Creative Class

Megan is skeptical that cities can outlast the crisis. Crime will get worse, she fears, tax revenues will shrink, and middle class families will once again head for the ‘burbs. Ta-Nehisi (and many of his commenters) say economics favors big cities, especially Gotham. Case in point: how expensive it (still) is to live in Manhattan. I side with Ta-Nehisi, especially on the question of New York City, for reasons I outlined here.

As an American living in Toronto, I’ve come to learn this is peculiarly American condition and conversation. Toronto is loaded with families: middle-class, working class, upper-class, immigrant, and Canadian-born; gay and straight; married and so on. Crime, violent crime at least, is relatively low; the public schools stellar by American standards. I live downtown in a largely residential neighborhood loaded with middle-class families, of roughly the same demographic that would live in, say, Bethesda or somewhere like it. Toronto provides a workable model of an “urban family land” – which stands in sharp relief to the barbell demography of American cities which divide into the young (singles and “strollerville” couples) on the one hand and empty-nesters on the other.

This missing middle is less a problem for America’s biggest and best cities. Places like New  York and San Francisco have shown they can function without a large contingent of families. But it poses a looming problem for American competitiveness. It means America’s leading metro centers remain, by definition, considerably more stretched out. In an era where density and talent clustering are key drivers of innovation and economic prosperity, this may ultimately prove a significant competitive disadvantage for the nation as a whole, even as its biggest cities continue to fare relatively well.

New York and London are consolidating and strengthening their positions atop the global financial system, according to the FT’s John Pender.

The latest edition of the Global Financial Centres Index (GFCI) shows these two leading centers to be considerably more “resilient” than others, ranking as the world’s only “truly global financial centres.”

The GFCI, which is based on surveys of financial experts and professionals, rates financial centers on a point basis. London was on top with a rating of 781, followed by NY with 768. The ratings for these top financial centers fell only 10 and six points respectively since the onset of the crisis.

The next three centers – Singapore, Hong Kong, and Zurich – saw their ratings nosedive by 14, 16, and 17 points respectively. Tokyo has fallen out of the top 10, slipping to 15th place. Chicago is seventh, Boston ninth, San Francisco 17th, and D.C. 21st. Toronto is 11th.

Pender suggests that the only “plausible thesis” is that heightened competition to London and NY can eventually come from Asia. He points specifically to Shanghai, noting that China is running huge surpluses, its banks are well-capitalized, and its government is working hard to turn Shanghai into a global financial center by 2020.

But Shanghai currently ranks 35th on the GFCI, around the same as the British Virgin Islands and the Bahamas. Never mind it plummeting a whopping 30 ratings points over the course of the crisis. And there is considerable competition within Asia for the top financial spot – pitting Shanghai against Tokyo as well as Hong Kong and Singapore.

Perhaps a combined Shang-Kong center can emerge over time. Shanghai has the industrial muscle and economic size and scale, while Hong Kong brings openness and attractiveness to global talent.

But major banking centers are extremely resilient.  Even though New York overtook London during the last economic crisis of the Great Depression, London has come roaring back and once again eclipsed the Big Apple.

The real action will be further down the chain, as the economic crisis continues to wreak havoc on second- and third-tier financial centers.

This spring’s 2.3 million newly minted college grads are understandably worried about their economic future. Unemployment among their peers is on the rise, according to this analysis by Chicago-area employment services firm Challenger Gray & Christmas, which found the unemployment rate for 20- to 24-year-olds jumping to 13.2 percent this spring, up from 9.2 percent a year ago.

Saturday’s Wall Street Journal reports that many of the past decade’s “youth magnet” locations are losing their appeal as economic opportunities whither in cities like Phoenix, Seattle, Atlanta, Charlotte, Dallas, Las Vegas, and others which led the nation in attracting young college grads from 2005 to 2007.

So where are this year’s college grads heading?

This recent survey lists the best places for college grads to launch their careers. New York City topped the list – despite the financial crisis – with eight in 10 survey respondents listing it as one of their top destinations. Second-place Washington, D.C. was named by 63 percent. Los Angeles, Boston, San Francisco, Chicago, Denver, Seattle, and San Diego round out the top 10. And, remember, this is a list of the places that are best to find a job, not to have fun, go to great restaurants or clubs, make friends, or get lots of dates.

