There Will Be Graphs: The Final Installment

By Evan Robertson, Project Associate.

I’ve spent the last hour scouring the internet for a lighthearted topic that would be appropriate for the holiday season. You know, a feel good story, or perhaps an analysis piece that identifies the path Santa should take to maximize his holiday cheer production. Unfortunately, the internet has failed me. However, as I thought about it, with the year ending and the Mayan calendar starting afresh, it might be a fitting time to conclude my blog series. And, as I thought about concluding my series, I couldn’t help but think: you know, most of the gifts that were given this holiday season likely came from somewhere else – they were imported (or at least some of their components were). An idea was born. 

The Brookings’ Metropolitan Policy Program has long been beating its export-expansion war drum, and rightly so. One of my favorite statistics to this day comes from Brookings: less than one percent of American companies export a product or service to another country and, of those, less than half export to multiple countries. As an economic development professional this is nearly incomprehensible as it has been engrained within me that growing your export base is a surefire way of generating new wealth. Local companies that engage in export activities are simply importing dollars from elsewhere; they are less dependent on the local economic climate. China, India, and Brazil all understand the importance of exporting to their national economies, and not too long ago, so did America. Our country’s wealth was earned by a hard-working, immigrant population employed in factories across the country. And by country I mean cities, big and small. 

The following graphs are derived from Brookings’ Export Nation 2012 Database which extensively details the 100 largest metros’ export activity. Within the database are linkages between a metro area and the country in which they have an export relationship. The initial output of these linkages is graphically represented below. The red circles represent the 100 largest metro areas while the blue circles represent the 73 export-receiving countries Brookings’ tracks. The black lines represent an export relationship between a metro area and a foreign country. Through filtering these relationships we can deduce some useful takeaways.

Only a handful of metro areas have a very strong trade relationship (defined as $5 billion in exports) with another country. These export-receiving countries are those you might expect: Canada, Mexico, Japan, and the United Kingdom. By far the strongest trade relationship is Los Angeles’ $11.4 billion export relationship with Canada, followed by New York-Canada ($9.3 billion), Chicago-Canada ($8.3 billion), and Houston-Canada ($7.5 billion). What are these metros’ exporting in such volume? Machinery, oil and gas, chemicals, transportation equipment, and travel and tourism compose a large portion (greater than one billion dollars) of these metros’ exports. Can anyone say North American Free Trade Agreement? 

Many metros have at least one billion of exports or greater (considered as strong) with at least one trading partner. Moreover, these relationships are more diverse and more indicative of a global economy. However, as the following graph shows, these strong relationships are still dominated by Canada, Mexico, Japan, the United Kingdom, and China, with Germany and Brazil receiving an honorable mention. In the graph, a country’s label size is based on the number of metros’ trading with it. The bigger the label, the more metro area’s trading with it. So, for those of you trying to get more of your local firms to export to another country, it may be advantageous to focus on those countries which already have existing relationships with other large metro areas. Of course, it might also suggest that firms may have difficulty breaking into these markets since they could be dominated by these established trade relationships hence the value of emerging markets. 

What we can conclude, however, is that our “global” economy isn’t all that global. Our metros’ trade relationships are strong in only a handful of countries in North America, Asia, and, to a lesser extent, Europe. 

Our final graph shows the strongest trade relationships (those valued at one billion dollars or more) for a single sector within a metro area. The lines are weighted based on a metro area’s trade relationship (in dollars) to another country. Those with strong relationships appear darker with a yellow hue. As you can see, the usual suspects are present: Canada, Mexico, China, and Japan. Trade with Canada is dominated by transportation equipment. Seattle exports $4.5 billion in transportation equipment to the country while Detroit ($3.8 billion) and Dallas ($2.1 billion) also export a sizable portion. Probably the only surprising thing in the whole graph (and I imagine you already said this to yourself): Ireland. 

Why do New York and Los Angeles have such a substantial relationship with Ireland? Well, here is a hint, Los Angeles exports $1.7 billion of royalties to the country, New York $1.2 billion. In the world of corporate intellectual property there is something known as the Double Irish (usually accompanied by the Dutch sandwich). The Double Irish is a tax avoidance strategy (nearly evasion, but completely legal) in which technology companies transfer intellectual property (IP) to a shell company in Ireland in order to avoid paying U.S. corporate taxes on the royalties the IP generates. Last year, Google alone avoided $2 billion in corporate taxes by sheltering $9.8 billion in revenues through the transfer of intellectual property to shell companies located in Ireland and Bermuda. The large export relationships shown between Los Angles and New York are likely indicative of intellectual property transfers from companies in the U.S. to their shell companies located in Ireland rather than any real transfer of goods or services.* And I only point this out to say that it is important to understand the nuance of your export economy. Sometimes export activity might just be inter-firm transfers which generate no real wealth creation for the local economy. Understanding the minutia will help you, as an economic development professional, decide which export activities are generating real wealth for the community (thus, which you should pursue), and those that are just an artifact of a sector’s business strategy (something you don’t need to get involved in). 

Our world is an interconnected weave of stuff. This stuff interacts and interrelates in expected and unexpected ways. Only by grasping your connection within the weave (whether it is yourself, your community, or your organization) can you begin to develop an insightful view of the world and your position within it. This insight will be the result of appreciating how this intricate weave of stuff relates to one another, how it interacts, and, ultimately, how change influences the system as a whole. Social network analysis provides an expedient tool to begin to draw these connections. Its usefulness to economic development professionals is still unfolding, but as social network analysis is applied to ordinary economic data, we can begin to develop a well-founded comprehension of our local economy’s position in the chaos that is our global economy. 

And with that, while there will be more social network blogs in the future, they will come a little less frequently. I sincerely wish everyone a Happy Holidays and a Happy New Year!

