Creative Class

Here’s my interview with BusinessWeek’s Michelle Conlin:

Richard Florida: The U.S. Is Facing a ‘Talent Shift’

The bestselling author worries about the consequences of so many American-educated MBAs starting their careers in Asia

Richard Florida, the author of the bestselling books The Rise of the Creative Class and The Flight of the Creative Class, is a preeminent thinker about human capital and its importance for business. His new book, The Great Reset, due out in April, argues that a true recovery will require a complete break from the consumption lifestyle and a move towards a new economic model that is actually sustainable.

Florida is the director of the Martin Prosperity Institute and a professor of business and creativity at the University of Toronto’s Rotman School of Management. Bloomberg BusinessWeek talked with Florida about how many American-educated MBAs are no longer beginning the Grand Tour of their careers in the U.S.

Bloomberg BusinessWeek: Some of the best and brightest American-educated kids are seeing their future—in Asia. Does this worry you?

Richard Florida: From the beginning, I’ve been worried about this talent shift. Two things are happening. Countries such as Canada, Australia, and New Zealand are going after our best and brightest. In China and India, the best and the brightest are staying. One of the biggest tools foreign companies have is our business schools. All these great companies are coming to recruit. This shift is happening in real time right in front of our eyes. I see it in the Rotman School where I teach.

What are you seeing there?

I did the commencement address this year. I was blown away. In enormous numbers, the students were going to China, to India, to the Middle East. To a person, they said they found much more opportunity and possibility for career advancement over there. My jaw dropped. I literally could not believe how many kids.

The trend looks pervasive to you. Yet there’s radio silence from policymakers.

People in Washington are brain dead about this.

How to save Detroit, how to stimulate the mortgage industry. This flight of talent out of this country is actually a much more fundamental problem than anything talked about in Washington. Keeping top talent here as well as attracting top talent to our shores is a fundamental economic advantage. I don’t think most people want to admit what’s happening. They don’t want to see it.

Why the denial?

I think we in the U.S. have taken this for granted for so long. When I see the figures that 50% of all patented innovation in the U.S. comes from foreign-born inventors, I think that the important core of American ingenuity is not American ingenuity. It’s the ability to attract the world’s best people. That’s part of what made Hollywood great—European directors.

How do you see this playing out?

I don’t think any one country will dominate us. But if China picks up its share of global talent, and then India, and then Australia—you add up those percentages, and they create an enormous structural disadvantage for us. It erodes our competitive advantage. The U.S. always used to benefit from these big crises. In the 1870s, we got a lot of immigrant skills. In the 1930s, a lot of Europeans poured in. Now look what’s happening. I mean, imagine Silicon Valley without Andy Grove.

Americans following the Olympics at home have been almost as pumped as their athletes are about their record haul of medals. “I have looked (at the medal count),” Viktoria Rebensburg told USA Today, after picking up a gold medal in the women’s giant slalom, “But I didn’t expect I could give a medal to this thing. I never thought that would happen, so it’s cool. And maybe we will win this.”

The United States hasn’t dominated a Winter Olympics since 1932. With 32 medals earned thus far, statistics guru Nate Silver predicts the U.S. will end the games with 34, ahead of Germany with 30, my adopted home-base of Canada with 26, and Norway with 23.

But wait a minute. The USA is a much bigger country than any of these. With 300 million-plus people it’s nearly four times the size of Germany, 10 times bigger than Canada, and 60-plus times bigger than Norway.

So with the help of my statistically minded colleagues at the University of Toronto’s Martin Prosperity Institute, I decided to take a different kind of look. We rated and ranked medal performance by the size of each country’s population. We’ve dubbed this new ranking system the Winter Olympic Medals Per Capita Metric, WMPC for short, where we rank medals per one million people.

Now the results get interesting.

The U.S. ends up in 19th place, with roughly one medal per one million people, less than Australia and about the same as Poland. Germany ends up 14th and Canada ranks 10th with five times the take as the USA. The top finisher is tiny Norway with four-plus medals per one million of its people.

If Silver’s projections hold, the U.S. will end up in 21st place by the end of the games. Norway will top the list with five medals per one million people, followed by Austria in a distant second place with 1.9. Slovenia will come in third with 1.4, then Switzerland (1.3), Sweden (1.1), Latvia (1), Finland (.9), and Canada (.8).

What happens when we track medals historically, going back to 1924? The United States comes in 14th, with slightly less than 0.8 medals per one million people. Norway is far and away the dominant Winter Games force, taking home a whopping 62 medals per one million people. Scandinavia, the Nordic countries, and the European alpine nations are also powerhouses, with Finland earning 29, Austria 23, Switzerland 16, and Sweden 13. Estonia and the Netherlands produce about five medals per one million. Canada produces four – still five times the American rate and eighth overall. (Excluded from our analysis are the Soviet Union and several other former Eastern bloc nations that were initially bigger countries that have subsequently broken into smaller parts.)

Looked at this way, the USA seems a lot less dominant than it first appears.

It’s been hard to justify high-speed rail (HSR) projects in terms of conventional cost-benefit analysis. But, it may be time to rethink – and broaden  - the way we think of the benefits of HSR. HSR’s benefits are usually thought of in terms of lowering transport costs by reducing problems like gridlock, pollution, and travel time. But the real benefit of HSR may turn on its ability to expand economic growth, according to a new analysis by my colleagues at the Martin Prosperity Institute.

There are three main mechanisms through which high-speed rail can help expand the economy, according to the MPI study. First, HSR expands the labor pool available to firms, bringing talented workers from nearby centers within commuting distance and thus expanding the quantity and quality of available employees. Second, HSR makes more jobs available to workers without making them have to relocate and move to a new home. Third, HSR extends the benefits of other expensive, productivity-enhancing infrastructure such as airports across broad regions. International airports, major research universities, and reference libraries are all more financially viable and internationally competitive when they serve a larger population. High-speed rail allows them to build the scale they need to achieve world-class excellence and also spreads their high costs across a wider population.

