Archive for March, 2012

IN THE FUTURE THE CITIES RULE WHILE SUBURBS & BEYOND LANGUISH

March 31, 2012

Edward Glaeser author of “Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier and Happier” offers a convincing argument that future suburban and rural development will languish as the benefits of dense urban development force rethinking of the here-to-for generally accepted American lifestyle pattern of urban, suburban and rural development.

Glaeser a Professor of Economics and Director of the Taubman Center for State and Local Government at Harvard, is probably the most noted spokesperson on the role of cities and the benefits of dense urban development.  An out spoken critic of past urban planning practices that result in low-density suburban and rural development, he offers clearly stated reasons that compact higher density development will make significant contributions benefiting a new American city-centered lifestyle.

Convincingly stated, Glaeser credits urban density as the remedy for many economic, social and environmental evils.  He claims that “urban density provides the clearest pathway from poverty to prosperity” and future environmental sustainability.

His arguments include that –

  • City workers earn 30% more wages,
  • Workers are 50% more productive,
  • Increasing city population by 10% results in 30% GDP increase,
  • City per capita income is 400% greater,
  • City folks report higher happiness, and
  • Cities serve as global cultural & market gateways.

all which contribute to the clustering of commerce, intellectual skills and entrepreneurial innovation in cities.   He credits the attributes of cities with the unique ability to magnify human creativity.

Glaser advocates public policy that capitalizes upon the fact that cities along with their economic benefits, use less energy, have a smaller carbon footprint, conserve land, maximize governmental supplied infrastructures, and offer pathways for elimination of poverty.

To grow this success he suggests:

  1. Giving cities a level playing field – don’t prop them up – letting them find their own competitive advantages for sustainability.
  2. Eliminating limitations on global free trade that will increase city transport economics.
  3. Allowing enhanced immigration which increases city population.
  4. Increasing city resident population education attainment.
  5. Eliminating public school monopolies to obtain better education delivery services.
  6. Eliminating government redevelopment subsidy programs.
  7. Eliminating government programs that sustain “live in place” unemployment lifestyles.
  8. Creating consumer centric places which attract creative class residents.
  9. Reversing NIMBY’ism and status quo biases.
  10. Redirecting mortgage interest rate dedication away from single-family homes on large lots.
  11. Refocusing transportation infrastructure funding away from suburban expansion projects.
  12. Equalizing per person tax burdens to geography redirecting urban tax generation from suburban/rural geographies.
  13. Creating a carbon tax.

However while well-intentioned, absent in this analysis is comment on “what will the suburban and rural communities of today look like in this future?”

Will we create “ghost towns” and dying pockets of rural poverty, a trend now emerging especially across the Midwest due to globalization and productivity innovation of the US manufacturing economy?

Will we abandon traditional smaller towns which sprang-up along transportation routes when the rail and highway system dominated the movement of people and goods?

Will we incent or regulate out-of-existence urban sprawl advancing the notion that a better life is always available in the more dense cities?

Aaron Renn the “Urbanophile Passionate about Cities” blogger takes Glaeser to task on this vary subject in his March 25, 2012 posting.

http://www.urbanophile.com/2012/03/25/replay-buffalo-you-are-not-alone/

Aaron takes an exception to the idea that only the denser big cities can, or should survive, and become the catalyst for this preferred future.

Personally, I subscribe to a more middle road position advocated by Richard Longworth in his book Caught in the Middle: America’s Heartland in the Age of Globalism. He recognizes the Midwest of the future will be populated with more ghost towns, as we move to a more centric form urban development functioning on higher capacity and speedier transportation of information.

This new globalization transportation mode – the movement of information – will likely require more education and innovation of younger workers, skills likely to be more readily available in urban areas compared to rural areas.

This plays well into the idea, supported by Glaser, that cities leverage and magnify human resources for community and personal benefit.

The future is clear under Glaser’s scenario. 

First, cities will “out shine” all competition for human and financial capital providing greater personal advantages than offered in suburban and rural settings.