* - The San Jose metro area had a smaller but sizable relationship with Ireland totaling $325.5 million in royalty payments. It is also important to note that Los Angeles is home to Broadcom, a manufacturer of wired and wireless communications products. The firm alone secured 1,556 patents between 2006 and 2010 in the Los Angeles metro area.

The Push Back Continues

By Jim Vaughan, Senior Fellow.

Perhaps it is because of the national debate about taxes—who pays how much and what is fair. 

Or maybe it's the scale of the study and the amounts of money involved. 

Whatever the reason, the New York Times series on corporate incentives (see Dec. 6 post by Alex Pearlstein) has editors and columnists across the nation raising more questions about the cost and benefits to states and cities of the subsidies being paid to businesses. 

The push back we’re seeing should cause leaders of chambers of commerce and economic development organizations to be particularly concerned since most of us have relied on incentives as one tool in our business recruitment and retention toolbox. 

The Waco Tribune-Herald has been a supporter of local incentives for new businesses and the local chamber’s work in economic development. I would not have expected its reaction to the Times series: “Corporate welfare, tax breaks and subsidies out of control in Texas.” 

The Waco paper’s editorial continued, “Our state has far too many tax loopholes and bonanza savings offered to lure businesses here, often at the expense of taxpayers and communities.” That’s strong. 

Writing in the Atlantic Cities, Richard Florida argues against incentives, calling the practice a “long-standing waste of state and local resources.” 

“Incentives do not actually cause companies to choose certain locations over others,” Florida writes. “Rather, companies typically select locations based on factors such as workforce, proximity to markets, and access to qualified suppliers, and then pit jurisdictions against one another to extract tax benefits and other incentives.” 

I have known and respected nationally syndicated columnist Neal Pierce for many years. He also challenges the value of the incentives. 

“No new net wealth is created,” Pierce writes in his most recent column. “One city or state’s gain is another’s loss.” 

I am inclined to make the case that most new projects are expansions or new operations and that we’re not playing a zero-sum game. But that’s certainly not always the case. There are many examples of communities competing to attract companies who will close plants and eliminate jobs in their former location with no net gain in employment or taxes paid. 

A classic example of this zero-sum benefit is seen in what has been called the “border war” in the Greater Kansas City region where Missouri and Kansas often compete for each other’s companies and jobs. The governors of the two states ignored a 2011 letter signed by 17 top metro area executives calling for a ceasefire. 

An insurance marketing company received $5 million from the state of Kansas to close the company’s existing location in Missouri and move to a new site one mile away in Kansas. 

The Kansas City Star says the Kansas-Missouri border war bleeds taxpayers for no good purpose. 

“Millions upon millions of tax dollars are being wasted this way, and for what? The back-and-fourth activity has created almost no new net job growth for the area.” 

During my tenure at the Greater Waco Chamber, we helped secure cash incentives and tax abatement for new and expanding companies in amounts from $24,000 to $2.8 million based on jobs created and capital investment. 

Compared to the awards described in the Times series, our program was quite modest and our contracts included “claw-backs” to require companies receiving grants to pay them back if the number of jobs created and retained were less than agreed upon. 

As the push back to incentives continues, a lesson learned is that the holistic approach to economic and community development advocated by Market Street has the best chance of winning broad-based support from public and private sector leaders and from the news media. 

Economic and community development is about creating great places with talented people where the businesses of the future will grow and prosper. A case can be made to offer incentives to businesses who invest in that new future. But the agreements need to be transparent and there is a need to make certain the agreement is a good deal for the local community, the state, and the company.

Heroes

By J. Mac Holladay, founder and CEO.  

What happened this past Friday is beyond belief for most of us. As President Obama said, “our hearts are broken.” There is nothing to say to the families who lost children or other loved ones. Newtown has been badly damaged. As the President said, “you are not alone.” We all grieve with them.

As the vile story has unfolded, heroes have emerged. They include several teachers, the principal, and the psychologist of Sandy Hook Elementary School. The teachers saved many children and intentionally put themselves in harm’s way. Their acts were selfless and brave. They died for the children they were teaching and caring for.

The other set of heroes is the first responders, local policemen, state troopers and EMTs who rushed into the school only to see what no one should have to bare. They tried to save the four victims who were still alive. Only two have survived. They had to report who lived and who had died. They had to talk to the families in the fire station next door to the school.

I want everyone to remember that all these heroes are public employees. They work for a public school, state or local government. Oftentimes, we forget how much we depend upon these people every day. So, perhaps we need to think a bit harder about budget cuts, downsizing, layoffs, and payroll freezes for these servants who give so much. They are there every day doing the best they can. It is only when a tragedy like this occurs that we learn who the true heroes really are.

Innovation Economics: A Webinar Review

By Evan D. Robertson, Project Associate.

Innovation takes time; it is not a short-term endeavor. With all the hype generated on innovating our way out of the Great Recession’s aftermath, we seem to be under the impression that innovation is a quick fix for our troubled economy – currently, this belief dominates the public debate over job creation. Four years, and bam, jobs galore, America’s competitive position is restored. However, as Robert Atkinson, founder and president of the Information Technology and Innovation Foundation, pointed out during his webinar Innovation Economics: The Race for Global Advantage, America suffers from “innovation atrophy.” While the world was busy pursuing and reforming policies to promote innovation, America rested on its laurels. In 2009, the United States spent just 2.9 percent of its GDP on R&D, a figure that lags Israel (4.46), Sweden (3.61) and Japan (3.36) according to the Organization for Economic Cooperation and Development (OECD). Our aggressive innovation policies, once first-class during the 1990s, are being overtaken as Atkinson pointed out.