The MPI report is here.

Here’s a map of job creation from The Gallup Organization. It’s based on approximately 100,000 Gallup Daily tracking interviews conducted throughout 2009 with employed adults in all 50 states plus the District of Columbia. It provides a clear picture of the evolving economic geography of The Great Reset.

On the losing side of job creation, Rustbelt states, especially Michigan and less so Minnesota, continue to be hard hit, along with the “housing-crash” states of Nevada, California, and Arizona. Northeastern states -  Rhode Island, Delaware, New Jersey, Connecticut, and New Hampshire – also fare poorly. In the west, Oregon and Idaho also see low rates of job creation.

The best-performing states in terms of job creation are energy economies – North Dakota, Louisiana, West Virginia, Oklahoma, Texas, Alaska, and New Mexico, as well as Nebraska; and those with economies that benefit from federal spending, Maryland, Virginia, and D.C. More here.

Here’s a cool map based on over 210 million Facebook profiles (h/t: Jason Rentfrow). Compiled by Pete Warden, it plots the connections between places that share Facebook friends. The map divides the U.S. into seven distinct locational clusters with names like “Stayathomia,”  “Mormonia,” and “Socalistan.” More here.

Unemployment continues to rise in U.S. metro regions, according to the December figures released by the U.S. Bureau of Labor Statistics. “Unemployment rates were higher in December than a year earlier in 371 of the 372 metropolitan areas and lower in one area,” according to the report. The Detroit metro continued to post the highest level of unemployment – 14.9 percent  But Las Vegas saw the largest increase in their jobless rate, which grew by 4.4 percentage points over the past year. The number of metros with unemployment rates of more than 10 percent more than doubled from 42 in December 2008 to 138 in December 2009. Of regions with more than one million people, Oklahoma City and Greater Washington, D.C. posted the lowest unemployment rates – 6.0 and 6.2 percent, respectively.

The full list of unemployment by metro region is here.

Jonathan Schwartz, the CEO of Sun Microsystems, announced his resignation via Twitter, deploying haiku to boot. His message:

Financial crisis/Stalled too many customers/CEO no more

This illustrated his frustration surrounding the acquisition by Oracle.

Normally, I recommend (especially to young people) to resist the urge to be cheeky and keep it to the point and be professional. This article suggests that Conan O’Brien should have been more diplomatic, although his détente final words may have cleared things up.

What was your most creative quitting story? What quitting fantasies have you had?

Seems appropriate with Valentine’s Day around the corner to ask: How many of you personally have or know people who have met their spouse, partner, wife, husband, significant other in college? This is certainly one way Mighty EDU transforms lives.

According to the National Marriage Survey, college is still the place where 25 percent of men and 15 percent of women meet their first spouse, a steep decline from 50 years ago but still impressive. And, these stats omit second marriages, faculty hook-ups, admin nuptials, and, not to forget, the occasional faculty and student knot-tying. When I look at my own closest friends, roughly 42 percent of them were connected via a primary (e.g. same college) or secondary (e.g. study abroad program) college experience.

Hmm, maybe it is time for single folk to forgo Match.com and enroll in a class to learn and be struck by Cupid’s arrow as they stroll across campus this lovely spring.

Launched today – the new Richard Florida fan page on Facebook!

Come join our growing community and get all the updates about Richard, his books, events, blog posts, and more in one of your favorite social networking locations.

As one looks around the economic landscape I am struck by the devastation. One number stands out above all others. One in five males between the ages of 25 and 55 is out of work! That is a staggering number. The numbers are not going back to anything “normal” anytime soon according to the IMF. Financial crises followed by recessions do not return to normal levels of employment for over a decade. Why you might ask? The answer I guess is that the levels of debt need to be worked down. Everyone owes everyone money and none pay anyone. Second, the recession destroys real capital. In this situation it was housing. It will take years to work off the excesses of the housing crisis.

So what does entrepreneurship have to do with the recession? If we take what we know today, entrepreneurs and innovation play a vital role in the economy. But can they help us in the great recession? In other words, what policy should we be pursuing to move the unemployment rate below 10 percent and back into the neighborhood of 5 percent? We know that new firms are important. They create most of the net jobs.  However, only a small percent, perhaps 4 percent, create almost all of the jobs in any given four-year period. And this seems to hold up in different times, different countries, and different industries.

So how do we forge a policy? Two stories are told out there. First we know that age and size are important variables. And we know that age appears to be more important than size. In other words, we should target firms based on age not size. The two stories out there are one by Zoltan Acs and the other by Carl Schramm. In a highly influential study, Acs found that the average high impact firm was about 20 years old and came in all sizes, small, medium, and large. Schramm, on the other hand, using a Census Bureau study, found that firms less than five years old created almost all of the jobs independent of size.  They both cannot be right.

However, if we are interested in short-term policy solutions and not real economic growth, we should help stimulate solo self-employed. They have a start-up rate that is three times as large as firms with employees. They start easily but also go out of business quickly. So an effective policy would be to make it easier for them to stay in business longer.

A simple policy would be to cut the self-employment tax, not over 15 percent of all new solo self-employed firms to zero for three years. If they hired any employees we should cut the employer share 7.5 percent for three years also. This would greatly increase the survival rate for these new firms. Of course this is not a long-term solution because many of these firm will contribute very little to productivity, economies of scale, or wealth creation. But they will pull down the unemployment rate.

The impact on the deficit would not be great since many of these people would not have survived to pay payroll taxes anyway. Once the economy picks up the issue of long-run growth can be addressed. But in the short run, let’s get people working.