TIP Strategies is a privately held Austin-based economic development consulting firm committed to providing quality solutions for public and private‑sector clients.
This blog is dedicated to exploring new data and trends in economic development.
By: Jon Roberts, Principal, TIP Strategies
There is something irresistible about making New Year’s predictions. Never mind that things always turn out differently than we expected. It’s an exercise worthy of the effort. From an economic (and economic development) perspective, 2015 was certainly an odd year. The biggest news was probably the precipitous decline in oil prices.
Source: International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, January 18, 2016
The effects of this decrease will continue to be felt in the new year. While good news for consumers, the drop hit oil-producing regions especially hard (nationally and internationally). The ripples are being felt in the renewable energy market and in the automotive industry (with lagging hybrid and electric car sales). It even has significant implications for the reshoring of manufacturing companies (due to the reduction in shipping costs). Of course, the job market in domestic oil and gas producing regions has suffered accordingly.
So what does this mean for 2016? Will prices remain low? My friend Chris Tomlinson of the Houston Chronicle predicted the coming price drop, and I’m persuaded that he’s right. Prices will remain low throughout 2016.
From energy let’s move to technology, especially automotive technology. By now we’ve come to realize that some of the biggest breakthroughs are in relatively mundane sectors. Uber and Lyft are nothing more than apps that rely largely on ordinary mobile devices. The implications of these services, however, are wide-ranging. Can we imagine a generation for whom car ownership is of little importance? We can, because they are already among us. Add to that radical breakthroughs in driving-assisted technologies, and the future of the auto industry suddenly begins to look very different from what it does now. Is this a prediction for 2016? Yes it is. But the changes will be incremental. And it’s only when we look back from, say, 2025 that we’ll realize how profound the changes have been.
On a related note, the Tesla battery factory in Reno deserves prominent attention. Tesla’s site selection can be seen as a way to stay in California without paying California taxes. It’s less than a four hour drive from the Tesla HQ to Reno, and a lot less if you are in a Tesla without CHIPs to patrol you (funny how word associations change). What Tesla’s energy innovations mean for 2016, especially in light of low oil prices, makes for interesting speculation. Will there be fewer Teslas sold? Or will the firm’s auto sales be only a small part of a larger battery technology play? Elon Musk is spearheading a move on the energy grid, targeting commercial and residential customers. I think it’s safe to assume that the impact of battery storage in the building industry will be as significant as anything in the automotive realm. Commercial battery storage will make news in 2016, but the implications will be with us for the rest of the decade.
The other inescapable economic story of 2015 was income inequality. The following chart (courtesy of National Public Radio) gives a remarkably broad perspective on the subject:
Source: World Top Incomes Database via Quoctrung Bui/NPR, Note: Income is inflation adjusted in 2012 dollars
Going all the way back to the 1920s, we can see that the “rise of the 1%” doesn’t begin in earnest until the early 80s. And it doesn’t exceed the rate of income growth of the bottom 90% of earners until after the year 2000. So the question for 2016, and well beyond, is: What will the chart look like? Will the extremely wealthy get more so? And will it come at the expense of the bottom 90%? The answer to the second question is usually assumed to be yes. But, in reality, the equation is complicated. Income inequality is not inherently negative. If we could achieve a significant reduction in poverty, even if a large disparity remained, would that be a bad thing? The better way to frame the question is how much “inequality” can the economy tolerate? This brings us to Thomas Piketty’s much-discussed thesis. If the rate of return on wealth exceeds economic growth, then inequality increases—and that (implicitly) becomes unsustainable. 2016 won’t bring an answer, but we can safely predict that it will be a pressing topic. Why? Because 2016 will see one of the most contentious elections ever. Among the issues will be income inequality and what to do about it.
One topic, however, will be conspicuously absent from the political debate: the impact of technological advances on the economy. Why is that? Because the relationship of technology to economic growth is difficult for politicians— and economic developers—to address. Technology companies–and the Silicon Valley model–remain the Holy Grail of community leaders. The reality, again, is much more complicated. At TIP, we have been arguing for years that the job growth potential of tech companies is nowhere near what the economic development world assumes it to be. Jerry Davis, a professor at the University of Michigan’s Ross School of Business, makes this point convincingly in an article for Brookings, in which he points to research documenting the growing disconnect between high-valuation companies and job creation. (See table below.) With the exception of Walmart, the top five US corporations in terms of their market capitalization in 2012 employ a fraction of the workforce that firms at the top of the list did 50 years previously.