Being close rather than farther is better. Suburbs will survive, as a personal choice, especially geographic locations with transport convenience to the denser urban cities with demonstrable advantages.

Bottom line – some additional ghost towns, some additional cities will depopulate over time into ghost towns and some additional economic stronger, yet unidentified, cities will revitalize.

Today, the questions before the smaller town and suburban planner and their local elected officials is which do we choose – do we take action to identify our true competitive advantages and leverage them to our future advantage or do we stick with our “status quo biases” and let time determine our future!

For me activism is called for!

INDIANA RIGHT TO WORK – FUELS MICHIGAN’S BORDER WAR – “GAME-ON” REBUTTAL TIME!

March 17, 2012

No bout a doubt it – Indiana’s right-to-work is intensifying the Michigan/Indiana border war for new business investment.

The phone calls are coming in according to a recent discussion with an Indiana economic development colleague, “we have had several calls from Michigan businesses asking about right-to-work and Indiana’s cost advantages”.

It’s inevitable, I guess.

Right-to-work is a national issue.  It’s even more pronounced in heavily unionized Michigan, where it’s become part of economic development debate over the proper legislative basis for encouragement of business job growth.

Whether pro or con, Indiana is poised to use the real, or perceived, right-to-work advantage to their economic development marketing benefit.  Indiana Governor, Governor Daniels has already cited right-to-work being the subject of 31 prospective new businesses being pursued by him.

http://www.insideindianabusiness.com/newsitem.asp?id=52641

I’m repeating a question I recently posed to an upper management staffer of the local Michigan state funded business recruitment organization.

What do I say to level the playing field when asked about the difference between Michigan and right-to-work state Indiana?

Since a forthcoming response was not made, here’s my thoughts –

1.  Unionism in Michigan for the most part is automotive driven and is not the same throughout the state.

Once a popular manufacturing area, southwest Michigan has lost over half of its manufacturing (most auto related) jobs during the last 30-years with resultant decrease in union member workforce.  Only about 7-8% of the private sector workforce remains unionized.

2. Michigan’s workforce is not all auto driven.

Where once names like Clark Equipment, Auto Specialties, Essex Wire, Modern Plastics and other auto suppliers dominated the unionized workforce, they no longer exist in southwest Michigan.  Yes, southwest Michigan workers still make some auto parts, but it’s no longer the dominate portion of the labor force. Detroit’s auto wage and union policies do not automatically transfer into southwest Michigan business practices.

 3.  Unionization is not always adversarial.

The loss of southwestern Michigan manufacturing jobs over the past 30-year has been a life lesson teaching the importance of positive labor/management relations.  There have been no work stoppages (or threats) in recent memory demonstrating the positive ability of labor and management to live by new rules that recognize the importance of maintaining successful businesses and profitable business management.

 4.  Right-to-work does not mean unfair or uncompetitive wage differentials.

Right-to-work doesn’t automatically mean unfair or noncompetitive wages. Southwest Michigan has historically been known for fair wages, typically less than wages offered in the more urban east side Michigan labor markets.

 5.  Union/management relations are most important.

Bottom line – manufacturer labor relations in southwest Michigan are better than other places in Michigan, probably due to the decline of the manufacturing job base and efforts of both labor and management to retain existing and increase the number of locally-based manufacturing jobs.

 6.  Employment productivity trumps wage costs.

In southwest Michigan the total gross manufacturing product value, even with the loss of over one-half of the labor force has increased.  Productivity per worker ratio, over the past 30-years, has increased due to efforts of both management and labor to increase productivity.  Today, workers enjoy higher wages due to greater productivity, a positive demonstration of labor/management relations.

 7.  Out state Michigan’s competitive strengths supersede Michigan’s unionization.

Everyone celebrates the unique living environment of southwest Michigan, resulting in a competitive advantage for recruitment and retention of workers. To live in southwest Michigan has a “personal value” fully recognized by workers resulting in a wage differential compared to other places in Michigan.

 8.  Economic developers need to prepare a proactive “elevator speech”.

Right-to-work is one of a number of decision items businesses must consider when locating a new business in southwest Michigan.  In fact, a recent study of corporate executives identified right-to-work being 19th in importance to a new site location.