Simply put, we got complacent. While we were riding the thrill of the real estate bubble, foreign governments across the globe were reforming and adopting policies to create real wealth, and real competitiveness in their economies. Atikins cited as key reforms policies such as the patent box, which reduces the taxes a corporation pays on its intellectual property by half, and a program that gives a $25,000 “innovation voucher” to companies so that they can by purchase innovation services from research institutions. Meanwhile, other countries pursued extremely aggressive and often times illegal practices. China began requiring that foreign companies enter into joint ventures with local Chinese-owned companies along with stipulating technology transfers of intellectual property entering into Chinese markets. Not illegal, just the cost of doing business in China. This, in conjunction with rampant intellectual property theft and blatant corporate espionage, has left America at a severe disadvantage relative to the rest of the world.

So, what do we do to regain our lost competitive edge? Robert Atkinson operationalizes the solution into the 8 I’s:

• Inspiration
• Intention
• Insight
• Incentives
• Investment
• Institutions
• Information Technology
• International Framework

Although he didn’t go into detail over every one, he did focus on two during today’s webinar. In terms of incentives, he recommended a strong expansion of our current research and development tax credit to include workforce development, worker training, and industrial machinery, as well as lowering the corporate tax rate to put us on par with, or perhaps surpass, most OEDC countries. At the state level, he recommended economic development incentive reform to ensure that states use incentives only to invest in things that actually create value for a company as well as the community. In this respect, he suggested that incentives be limited to building innovation capacity and productivity within a company seeking public investment.

Along with the incentives overhaul, Atkinson says that we need also rethink our institutions. One example he pointed to was the New County School in Minnesota, a high school focused on project-based learning. Students at the school are engaged in completing projects. Instead of lecturing “at” the students, adults take on a mentorship and facilitation role. This model has also been extremely successful at the University of Cincinnati’s Live Well Collaborative. Employers have begun to catch on since they realized they didn’t want to employ people with a bunch of knowledge crammed into their head in the first place. What they really wanted were employees who can work in dynamic teams, deal with and anticipate the unexpected, think creatively, and problem solve in a group environment. Our lecture-style classrooms no longer fill this need.

But what I thought was the most important takeaway was mentioned briefly during the Q&A session: the American innovation system doesn’t reward long-term, strategic investment. Our financial system is predicated on short-term returns and quarterly reports. As Atkinson mentioned during the webinar the average time an investor holds a stock has decreased from six months to around a few seconds thanks to high-frequency trading. One missed earnings report, even if a company invested in long-term innovation capacity, can tank a stock, erasing billions in a company’s market value, pressuring the CEO to protect shareholder value. Investors flee because the performance didn’t live up to their “expectations.” Since the CEO remains beholden to shareholders, then you can begin to see why CEOs must remain ever-conscious of their stock’s performance, and those pesky quarterly earnings reports. Thus, it is understandable why a CEO would choose an investment that has a payoff in two years over one that may have a large, but uncertain payoff in 10 years. Incremental innovation trumps long-term systemic innovation. Our incentives for systemic innovation are just not quite there. Whereas other countries such as Germany weigh their investment decisions on a longer time frame. Capital is their tool, not their deciding factor.

I don’t want this to sound like the silver bullet solution; this is economic development after all. Our innovation system requires a holistic rethink, and one in which we need to get everything right, from national to local policy. As Atkinson suggested throughout the webinar, we seem to have at least got the local level policy (state, metro, and city) under control. Now it is time to focus on federal innovation policy, keeping in mind that they must nurture the pioneering policies in place at the local level.  

Best Practices in Economic Development

By Ranada Robinson, Senior Research Associate. 

This morning, I participated in a webinar hosted by Atlas Advertising entitled 7 Keys to High Performance Economic Development in 2013. Featured in this webinar were three panelists representing top performers in the Economic Development Organization world, two of which are our clients: Janet Miller, Chief Economic Development Officer of the Nashville Area Chamber of Commerceand Sara Dunnigan, Senior VP of Existing Business Services and Talent Development of the Greater Richmond Partnership, who were joined by Clint Kolby, Project Manager for the Brenham Economic Development Foundation.

To set the tone of the webinar, the participants were asked to take a poll about whether they feel their economic development organization makes a difference. While 61 percent said they do think their organization does make a difference, what captivated me was the 35 percent that said that their organization does have an impact, but they can’t measure it. As a researcher, this was striking because here at Market Street, we are constantly advising clients to benchmark themselves and track their progress—that effective implementation requires metrics. I was pleased to see that all three panelists encouraged the webinar participants to measure, measure, measure.

It’s always important for economic developers to remember how much every action they take impacts final results, more evidence of how important it is to quantify economic development efforts. Before the panelists spoke, the latest figures from Atlas Consulting’s High Performance Economic Development survey were presented: 

• Fifty percent of economic development organizations felt they had an impact
• $244 million was invested per community in the last 12 months
• 1,768 jobs were created per organization in the last 12 months
• A single conversation with a prospect resulted in an average of 25 jobs

Each panelist then shared their challenges, goals, tactics, results, and lessons as they work to bring jobs and capital investment to their communities. Here are some highlights from each of these communities.

Nashville, TN

As we know because of our extensive work in Nashville, the Nashville Area Chamber of Commerce does a phenomenal job tracking various metrics such as job growth, population growth, increase in per capita income, increase in gross domestic product, percent of site visits resulting from RFPs, etc. The Chamber has been recognized in several publications, including being ranked #1 for job growth by Atlas Advertising, #1 “Future Job Creating Machines” by Kiplinger, and is one of the Top Ten Economic Development Groups in America by Site Selection Magazine. Janet Miller had great advice for the participants:

• Get your tools in order before marketing. The best use of marketing dollars for limited budgets is to invest in outside expertise on website creation.
• Make sure your marketing is consistent over a period of years for target audiences.
• Play to your strengths, rather than your weaknesses—Nashville has historical success in health care and healthcare IT, so that’s what they’ve focused energy on—not biotech, which has not had a solid foundation in the community.
• However, don’t ignore your weaknesses—acknowledging your issues is the first step to tackling them.