The list is heavy on big cities. It differs considerably from the Wall Street Journal’s youth magnet list, but it’s quite similar to a list my research team and I developed of the best places for recent college graduates which put big cities like San Francisco, Washington, D.C., Boston, Los Angeles, and New York on top. (D.C. jumped to the top of the list when we factored affordability and cost into the mix).

The appeal of big cities stems from a simple economic fact – they offer thicker labor markets with more robust job opportunities across a wide number of fields.

Getting ahead in your career today means more than picking the right first job. Corporate commitment has dwindled, job tenure has grown far shorter, and people switch jobs with much greater frequency. The average American changes their job once every three years; the average American under the age of 30 changes their job once a year.

In today’s highly mobile and economically tumultuous times, career success also turns on picking a thick labor market which offers diverse and abundant job opportunities. For new grads, picking the most vibrant location is an important hedge against economic uncertainty and the risk of layoff.

So for you newly minted college graduates ready to jump at the first job you’re offered, now more than ever it’s important to gauge the vibrancy of the job market and economy you’re signing onto. Moving is an expensive and time-consuming proposition; mistakes are hard to undo. Maybe this place finder tool will help.

And, here again, the economic crisis appears to be reinforcing the position of America’s leading talent magnets while further eroding the status of both older manufacturing centers and sprawling Sunbelt centers, for a simple reason: the location decisions of young college graduates are critical to shaping the future of cities and city-regions. The likelihood that a person will move peaks at around age 25 and then declines steeply with age: a 25-year-old is three times more likely to move than a 45- or 50-year-old. The combination of declining housing prices and concentrating economic opportunity in large U.S. city centers is only likely to compound this trend.

With GDP falling at a “hefty” 6.1 percent annual clip, Harvard’s Jeff Frankel parses the data:

The previous record-holders were the recessions of 1973-75 and 1981-82, each of them four quarters in length according to the official NBER chronology. In the current downturn, the NBER’s Business Cycle Data Committee determined that the economy peaked in the 4th quarter of 2007…  The NBER also keeps a more precise monthly chronology. The postwar record is 16 months, again shared by the 1973-75 and 1981-82 recessions. To match this monthly benchmark, the current downturn would have to have continued into April. Our best single indicator as to whether it did so will be the employment number to be released by the Bureau of Labor Statistics next Friday, May 8. It almost certainly will show that there were further job losses in April. If so, it will further confirm the dismal conclusion: one would have to go back 80 years, to the disaster of 1929-1933, to find a longer recession.

David Leonhardt interviews President Barack Obama for the New York Times Sunday Magazine on the crisis and what the the financial system, economy, society, and life might look like on the other side.

I actually think that there was always an unsustainable feel about what had happened on Wall Street over the last 10, 15 years, and it’s not that different from the unsustainable nature of what was happening during the dot-com boom, where people in Silicon Valley could make enormous sums of money, even though what they were peddling never really had any signs it would ever make a profit.

That doesn’t mean, though, that Silicon Valley is still not a huge, critical, important part of our economy, and Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s. It just won’t be half of our economy. And that means that more talent, more resources will be going to other sectors of the economy. And I actually think that’s healthy. We don’t want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design.

And so I think what you’ll see is some shift, but I don’t think that we will lose the enormous advantages that come from transparency, openness, the reliability of our markets. If anything, a more vigorous regulatory regime, I think, will help restore confidence, and you’re still going to see a lot of global capital wanting to park itself in the United States.

The whole thing is here. The interview shows how focused Obama is on the economy and his grasp of core economic issues. But it’s a little heavy on the current moment and on immediate tactics. I wish – I really wish – Leonhardt would have pushed harder on the issue of broad economic transformation – and that we’d have gotten to hear more of what the President thinks the economy and society will look like after the Great Reset.

