Tag Archives: Creative class

More Awesomeness in Richmond

Another reason I love my home town: Richmond has 40 miles of world-class single-track bicycle trails. I’ve been on a few of them, although, I do confess, I don’t ride nearly as fast as the two guys in this short video! (Nor can I do the neat wheelie tricks up and down stairs.)

What I find especially cool is that the biking enthusiasts — trail gnomes, in their own parlance — help maintain the trails for everyone’s benefit. They clear routes of fallen trees and debris (as shown in the clip), prune vegetation and repair sections worn away by run-off. It’s an all-volunteer effort.

Biking trails in wild public spaces in the center of the city are a rarity and a gem.

– JAB

Live Art

SONY DSC

It was a gorgeous day in Richmond yesterday, temperature in the high 60s and the most perfect blue sky I have ever seen — the ideal setting for street artists to ply their craft. In the second annual RVA Street Art Festival, nearly 30 painters gathered at the old GRTC bus garages this week and used brick walls as their canvas. Thousands of people came to watch. 

See more pictures of the RVA Street Art Festival.

Kudos to Ed Trask and Jon Baliles for organizing another great event.

– JAB

SONY DSC

Let’s Jump on the Peer-to-Peer Bandwagon

Vested interests in cities around the country are mobilizing to thwart a new generation of peer-to-peer technologies threatening to disrupt the lodging and transportation industries.

I have documented the difficulties of Uber, the e-hailing service (tap on your smart phone app and an Uber limo comes to pick you up), in Washington, D.C., where it has run afoul of the taxicab cartel. There must be at least a dozen more start-ups coming out of Silicon Valley or Europe — I’ve included YouTube shorts for RelayCars, Airbnb and Flightcar — that allow people to catch rides, share rides, rent someone else’s car or rent someone a room in someone else’s house.

As start-ups, these companies focus their efforts first on major markets like San Francisco, Chicago, New York and Washington. But they often run into regulatory barriers, as described here and here. Not surprisingly, the stakes are really big in those markets and the special interests are really entrenched.

So, here’s the idea. Why don’t second-tier cities (or regions) like Richmond and Hampton Roads make themselves hospitable to the peer-to-peers? Sure, there are local taxi services in each region but they have very small travel-share and they lack the political clout of their big-city counterparts. Why don’t we go out and promise to help work through any regulatory obstacles if these guys commit to establishing a serious presence in our regions.

We could end up with a greater variety of transportation and travel choices, which benefits everyone (except the entrenched competitors). And having more of these Internet-based services active in the region adds a coolness factor that the younger generation might find attractive. Yeah, I know, half or more of these companies will be out of business in two years. So what? The other half might transform their industries. And, as regions, we could send out a signal to the world: We’re open to competition, open to innovation. Check us out.

Another idea from the fertile (some might say febrile) brain of Jim Bacon…

Misunderstanding the Link between Taxes and Economic Development

Tax Foundation graphic reproduced in the Atlantic Cities blog.

Tax Foundation graphic reproduced in the Atlantic Cities blog.

by James A. Bacon

In his latest post at the Atlantic Cities blog, Richard Florida asserts that a “lower state income tax does not spur economic development.” In support of his proposition, he argues that states with higher tax burdens are more affluent; they have higher concentrations of talent and workers in the so-called “creative” occupations. Writes Florida:

States with tax [income tax] burdens that range from $1,205 to $1,864 per person average $10,000 more in income than states with zero state income taxes — $81,594 versus $69,612. The same pattern is true of wages — states with high collections average $50,610 in wages versus $43,638 for states with low collections.

That’s pretty much his whole argument, although he does cite a two-year-old study from Nevada finding that states with Republican governors are associated with somewhat lower rates of growth and another study that criticizes “business climate” indexes as designed with political ends in mind.

There’s really no excuse for such superficial analysis. Yes, it’s true that high taxes and high incomes are correlated. But which way does the causality run? Do high taxes lead to high incomes, or do high incomes lead to high taxes? I would argue that the high incomes came first and the high taxes followed.