If politics is hurting a community’s image, and possibly business structures, the ED organization must get involved in advocacy and policy work at the state and local levels.

Richmond, VA

Richmond’s challenges have included fostering cooperation between four strong localities with their own strong economic development programs; integrating public and private sector investors; keeping economic development as a top priority despite having a stable, diverse economy which is a blessing but also a curse because they have had difficulty forming a solid “identity;” and a slow growth economy surrounded by very competitive neighbors. One of the things we at Market Street love to boast about the Greater Richmond Partnership is their focus on talent. They have a done an amazing job attracting, retaining, and developing talent through programs such as their talent portal RichmondJobNet.com and their virtual relocation tool LoveWhatYouFind.com. 

Sara Dunnigan urged participants to have a strategic plan in place, which sends a clear message to investors and the community and also helps staff get on the same page. She recommended internal and external scorecards—the Greater Richmond Partnership measures many outcomes and actions, but not all are included in their annual report or their five-year scorecard. She also emphasized the importance of having job creation and investment goals, not just overall, but also by program of work.

Brenham, TX

Brenham, Texas has a population of 16,000 people and considers itself a rural community—a challenge because the community is in the backyards of both Austin and Houston. It is seen as a tourism destination, they have a small pool of skilled labor, and they do not have an adequate supply of commercial buildings. However, that has not stopped this community from being recognized as the top micropolitan area in Texas by Site Selection Magazine for two years in a row. With its limited budget, the Brenham Economic Development Foundation launched a direct email marketing campaign, which features employment statistics and recent news—an inexpensive way to keep stakeholders and potential investors in the know. They also host site visits, “windshield tours”, and familiarization tours for site selectors and commercial real estate brokers along with surveying local employers as a part of their Business Retention and Expansion program, which Clint Kolby calls “the meat and potatoes of rural economic development.” 

Another impactful program that the Foundation has implemented is an industry tour and training program, which targets and tracks students who are not planning to attend a four-year college but will likely go directly into the workforce. Believing that workforce development is “a major ingredient to success,” the Foundation takes them on tours of facilities of local employers and makes connections to support a skilled talent pipeline. Kolby suggested that communities should embrace regionalism and to do what you can to make yourself known. 

This webinar underscored the importance of how Market Street approaches most projects. Major steps to success include benchmarking your community – getting a baseline of where you are and how you compare to similar or aspirational communities; setting goals and gaining buy-in from leadership and stakeholders; generating the awareness and driving the conversations that result in new jobs and investment; and implementing the “basics”– making sure you have the tools you need, including an effective and easy to manage website, a customer relationship management system, email marketing system, proposal templates, etc. Economic development requires careful planning and effective implementation!

Corporate Incentives in the Spotlight

By Alex Pearlstein, Director of Projects.

In recent days, the practice of awarding financial incentives to attract corporate relocation prospects has gone from an arcane subject in the economic development world to a full-fledged national topic. The New York Times ran an exhaustively researched, largely negative series on the practice in which they implied that providing tax abatements, tax deductions, tax forgiveness, upfront cash, and the universe of other incentives tools was tantamount to corporate welfare at a time when investments in public schools and other services were being cut. As the largest provider of incentives, the state of Texas was singled out for special vitriol, but numerous other states and regions were not spared the Times’ wrath.

The series got further airplay when the lead author was a guest on NPR’s “Fresh Air” program with Terry Gross.

The series certainly had its facts straight from the standpoint of the incentives awards, the recipients, the role of site consultants and brokers, and the dynamics of deals, but I thought the context of incentives in economic development was largely missing. The job of economic developers in charge of corporate recruitment is to attract good jobs. One of the ways good jobs are attracted in today’s hyper-competitive economy is through the provision of incentives. End of story. Whether practitioners like it or not – or if it’s a beneficial process or not – is almost beside the point. In war, it’s often the side with the biggest, most powerful guns that wins the day. Not to mention the fact that incentives exist to close deals; a tremendous amount of work goes into communities being competitive enough even to be short-listed for these projects. The Times also made nary a mention about the thousands of spinoff jobs and investment generated by incentivized deals, especially for auto manufacturing and other export sectors.

Another Times’ omission was the fact that corporate attraction was only one component of a broader, holistic program focused on existing business retention and expansion and small business development. The implication was that states and communities were putting all their eggs in the incentives basket. Sure, they’re expensive eggs, but millions of dollars are also spent on workforce development, infrastructure construction, innovation and research-and-development capacity, and other competitive assets.

I think that, in a perfect world, economic development practitioners would like to secure corporate wins solely based on their competitive positions and “fit” with the company’s location requirements. But those aren’t the rules of the game, and the game won’t be changing any time soon.

Lottery and Education: Good Odds or Odd Goods?

By Johnathan Miller, Project Associate.  

I will admit it, I bought five Powerball tickets. I fully embraced the fact that the odds of winning were astronomical. And lo and behold, I did not win. In fact, according to CNN.com, I had a better chance of hitting two consecutive hole-in-ones on a par three (looks like I need to spend more time at the range). I also had a better chance of being attacked by a shark or dying from a bee sting. 

But, what’s the point? With all the buzz around the lottery and being a resident of Georgia, it is hard not to think about public education. Lottery proceeds in Georgia, and many other states, fund education programs. In Georgia, proceeds go towards supporting pre-K and the HOPE scholarship.