Corporate (and stock) valuation is not a function of employment and hasn’t been for some time. Interesting, then, to compare corporate valuations with the income growth graph. To put it bluntly, there is a negative correlation between the use of technology and the need for workers—skilled or otherwise. It may be regrettable that none of our presidential candidates are willing to tackle this issue, but it will be front and center in cities and regions across the country.
Energy, equity, and technology are sure to be pressing issues in 2016. We would do well to rethink the relationship between economic growth and employment growth. Let that be our New Year’s resolution.
By: TIP Strategies
Ashton Allison, CEcD, joined TIP Strategies’ Seattle office as a consultant this month. Ashton has over 14 years of experience in marketing and economic development in the private, public and nonprofit sectors. He specializes in economic development marketing, including historical marketing analysis, strategic communications planning, branding, copywriting, media strategy and placement, community relations, and earned media strategies.
Before joining TIP Strategies, Ashton worked as an economic development practitioner and director of marketing for the Amarillo Economic Development Corporation (EDC). During his time there, Ashton was responsible for creating and managing the organization’s annual plan of work, strategic communications plan, and lead generation program. His work earned a Gold Award from the International Economic Development Council (IEDC) in 2011.
Prior to working for the Amarillo EDC, Ashton served as the executive director for Entrepreneur Alliance, a consortium of organizations promoting entrepreneurship and providing assistance to small business owners in the northwestern-most 26 counties of the Texas High Plains.
He started his career and spent over six years at a full-service marketing firm, where he served as a manager and copywriter for the Amarillo EDC account.
Ashton holds a Bachelor of Business Administration degree in marketing from Baylor University. He achieved his Certified Economic Developer (CEcD) designation through the International Economic Development Council in October 2014.
By: TIP Strategies
In October, TIP Strategies founder and CEO, Tom Stellman was featured as a speaker at the independently organized TED talk event, TEDxBrookings. His presentation was part of the “Origins of Community” session and has recently been released on YouTube. Tom’s talk addressed the changing geography of jobs before, during, and after the Great Recession.
The changing landscape of jobs is a topic we return to regularly at TIP Strategies. Beginning in the spring of 2008, we sought to visualize the answer to a seemingly simple question: How did the impact of the recession play out across the country? Our original interactive map, The Geography of Jobs, (revamped in 2014) became a widely distributed illustration of the dramatic gains and losses of the Great Recession. Yet we felt that part of the story was still missing. While the media were touting the “recovery” of all jobs lost since the start of the recession (a milestone achieved at the national level during the second quarter of 2014), we were seeing a different picture on the ground.
Our latest visualization, The Geography of Recovery, seeks to illustrate the cumulative impact of the Great Recession. Using the same data that fed the Geography of Jobs, we’ve taken a different approach, comparing employment levels in each metro area to the number of jobs reported at the beginning of the economic downturn. The result is decidedly less dramatic visually, yet a striking revelation is exposed: the unevenness of the recovery. As of July 2015—more than one year after the country returned to pre-recession employment levels—fully one-third (120) of the more than 300 areas analyzed had not yet recovered the number of jobs lost during the recession.
By: Jeff Marcell, Senior Partner, TIP Strategies, Inc.
Innovation Districts, Prosperity Zones, Creative Districts or Tech Towns—no matter what the terminology, the concept of concentrating industries, technologists, companies, entrepreneurs, and R&D within a definable geography is top of mind for many in the economic development community. Prime locations are usually dense urban environments offering mixed-use real estate, allowing residents to work, learn, and have fun all in the same neighborhood. Examples and elements of these districts are being studied by economists, think tanks, and economic developers alike. Best practice models are scattered around the US, often led by public-private collaborations. Examples include Seattle’s South Lake Union, Detroit’s Downtown and Midtown developments, and recent developments in downtown Las Vegas. Sometimes these districts are executed by formal, organized efforts with specific boundaries, and sometimes they grow from an organic process with informal boundaries. However they take root, successful districts have generated a lot of attention and inspired many communities to pursue similar approaches in hopes of stimulating job creation.