Over the past few weeks, I have been taking a longer view of things, more like 100 years, to the end of the 21st century. However, 10 years of it is already almost gone! So when I read a recent issue of New Scientist on how to survive the rest of the century, I was rather surprised. In an article on “Surviving in a Warmer World,” under very simple conditions, a 4 degree C rise in global temperatures, results in the abandonment of most cities, the desertification of most of the world, the death of five billion people and the end of life as we know it. Although we do survive.

This is of course a simulation model, but I am not sure how many of us have focused on just the recent financial collapse and the global depression with the hopes that if we get out of this in the near term our troubles are over. Not only are our troubles not over, but getting out of the depression and surviving the present century are intertwined. For what a depression tells us is that the current consumption and investment trends are unsustainable financially. As Richard points out, the current investment in housing is not sustainable.

The current crisis comes from an over-investment in housing and all that goes with it and now under-consumption because of consumer debt. Society needs to put these two crises into perspective, and the way to move forward in this crisis is not just to reflate the economy at all costs (read: money expansion) but to stop consumption-led growth and start to focus on investment for the future – energy, environment, clean cars, etc.

This message is starting to sink in. Joseph Stiglitz, in a recent issue of the FT, pointed out that we can have several shots at the financial crisis until we get it right, but we only have one shot to get the environmental story right. I would argue that we do not have too many shots to get the economy and the environment right. The huge investments needed for the future cannot be put into the wrong place. If they are we might all be dead in the long run.

If one is going to invoke the creative class, and they are not going to destroy the financial sector, perhaps we can ask if the incentive structure is right to get them to focus on saving the environment from total collapse.

For the first time in over a decade, the DOW closed below 7,000. For a little history, the DOW was around 1,000 in 1982 and then steadily rose to 14,000 over the course of 25 years. We have now returned 50 percent of that and the future does not look very good for getting it back anytime soon. The Nikai in Japan fell from 30,000 in 1989 to just around 7,500, losing more than 75 percent of its value in 20 years.

What is happening is that we are at the end of an era. It is the end of highways, sprawl, cheap everything, and we are also at a the end of globalization as we knew it.

How to move forward is the $64,000 question. What is clear is that we are just thrashing around, like a whale beached on the shore. There is no one around to put us back in the water. Perhaps the best solution would be for someone to slay the whale. In the Farrow Islands, when a whale beaches they come out with knives, jump on its back, and hack it to death. They have a big dinner of whale meat. In California, they call out a team of doctors to examine it and then it dies anyway. No dinner!

The problem is that everyone (read: economists) studied the 1930s and how to get out of the depression. People forgot that what got us into the 1930s depression was the 1920s! What got us into this depression is the 2000s (leverage, borrowing, housing investment, deregulation) – they were just like the 1920s. One thing is clear, the best way to heal this event is perhaps just to wait it out and not spend trillions and trillions to try and save it. We will heal in due time.

My recent The Atlantic article and multiple covers, including one on my adopted hometown, pose the obvious question: What about Toronto?

Prompting me on this are stories at Torontoist and The Toronto Star. I recently had a nice dialogue on the same with David Olive as he reports, along with nice quotes from Fareed Zakaria who visited recently, in his Star column today:

Looking further ahead, Richard Florida, the urban economics guru, sees Toronto angling for the same global heft as Chicago and Tokyo. “I sense we are in great shape to move up in the global ranks,” says Florida, now based at the University of Toronto’s Rotman School of Management. Florida followed the example of his mentor, the late urbanologist Jane Jacobs, in relocating two years ago to Canada from his native U.S.

Like New York and London, Toronto is a finance, media and entertainment centre, forecast to be among the fastest-growing business sectors over the next generation. Unlike those cities, Toronto also has an abundance of technological research, and more social stability and ethnic diversity. And in recent years the city’s cultural amenities have expanded considerably.

Florida readily concedes that stubborn problems like income inequality and a deteriorating basic-industry sector have yet to be tackled. But in a cover-story essay in the current Atlantic magazine, the venerable U.S. public issues journal, Florida identifies Toronto among fast-growing “mega-regions” most ideally suited to rapid growth. Atlantic gave Florida’s article four covers, showing the skylines of North American cities with the best prospects for sustained prosperity – Toronto, New York, Chicago and San Francisco.