Economic developers need to have ready a “2-minute elevator speech” to emphasize along with the lower union participation rates, greater harmony between labor and management, fair competitive wage rates plus a superior quality of life – right-to-work isn’t as important due to these advantages when compared to the east side of Michigan where the statewide perception is made and publicized.

 9.  Economic developers need to organize a labor and management response.

Communication of positive relations will be the “proof”.  But laudatory statements may not be easily accepted by the doubtful analyst so …….economic developers need to pre-organize a response and have ready, a team to be the spokesperson for documentation of the claim of positive labor/management relations.

 10.   Economic developers need to “take a strategy to the market place”.

Let’s face the facts.  It’s “game on” time, and time to take Michigan’s mitigation strategy to the market places.  Using a sports analogy, a “good offence is the best defense” and a good offence may be the best strategy in this case. 

I’m suggesting economic developers, especially those representing communities along the Michigan/Indiana border, accept the fact that Indiana will use right-to-work to lure new businesses. It’s time to  cite the difference between the states and begin to publicize Michigan’s, especially southwest Michigan’s, advantages to mitigate the perception that Indiana’s right-to-work status provides a business location advantage.

FOSTERING ENTREPRENEURIALISM: THOUGHTS ABOUT ECONOMIC DEVELOPMENT GARDENING

March 9, 2012

Every community wants new businesses.  Not only do new businesses create jobs but they give a public demonstration of a growing prosperous community. 

Academic research provides strong evidence that small young businesses lead job creation when exiting a recession.  Local economic developers have taken note and many incorporate specific work tasks called “economic gardening” designed to assist new business formation as an element in the overall community economic development strategy.

However, community economic development work tasks that make a significant contribution to the formation of new businesses are a little more difficult to identify.

Here are ten thoughts to consider when forming your community based new business economic development “gardening” strategy:

1.  Recognize Individualism

The decision to start a business is a personal decision.  Whether the decision is made by an employee that says “I can do this better” and wants to create the next “Apple Computer”, the laid-off manager that begins offering consulting services,  or the housewife that begins to sell cosmetics, the final decision to go into business is an individual decision.

It’s easy to understand that a decision of this type will be stressful, effecting personal income and the family lifestyle.

Work program suggestion –

Provide access to personality assessment services that determine ability to accept risk and manage risk.

2. Help Surmount the Hurdles

Forming a business is much more than making a product or offering a service and collecting money. It gets involved with complex things as 1) what form of legal entity do I need, 2) what are my federal, state and county business identification obligations, 3) how to I complete my accounting to comply with tax obligations, 4) what licenses and permits are required, 5) what insurances coverage is needed, 6) how to get start-up funds, among other things.

Each poses a hurdle challenging the entrepreneur.

Work program suggestion –

Sponsor how to go into business for yourself programs, offered by local SBA sponsored Small Business Development Centers. Often local colleges and universities are available to assist with these challenges.

3. Make Entrepreneurialism Part of Junior and High School Education

Is entrepreneurialism a learned desire?  Some academics believe so.  Under this assumption, the role of entrepreneurialism as taught in the classroom is important to the early introduction that “going into business for yourself” can be a career providing great personal and financial reward.

Work program suggestion –

Make Junior Achievement and similar programs available in all schools.

4. Host Entrepreneurial Cafes

There is strong evidence that certain entrepreneurial camaraderie exists, especially among today’s “younger generation” computer based entrepreneurs. In fact a recent study found that over 50% of the Gen-Z’ers, Gen-X’ers and millennials plan to start their own business some time.

The older form of dedicated office space to many younger entrepreneurs is a “thing of the past” and the new office can be any location having internet connectivity. An entrepreneurial café, being a location where resources can be found and where entrepreneurs congregate can provide the necessary networking and social support structure sought after by those considering entrepreneurship.

Work program suggestion –

Create a café and virtual office providing a physical location for business and social needs of emerging entrepreneurs.

5. “Carve-Out” opportunities within the economic landscape.