In September, I was honored to join some of the most knowledgeable and successful thought leaders in economic development from across the US to participate in the City of Buenos Aires’s Global Districts Summit in Argentina. The Summit was driven by the city’s motivation to share best practices in the creation and sustainability of economic development districts with a focus on public policy, entrepreneurship, and international business development. My fellow US delegates included leaders from the Research Triangle Park, Ann Arbor SPARK, Creative Oklahoma, the University South Carolina, IAE Business School, and the Center for Strategic International Studies out of DC.
The conference began with a full day tour of the city’s five creative districts dedicated to technology, audiovisual, arts, design, and sports/entertainment. The districts were established in 2008 to address blight, unemployment, and poverty in economically disadvantaged areas. The goal of the districts program is to attract new investment, jobs, and redevelopment. A daylong workshop followed, discussing the districts’ accomplishments and ways in which the city could improve and expand on what has been completed. The summit culminated in a half-day public forum attended by over 200 dignitaries, business leaders, and city officials. This forum is where I and other delegation representatives shared our thoughts on lessons learned from other districts around the world and suggested opportunities the Buenos Aires districts could pursue in the future. An enthusiastic keynote address, about the possibilities that innovation holds for Argentina, was given by Guibert Englebienne. Guibert, who is regarded as the Steve Jobs or Bill Gates of Argentina, is co-founder of Globant, the country’s largest technology company with more than 4,300 employees serving clients like LinkedIn, Zynga, and Google.
At TIP Strategies, we think about successful economic development efforts in terms of Talent, Innovation, and Place. These three components are critical to a successful economic development district as well as to the region in which that district is located. What follows is an outline of some of what is happening in the City of Buenos Aires and its creative districts, as well as ideas that were shared by the delegation, as they relate to Talent, Innovation, and Place:
Talent: Buenos Aires exudes excitement and energy. Its architectural beauty, vibrant art, culture, and nightlife act as a magnet for the creative class. The city also has over 30 universities and colleges within its boundaries. Buenos Aires has made meaningful commitments to strengthen its talent base. One effort is a partnership with three universities, including the prestigious Technology Institute Buenos Aires, to collectively build a new campus in the heart of the technology district. The production of more trained engineers is imperative; roughly 40% of engineering graduates from local schools leave the country to work elsewhere. This is an unacceptable loss of a precious asset. The delegation agreed that all efforts must be made to keep and grow this engineering talent if the districts, city, and country are to be successful.
Innovation:The rapid success of Globant is proof that innovation and entrepreneurship is alive and well in the Buenos Aires region. The city has received international recognition for its growing software industry, drawing attention from companies and technology leaders in places like Silicon Valley. But recognition and international contracts for only the largest firms is not enough. Technology businesses within the district primarily serve back-office functions for business and government clients within Argentina. If businesses within the district are going to succeed, their customer base must be larger than the opportunities within the country’s borders. The city can help attract international business for its emerging tech cluster. Additionally, the city’s university system has focused its energy on the production of skilled students, which is vital, but not enough to achieve success. The conference’s US delegation encouraged an emphasis on research and development and technology commercialization out of these institutions as well.
The city also has a fledgling entrepreneurship program. The program has limited staff and resources with a broad directive to help the people of Buenos Aires create their own business. The US conference attendees recommended that the program narrow its focus to just serving entrepreneurs in the sectors that align with the districts, rather than a more general approach.
Place: Buenos Aires benefits from attributes that create fertile ground for innovation districts: a dense population and mix of residential and commercial activity, served by mass transit. In this respect, the city is fortunate; it didn’t have to create this environment, like many other cities with similar ambitions have to do. In 2008, the city took bold steps to establish the creative districts, identifying areas of focus, setting boundaries, establishing tax incentives to encourage investment and relocation, and making the catalyst investment of building a new state-of-the-art city hall in the technology district. The new city hall not only serves as an architectural gem, it is a statement that the city is committed to the districts’ success. Many businesses have responded—with over 200 firms locating in the technology district alone. They are all benefiting from incentives and infrastructure investments made by the public sector. The US delegation unanimously agreed: if the districts are to meet their potential, the business community must now take a larger leadership role. We encouraged a new formal partnership between the city and the business community with dedicated staff and programming to address the districts’ opportunities and ongoing needs. This kind of initiative would require that the city give up some control; this is necessary to achieve the city’s goals for the districts and ensure their sustained, long-term success.