The HOPE scholarship is one of the most competitive economic development tools for the state of Georgia as it pays for Georgia students to attend college. Prior to 2011, the scholarship paid for 100 percent of tuition at in-state public universities and colleges. However, it became clear that lottery funds were no longer able to keep up with the rising enrollment and tuition increases. In response, the General Assembly passed legislation that raised eligibility standards for those receiving 100 percent tuition, the original promise of the program. The changes in the scholarship program have also come during a time when K-12 education funding is being cut. Between FY 2008 and FY 2012, funding per student in Georgia decreased by 17.6 percent ($805), the eighth highest percent decrease of the 50 states. The inability of the lottery and the state to increase funding for education is concerning.

The impetus in many states for establishing lotteries was that the funds would be a supplement to state education spending. However, funds from lotteries have come to supplant, and not supplement, education spending. For example, in Virginia, the lottery was passed partly under the auspices of being bonus monies that would flow to local school systems. However, as budgets have worsened and even after a constitutional amendment passed to devote all proceeds to local schools, critics argue that the state is using lottery funds for programs it would otherwise fund, thus increasing reliance on the revenue. In Illinois, supporters of the lottery billed it as a windfall for the education system, yet it contributes only one-tenth of total funding. In Texas, lottery proceeds paid for the equivalent of two weeks of schooling in 1996, but in 2010, that figure has fallen to just barely three days.

The ability of lotteries to effectively enhance education spending, in general, has been called into question. In a 2009 study on state revenues from gambling, the Nelson A. Rockefeller Institute of Government concluded that “Expenditures on education and other programs will generally grow more rapidly than gambling revenue over time. Thus, new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, long-term budget imbalances.” Further, a 2011 survey of existing literature on lotteries and education found that, “Studies of the fungibility of lotteries have focused on educational spending and nearly uniformly find that the introduction of a state lottery increases total educational spending by less than the amount of the new earmarked lottery revenue, suggesting at least some degree of fungibility is present when funds are earmarked for specific state and local programs.”

Despite the structural issues with lotteries, it is clear that some mechanism needs to be in place to help fund education. While the mechanism is yet to be perfected, I guess I will continue to do my part and be suckered into lottery purchases, knowing at least some of it is making it to education. Even though Georgians, according to Bloomberg Business News, are the biggest lottery suckers (pay the most, for the least amount of payout), I am planning on hitting the next jackpot (even if it contradicts everything I learned in school)…all in the name of education.

From Outsourcing to Insourcing

By Evan D. Robertson, Project Associate.


It’s no secret that Market Street staff feel strongly that manufacturing serves a vital role in the local economy. Two great examples that come to mind are Matt Tester’s blog titled In Which We Tell Manufacturing’s Future which details the myriad of developments that are restoring American manufacturing competitiveness, and Ellen Cutter’s past post describing the adoption of automation in factories throughout the country. So, to add more fuel to the fire, I recently came across Charles Fishman’s article pronouncing the death throes of outsourcing in America.

The chase for cheap labor has been a part of American business ethos for decades. But, as Fishman describes, CEO’s are beginning to see that this pursuit comes at a cost: less control over intellectual property (knock-offs), higher shipping and logistics costs, and increased wage parity with China. Increased wage parity with China? I know, borderline crazy talk. But, when General Electric recently moved the production of their technologically advanced, environmentally sustainable water heater (GeoSpring) to the United States, they were able to eliminate one out of every five parts, cutting the cost of materials by 25 percent. And, the reduced complexity of the water heater cut General Electric’s labor costs. The American manufactured water heater takes just two hours to manufacture, down from ten hours in China. With efficiency like this, you can see why Jeff Immelt, CEO of General Electric, states “I think the era of inexpensive labor is basically over. People that are out there just chasing what they view as today’s low-cost labor – that’s yesterday’s playbook.” The decades-long ethos may soon be coming to an end.                

Crowdfunding Local Development

By Matt Tester, Project Manager.

As the reality of our Great Reset takes shape, I’ve developed a fascination with the question of how our places – infrastructure and buildings – will be financed and developed going forward. My last post covered a cadre of urbanists making waves with a fiscal argument for efficient infrastructure development that prioritizes local return. In this post, I want to highlight what I think is one of the most exciting ideas to land in the realm of placemaking: crowdfunded real estate development.

As covered by Emily Badger in Atlantic Cities (read the piece – it’s long and it’s good), Washington D.C.-based brothers Dan and Ben Miller have launched the first investment platform through which anyone can invest in local real estate projects. Their new company, Fundrise, provides a website listing local investment offerings (properties) in which anyone with a computer and money to invest can buy shares. What their existence means is that neighborhood residents can invest in neighborhood projects, shaping their community’s destiny in unprecedented ways.

According to its founders, Fundrise has arisen in response to a real estate development model that produces a disposable built environment while also excluding the average citizen from enjoying the bounty (historically) generated by commercial real estate projects. The predominant real estate investment vehicles are accessible only to certified investors and poorly account for local preferences, resulting in cookie-cutter properties. Citizens can’t invest in projects that most acutely impact their neighborhoods. Further, local projects that lack scale or fail to meet pre-defined criteria struggle to find capital. Quirky projects that local residents might love often fall through the cracks.

Fundrise’s early projects have shown promise. Shares for their first project, a two-story brick building in Northeast Washington, D.C., sold out in three months and design work will begin this year for the Asian-inspired market that will fill the space. Still, the crowdfunding model faces challenges. For instance, the Miller brothers have swallowed almost a million dollars navigating regulatory webs and developing the concept; most developers wouldn’t stomach those sunk costs. The potential for fraud certainly exists, just as it does in any complex investment. And, of course, the investment could tank – businesses fail and the buildings that house them sometimes share the same fate.

