the Martin Prosperity Institute

Corporate headquarters are both heavily concentrated in and very specialized by region, according to a new  analysis by Scott Pennington of the Martin Prosperity Institute.

Eighty-five percent of the headquarters of the largest companies in the U.S. and Canada are concentrated in a dozen or so mega-regions.

Two mega-regions - Chi-Pitts and Char-Lanta - account for almost half of all manufacturing headquarters. Chicago appears to have increased its hold on manufacturing headquarters, in effect pulling them in from other major cities in the mega-region.Not surprisingly, Hou-Orleans dominates in energy; and Nor-Cal is the center for high-tech headquarters.

Finance and insurance are more dispersed. While Bos-Wash accounts for 17 percent of finance and insurance headquarters, Char-Lanta and Tor-Buff-Chester also have significant clusters. These regions are also more diverse in the economic makeup - with significant concentrations of media and entertainment in Bos-Wash and Tor-Buff-Chester and of manufactuirng in Char-lanta - perhaps making their more resileint in coping with the fallout from the financial crisis.

Jane Jacobs long ago argued that cities are the cradles of civilization and of economic development and that density and human interaction hold the key to economic progress. The findings of a major new study published in Science finds that density is a key factor in the emergence of modern human behavior.

Increasing population density, rather than boosts in human brain power, appears to have catalysed the emergence of modern human behaviour, according to a new study by UCL (University College London) scientists published in the journal Science. High population density leads to greater exchange of ideas and skills and prevents the loss of new innovations. It is this skill maintenance, combined with a greater probability of useful innovations, that led to modern human behaviour appearing at different times in different parts of the world.

In the study, the UCL team found that complex skills learnt across generations can only be maintained when there is a critical level of interaction between people. Using computer simulations of social learning, they showed that high and low-skilled groups could coexist over long periods of time and that the degree of skill they maintained depended on local population density or the degree of migration between them. Using genetic estimates of population size in the past, the team went on to show that density was similar in sub-Saharan Africa, Europe and the Middle-East when modern behaviour first appeared in each of these regions. The paper also points to evidence that population density would have dropped for climatic reasons at the time when modern human behaviour temporarily disappeared in sub-Saharan Africa.