Creative Class

The Obama administration announced its upcoming summit on jobs yesterday.  The economic crisis has eliminated seven million jobs in the U.S. and 400,000 in Canada. ”This is the only recession since the Great Depression to wipe out all job growth from the previous business cycle,” writes Mort Zuckerman, editor-in-chief of U.S. News and World Report, in an op-ed ominously titled: “The Free Market Is Not Up to the Job of Creating Work.”

An enormous potential source of jobs is right in front of our noses – the service sector. Service jobs employ 56 million people, 45 percent of workforce in the United States and seven million workers, 46 percent of  Canada’s workforce. Millions more will be added as we move from crisis to recovery.

However, low-paying service class jobs seem to be a poor substitute for the long-run, stable, high-wage jobs that are being lost in manufacturing. But service jobs offer lots of potential for innovation, entrepreneurship, and the upgrading of employment opportunities.  The Strength in Services Summit will explore what is and can be done to transform service jobs into more innovative, higher-paying, and better work.  Click here for more. And contribute to the ongoing dialogue on this critical issue.

The Obama administration is making moves on urban policy, according to the Washington Post. An urban czar has been appointed (former Bronx borough president Adolfo Carrion Jr.) and $20 billion in stimulus money is being directed to urban programs outside education.

The approach is winning applause from local officials and urban thinkers, who credit the administration for quietly beginning the most ambitious new policy for the nation’s cities since the Great Society programs of the 1960s.

I’d like to give them the benefit of the doubt, but frankly I’m not convinced. You?

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.

Remember the television program Lost in Space?

There was a robot that would usually at times of relative tranquility begin shouting “Danger, danger, danger.” On this optimistic bright-side blog, I feel like a terrible Cassandra. My apologies to Rich and my cheerful colleagues. I have kept silent while Obama has had an incredible bear rally, but it is time for some more “realistic” comments.

Today, the Pew Research Center shows that Americans are not becoming more populist, but rather are quite optimistic about the future. For most of you this is a good outcome. We, as Americans, dare I say in deference to Rich, North Americans believe optimism is good. What could possibly be wrong here?

My concern is that this optimism and the Obama Administration-sponsored talks of “green shoots” in the economy is lulling Americans to sleep regarding the extraordinary seriousness of the economic crisis we are facing. Already, concerns regarding controlling executive pay at the banks, letting shareholders and lenders suffer from the business decisions they made to invest, and general moral hazard arguments have been forgotten even though the miscreants have received tens of billions of government funds through a myriad of programs, bailouts, and other mechanisms. This will come back to haunt us as the world economy takes another leg downward in the months to come.

This second leg downward, as the entire U.S. including California basically declare bankruptcy, will finally wipe crackpot optimism off the faces of Americans. It is only then that we will be able to become realistic about the circumstances that we face and begin the grim task of reregulating, rethinking the role of finance, and rebuilding our economy.

Rich has always and correctly warned of the problem with the “squelchers.” However, today in this economy full of crackpot optimists, Cassandras are an important social asset, if they can prevent suicide by the delusional. To put a point on it, when the robot warns of danger, foolish optimism is not a survival response.

How do you folks see the current economic conjuncture?

My new Globe and Mail column is out:

Less than a month after taking office, the Obama administration unveiled its massive stimulus package aimed at recharging the lagging American economy – a staggering three-quarters of a trillion dollars. As the Harper administration rushes to dole out a $40-billion stimulus of its own, it’s high time to ask a simple question: Are we stimulating the right things?

Confusion was nowhere more evident than in the debate on the U.S. Senate floor, where a relatively small amount marked for the National Endowment for the Arts was derided as nothing but pork-barrel spending and waste. The stimulus, such thinking goes, ought to focus on infrastructure only.

As Jack Kingston, a Georgia Republican, put it: “We have real people out of work right now and putting $50-million in the NEA and pretending that’s going to save jobs as opposed to putting $50-million in a road project is disingenuous.”

However, the facts are that the locus of economic growth has shifted dramatically and a stimulus that focuses on traditional infrastructure cannot succeed. What drives the economy today is not the old mix of highways and single-family homes but new, idea-driven industries. They range from software, communication devices and biotechnologies to culture and entertainment – and importantly the convergence of the two.

The familiar kind of stimulus – the “shovel-ready” kind that built highways and roads, and worked so well during the Great Depression and its aftermath – worked precisely because it didn’t stimulate that period’s aging agriculture economy. Instead, it accelerated the transition to a new economy based on housing, autos and all the products of the industrial assembly line, from refrigerators and washing machines to air conditioners and television sets.

The Keynes-derived notion of pouring money into public works built the roads and infrastructure that spurred postwar demand and primed North America for postwar global economic dominance, because the consumption embedded in our suburban way of life stimulated just the right kind of industrial production.

But eventually the system got out of whack. The housing and credit bubbles of the past decade ultimately biased and distorted our economy, channelling money and investment toward older industries, real estate and construction and away from more productive, innovative and creative ones.

For a stimulus to work today it has to stimulate the emerging creative economy, the engines of regional economic growth and higher incomes across Canada and the U.S.

Companies and workers in these fields also have “spillover effects.” Computer scientists and designers – unlike, say, lawyers and doctors – foster productivity in others, beyond the services they provide themselves. Creative industries also benefit from considerable synergy as arts and design combine with technology, from iPods to video games.

But it’s not enough merely to produce more scientists, engineers and artists or even high-tech entrepreneurs and entertainment moguls. We must also build an infrastructure and an economy that can sustain a demand for their creative efforts. In his book The Venturesome Economy, Columbia University business professor Amar Bhide shows how sophisticated, risk-taking consumers who demand new things and buy new products are the key to technological innovation in places such as Austin, Tex., and Silicon Valley.

It’s unlikely that the BlackBerry would have succeeded if it had come from Eastern Europe, for example, because consumers there would not have appreciated its security, convenience and systems integration the way that the Western world did.

The creative economy already includes roughly 30 per cent of Canada’s work force and about a third in the U.S. It accounts for more than half of all wages and salaries paid in each country. So, if the stimulus were allocated proportionately, between $250-billion and $375-billion should have gone to the U.S. creative economy; in Canada, the figure would be $12-billion to $20-billion.

Stimulus funds could be used to strengthen Canada’s science and technology infrastructure and its music, film and art scenes; it would provide entrepreneurial assistance and garage-like incubation spaces for innovators the Bloomberg administration is doing in New York City.

It would make far greater sense to invest precious infrastructure dollars in high-speed rail and broadband Internet lines to connect our communities than in roads and highways.

We will begin to move toward a durable recovery only when we stop unnecessarily propping up the old economy. Indeed, we have to make housing and transportation cheaper, as we did with agriculture during the New Deal, in order to free up the demand that will provide enduring stimulus for the creative-economy businesses and jobs of the future.

Fortunately, in the U.S., the $50-million for the NEA was reinstated at the very last minute. But it still aimed a huge amount of its stimulus at the old economy. Canada has the chance to do much better.