Despite the challenges, companies like Fundrise may be ushering in one of the most disruptive ideas to ever hit real estate development. The problem of up-front regulatory costs may be circumvented by Fundrise’s model, which would allow other developers to simply list their projects on the Fundrise website. If Fundrise provides the investment platform (think Kickstarter), each developer’s project wouldn’t require its own version. And, the more painless the process, the more interest developers will take, and the more we’ll see local residents pouring money into projects in their own neighborhoods. I, for one, would welcome the age of local development finance. I’ve already got my eye on a few properties in my neighborhood’s commercial district, and will be watching with interest.                

Bridging the generational gap in Gwinnett

By Matt DeVeau, Project Associate.

When Nick Masino moved to Atlanta in the late 1990s at 23 years old, he settled in Gwinnett County, an area northeast of the core city known for its excellent public schools and decidedly suburban, low-density character. But Masino, now the Senior Vice President of Economic Development and Partnership Gwinnett at the Gwinnett County Chamber of Commerce, recognizes that a 23-year-old moving to the region today is much more likely to eschew Gwinnett in favor of a more dense, walkable neighborhood located “Inside the Perimeter” – a term Atlantans use when referring to communities close to the central city that fall within the Interstate 285 ring road.

For Gwinnett to maintain its position as an economic powerhouse in the decades to come, Masino and other community leaders recognize that the county must work diligently to attract and retain young professionals. This was the focus of the 2012 Partnership Gwinnett Summit, which took place earlier today on the campus of Gwinnett Technical College. The annual summit highlights the progress and successes of Partnership Gwinnett, a community and economic development initiative that Market Street worked with community leaders to create first in 2006 and again in 2011.

According to Census Bureau data, Gwinnett’s population grew by nearly 37 percent between 2000 and 2010, but much of this is attributable to the 45-to-65 and 65-and-over age groups, which each grew by more than 66 percent. The 25-to-34 age group had by far the slowest growth rate at just 9.9 percent. While this in many ways reflects national demographic trends, it nonetheless poses a concern for Gwinnett, which relies on its dynamic and educated local workforce to fuel growth in targeted industries such as advanced manufacturing and health sciences and services.

Of particular concern are changes in the location preferences of young people. Consumer research by RCLCO, a national real estate consultant, found that 81 percent of “Generation Y” renters are moving to urban or close-in “Urban-Lite” environments. Two-thirds say living in a walkable community is important, and one-third say they are willing to pay more for the privilege. This is problematic for a place like Gwinnett that, with a few notable exceptions, is mostly typified by auto-oriented subdivisions.

The summit focused on the multi-faceted ways in which Partnership Gwinnett is addressing these issues. The event featured three panel discussions, each focusing on an area that is important to attracting and retaining young people. The first addressed education and the attempts of Gwinnett’s schools and colleges to integrate technology into the learning process and to orient curricula to prepare students for jobs available in the county both today and in the future. The second focused on the entrepreneurial environment in the county and metro area, and highlighted the need to better publicize the access to capital and other resources that are already available to local entrepreneurs. The third focused on the effort of three Gwinnett cities – Duluth, Snellville, and Suwanee – to market to create environments that appeal to young professionals through marketing and placemaking.

The event closed with a keynote address from Brian Leary, a developer whose graduate thesis at Georgia Tech was the impetus for the redevelopment of a former steel mill into Atlantic Station, a massive mixed-use development in Atlanta that was the nation’s largest urban brownfield redevelopment at the time of its completion. Leary reiterated one of the day’s most common themes – that Gwinnett must appeal to young professionals, particularly those who work in the county’s booming business sector but live in the city. In other words, Gwinnett needs to appeal to me, about 12 months ago. Prior to joining Market Street, I worked at the Gwinnett Chamber as a Research Associate supporting Partnership Gwinnett. Like many of my younger colleagues, I lived in a multi-family apartment building in the City of Atlanta, within a close walk of dozens of restaurants and bars.

Gwinnett County probably won't be able to match the kind of environments – both physical and social – that can be found in major cities like Atlanta, and frankly it shouldn’t try. What it can do is provide many of the best elements of urban living – such as walkable places and their accompanying dense social networks – to a community that can offer other advantages such as great schools and an abundance of quality jobs. I think it’s truly remarkable that Partnership Gwinnett is making such a strong push in this area. If fully implemented, I expect that it will pay dividends down the road in the form of a new generation of leaders and innovators.                

Book Review: For the Love of Cities

By Matt Tarleton, Project Manager.


With lots of personal and work-related travel in the last few months, I took advantage of plenty of airborne downtime, set aside the crosswords and sudokus, and read a few books that I’d been carrying around for a while. The first on the list, For the Love of Cities, is written by Peter Kageyama, co-founder of the Creative Cities Summit and former President of Creative Tampa Bay. 
I delved into the book a few months ago after it was passed along to the Market Street team by one of our clients, the Greater Omaha Chamber. The opening chapter sets the stage for the larger discussion by challenging the reader to question, although not overtly, if we really “love” our community. Not like, but love. Or more explicitly, do we have an emotional connection with the place we’ve chosen to call home? Kageyama believes that those who truly love their community necessarily become engaged in their community. They become “co-creators” or the “one percent” according to Kageyama. They become entrepreneurs, activists, artists, and other citizens that create new assets and experiences (a community garden, a store for local artists, a neighborhood watch, etc.) that are consumed by the other 99 percent and increase the character of a community.
Kageyama best writing lies in the early chapters that follow this introduction, where he discusses what, in his opinion, has led to people falling in love (and out of love) with their cities. This naturally includes a discussion of how we can change the dialogue regarding community development, and in turn, our policies, to focus on creating places with which we have an emotional connection. And while there are some utopian assertions (e.g. let’s talk about “love” and “fun” in council meetings instead of “density bonuses”), Kageyama makes some very keen observations. The following passage supports what we at Market Street often emphasize to our client communities – that great things can be done at little cost, that residents and volunteers (Kageyama’s “co-creators”) can be change agents, and that creating an enjoyable community can help create a prosperous community.
“When the makers (co-creators) are doing cool stuff that we see, engage in, and consume, we appreciate it and we become more engaged with our place. We might even be motivated to try to do something ourselves because we have seen how cool it is when things are made to happen. That may be the ultimate gift that the co-creators provide their communities. We can be moved by seemingly small and insignificant things. Communities that recognize this can develop strategies and tactics that embrace the idea of how to make the community more interesting, engaging and loveable. These strategies can be layered into existing approaches to community and economic development with relatively little expense. Things that make communities interesting and loveable don’t necessarily cost a lot of money. What they do require is insight and sensitivity to the idea that we are building emotional connections with our citizens – not just paving roads, expanding our tax base and collecting garbage.”