The evidence will show that some high-income states can trace much of their good fortune to historical factors, such as their 19th-century and early 20th-century leadership in the industrial revolution that created the vast wealth that seeded key institutions (universities, especially) necessary for the transition to the late-20th century transition to the knowledge economy. Thus, to pick an obvious example, Massachusetts prospers today because it is home to Harvard, MIT and a host of other highly ranked universities with billion-dollar endowments — not because of the splendiferous benefits conferred by its high taxes. Other states retain pockets of prosperity because they are home to world-class industry clusters that emerged decades ago and that seemingly no amount of mal-governance can dislodge. Think California, Silicon Valley and Hollywood.

What small-government conservatives argue is that lower-tax regimes stimulate more economic growth than high-tax regimes. Lower taxes may have little effect on an entrepreneur’s proclivity to launch a new business, but they do allow entrepreneurs to retain more of their earnings, which they can reinvest in growth.

The evidence is indisputable that high-tax states, on average, experience less job creation and significant out-migration to low-tax states. It’s pretty intuitive that people don’t move from New York to, say, Florida, North Carolina or Georgia for the better restaurants and high-brow culture. They move in search of superior job opportunities and lower cost of living. As a result, over a time span measured in decades, the income and wealth gap between Southern states and Northern states has narrowed considerably, even more so if you adjust for the differences in cost of living.

Where the debate gets interesting is when you ask the question, do higher taxes allow some states and local governments to support a higher level of infrastructure, amenity and service that people value more than the taxes they’re paying? Essentially, that is the argument that Florida makes. Insofar as states and regions use higher taxes to pay for better public schools and higher education, there may be some truth to that counter-argument. But when higher taxes go to pork-barrel spending, outrageous retirement packages for public employees and a more generous safety net for the poor, the argument falls apart.

To summarize, taxes are only one variable among many affecting economic growth and they explain only a modest fraction of the variability in growth rates between states. While lower taxes are (to my mind) clearly preferable to higher taxes, it would be unwise to overstate the case and tout them as an economic-development panacea. On the other hand, it is foolish, as Florida has done, to insist they have no significance.

For what it’s worth, Virginia’s income tax burden is 8th highest in the country, according to Tax Foundation data. Maybe that explains why economic growth here is relatively sluggish given the otherwise favorable business climate we have.

The Limits of the Creative Class

Joel Kotkin

In a blog post on “New Geography,” Joel Kotkin unloads with both barrels on Richard Florida and the ailing cities that paid him big consulting fees to help reinvent themselves — for the most part unsuccessfully — as “hip and cool” places appealing to the creative class.

Kotkin’s riff was inspired, apparently, by a recent concession by Florida that building amenities that appeal to creative-class professionals does little to help less affluent sectors of the population. Hip places like San Francisco, Manhattan and Washington, D.C., have among the most extreme disparities of income in the country, Kotkin says. And, while creatives supposedly worship ethnic diversity, hip cities like San Francisco, Portland and Seattle are getting whiter, not more diverse.

Writes Kotkin: “To be sure, the leading “creative class” cities have much to recommend them, and some of them, such as Portland and Boston, have registered impressive rises in their per capita income in recent years. But over the past decade, most “cool cities” have not been enjoying particularly strong employment or population growth; in the last decade, the populations of cities like Charlotte, Houston, Atlanta, and Nashville grew by 20 percent or more, at least four times as rapidly as New York, Los Angeles, San Francisco, or Chicago. This trend toward less dense, more affordable cities is as evident in the most recent census numbers than a decade.”

Kotkin scores some hits but leaves Florida’s core tenets standing: Creative-class professions accounting for roughly 30% of the workforce account for a disproportionately large share of scientific, artistic and entrepreneurial innovation. Regions that attract these creatives tend to create more wealth and have higher incomes than those that don’t. (Wealth disparities are the inevitable byproduct of the fact that wealth creation is an uneven process. Florida has long acknowledged that fact, unlike many liberals who see wealth disparities as a social injustice.)

Appropriating (or misappropriating) Florida’s ideas, many cities have tried and failed to reinvent themselves as creative-class magnets through public investment in urban redevelopment, building bike paths, subsidizing the arts — following a politically liberal template. The question that Kotkin doesn’t address is whether many of these cities were doomed to failure anyway. Profligate spending on public programs for the creative class, I would argue, is closely correlated with profligate spending on other things. The spending, and the higher taxes, unfunded pension liabilities and other ills associated with the Blue State model, may have been the underlying problem.

