Friday, April 29, 2011

Business planning at the metro scale

By Matthew Tester, Project Associate.

The Brookings Institution recently convened a forum around the concept of metropolitan business planning, which was presented as a new approach to economic development. The forum served as a platform for introducing the concept and presenting the strategies of three pilot regions which have partnered with Brookings in its development and implementation. Essentially, metropolitan business planning aims to “adapt the discipline of private-sector business planning to the task of revitalizing and restructuring metropolitan economies.” The participants make the case that the business planning model is the right approach at the right time and that the right scale is metropolitan.

First, on the business planning approach: The core components of the metropolitan business planning concept are “look deeply at the assets in your economy, understand your market, develop strategies and products and real executable operational plans” – to which most economic developers say…”duh.” This doesn’t sound like new territory; we do this for a living. But the point is that this process should    not result in a plan, but launch an ongoing enterprise that behaves in business-like ways and is accountable for performance outcomes. This approach is an intentional acknowledgment of our austere budgetary environment. Investments must have demonstrable returns. Good returns are more likely if economic development initiatives map clearly to the strengths, qualities, and opportunities of each metro region. The strategy formation phase must be inclusive and intensive, and it must produce a convincing investment. Each of the pilot regions now has in hand a true business plan and even a prospectus for lead strategies identified in the process. The Building Energy-efficiency Testing and Integration (BETI) Center and Network in the Puget Sound provides one example.

Second, on geographic scale: Through its Metropolitan Policy Program, Brookings has long been a champion for the role of metropolitan areas in driving national prosperity. According to Bruce Katz, director of the program, the national economy has become metropolitan in form and function. The vast majority of population, GDP contribution, innovation, and capital are in the top 100 metros. New Growth Theory, Economic Geography, and Institutional Economics provide the theoretical backdrop to a metro-oriented approach – knowledge attracts other knowledge; concentration creates synergies; and enabling environments are crucial. A particular emphasis is placed on the potential for metro areas to focus public investment programs and break down silos. According to Bob Weissbourd, a new government is created every 18 hours (funny anecdote – there are more governments in his home state than barbershops or dentists). As the growth engine of the new economy, metro areas with actionable business plans can push for coordination and simplification among governments at all scales, producing better and more measurable returns on public investment.

According to Weissbourd, metro economics should operate under three principles: a comprehensive and integrative approach; customization to each metro region; and building institutional capacity. The “leverage points” for strategy development are concentrations (occupational and functional); human capital; innovative infrastructure; spatial efficiencies; and institutional infrastructure.

While I respectfully take issue with Brookings styling the concept as something brand-new, the focus on deep regional analysis and acutely tailored strategies is a really fantastic thing, and the emphasis on a business-like approach is appropriate in today’s budgetary climate. The presenters and panelists did a great job tying together the manifold economic realities and imperatives facing our nation into a cohesive set of principles that should guide economic growth going forward. Market Street approves.

Check out video, audio, and text here:

Check out the BETI business plan and prospectus:

Wednesday, April 13, 2011

Making Energy Plans

By Matthew Tester, Project Associate. 

As energy markets evolve in coming years, some communities will be better off than others. Those with energy plans will be prepared to absorb the difficulties and generate real benefits for their residents. 

At Market Street, we are continuing to watch the landscape for disruptive trends so that we can help our client communities capitalize. As I've previously mentioned on this blog, I have a keen interest in the future of energy – inputs, technologies, distribution, you name it – and what it will mean for our communities. The way I see it, there won’t be a more disruptive trend this century than the transition from fossil fuels to alternative energy sources. The local economic impact will be enormous, and without proper planning, it could be disruptive in all the wrong ways. 

Recent developments have hinted further at the risks of a continued fossil fuel economy. Unrest in the Middle East and the nascent economic recovery have pushed gasoline prices close to $4 per gallon. Even without the immediate concerns about supply, the increased demand created by the global recovery will keep prices higher than the last two years have allowed. More and more energy analysts (and investment gurus, for that matter – see Warren Buffett) are subscribing to the Peak Oil contention that permanently declining production worldwide will squeeze costs in the near future. Shale gas is becoming more suspect as a viable mid-term alternative, as concerns about groundwater contamination and greenhouse gas emissions associated with its extraction pile up.