(pp. 40-41)

Kageyama is most effective in the first four chapters when discussing his central idea – “the love affair between people and their places” – challenges the reader to think about their own relationship with their place. The next few chapters, which focus on identifying and quantifying the most “loved” communities and their defining attributes, will frustrate the most elementary statistician, and likely seem redundant to anyone that has read anything written by Richard Florida in the last decade. The same is true for the final chapters which focus on ways in which communities can become more loveable. There are some interesting stories interwoven in these chapters about various co-creators and the impact they had on their communities. There are also some unfortunate digressions such as a discussion of how communities can and should emulate Apple, Inc.

In the end, Kageyama’s message is clear: find your community’s co-creators, empower them, and help other residents move up the “continuum of engagement” to increase their numbers of co-creators. You’ll find of plenty of examples from other communities: this may be the most valuable piece of the book to many readers. The first few chapters are certainly a worthwhile read, and as previously mentioned, you’ll find some examples in later chapters that may help you uncover and empower the co-creators in your community. It’s worth purchasing and passing around the office. But it’s perhaps more valuable to the average co-creator described by Kageyama. The ideas will resonate with them, the characterization will at times exalt them, and the stories inside may inspire them.                

Red State, Blue State, My State, Our States

By Jonathan Miller, Project Associate.

The 2012 presidential election is over. The votes are in, the large touch screens are back in hibernation, and millions of TV viewers will happily return to seeing commercials that have not been approved by a candidate. There are many memorable moments from the campaign, including mentions of both Big Bird and the use of bayonets in American military history, made-up words like “Romnesia” and phrases like “binders full of women,” and the relentlessness of Mr. Donald Trump to make news during the campaign.

ECONOMIC CHANGES BY 2012 ELECTION OUTCOME, JANUARY 2008 TO SEPTEMBER 2012 

 

 Note: Florida was uncalled at time of publication, thus is not included.
Source: U.S. Bureau of Labor Statistics; National Association of Realtors via Economy.com

One of the defining aspects of the campaign was the recurring question, “Are you better off than you were four years ago?” This question shaped the campaigns and put the spotlight on the state of the economy. The following table shows, on aggregate, how red states and blue states fared over the past year. Interestingly, while all states fared poorly over the past four years, blue states shouldered a heftier share of the economic burden.

While the implications of this election are still coming into view, it is clear that the American electorate is a dynamic body, ebbing and flowing in response to many different issues. However, we now must turn to the task ahead and understand how the election will impact America over the next four-plus years. The following headlines, gathered from a number of news outlets, give a glimpse as to what we can anticipate in the coming days, weeks, and years.

“Vote data show changing nation,” The Wall Street Journal, November 8, 2012

“Hispanic vote tilts strongly to Obama in win,” Reuters, November 7, 2012

“How US marijuana legalization may change the world,” Time, November 8, 2012

“Back to work, Obama is greeted by looming crisis,” New York Times, November 8, 2012

“Political focus shifts to fiscal cliff,” The Wall Street Journal, November 8, 2012

“How the gay-marriage victories are (slowly) transforming the notion of family,” Time, November 8, 2012

“How to rebuild trust and infrastructure,” Time, November 8, 2012

“US and European stocks struggle to stabilize: Worries over fiscal cliff and eurozone economy linger,” Financial Times, November 7, 2012

“Election removes cloud from health law's future,” The Wall Street Journal, November 8, 2012

“Boehner extends hand, says GOP open to ‘new revenues’,” Washington Post, November 8, 2012

“These not-so-united states,” Washington Post, November 8, 2012

The political battles that are coming over the next four years are varied in scope, size, and topic. The country is grappling with social issues, economic challenges, and an overall lack of trust in government. For the second Obama term to be successful, the outcome of the campaign should not be considered a resounding endorsement or mandate, but rather a signal that bipartisanship is truly the only way forward.                

Women: 50 Percent of the Population, But Only 35 Percent of Entrepreneurs

By Ranada Robinson, Senior Research Associate.

Today, I attended an Innovations in Economic Development Forum at Georgia Tech with my colleague Evan Robertson. The theme was Empowering Women Entrepreneurs, and the two speakers were Alicia Robb from the Kauffman Foundation and Jen Bonnett of StartupChicks.

In addition to the starting statistic cited in the title, women also account for less than 16 percent of owners of businesses with employees.

Alicia Robb talked about several important actions women must take to be more involved in the economy as well as some of the public policy implications.

• Women need to learn to define success on their own terms, measuring personal satisfaction, independence, and balance, not just financial gain and firm size.
• Women need to establish networks of mentors and peers and work on exuding confidence and being willing to seek funding. Did you know that only 21 percent of women entrepreneurs actually ask for angel capital?
• Women need to increase their presence on the investment side—only 15 percent of angel investors are women and only about 11 percent of investing partners at venture firms are women.