If a city or region wants to become “hip and cool,” government is not the best vehicle for making that happen. Hipness is a cultural phenomenon, a state of mind. Some regions have it, others don’t. In either case, what government needs to do is get out of the way — create the conditions for individuals, companies and not-for-profits to experiment and innovate. Politicians and bureaucrats are the antithesis of cool. Coolness, if it is to be achieved at all, bubbles from the bottom up.

Update: Florida has responded. He concedes nothing. “I’ve argued that a key to urban prosperity is not investments in convention centers, stadiums, casinos or arts complexes, or even coffee shops for that matter, but being open to diversity and different—having low barriers to entry to people of every sort, young and old, American and foreign born, gay and straight, married and single, families with kids and without.”

Florida wins the exchange. Kotkin seems unable to distinguish between Florida’s thinking and that of others who have misapplied his thinking (usually as a justification for activist, interventionist government). While Florida is undeniably a cultural liberal arguing for openness and inclusivity, I have seen no evidence in his writing that he is a proponent of big spending government activism. My sense is that Kotkin has read Florida superficially and with a hostile mind-set.

— JAB

The New Geography of Jobs

by James A. Bacon

The New Geography of Jobs” is arguably the most important book about urban economics published in 2012. Author Enrico Moretti, an Italian-born economics professor at Berkeley, analyzes the great divergence occurring between metropolitan regions in the United States. While much of his narrative about the “innovation” sector as the key driver in regional growth will be familiar to readers of Richard Florida, Moretti provides a valuable counter-balance to Florida’s theories about the creative class.

Just as Florida ascribes remarkable wealth-creating properties to the “creative class,” Moretti puts the innovation sector — referring primarily to high-tech industry clusters — at the center of his analysis. While Florida suggests that members of the creative class gravitate to metropolitan areas that offer a particular set of attitudes (openness, tolerance) and amenities (urban cafe lifestyle, street arts scene), Moretti argues that the economic logic of labor markets are the driving factor.

To Moretti, metropolitan regions are labor pools. The labor that really matters in a knowledge economy is college-educated labor. And what matters even more than generic college-educated labor is labor with technology-related competencies in demand by the corporations that create innovative products and services. “In the world of innovation,” Moretti writes, “productivity and creativity can outweigh labor and real estate costs.”

Thus, a region like San Francisco/San Jose can have outrageous costs of living and doing business yet tech businesses migrate there because that’s where the talent is. And talent moves there because that’s where the jobs are. By doing a better job of matching employers with workers, the productivity-enhancing advantages of “thick” labor markets like Silicon Valley’s more than compensate for the region’s higher costs.

There are two other critical benefits to industry clustering, Moretti writes. Innovation clusters attract investment capital, which funds and nurtures  business start-ups. And clusters have what he calls almost “magical” spillover effects. “New ideas are rarely born in a vacuum. Research shows that social interactions among creative workers tend to generate learning opportunities that enhance innovation and productivity. This flow and diffusion of knowledge represents a crucial third advantage for workers and firms that locate within an innovation cluster.”

Thus, regions with strong knowledge clusters tend to grow, attracting both corporations and employees. Regions with weak knowledge clusters tend to remain weak. A third class of cities, which are caught in between, have uncertain futures.

The great public policy question for wanna-be growth centers is how to jump-start an innovation cluster. Broadly speaking, regions have followed two types of approaches. One is a demand-side approach, attracting employers with the hope that workers will follow. The other is the supply-side approach, improving a city’s amenities to lure talented workers in the hope that corporations will come. Following (and often misinterpreting) the theories of Richard Florida, many regions have invested public resources in a futile effort to make themselves “cool” and attract the creative class.

Moretti demolishes that reasoning: “It is certainly true that cities that have built a solid economic base in the innovation sector are often lively, interesting, and culturally open-minded. However, it is important to distinguish cause from effect. The history of successful innovation clusters suggests that in many cases, cities became attractive because they succeeded in building a solid economic base, not vice versa.”

Seattle, for instance, was a dump before Microsoft landed there and created a thick labor market for Amazon.com and a swarm of technology start-ups. Now the region is the epitome of cool. Conversely, Berlin may be the coolest city in Europe from the perspective of artistic creativity, Moretti argues. But technologically, it ranks low on the innovation index, and its income is lower than many other German cities.

