Volume 1, Number 1 – May 2004

A Note to Our Readers

If you’re like me, your email inbox fills up with lots of email newsletters. So, we hope you’ll be willing to consider reading this one. We don’t plan to simply mimic other newsletters or market our own work, but instead we hope to provide an interesting and readable guide to important and fascinating issues that will impact the business of economic development. The typical issue will be a couple of longer stories/analyses, followed by miscellaneous tidbits, such as book recommendations and the like. We’re not the last word on these topics, so we welcome your input, ideas, suggestions, and constructive criticism. If you have any of the above, send them to me at epages@entreworks.net

Battle over the Creative Class

For the last several years, Richard Florida’s book, The Rise of the Creative Class, has been the “must-read” in economic development circles. To briefly summarize, the book argues that a new class of workers (“the creative class”) will drive future economic growth. These workers are more mobile than previous generations, and are seeking communities that offer technology job opportunities, attractive amenities, and a diversity of both people and lifestyle activities. Cities that do well in attracting the creative class will do well in terms of future economic development.

Well, we knew it was going to happen sometime, but the backlash against Florida’s ideas is hitting its stride. Earlier this year, Steven Malanga penned a critical screed in City Journal that accused Florida of fudging the facts. Among other things, Malanga argued that Florida’s book gets it almost exactly wrong. America’s booming cities (places like Las Vegas and Oklahoma City) lack many of the amenities cited by Florida as important. Hip places, like Boston and San Francisco, actually faced big job losses during the 1990s.

Other related criticisms of Florida’s arguments have appeared in The Baffler magazine (www.thebaffler.com) and from well-known columnist Joel Kotkin (www.joelkotkin.com). Kotkin agrees with Florida’s basic belief that talent has become the key economic development differentiator. But, he differs with Florida in his assessment of “what talent wants.” For Florida, talented workers seek out hip, gritty, “authentic” urban settings. For Kotkin, talented workers want good schools, affordable housing, and good job opportunities. Think San Francisco vs. Research Triangle Park.

This debate is interesting, but what does it really mean for those of us who want to build communities and support economic development. Here’s a couple of truths I take from these debates.

Quality of Life is Relative

One of the undercurrents of Rise of the Creative Class is that talent is seeking a new kind of “quality of life” based on hip urban neighborhoods and freely available lattes. This depiction makes sense for the young (under 30), IT-obsessed workers that are the primary subject of Florida’s interviews. But, what happens when this cohort grows older? Their desire for lattes and late night clubbing is likely to be replaced with concerns about good schools and crabgrass removal.

And what about the nature of the talent itself? In the 1990s, the 20 year old software wiz was the desired talent, and she did want to find places like Austin that combined good jobs with great music and outdoor amenities. But, as other sectors grow in prominence, this place-based checklist changes. Take biotech, for example. In this sector, young talent is likely to be older (in their 30s) and more highly educated. Their desired amenities are unlikely to look much different than those found in places that Kotkin has called Nerdistans, i.e. upscale suburbs dominated by high-tech industries.

So what does this imply? It means that both Florida and Kotkin are right. Talent is looking for amenities, but these amenities differ for different age cohorts and industry profiles. It also means don’t throw the baby out with the bathwater. Bike trails and coffee bars are great, but the basic quality of life amenities (good schools and affordable housing) will never go out of style.

Opportunities, not Amenities

Much of Florida’s thinking appears influenced by his belief that today’s college grads are “picking” cities. In other words, they don’t move for a job. Instead, they choose a “cool” city, move there, and then find a job. We can debate whether this depiction is correct, but it begs the question whether this labor mobility occurs due to “coolness” or opportunity. In his book, Florida talks about both factors, but the wider debate over his ideas has centered on the role of “coolness” in attracting talent. That’s unfortunate because job opportunities will trump cool every time. And, that also explains why such allegedly un-hip places as Oklahoma City and Tampa Bay rank high in terms of job creation. So, the bottom line is that it’s great to be both hip and prosperous, but if you can only choose one—choose prosperous. So, if you have limited economic development dollars, think about business development first and bike trails second.

Urban vs. Rural

Florida’s vision is a decidedly urban one. Rural areas are largely discounted unless they are amazingly beautiful or near a major metro. That’s too bad because many of Florida’s ideas—especially his embrace of diversity—make great sense for small towns. The tight social ties found in small towns are something of a two-edged sword. They build community cohesion, but they also may lead to ostracism of those who don’t obey community norms. Sometimes this is the entrepreneur; sometimes this is the troubled youth who is a skateboarder, a Goth, or gay. In big cities, these individuals can find support groups of like-minded persons. Such groups often don’t exist in small towns. By preaching the economic benefits of diversity, Florida offers a lifeline to entrepreneurs and others in America’s small towns. After all, as the old Nick Lowe/Elvis Costello song says, “What’s so funny ‘bout peace, love and understanding?”