The concept of innovation/creative districts translates around the world. Concentrating industries, entrepreneurs, and technologists creates an abundance of opportunities that may produce new businesses, investments, and jobs. The Buenos Aires creative district program was established just seven years ago, and they have already generated palpable success. These districts serve as an inspiration to communities everywhere. If it keeps on this path, the city will reach its ambition of being the unquestionable technology capital of South America and will provide jobs and opportunity to its people. Buenos Aires is a place economic development practitioners need to watch.
To learn more about the City of Buenos Aires creative districts visit:
I welcome the opportunity to discuss innovation districts with you and learn about the economic development efforts in your community. Please feel free to contact me at email@example.com.
Geography of Recovery: Cumulative Job Gains/Losses since December 2007 by Metropolitan Statistical Area
By: TIP Staff
When we released the Geography of Jobs in spring 2008, our goal was to visualize the answer to a seemingly simple question: How did the impact of the recession play out across the country? The resulting animated map—which shows the 12-month rolling job change for all US metros from 1999 to the present—was a resounding success. It provides a vivid illustration of the magnitude of pre-recession job growth and the subsequent dramatic job losses. What our approach failed to capture, however, is the recession’s cumulative impact.
In the second quarter of 2014, it was widely reported that the US had “recovered” all the jobs lost since the start of the recession more than six years earlier. But as we traveled across the country, it didn’t take much to see that many areas were still suffering. With our latest map, the Geography of Recovery, we use the same data to explore this issue. As the name suggests, our new data visualization picks up on the question of recovery: How have individual metro areas fared since the start of the recession? Which metros felt the greatest job losses as a percentage of pre-recession employment? Which have yet to recover the jobs they lost? Which areas recovered faster? Were there any that saw minimal negative impact or even emerged unscathed?
How to Read the Map
Unlike the prior map, which illustrates the change in jobs relative to the same period 12 months earlier, the Geography of Recovery compares employment levels in each metro area to the number of jobs reported at the beginning of the economic downturn. To simplify the comparison, the map uses an index to illustrate this relationship. Each metro starts at 100 percent, which represents total employment in December 2007 (the recession’s official start). From that point forward, the size of each metro’s corresponding bubble grows or shrinks based on the percentage of jobs gained or lost relative to the baseline. A red bubble indicates a cumulative job loss; a blue bubble represents cumulative job gains.
Like the original Geography of Jobs, you can hover over each metro bubble and watch the actual percentage change over time. You’ll also notice two animated “dashboard” features on the left of the map that track with the animation’s timeline. The first is a simple percentage, titled “US share of 2007 employment,” which shows the nation’s job change relative to the baseline. The second indicator is a set of bars representing the number of metros above (in blue) or below (in red) December 2007 employment levels.
Revelations on Recovery
The most striking revelation from this visualization is the unevenness of the recovery. By the time the US returned to its December 2007 employment level in May 2014, the majority of metro areas had not recovered. As of July 2015—more than one year later—fully one-third (120) of the more than 300 metro areas analyzed had not yet recovered the number of jobs lost during the recession.
At TIP Strategies, we are always looking for ways to translate data into insights about economic development. We hope you will help us with this task by providing feedback and sharing your insights at the end of this blog post.
Footnote: We recognize the limitations to this approach:
- It does not account for population change in each metro over time. Because jobs can grow faster or slower than population, the impact of employment change on a metro’s population may not be reflected.
- We picked Dec 2007 as the starting point, since this was the date that the national recession officially began. But, some metros, such as Detroit, had already experienced significant job losses in the previous 2 years. Detroit was in a recession long before the official national recession began, therefore their bubble does not reflect losses from the time prior to December 2007.