There are numerous magazines touting the next great business opportunity.  However little research is completed on a communitywide scale to identify what businesses opportunities are likely destined for success based on the current and future projected local economy.

Most times identification of the business opportunity is left to the entrepreneur and made by “gut instinct” without a formal examination or market study.

There are resources, such as Nielsen-Claritas data that can help identify “opportunity gaps” in consumer purchasing patterns for retail and household goods which when used by  entrepreneurs can help identify certain small business opportunities.  Today, almost every university has some type of research assistance mechanism that can aid an entrepreneur in identifying market opportunities for more complex business ventures.

Work program suggestion –

Create, typically a university sponsored, entrepreneurial investigation research team to identify local community needs and opportunities that can be served by new businesses, including providing private sourced socio-economic data for use by entrepreneurs when needed.

6. Raise Capital Create a “Shark Tank”

One reason given for new businesses failure is the lack of capital.  This is especially true today where commercial lenders and the US Small Business Administration have reduced lending to small businesses.  Today, it’s a rare exception to find a commercial lender interested in financing a new business “start-up”.

The need for entrepreneurial financing has been popularized on television by “Shark Tank” a program where entrepreneurs “pitch” there new business idea to potential investors, in an effort to seek needed capital for business start-up and expansion.

Work program suggestion –

Community economic development strategies may require assembling social venture capitalists a new bread of investor typically organized in the form of an LC(3) – Low-profit Limited Liability Company to provide new business start-up financing.

7. Play the Numbers

Academic research documents nationally that 32 of 100,000 people will start-up a business, each month. Indiana and Michigan while being slightly lower than this ratio, still demonstrates a strong propensity for new business formation.

But a strong propensity does not automatically result in new businesses contributing jobs to the local economy; that being the goal of a community based economic development program. An economic development program that “mines the data” focusing on the population groups that have propensities to form new businesses is called for to help create these new businesses.

The key entrepreneurial characteristics include:

  • ·         One, or more, parents being entrepreneurs,
  • ·         Childhood small business experiences,
  • ·         Personality traits that accept risk,
  • ·         Personal predisposition to succeed in face of adversity.

Work program suggestion

Programs that create interest aimed at certain population groups, such as Gen-Z’ers,  Gen-X’ers and millennial’s  which have higher propensity to form new businesses should be part of the community economic development program.

8. Support Population Diversity

Entrepreneurial population studies document that certain demographic sectors have a greater propensity to from new businesses, especially Hispanics and recent immigrants. 

Work program suggestion –

Support program that celebrate population diversity embracing population groups that have a higher propensity to form new businesses.

9.  Create a “Match-Up” Market Place

Forming a business is a “team effort” needing different “skill sets” and talents, all which must be assembled by the entrepreneur.   

Work program suggestion –

Create a “wants and needs” bulletin board to match entrepreneur business needs with available support capacities.

10. Celebrate Success – Achieving Entrepreneurial Notoriety

Nothing breeds success more than success.  Being noted in state and national media as a community hosting new business formation not only demonstrates success but encourages others to consider “going into business themselves” or to take permanent residency in a location where new business formation is thriving.

Work program suggestion –

Create a media program announcing new business formations on a regular basis to create a statewide and national recognition as a geographic location for “new business start-up”.

Finale

Today, everyone talks about “economic gardening”, the notion that government sponsored local community economic development programs can cause people to start new businesses that eliminate unemployment and create community economic prosperity. 

Philosophically, the creation of an environment that embraces entrepreneurism should be a goal of every community economic development strategy.

However, it is still an individual decision whether someone actually starts a business.

Adding some or all these suggestions to your economic development strategy will “enrich the soil for planting the seeds of new businesses”.

 

Author note:  This was first prepared presentation at the Purdue University North Central “Topics in Regional Economic Development” class, Spring 2010.

POLITICAL MANUFACTURING ELECTIONEERING – WILL POLITICS HELP REBUILD THE MICHIGAN MANUFACTURING JOB BASE?