I wrote in November about communities needing to think about their transportation investment decisions in light of these realities. I’m beginning to think that lens needs to be widened. And the more I think about it, the more I’m convinced of the wisdom of city- or metro-scale energy plans. The beauty of these plans is their versatility – they can be as wide or narrow in scope as the community can handle. Political and geographic realities will naturally shape the planning process. In some communities, these plans might cover every issue from climate change to job creation, and in others, they might focus on just a single government program.

There are a hundred indirect economic benefits that one might use to justify such a plan; I’m thinking instead of direct impacts. On Mac’s recommendation, I just finished reading Make It In America, by Dow CEO Andrew Liveris. He posits that Germany, a country with high labor costs, became the world leader in renewable energy systems (tops in photovoltaic cell production) in large part because they had a clear and demonstrated commitment to growing that sector – they had a national energy plan. The United States, which has no discernible national energy plan and has only timidly embraced renewables, has become far less competitive in this realm.

At the local level, the lesson is that manufacturers, researchers, and service providers associated with this massive growth sector are faced with much greater uncertainty and are less likely to invest in a given community if it has no energy plan. These interrelated businesses comprise one of the most promising growth engines in our economy. Almost every community we work in wants to know how competitive they are in energy technologies, green manufacturing, or some related sector. Having a plan that screams “We are prepared to invest in the future of energy” is one proven way to stand out from the pack. Wouldn’t you want to take your business where it’s welcomed?
Some communities with energy plans include:

Friday, April 8, 2011

Israel Today

By J. Mac Holladay, Market Street founder and CEO. 

I have just returned from 2 weeks in Israel. While it is a land full of history that dates back thousands of years, it is also an “economic miracle.” This country of some 7 million people, with over 5.5 million being Jewish, has accomplished nothing short of miraculous economic progress since its founding in 1948. In their book “Start-Up Nation,” Dan Senor and Saul Singer frame how that success has been reached. There are more than 70 different nationalities and cultures in Israel. Between 1990 and 2000, 800,000 Jews came from the former Soviet Union. The Law of Return allows any Jew (a convert or born to a Jewish mother) to come to Israel and be granted citizenship effective the day of arrival no matter what language they speak and there are no tests. It is a nation of immigrants from all over the world. 

The authors attribute the progress to three primary components. First of all the young people in Israel must serve their nation in the military. So from high school, all the young women serve two years and the young men three. They not only serve but travel the country and go to class about their history, ancient and new as well. It is then that the young people test to enter their amazingly strong college system. I visited the premier university in the country called Technion – the Israel Institute of Technology. To say it rivals MIT is an understatement. To those selected to attend the tuition is $2500 per year. Their military is structured completely differently from ours with everyone serving in the Israeli Defense Force. They take great advantage of their training and try to integrate each soldier’s experience and skills sets back into the economic structure. The connections made during military service last a lifetime. The Dean of the Technion materials engineering /nanotechnology graduate school was on military duty when we visited; he is a sergeant. 

The second component of their success is that as an immigrant nation there is a cultural commitment to entrepreneurship. Their history has created an entrepreneurial culture and their military experience forges networks and relationships which are often critical to small business success. It is highly valued to own your firm and many support mechanisms exist to provide needed assistance. At the top of the list is a well developed venture and seed capital fund system. While the country is small, investors from all over the globe view Israel as a fertile ground for quality companies. 

Lastly, they are a “mash-up” of all kinds of things. They are nurturing, individualistic and egalitarian all at the same time. They honor their past, but push aggressively toward innovation. Everyplace and everything is “wired.” You are never out of contact with the world wide web. They have more cell phones per capita that any nation in the world. And, they operate as a team on everything. Their commitment to technology and innovation is driven by both global competition and their commitment to survival. For example, they have no oil, no gas, and no other natural resource assets. While 95% of the country is semi-arid, arid, or hyperarid; because of its technological advances in desert agriculture, drip irrigation and desalination, it is able to feed itself. It leads the world in recycled waste water with over 70% being reused. 

The day I arrived in Israel, I had the good fortune of seeing Simon Peres, the eighty six year old President of Israel, in my hotel in Jerusalem as he prepared to meet with the President of Cyprus. It was Peres many years ago who became known across the country as “the founder of industries.” In his many different roles over the past 60 years, he has believed in the vital role of science and technology and today Israel leads the world in the percentage of GDP that goes to research and development. As Peres had said, “The most careful thing is to dare. “ That is how you create an “economic miracle.”