What, then, can regions do? Building world-class universities is no panacea. For every Stanford/Silicon Valley, there’s a Johns Hopkins/Baltimore. How about a “big push” industrial policy — targeting a growth industry with public investment? Such approaches might be successful, he contends, but they are very expensive and very risky. Governments chase fads; they are not good at picking winners and losers. How about investing in schools and universities to create home-grown human capital? Great idea, except in the absence of local innovation clusters, the talent will move away. Regions subsidize the development of someone else’s workforce.

At times, Moretti sounds as if the rise of innovation clusters is a matter of serendipity, beyond the ken of government policy wonks to manipulate. Who could have predicted the rise of Microsoft? Who could have predicted its transformative effect on Seattle? One of the few tangible policy proposals he advances is to reform immigration policy to encourage well-educated foreigners (not unlike himself) to settle in the United States. They contribute disproportionately to wealth creation. Of course, they, too, tend to migrate to the nation’s main innovation centers.

Bacon’s bottom line: Other than to replicate Seattle by giving rise to a Microsoft-scale success story — in other words, by getting lucky — there is no simple answer. I distrust industrial policy of picking industries, whether conducted at the national level or the regional level. And the pseudo-Creative Class approach of investing scarce public resources in urban amenities that attract young, educated workers is equally problematic unless corporations can be recruited or businesses launched to hire them.

My inclination is to stick with the basics. Government should focus on a few things and do them well. Here in Virginia, and throughout American, that means reforming key broken institutions — K-12, higher ed, health care, transportation and land use — while keeping taxes as low as practicable and the business climate as hospitable as possible. I do think there is a role for making regions attractive to the creative class but those initiatives are best left to the civic realm. In sum, regional success is like personal success — the harder you work, the luckier you get.

Solid Thinking about Richmond’s Future

by James A. Bacon

Richmond’s Future, a regional think tank founded by former Virginia Commonwealth University President Eugene Trani, is spear-heading the most interesting conversations taking place today about the future path of the region’s economic development. It’s a welcome change from the regional leadership’s old habit of touring other cities in the search of ideas worth copying or bringing in outside consultants to do our thinking for us.

Even better, these ideas are getting serious play in the op-ed pages of the Richmond Times-Dispatch, which has repositioned itself as a purveyor of opinion on national and international affairs, to which it had little to contribute, into a forum for the discussion of regional issues, for which it is well suited.

The highest praise I can offer Richmond’s Future is that it is asking exactly the same kinds of questions that I have been highlighting on Bacon’s Rebellion for the past 10 years. I take no credit for their insight, for I have little evidence that the principals behind Richmond’s Future read Bacon’s Rebellion. More likely, it’s a matter of the principals behind Virginia’s Future acquainting themselves, as I have endeavored to do, with cutting-edge thinking about regional development.

First, the brains behind Richmond’s Future understand that Virginia can do a far better job of recruiting corporate investment and supporting entrepreneurial start-ups by building upon regional strengths rather than chasing national fads. Thus, the organization has championed the idea of a Commonwealth Center for Advanced Logistics Systems based upon stand-out attributes of the region, such as the presence of the U.S. Army’s logistics university at Fort Lee. Rather than push for corporate subsidies to entice investment, they make the case for building institutions of specialized knowledge creation and skill building that will complement existing industry clusters. Logistics aren’t remotely as sexy as microchips or genetic engineering. But the goal of becoming a world-class logistical center is far more achievable.

Likewise, the think tank is pushing for Virginia to become a center of advanced manufacturing, building on the model of the Commonwealth Center for Advanced Manufacturing. “Central Virginia has a unique opportunity to position itself as a top 10 manufacturing cluster in the United States and to attract the companies and jobs that come along with such a status,” wrote Barry W. Johnson, associate dean at the University of Virginia engineering school and board member of CCAM, in a Times-Dispatch op-ed. That goal is ambitious, to be sure, but realistic in that it builds on real local strengths.

Secondly, Richmond’s Future is invigorating the discussion about how to make Richmond a regional center of creativity and innovation. One important initiative is to probe the psyche of college students and young professionals — the innovators and wealth creators of tomorrow — about their values and priorities in selecting a community in which to live. The 60-something white-guy business establishment is not exactly in touch with the latest trends in youth culture, so an online survey underwritten by Virginia’s Future should make an important contribution.

