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.
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.