Yet Florida discourages U.S. comparisons. “Stop looking south for models,” says Florida, based for 17 years at Pittsburgh’s Carnegie Mellon University. “They ain’t there. The U.S. is in very deep crisis. It’s time for Toronto to break out and lead.”

The Atlantic piece was concerned with the situation in the States, especially New York, which has been hard hit by the financial crisis.

That said, I’ve been thinking a great deal in my work at the MPI about the opportunity space opened for Toronto, Ontario and Canada as a whole.

Crises are key times for nations and especially for cities and regions. They are the times when changes of position become likely and when nations, and in particular cities and mega-regions, can make their move.  My sense is that Canada as a whole and Toronto and its mega-region are as well-positioned as any place in the world to prosper and improve their relative positions in this transformative period.

First off, Canada has a substantial advantage in its stable banking system. Toronto is the center of that system. At the YPO event with Zakaria, Frank McKenna from TD Bank made a joke that went something like this: A couple months ago his bank wasn’t among, say, the top 20 largest banks, now they’re something like fifth or sixth. And then the punch line: In a couple more weeks, even if his bank would likely be, say, third or fourth, through little or no action of its own, RBC is even higher. The World Economic Forum recently ranked Canadian banks the most stable in the world. For these reasons, Toronto is well-positioned to move up in the ranks of global financial centers. No, it won’t topple NY or London, but with banks this big and this stable, it will gain ground. And with employment opportunities eroding in these centers, it can make a big move on top global talent.

Toronto has the opportunity to occupy a relatively unique space among global cities, still beneath the largest global centers, like NY and London, but gaining ground on them, and in a relatively unique and advantaged position as the most vibrant of the so-called “second cities.”

Toronto has a very advantageous economic structure, comparatively speaking. Our MPI team has been collecting, analyzing, and studying data on the industrial and occupational composition of Toronto versus other U.S. and Canadian cities and some other global cities. Led by Kevin Stolarick, our goal is to have matched data on the micro-functionings of the U.S. and Canadian cities and regions, in terms of industries and occupations for every metropolitan level jurisdiction and city across the two countries.

From what we can glean – and expect much more on this to come – Toronto has one of the very fastest metabolizing occupational and industrial metabolic structures of any city with strengths in media, entertainment, design, and creative industries as well as finance. These are the sectors that move at the highest velocity. And it has real technological capability in its orbit with Kitchener-Waterloo and RIM nearby.

Toronto is as diverse, if not more so, then NY, London, or even L.A. Plus, it has an unusually high degree of social cohesion. Add to that great universities that are moving up, great and improving music and arts scenes, and relatively affordable housing, at least by world comparative standards. And you get the picture – a city ready to move up the global ranks.

Yes, Toronto certainly has issues and problems to overcome. Inequality has grown a la David Hulchanski and company’s remarkable “Three Toronto’s” study report. Parts of the region’s older manufacturing economy is suffering and the region as a whole is more geographically segmented and spiky then before.

But the assets are considerable. Leadership “gets it” from the Premier to the Mayor, other political leaders across the region – mayors, legislators, councilors, and economic development officials, university leaders, the non-profit sector, the arts and culture community, labor, environmentalists, and key segments of the business community – all of them are literally moving in the same direction.

You can literally feel the momentum.

There’s only one thing left to do. Stop looking south for models. They ain’t there. The U.S. and its key cities are in deep crisis. Toronto has a golden opportunity to become a model and lead not just for Canada but for North America and the world.

Will we take it?

The crisis is having uneven effects on jobs. The table below from the Bureau of Labor Statistics (via Michael Mandel) shows the change in employment for 2008. Massive losses are concentrated in what Mandel calls the “tangible sector” – production, construction, and farming and fishing. Health care and education have help up reasonably well, along with management. The intangible sector and creative sector jobs – arts, design, and entertainment; architecture and engineering; computer science and mathematics; and life and physical sciences – are starting to register losses. I’d love to know where in terms of geography these losses are concentrated. But the bigger point is that if this continues the U.S. economy may start to look like the meds-and-eds dependent economies of old rustbelt city-regions. That said, the job losses in the creative or intangible sector are in range of 3-5 percent, while tangible sector losses are in the double digits.