The survey, which was prepared by my former colleagues at the Southeastern Institute of Research (SRI), asks young people what they look for in a community — and how Richmond stacks up. What constitutes a good art scene, music scene and food scene? Are young people looking for more than a symphony, orchestra and ballet? What kind of outdoor recreational opportunities do they value? How important are walkable/bikable communities, public transportation and affordable housing? How important is diversity? Innovation?

The responses will be biased by the fact that the young people filling out the questionnaire will consist of those who have chosen, for whatever reason, to reside in the region. They may not be typical of the broader universe of college-educated professionals. But the survey a good start. The most important thing is that at last, someone is asking the right questions.

Tourism and the Creative Class

Monticello: Old style tourism destination

by James A. Bacon

A draft plan written by PriceWaterhouseCoopers LLP makes a valuable contribution to thinking realistically and creatively about Virginia tourism. The “Virginia State Tourism Plan” comes tantalizingly close to integrating the development of tourism initiatives with economic development in the Knowledge Economy… but never quite completes the loop.

Virginians have long touted the beauty of their beaches and mountains, but as PriceWaterhouseCoopers diplomatically observes, “Virginia is somewhat challenged in differentiating its experiences for nature and outdoor recreation from neighboring states with similar offerings, some of which may be well known, competitively marketed, and offered in a concentrated area.”

Virginians also pride themselves for the wealth of their historical heritage. However, the study notes tersely, history has a limited draw. “These experiences may be perceived as more passive and not necessarily exciting to potential visitors.” The historical city of Charleston, S.C., by contrast, has won recognition as one of America’s Great Adventure Towns by National Geographic.

Folk festival: new style tourism attraction

The study makes the case for a very different kind of tourism — one not based upon giant, Disney-like destinations, which the state doesn’t have in any case, but rooted in the state’s artistic roots and modern culture.

Virginia … possesses a growing creative economy built on musical and artistic roots and combined with modern culture. From the mountain, folk, and bluegrass music to the world class art museums, galleries, and theatres, there are many opportunities to experience the cultural arts. Additionally, the 25 designated Main Street communities and other towns and cities throughout rural and urban areas, offer genuine downtown charm and unique shops, galleries, restaurants, events, and festivals that help define the artistic culture present throughout the Commonwealth.

The beauty of this focus, although PriceWaterhouseCoopers doesn’t come right out and say so, is that these types of destinations are not only potentially attractive to visitors from New York or Canada but to Virginians. Tourism can support a rich mosaic of events, venues and experiences that enhance Virginians’ quality of life — thus making the Old Dominion more competitive in recruiting and retaining the educated, affluent and innovative individuals who comprise the wealth-creating creative class.

What kind of attractions does PriceWaterhouseCoopers have in mind? The study mentions the following: town/city centers, nature & outdoor recreation, facilities for participant and spectator sports, culinary visitor experiences, and music & arts, among others

For example, Virginia has emerged as a significant wine destination, ranked as one of the top ten wine destinations worldwide in 2012 by Wine Enthusiast Magazine. With more than 200 wineries, 50 breweries and distilleries and a notable wine-to-table movement, Virginia can position itself as a serious destination for high-income foodies. If Virginia became a true foody heaven, it could  draw visitors not only from outside the state — as Lousiana has done marketing its Cajun culinary tradition — it could enrich the everyday experience of Virginians in a way, say, that Disney World cannot for Floridians.

Similarly, Virginia offers an abundance of waterfront along its rivers, lakes and coastlines. While taking care to protect the environment, the state and its communities should increase access to recreation activities such as fishing, boating, rafting, paddling, hiking, and shoreline biking — as well as events and festivals. By way of comparison, the study offers Governor’s Island in New York, a 172-acre island located a half mile from Manhattan and accessible by a free ferry that hosts cultural events, food festivals, concerts and performances. Such recreational assets would appeal not only to out-of-state visitors but to Virginians themselves.

A region’s competitive advantage in the Knowledge Economy comes from its ability to recruit and retain the creative class. Building assets around activities that educated, creative people like to pursue — dining, hiking, kayaking, biking, listening to music, engaging in amateur athletics — builds the base for a tourism industry and growth of the creative class.

If the state tourism plan explicitly made that connection, I believe, it would greatly strengthen the case for investing in tourism.