March 5, 2012

McKinsey Global Institute confirms the notion that the US manufacturing job force will not likely return to historic job counts, identifying the challenge facing those relying on an economic development strategy focused on replacing manufacturing jobs.

Can Michigan rebuild its auto dominated statewide manufacturing base and diversify into related manufacturing jobs to create jobs for Michigan residents?

 It’s the million dollar question………..

According to Susan Lund, director of research at McKinsey, “If job creation is your goal, manufacturing is probably not the sector you’d look at”.

She expounds – US manufacturers have added 400,000 jobs since 2011, after a loss of 5.8 million jobs from 2000 to 2009. Manufacturing employed more than a third of the nation’s nonfarm workforce in 1950 but now employs less that 9% (WSJ 3-2/3-2012).

It’s easy to understand, as Lund explains, advances in technology and management processes have allowed factories to boost their production, or output per hour of labor.  The result is less manufacturing jobs providing the same, or more, product and at the same time providing higher wages for these jobs.

Economic developers are charged with two goals:

  • Create new jobs that increase household income and wealth which ultimately is reflected in increased government revenue from income, sales and real estate taxes, and
  • Provide jobs for local residents.

For the economic developer, this creates a conundrum – less jobs & higher wages vs. the difficulty of replacing lost manufacturing jobs – when the economic developer is typically graded on a scale of “how many jobs they create”.

Maybe Washington will help.

Today, both President Obama and all GOP hopefuls offer their perspectives on how to reinvigorate US manufacturing employment.                                                                                   

While the electioneering rhetoric offers varied ideas such as employment training credits, reduced profit taxation, government supplied special financing and regulatory barriers/exemptions, many economists question the merits of “industrial policy” – government efforts to promote certain sectors by picking “winners and losers”.

They claim the recent “rise in manufacturing employment of the past two years is more of a blip than a trend” and that future mechanization and management improvements will continue to work against large gains in total manufacturing jobs.

On the other side, are claims that government manufacturing incentives will incentivize business decision making resulting in new manufacturing employment.

Regardless of your political perspective, the reality remains, that manufacturing employment will not return to the “1950’s good old days” or pre-recession levels.

So what’s this mean for the Michigan’s economic development practitioner?

Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.

  1. Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.
  2. Retraining of existing workforce and training of the “up and coming workforce” will strive to provide skill sets required for the continuation of the auto related labor force as well as for new manufacturing processes that are “targeted industries” chosen by state government.
  3. State and local incentives will be created and used (a Michigan tradition) to induce new business formation or new location of selected manufacturing businesses.
  4. There will be increased local competition for new manufacturing jobs between Michigan communities as they vie for the location of a lesser number of new businesses.
  5. Greater emphasis will be imposed on the success of the economic developer to “create new jobs” through location of new businesses.
  6. The current state emphasis on “core communities” will be challenged by smaller urban and smaller rural communities seeking their “fare share” of job creation attention by state government.
  7. Due to need for local job creation the role of the economic developer, especially in communities not cited on the states “favored list”, will focus more on  “economic gardening” the process of creation new jobs by forming new local-owned businesses.
  8. Greater attention will be given to removal of barriers to job creation, especially state regulatory, taxation and other rules that place Michigan in an uncompetitive position when compared to other states.
  9. As the complexity of local economic development programs increase, consolidated regional (multi-government) economic development organizations will become more common place in order to provide sufficient economic development funding for professional trained economic development staff functions.
  10. The educational and experience qualifications for leadership positions in Michigan’s economic development profession will require new, more advanced qualifications and experience, aimed more toward entrepreneurial skills rather that the traditional menu driven activities that currently underlies the Michigan economic development delivery system (that being offering new and existing business state and local incentives from a menu of options to create new jobs).

Finale

Regardless of election outcomes, the role of Michigan’s economic development practitioner is positioned to change, and the future role will be different.

We can expect to see a bifurcation of economic development strategy, first, continuing the competitive effort to secure new businesses wishing to locate in Michigan and second, local efforts to create new businesses that increase local jobs.

In either case, the pressure upon Michigan’s economic developers to produce new jobs and investment will increase.