Tuesday, April 5, 2011

Deep and persistent problems: the housing market and unemployment

 By Stephanie Allen, Project Assistant

At the end of last week, when March’s unemployment numbers came out (8.8 percent, down from 8.9 percent in February and 9.8 percent in November), economists and economics reporters across the county urged us to be cautiously optimistic (if optimistic at all).  Earlier in the week, with the release of the latest Case-Shiller report and the news that housing prices in January had dropped 3.1 percent since January 2010, we were warned that by summer we will probably see a double dip in the housing market.  The recession ended over 21 months ago, but weak employment growth and a decimated housing market are continual reminders that the future we’re headed for may look nothing like the recent, prerecession past.

It’s now widely accepted that housing prices won’t rebound to 2005-2006 levels, but last week’s report shows that prices in 11 of the 20 areas tracked by the index hit new post-bubble lows in January.  The 10-City and 20-City Composite Home Price Indices have been falling since August 2010.  Patrick Newport, an IHS Global Insight economist, suggests that we will see a double dip by June.  None of this is very good news, and you may remember that back in November Mark Zandi, chief economist for Moody’s Analytics, predicted that 2011 would be a rough year for the housing market (see my blog post from 11/8/2010), with the housing market finally hitting bottom and beginning to recover come this November.  While the housing market is still very much a dark cloud hanging over the U.S. economy and while it seems the worst may not yet be over, there is still hope that if we can just wait it out that by the end of this year we may finally see sustainable recovery in the housing market.

The jobs market is another story.  We have seen sustained growth (not counting census hiring/firing) for a year now, since March 2010, and unemployment has dropped to a 23 month low, but the prevailing sentiment of reports coming from economists doesn’t seem to be hope—perseverance, sure, but not hope.  We hear that we’re still 7 million jobs down from the pre-recession employment peak and that we’re simply not adding jobs back fast enough.  We watch as the labor force participation rate stalls at 64.2 for the third month in a row and the employment to population ratio creeps very slowly up from its 26 year low in December 2009 (58.2 percent). 

It seems few economists think we’ll be digging ourselves out of this hole anytime soon, and some, if not most, would probably prefer we abandoned the whole hole metaphor altogether because we’re likely not going to be able to recapture those 7 million jobs or our prerecession prosperity.  Take Alan Krueger, an economics professor at Princeton and former assistant secretary for economic policy at the U.S. Treasury.  He argued in Bloomberg last week that we weren’t creating enough jobs even before this recession began.  He thinks our job creation problem is an even deeper and more disturbing problem for the economy than we may now want to acknowledge.

So what should we do?  I think perseverance is the right attitude.  It’s been 21 months since the recession ended and we haven’t really seen much recovery.  It’s time we stop sitting on our hands and hoping the recovery will come.  It’s time we stop focusing all of our attention on damage control and stop-gaps, realize that things may not get better any time soon, and start planning for the future.  J. Mac Holladay, our CEO and Founder is fond of noting, “It’s a new time, new things; it’s tougher and we are in a different place.”  If we can recognize that, really recognize that, we can start to plan a more prosperous future.  If we’re waiting to be dug out of the recession, if we’re waiting to just get our heads back above water before we think about the future, we may just – to mix metaphors – drown in that hole.

Friday, April 1, 2011

New Index Details the Components of Economic Security

By Christa Tinsley Spaht, Project Manager

A New York Times article today highlights "The Basic Economic Security Tables for the United States," a new report published by the non-profit advocacy group Wider Opportunities for Women. The study (PDF) attempts to contrast U.S. poverty thresholds, average wages in certain jobs, and the realities of living expenses – food, utilities, housing, taxes, etc. – to demonstrate the harsh disparities between what many employed Americans are earning and how much they must spend on the basics for themselves and their children. The study also mentions the critical role of financial savings in securing an individual or household’s ability to cover expenses after retirement and the long-term costs of economic insecurity on workers.

As national unemployment slowly creeps down, the importance of not just job creation but of high-value job creation is taking center stage. Increasingly, regions with low costs of living are still finding that their average wages still fall short of what is necessary to increase overall community prosperity and well-being. This draws even more attention to the essential nature of education and talent development in regions seeking to strategically develop and increase economic opportunity. Building a competitive regional skill set is the top means by which to foster the prosperity from which so many Americans have lost their grip.