- Following the 2010 Census, the federal Office of Management and Budget revised the official definitions of a number of metropolitan statistical areas (MSAs). This once-a-decade overhaul (released in February 2013) resulted in the addition of a number of new metro areas, the change of metro boundaries, as well as the loss of the MSA designation for a number of existing areas. Some added counties, lost counties, or were combined with neighboring metros to form larger MSAs; others lost their designation due to population declines. In implementing these new standards, the US Bureau of Labor Statistics could not produce seasonally adjusted data for all the affected metro areas beginning with its March 2015 release of data from the Current Employment Statistics (CES) program, the data series used to create the Geography of Recovery. While 69 metro areas without seasonally adjusted data are not included in the animation, we have provided a table [PDF] showing the annual percent change in employment since December 2007 using unadjusted data.
By: John Karras, Consultant, TIP Strategies
Last month (Sept. 14-16, 2015), I attended the Inner City Economic Summit in Detroit with Jeff Marcell, Senior Partner from our firm’s Seattle office. We spent the first part of the week in Detroit, engaging with leaders from other urban markets and national experts on the subject of inner city economies. Following the conference, we joined our clients at the East Michigan Council of Governments in Saginaw to share what we learned and to continue our work helping evaluate options for establishing a center of excellence. The work is part of the implementation phase of our prior engagement which resulted in a plan to boost economic development in the 8-county region centered on Saginaw.
The Inner City Economic Summit was created by the Initiative for a Competitive Inner City (ICIC), the Harvard-based think tank established by Michael Porter, and was sponsored by three other organizations: the W.E. Upjohn Institute for Employment Research, the Federal Reserve Bank of Chicago, and the Economic Development Quarterly from Sage Publications. For those of you not familiar with the ICIC, it’s worth getting to know their organization and their work. My favorite aspect of the ICIC is their incredibly useful “library of best practices in urban economic development.” The summit was hosted at the Detroit Marriott Renaissance Center (the same complex where GM is headquartered) on Day 1 and at the Detroit branch of the Chicago Federal Reserve on Day 2. During both days, we heard presentations and panel discussions from national experts on urban economic development, including a keynote from Michael Porter. We learned first-hand about the unprecedented private sector investments centered on downtown and Midtown Detroit, led primarily by Rock Ventures. We also participated in a three-hour bus tour through several revitalized and distressed areas in Detroit. And at the end of the conference, we took our own “self-guided” tour of the most challenged neighborhoods before heading up to Saginaw for the second part of our Michigan visit.
The Summit was filled with high-quality presentations, panel discussions, and conversations with leaders from urban markets across the US. But three presentations rose to the top as the most insightful and relevant to the challenges and opportunities facing urban economic development:
1. Michael Porter, the famed Harvard economist and corporate strategy expert. Porter revisited 20 years of groundbreaking research and experience on inner city economies and their competitive advantages, reflecting on lessons learned and providing perspective on what’s next for the field. [Read more]
2. Matthew Cullen, President and CEO of Rock Ventures. Cullen provided an in-depth perspective on how private sector investment has shaped Detroit’s infrastructure, economy, and culture in recent years. [Read more]
3. Martin Lavelle, Business Economist with the Detroit branch of the Chicago Federal Reserve Bank. Lavelle shared an overview of Detroit’s current economic situation and offered perspectives on where it is headed, including some of the remaining barriers and potential pitfalls facing the city’s economy. [Read more]
Throughout the summit, an underlying theme emerged during the discussions about Detroit’s economic future:
Does urban economic development need to be big or small?
I would argue that, in order for cities to have the greatest shot at success, their economic development programs must include a combination of big and small initiatives. Detroit is focusing on both ends of the spectrum, which is a good thing, given the serious challenges facing the city’s economic development. I’ll share with you the highlights from the summit, including what Detroit is doing to catalyze economic growth. But first, let me share a brief summary of how the city arrived at its current state of affairs. There are an infinite number of things that can be said about Detroit’s economic history (people have written lengthy essays and books about it), but I’ll be as short and to-the-point as possible. Here goes…
Detroit, Michigan played a leading role in the development of the US economy during the 20th century. It was the birthplace of modern manufacturing and large-scale industrial production. Henry Ford’s Model T and the innovative assembly line that made it possible transformed the global economy in ways that no one could have anticipated. Detroit was arguably the most important city in the world from 1900 to 1950, from an economic development perspective. The city was, and still is, the global epicenter of the automotive industry. Only a handful of US cities dominate a single industry in the same way (New York with finance, Houston with energy, and Los Angeles with film/entertainment). Detroit also occupies an important place in our nation’s cultural identity, thanks in large part to Motown.