Steven Malanga’s “The Curse of the Creative Class” appeared in the Winter 2004 edition of City Journal (http://www.city-journal.org/html/14_1_the_curse.html).
To read Richard Florida’s response to his critics, visit http://www.creativeclass.org/baffler_response.shtml. Also see Florida’s article, “Revenge of the Squelchers,” in Issue #5 of The Next American City, available at http://www.americancity.org/Archives/Issue5/florida.html

India’s Rise: Lessons for Us

India’s economic prowess is getting a lot of media attention lately. Lots of interesting articles are examining the factors behind India’s rise. One of the more interesting perspectives can be found in a recent Foreign Policy article that compared the economic prospects for India and China. The article, “Can India Overtake China?,” argues that India may be the real economic winner of the 21st century. The authors, Yasheng Huang and Tarun Khanna, claim that China’s rise is largely due to foreign direct investment (FDI) by various multinational corporations. There are many benefits from FDI—witness China’s amazing growth performance. However, FDI has also served to squeeze out homegrown Chinese businesses that are less able to compete with well-heeled foreign firms. Meanwhile, India has not been a hospitable environment for FDI. Yet, the absence of a strong multinational presence has created opportunities for Indian entrepreneurs who have created scores of world-class companies like Infosys Technologies and Dr. Reddy’s Laboratories. Investment in these homegrown firms is now being supplemented by investments from the Indian diaspora in the US and elsewhere. These successful entrepreneurs are now investing funds earned overseas to help fuel the next generation of India-based entrepreneurs.

So what does this mean for us in the US? This interesting debate gives me an opportunity to plug what I think is one of the best books on India’s economic rise: India Unbound (2000) by Gurcharan Das. Das is a columnist for Times of India, but spent most of his career in various marketing positions for Procter & Gamble in India. His book bemoans Indian bureaucracy and lauds entrepreneurs, but, more importantly, he highlights the critical importance of economic reforms enacted by former Prime Minister Rao in 1991. These quickly-enacted and unanticipated reforms had the effect of opening up the Indian economy to the entrepreneurial spirit. A window of opportunity for reform opened quickly in 1991, and it shut just as quickly. But, critical reforms were passed and their impact has been huge.

What can we learn from this experience? One, windows of opportunity for policy change open and close quickly. Those of us who advocate new economic development policies may soon find such windows of opportunity open to us—do we have the new policies ready to go? In the economic development world, such windows can be negative (a big plant closing) or positive (election of a new mayor). In either case, those of us looking to promote new economic development strategies need to be ready when such windows open.

Second, small changes can have big ripple effects, as we saw in India. In 1991, the Indian government changed its rules for trade and investment policies—a market-based boom followed. They did not seek to build a new entrepreneurial system; they simply ended the red tape of the old system. Small policy reforms led to big results. What small steps are you taking today that will help build future prosperity for your community? Will you be ready to act when the window of opportunity arrives?

The article, “Can India Overtake China,” by Yasheng Huang and Tarun Khanna appears in the July/August 2003 edition of Foreign Policy magazine (www.foreignpolicy.com). A version of the article is also available online at http://www.hvk.org/articles/0703/6.html

Some Good Reads

Where to start with good books? Edward P. Jones’ Pulitzer Prize winner, The Known World, is the best book I’ve read in years, but it has nothing to do with economic development. However, I can recommend two other titles that should be of interest.

Douglas Rae’s City: Urbanism and Its End (Yale Univ. Press, 2003) is a tremendous historical analysis of why America’s urban centers have declined and why various urban renewal efforts have been doomed to failure. You will learn more about New Haven than you ever wanted to know, but you’ll also get some great lessons in how cities evolve. Rae doubts that downtown areas will ever return to their heyday of the mid-20th century, but he is optimistic about many of the ideas coming from the New Urbanist movement.

Thomas Malone’s The Future of Work (MIT Press, 2004) is hot off the presses. It examines the various implications of the decentralization of work, i.e. what it will mean for managers, career patterns, and the like. A good review of key issues.

Other Good Stuff

This recommendation doesn’t really have any economic development-specific focus, but it may be helpful to those of you who like to listen to music in the office. I recently bit the bullet and bought an XM Satellite Radio (www.xmradio.com). While it galls me to pay for radio, XM is well worth the cost. If you’re tired of commercial radio and want to hear new and different music, take a look at XM, where you can choose from more than 100 commercial free stations. I’ve become a huge fan of Ngoma (African music) and Bluesville (all blues), but there are plenty of options for those of you who prefer country, jazz, Christian, or even all-talk radio.

What’s Happening at EntreWorks

We promised not to market, but I do want to introduce one project of which I’m especially proud. Check out the work of the North Carolina Rural Economic Development Center and especially its Institute for Rural Entrepreneurship. This effort offers an excellent model for anyone considering statewide programs to support entrepreneurial development in rural communities. Their website is http://www.ncruralcenter.org/entrepreneurship/index.asp