Hi-ho, Heyo, It’s Off to Blacksburg We Go!

Heyo's three co-founders. Photo credit: TheBurgs

Yesterday I argued that the economic odds were stacked against Virginia’s smaller metropolitan areas when it came to stimulating the start-up and growth of technology businesses. Economies of scale in the knowledge economy, I suggested, favor large regions with larger, more diverse labor pools. Could I have been wrong? (What, me wrong? Never!)

This morning, Governor Bob McDonnell announced that Heyo, a fast-growing social media company formerly known as Lujure Media Inc., will expand its operation in the Town of Blacksburg. The company, which creates dashboards for managing Facebook fan pages, mobile apps and websites, aims to create 50 jobs over the next two years.

Said Jim Cheng, Secretary for Commerce and Trade: “Heyo’s innovative services and accelerated growth are further evidence that Virginia is an incubator for good ideas. … The company is dedicated to Blacksburg and Montgomery County, and has found a pool of local talent to thrive. ”

Added Heyo CEO Nathan Latka: “The close knit community makes it easy to build culture and hire top tier talent from top ranked local universities like Virginia Tech and Radford University. This has enabled us to create 16 full-time jobs with aggressive hiring plans for the coming months. As we continue to grow rapidly, it’ll be hard for Blacksburg to remain the country’s biggest secret.”

A big high-five to Heyo and Blacksburg! I would love to believe that Blacksburg, Charlottesville and other smaller Virginia metros can buck the mega-trends arrayed against them. I hate the idea of a Virginia defined by a sprawling urban crescent and a withering hinterland. But a few positive anecdotes don’t change the big picture. It will be instructive to see if Heyo can grow a large technology  enterprise in Blacksburg.

– JAB

Innovation and Business-Establishment Density

by James A. Bacon

In previous posts, I have postulated that some human settlement patterns do more than others to promote creativity and innovation. Following the lead of such thinkers as urbanist Jane Adams, architect Leon Krier and economic geographer Richard Florida, I have suggested that certain urban forms — cul de sac subdivisions, massive skyscrapers — dampen physical mobility and access, thus, the ability of businesses to interact with one another. The ideal urban form would reduce the travel and time cost for people to leave their offices, meet, confer, grab coffee or lunch, meet after hours and have serendipitous encounters. The underlying assumption is that creativity and innovation arise from such interactions.

Drawing upon the work of  Jose Lobo with Arizona State University, Florida has mapped the “establishment density” — the number of business establishments per square mile — of the nation’s metropolitan statistical areas. (Read his blog post here.)

Not surprisingly, New York has the highest number of business establishments per square mile (79) among the country’s 20 largest MSAs, with San Francisco coming in third (47.9) and Boston fourth (34.9). Counter-intuitively — think of all those freeways — Los Angeles has the second highest density (68.7).

In Virginia, the Washington and Hampton Roads MSAs are of medium business density, while Richmond is below average.

This is all well and good, but is business-establishment density truly correlated with creativity and innovation? While I believe there is a link, I would hypothesize that it is a weak one, and I would readily concede that the case is far from proven. Someone should run a regression analysis to see if there is a correlation between business-establishment density and various proxies for business innovation.

Here’s the problem: Metropolitan-wide averages don’t mean much. To what extent are business establishments clustered within an MSA? For example, the Washington MSA is a large one, but IT/systems integration companies in the region are packed into a geographic sliver, the Tysons-Dulles corridor. If you measured the business-establishment density of that particular industry, it would be pretty darn high. To take another example, the advertising/marketing industry in Richmond is heavily concentrated within a couple of square miles in Shockoe Slip and Shockoe Bottom.

Here’s another critical issue: What is the quality of micro-level transportation connections within a region? How easy is it to walk, drive or take mass transit from one location to another? While the Dulles corridor may be compact geographically, how easy is it to travel from Point A to Point B within the corridor? Does anyone ever walk anywhere? Are the roads perennially congested? Will the construction of the Silver Line make a material improvement to interactivity within the corridor?

This is a fascinating line of inquiry, and an important one. There are only a handful of things that state/local governments can do to foster a culture of creativity and innovation. Fostering optimal human settlements (or creating the conditions where market forces achieve the optimal level) may be a neglected tool. The idea is worth pursuing.