But despite its many accolades, Detroit is better known today for its epic decline. Even though its business leaders and companies were responsible for revolutionizing the world’s economy, the city has become a universal symbol of economic failure. Detroit is the only city in US history to have reached the 1,000,000 mark in population and subsequently drop down below that mark. Even worse, Detroit came close to the 2,000,000 mark around 1950 (estimated at 1.85 million in 1950) before its population decline. Detroit is by no means the only US city where such a dramatic economic decline took place…but it is the by far the largest and most well-known. In 2010, the city’s population stood at 713,777. In 2013, the city entered the largest municipal bankruptcy in US history. The latest 2014 estimates for Detroit show a population of 680,250, less than 37 percent of its 1950 peak. And the city’s decline has taken place against a backdrop of racial inequities. With a city population that is 83 percent black and 11 percent white, compared with a metro area population that is roughly 70 percent white and 23 percent black, the city offers a glaring example of racial segregation. Interestingly, the city’s decline over the last several decades has played out within the context of a relatively stable metro area population. The Detroit metro area was home to 4,490,902 residents in 1970, compared with 4,296,611 in 2014, a decline of only four percent (compared with a 45 percent decline in the city’s population during the same period).
Although there are stark challenges facing Detroit’s economic future, there are some major signs of life in the city. Private sector investment, business expansions, and job growth are beginning to take place in portions of the city, especially in downtown and Midtown. Positive things are happening in Detroit on a level not seen in more than half a century. It’s too early to gauge whether these recent changes will turn the tide, but there is finally a reason to be optimistic about Detroit’s future. At the very least, it is an unprecedented experiment in urban economic development that will provide the rest of us with case studies and lessons learned for years to come. Hopefully those future lessons will be referred to as “best practices” instead of cautionary tales. Time will tell…
So, back to our question of whether urban economic development needs to be big or small: What does a struggling urban economy need to get back on track? What does Detroit need to change the course of its economy- many small things or a few big things?
Detroit has an aversion to big things. For nearly a century, their economy has been defined by big auto companies, big unions, and big government. All three of these big things have dramatically (and permanently) decreased. So it is understandable that many residents are placing their hopes of recovery in small things (e.g., block-by-block revitalization of Midtown, expansion of the Eastern Market as a local food hub, a new protected bike lane on Jefferson Avenue). On top of that, the city’s business and community leaders are equally concerned with pursuing larger, more transformative, strategies (e.g., the massive private sector investments from Dan Gilbert, a new streetcar line, the innovation/acceleration efforts lead by TechTown Detroit).
Below are three additional ideas for Detroit to consider as part of its “all of the above” approach to transform the local economy, each of which could potentially include a combination of big and small things:
1. R&D and higher education.
2. International development.
3. Aggressive business recruitment and expansion.
R&D and higher education. When we completed the Regional Prosperity Strategy last year for the 8-county region in East Central Michigan, one of the most surprising findings from our data analysis was how concentrated the academic R&D investments in Michigan are in the state’s top two schools. The University of Michigan in Ann Arbor is the nation’s number two institution ranked by academic R&D spending (nearly $1.4 billion in FY 2013). The state’s other top school and research powerhouse, Michigan State University in East Lansing, spent $516 million on R&D in FY 2013.Together, those two institutions account for more than 83 percent of Michigan’s total academic R&D expenditures. While this is greatly beneficial for those institutions, it’s a huge missed opportunity for the rest of the state. In fact, Michigan has a higher percentage of academic R&D investments in its top two universities than the investments in the top two universities in the other top 10 states in the US ranked by total academic R&D expenditures. This is especially frustrating for the Detroit metro area which accounts for nearly half of the state’s population but less than 10 percent of the state’s academic R&D spending. Wayne State University in Midtown Detroit is the city’s only significant research institution, with $224 million in academic R&D investments in FY 2013. Wayne State is certainly playing a critical role in the revitalization of Midtown, thanks in large part to its 27,000 students and its nearly 6,000 employees, but it is still a far cry from being one of the world’s preeminent research universities. The link between higher education and economic development is well-established. Besides the most prevalent examples (Stanford University in Silicon Valley, Harvard and MIT in Boston, and the University of Texas in Austin), dozens of communities across the US can trace their economic development success to the role of higher education. Which is why it’s no coincidence that Ann Arbor, just 40 miles from Detroit, is the best performing metro area in the state (along with Grand Rapids), having surpassed its pre-recession employment levels by 5 percent as of July 2015.