Public policy suggestions included:

• Encouraging more women to go into STEM fields,
• Providing financial literacy training opportunities for citizens,
• Developing more inclusive policies that encourage women and minorities to pursue entrepreneurship,
• Making sure financial capital is available and affordable, and
• Creating better balance between women and men at senior levels of angel investor networks and venture capital firms.

Jen Bonnett, one of the founders of StartupChicks, discussed her adventures in entrepreneurship including her most notable startup endeavor: eTour, which was acquired by Ask.com. She believes there are five main steps to success (in this order):

1. Education: Not just degrees, but entrepreneurial training on topics such as financing, business operations, and negotiating.
2. Community: Creating a support system of peers who can help each other as they travel similar paths.
3. Coaches: Finding mentors and advisors to hold the entrepreneur accountable and provide direction.
4. Connections: Developing the connections to investors and customers needed to grow a business—these may come from the coaches as a natural progression when they see how hard the entrepreneur is working.
5. Capital: Women do not ask for the money they need to be successful—both speakers noted that men generally overstate their business’s growth potential while women frequently understate theirs.

Small businesses are critical to the American economy, and the gap between men and women entrepreneurship is still staggering even in 2012. Communities who are actively seeking to support and grow entrepreneurship and small business must strive to be all-inclusive in supporting and encouraging the lucrative ideas of every resident to see economic growth for all.

 

Graphic Source: Ezebis.com 

There Will Be Graphs: Part Six of a Series

By Evan D. Robertson, Project Associate.

If you’ve ever used LinkedIn, or Facebook for that matter, you’ve probably noticed a pesky little box somewhere in the upper right hand corner with a head line that reads something to the effect of “people you may know.” Often times, these connections are dead on. Other times, you’ll get a random stranger, or worse, people with whom you just aren’t on speaking terms. Awkwardness aside, both social networking websites use a generally straightforward process to determine whom to recommend. It’s called “triangle closing.” Triangle closing can help you identify potential connection opportunities, allowing you to improve the overall connectivity of your network. Information having trouble reaching some of your Chamber members? Increasing the connections between your members might improve the situation. But, I am getting a little ahead of myself. First, I’d like to go through the highly self-conscious process of analyzing my own social network. For this analysis, I simply downloaded my Facebook friends network, and looked at the relationships between my friends in the context of my whole Facebook network.

While analyzing your own social network will likely have you narcissistically asking whether this is really all the people you know, it is equally interesting, and if you’re a business professional, insightful. My social network, containing all 173 of my friends on Facebook, is pictured above. Nowhere close to the few thousand that most people seemingly “know” on the web these days, but I’ve always been a quality over quantity type of guy.

Overall, my social network is fairly disconnected. My Facebook density is .087, with a value of 1.00 equaling a network in which everyone is connected. In other words, my network has about 8.7 percent of the total possible connections. Interestingly the average degree of my network (the average number of people an individual is connected to) is 14.89, so the average person in my network knows about 15 of my other Facebook friends. Both the lack of connectivity in my network and the number of interconnections isn’t surprising as my social network is largely a time lapse.

Three large clusters appear in my friends network, they are highly correlated with time (no regression needed, I lived it). The three clusters are centered around three important periods in my life: high school, my undergraduate education at Georgia State, and graduate school at Georgia Tech. Each cluster is loosely connected to one another, with only a few of my friends serving as network bridges. As an aside, it was remarkable to see who these network bridges were as they weren’t who I was expecting. Now, for the important bit: why does this matter?

Let’s, hypothetically, say that my Georgia Tech friends are throwing me a birthday party. They want to get as many of my close friends as possible to the party. Come party day, I arrive, and I am surprised. Surprised to notice that everyone I know from Georgia Tech is there, and a few people I know from high school, but absolutely no one I know from my soul-searching period at Georgia State is in attendance. Is my surprise valid? Not at all. Here’s why.

The above graph displays the shortest path (in red) between my most connected Georgia Tech (Point A) friend and a Georgia State friend selected at random (Point B). In order for my Georgia State friend to receive an invitation to my surprise party, my Georgia Tech friend would have to communicate with four other people. More accurately, the information would have to flow directly through two specific people (network bridges) in order to have the remote possibility of reaching my Georgia State network. Even if the information was able to find these bridges, it still has to deal with the possibility of information being muddled. It’s similar to the game of telephone you played when you were a child: some information is bound to be inaccurate by the time it gets to its final recipient. In this case, maybe my Georgia State friends get directions to the wrong house. With this knowledge, is there any way to ensure that my Georgia State network is more represented in my next birthday extravaganza?

Quite simply, yes. It is the exact same method that LinkedIn uses to identify “people you may know.” How does it work? It’s easily demonstrated pictorially.

Above is my graduate school network with three people highlighted in red. This is a partial triangle, one person knows two other people, however, those two other people don’t know one another. Triangle closing would entail connecting these two other people as shown by the green line below.

With the triangle closed, my network has become denser; information is able to flow more freely than before. If I complete this process a number of times, I can begin to establish more network bridges between the three distinct clusters of my social network. Information, thus, can flow more freely.

Understanding your social network, whether it’s your own or your organization’s, can give you greater insight into how you are connecting with your target audience. Imagine if my network were members of a local Chamber of Commerce, understanding that the network is clustered into three distinct groups would help me to understand what types of connections I should begin to make and who would best be able to bridge relationships across these distinct groups. With the explosion of social networking tools such as LinkedIn, Twitter, and Facebook, having greater control over your communication strategy and understanding your audience (and connections between your audience members) can improve the efficacy of your social media campaigns, especially in ascertaining why certain information isn’t getting to some of your audience. If nothing else, it can create some really cool graphs.