Home .Change and innovation A crisis for reinventing America
A crisis for reinventing America
Tuesday, 24 March 2009 09:44

If you are tired of reading the financial prophets of doom, take a look at Richard Florida's article "How the Crash Will Reshape America" in the most recent edition of the Atlantic.  Florida is an urban theorist who has written a series of provocative books like "The Rise of the Creative Class".

According to Florida, "economic crises tend to reinforce and accelerate the underlying, long-term trends within an economy". 

The trend of today is the shift from old manufacturing towards idea-driven creative industries -- much like the shift off the farms and into the factories a century ago.  The manufacturing Rust Belt has been in decline for decades due to foreign competition and new technologies that replace workers.  However, decline is not a smooth process but comes in waves with each crisis or recession. 

Some of the Rust Belt towns and cities -- from Cleveland to St. Louis to Buffalo to Detroit -- will have a hard time recovering from the hit of the crisis.  Detroit may even become a ghost town.  Even before the recent intensification of the crisis, manufacturing and production occupations were doing less well than the "creative class" of scientists, engineers, managers and professionals.

What will happen to New York where the crisis all began?  Goodbye to Wall Street?  History shows that despite boom-bust cycles, financial centres have great staying power.  For the past few hundred years, the list of global financial capitals is no longer than Amsterdam, London and New York.  In finance, "there is a huge network and agglomeration effect", former assistant US Treasury secretary Ted Truman told the Christian Science Monitor in October -- an advantage that comes from having a large critical mass of financial professionals.  It is difficult for new cities to build this up from scratch.  They have to be attractive for new talent, and other places are still not as inviting as London or New York.  "New York's openess to talent and its critical mass of it -- inside and outside of finance and banking -- will ensure that it remains a global financial centre."

To be sure, Manhattan will take a big hit from the crisis.  Greater New York depended on the financial sector for roughly 22% of local wages and 8% of jobs.  But the financial sector had become bloated.  Hopefully, many of those bright people who wasted society's resources in the financial sector can be turned to good use and create some real productive wealth.

There is after all a lot more than Wall Street in New York, America's biggest city for the past two centuries.  The New York metropolitan area is home to a diverse and innovative economy built around a broad range of creative industries.  New York is a mecca for fashion designers, musicians, film directors, artists and even psychiatrists.

The crisis will likely reinforce the changes underway in US and indeed global economic geography as populations are concentrating in mega-regions like the Boston-New York-Washington Corridor or the Pacific Northwest's Cascadia, stretching from Portland through Seattle to Vancouver or Greater London or China's Shanghai-Beijing Corridor.  The world's 40 largest mega-regions, which are home to some 18% of the world's population, produce 2/3 of global economic output and nearly 90% of new patented innovations.  These are the areas which will come out of the crisis the strongest. 

These mega-regions are also attractive to well-educated professionals and creative workers.  And as they live and interact together in dense ecosystems, they generate ideas and turn them into products and services faster than talented people in other places can.  According to Nobel laureate Robert Lucas, knowledge spillovers from talent-clustering are the main cause of economic growth.

The suburbs will be the declining feature of the post-crisis economic geography.  Sprawling suburbs made sense when industrial plants were also sprawling out across the country.  But the economy is doing less making and transporting things, it is doing more generating and transporting of ideas.  And the places that thrive today are those with the highest velocity of ideas, the highest density of talented and creative people.  And that is not the suburbs.  Indeed, the housing bubble was perhaps the last gasp of an outdated model which encouraged low-density sprawl.

What does this mean for government right now?  First, it may not seem palatable at the moment, with people being thrown out of their houses, but we should remove the artificial incentives to buy houses.  Instead of overinvesting in houses, the US could invest more in medical technology, software or alternative energy.  What's more, high home ownership has created a workforce which is stuck in one place and anchored by houses that cannot be sold profitably -- at a time when flexibility and mobility are key.

Second, government needs to facilitate growth in the great mega-regions that already power the economy, and the smaller, talent-attracting innovation centres inside them.  These regions need to more attractive and affordable for all Americans, not just the elite.  This means making smarter use of urban spaces and the surrounding suburban rings.  It also means better rail infrastructure and airports.  One of the benefits will be a more energy efficient life style.

Overall, in Florida's vision of the future, we all live more closely together, interact more and produce more "invention, innovation and creation".

I believe in this, but ... let's take a look at Japan which has perhaps the greatest number of people living together in a small area.  To make this work, the Japanese have ordered life with rules, regulations and rituals for everything -- to such a point that individuality is squeezed out the system.  Japan ranks low on most measures of creativity and inventiveness.  Now take a look at India, where you also have a mass of people crammed in together, but you have urban chaos, environmental disaster and widespread insecurity.

Florida concludes by quoting Stanford economist Paul Romer who once said that "A crisis is a terrible thing to waste".  But as all economic development has demonstrated, high quality governance is key.  And to realise Florida's vision, very high quality governance will be necessary -- and this in a country that inherently has little trust and confidence in government.     

References:

www.theatlantic.com

www.creativeclass.com

www.csmonitor.com


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