International development. With Windsor, Ontario right across the river from downtown, Detroit is part of the largest integrated, bi-national metropolitan economy in North America. Many people do not realize that the automotive manufacturing cluster centered on metro Detroit is actually a highly connected economic region that extends well into Canada. Given the city’s strong existing international ties, the multitude of nonstop international flights at Detroit-Wayne County International Airport, and the city’s global business connections, international business development represents a significant opportunity for Detroit.
Aggressive business recruitment and expansion. There is an untapped potential to bring in large private investment and business expansions from outside of Michigan into Detroit. An aggressive business recruitment program could play a large role in Detroit’s resurgence, while the city has a global brand and a reputation as an up-and-coming place for Millenials. The relocation of firms from Detroit’s suburbs into the urban core (e.g., Quicken Loans, Little Caesars) is wonderful for downtown, but the real opportunity lies in attracting new businesses from outside of the state. This won’t be easy, but business recruitment will be critical to the long-term growth of Detroit’s economy.
The beginning of something new? Or the beginning of the end?
This post could leave off on a positive note, citing once again the incredible transformation of downtown/Midtown Detroit. Or it could end on a less optimistic note, acknowledging the realities of a still-declining city that has yet to turn the tide. I’m going to do both.
Google Maps has a really cool new feature. You’ve probably used the Street View tool before, but you may not be aware that you can now use Street View to see the same photo perspective from multiple points in time. This is especially useful for cities that are experiencing rapid change, whether the change is positive or negative.
In Detroit’s case, I will leave you with two sequences of photos from Google’s StreetView. The first shows a house in the city’s near-East side neighborhood of McDougall-Hunt in 2009, 2011, and 2013. The second sequence shows Campus Martius Park in downtown Detroit in 2008, 2011, and 2015.
I’ll let the images speak for themselves.
Highlighted Inner City Economic Summit Presenter Summaries in Detail:
Michael Porter’s presentation was a comprehensive overview of the challenges and opportunities for inner cities, based on multiple decades of research and observation. It was fascinating, not only because Porter is a dynamic and incredibly knowledgeable speaker, but because he did a great job of tying the challenges facing inner city economic development to the realities in the larger national economy. You can download Porter’s presentation here [PDF]. You can also see a re-cap of his talk on YouTube. Porter began his talk by describing the structural challenges facing the US economy, concluding that “strengthening America’s inner cities has become more challenging due to the overall state of the US economy.” He contrasted this with the relatively strong national economy in 1990, back when ICIC was first getting off the ground. ICIC defines an inner city as “contiguous census tracts within central cities that are economically distressed”. Their definition of distressed is based on the following two criteria: 1) “a poverty rate of 20 percent or higher, excluding students” or; 2) “a poverty rate, excluding students, of 1.5x or more than the MSA” and at least one of two other criteria: “median household income 50 percent or less than the MSA” or “unemployment rate 1.5x or more than the MSA”. One of the more interesting points in Porter’s presentation was that inner city economic success is not closely correlated with overall metropolitan economic success. At first glance, this seems to go against commonly held beliefs that a strong inner city is needed for a strong metro economy. But Porter was also keen on pointing out that the central cities (not including the portions classified as inner city according to ICIC’s definition) accounted for all of the net job growth in the US from 2003 to 2013. He also shared several key findings about how to stimulate economic development in inner city economies, including: the importance of clusters as drivers of growth, connecting inner cities to regional clusters, and capitalizing on anchor institutions present in inner cities. While Porter’s talk touched on many of the challenges and opportunities facing inner city economic development, he did not cover one key area, real estate. Urban areas have many barriers impacting real estate development that don’t exist in suburban and exurban areas. Fortunately, the other keynote presentation from Matthew Cullen did cover real estate.
Matthew Cullen, head of Rock Ventures, also gave a dynamic keynote presentation. Rock Ventures is the umbrella entity created to manage Quicken Loans founder Dan Gilbert’s portfolio of 110 companies, investments, and real estate development projects in Detroit primarily, and to a lesser extent, in Cleveland. Cullen’s talk showcased the major transformations in downtown and Midtown Detroit, largely spearheaded by Rock Ventures and other private sector leaders (e.g., the Illitch family, which is bringing its Little Caesars corporate HQ from the suburbs into Midtown and is also building a new arena for the Red Wings hockey team as part of a new mixed-use district). It’s funny…at TIP we sometimes joke about the ”fairy godfather/godmother” strategy for downtown revitalization. As the story often goes, “all you have to do is find a rich/famous person with an affinity for your community, and then convince them to funnel millions of dollars into the renovation of historic buildings to create a bunch of cool new offices, restaurants, and loft apartments.” Well, downtown Detroit may be the best example ever of this strategy, with Dan Gilbert serving as Chief Executive Fairy Godfather and Matthew Cullen serving as Chief Operating Fairy Godfather. You can see Cullen’s presentation for yourself (parts 1 through 5 on YouTube), but I’ll give you the highlights. Since 2010, Rock Ventures has been responsible for the creation of 13,000 jobs, nearly $2 billion in investment, and the renovation/redevelopment of 13 million square feet of building space (office, residential, retail). They are also leading an effort to create a new $140 million streetcar line (with a remarkable $100 million coming from private and philanthropic investors, and only $40 million in public funds) that will connect downtown to Midtown after construction is completed in 2017. Rock Ventures has also invested in a downtown broadband internet infrastructure known as RocketFiber, which is purported to be 100x faster than Comcast. It’s pretty obvious that Gilbert’s efforts are starting to pay off in a major way. All it takes is a 10-minute walk through downtown Detroit, and you feel like you’re in an emerging hipster haven. Take another 20 minute walk north to Midtown, and you’ll find growing clusters of creative businesses like Shinola among the large anchor institutions of Wayne State University, the Detroit Medical Center, and the Detroit Institute of Arts. Lastly, Rock Ventures is keenly aware that bringing jobs and investment into the urban core will not create a vibrant district without a thoughtful approach toward improving the urban design, or the “connective tissue” as Cullen described it. Of course, it’s worth keeping in mind that, no matter how inspiring the work of Rock Ventures and other private sector leaders, the downtown/Midtown area only represents a small portion of Detroit, roughly 6 to 8 percent of the city’s land area, depending on how you define it. And when you consider the fact that the city’s urban core has seen a large amount growth (investment, job growth, and residential growth) while the city as a whole is still losing more than 8,000 residents a year (from 2010 to 2014), it is clear that the rest of the city is still declining rapidly. It will be interesting to watch the evolution of Detroit’s downtown/Midtown urban renaissance over the coming years. Hopefully, the success of the city’s urban core can translate into broader economic development for the rest of the city.
Martin Lavelle, an economist with the Detroit branch of the Chicago Federal Reserve Bank, gave a brief talk as part of the introductory set of presentations. (You can find his presentation at the tail end of this document.) I really appreciated Lavelle’s comments because he cut through the hype and gave a realistic assessment of where Detroit is and where it might be headed from an economic development perspective. Lavelle started by acknowledging the major progress in the city: improving city services, ongoing investment (largely in the downtown/Midtown area), a growing neighborhood focus, and a greater willingness among civic leaders to discuss the tough issues. Lavelle then went on to discuss some of the significant structural impediments that act as barriers to economic development in the city, most notably the lack of a premier research university and an inadequate public transportation system. He also highlighted several potential pitfalls that could send the city back into bankruptcy including: tax revenue declines, fiscal challenges facing other regional entities (e.g., Detroit Public Schools, Wayne County), and a potential return of corrupt elected leadership—a long-time hallmark of Detroit’s government. Finally, Lavelle touched on some of the key issues the city must tackle in order to become a prosperous community: reform of Detroit Public Schools, addressing the city’s many unique land use challenges, and regional cooperation.