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: Eduardo Porter
Via: The New York Times
In some respects, 1988 has the feel of an alien, distant era. There was no such thing as the World Wide Web then. The Soviet Union was still around; the Berlin Wall still standing. Americans elected a Republican president who would raise taxes to help tame the budget deficit.
On Tuesday, however, the Census Bureau reminded me how for most Americans 1988 still looks a lot like yesterday: last year, the typical household made $51,017, roughly the same as the typical household made a quarter of a century ago.
The statistic is staggering — hardly what one would expect from one of the richest and most technologically advanced nations on the planet.
I have written several times before about how measures of social and economic well-being in the United States have slipped compared to other advanced countries. But it is even more poignant to recognize that, in many ways, America has been standing still for a full generation.
It made me wonder what happened to progress.
Consider: 36 years ago this month, when NASA launched the Voyager 1 probe into space, 11.6 percent of Americans were officially considered poor. The other day Voyager sailed clear out of the solar system into interstellar space — the first man-made object to do so — recording its environment on an 8-track deck.
Using the same official metric — which actually undercounts the poor compared to new methods used by the Census today — the poverty rate is 15 percent.
To be sure, we have made progress over the last 25 years. The nation’s gross domestic product per person has increased 40 percent since 1988. We’ve gained four years’ worth of life expectancy at birth. The infant mortality rate has plummeted by 50 percent. More women and more men are entering and graduating from college.
We also have access to far more sophisticated consumer goods, from the iPhone to cars packed with digital devices. And the cost of many basic staples, notably food, has fallen significantly.
Carl Shapiro, an economist at the University of California, Berkeley and an expert on technology and innovation who stepped down from President Obama’s Council on Economic Advisors last year, calls the progress in information technology and biotechnology over the last 25 years “breathtaking.”
“Most Americans partake in the benefits offered by these new technologies, from smartphones to better dental care,” Professor Shapiro said. Still, he acknowledged, “somehow this impressive progress has not translated into greater economic security for the American middle class.”
In key respects, in fact, the standard of living of most Americans has fallen decidedly behind. Just take the cost of medical services. Health care spending per person, adjusted for inflation, has roughly doubled since 1988, to about $8,500 — pushing up health insurance premiums and eating into workers’ wages.
The cost of going to college has been rising faster than inflation as well. About two-thirds of people with bachelor’s degrees relied on loans to get through college, up from 45 percent two decades ago. Average student debt in 2011 was $23,300.
In contrast to people in other developed nations, who have devoted more time to leisure as they have gotten richer, Americans work about as much as they did a quarter-century ago. Despite all this toil, the net worth of the typical American family in the middle of the income distribution fell to $66,000 in 2010 — 6 percent less than in 1989 after inflation.
Though the bursting of the housing bubble and ensuing great recession takes a big share of the blame for families’ weakening finances, it is nonetheless startling that a single financial event — only a hiccup on the road to prosperity of Americans on the top of the pile — could erase a generation worth of progress for those in the middle.
Though the statistics may be startling, the story they tell is, unfortunately, not surprising. It is the story of America’s new normal. In the new normal the share of the nation’s income channeled to corporate profits is higher than at any time since the 1920s, while workers’ share languishes at its lowest since 1965.
In the new normal, the real wages of workers on the factory floor are lower than they were in the early ’70s. And the richest 10 percent of Americans get over half of the income America produces.
“Almost all of the benefits of growth since the trough of the Great Recession have been going to those in the upper classes,” said Timothy Smeeding, who heads the Institute for Research on Poverty at the University of Madison-Wisconsin. “Middle- and lower-income families are getting a smaller slice of a smaller economic pie as labor markets have changed drastically during our recovery.”
This story is about three decades old.
In 2010, the Department of Commerce published a study about what it would take for different types of families to achieve the aspirations of the middle class — which it defined as a house, a car or two in the garage, a vacation now and then, decent health care and enough savings to retire and contribute to the children’s college education.
It concluded that the middle class has become a much more exclusive club. Even two-earner families making almost $81,000 in 2008 — substantially more than the family median of about $60,000 reported by the Census — would have a much tougher time acquiring the attributes of the middle class than in 1990.
The incomes of these types of families actually rose by a fifth between 1990 and 2008, according to the report. They were more educated and worked more hours, on average, and had children at a later age. Still, that was no match for the 56 percent jump in the cost of housing, the 155 percent leap in out-of-pocket spending on health care and the double-digit increase in the cost of college.
So either we define the middle class down a couple of notches or we acknowledge that the middle class isn’t in the middle anymore.
By: Eric Jaffe
Via: The Atlantic Cities
In the wake of the Great Recession, it's become common for city officials to describe public transportation as a tool for economic development as much as (or more than) an instrument for urban mobility. Take two recent examples.
Here's Senator Claire McCaskill reacting to a new federal TIGER grant awarded to the Kansas City streetcar:
"This streetcar project will encourage housing, construction, and business development in the city—and that will mean more jobs across the region."
And here's regional transport planner Carmine Palombo of the Southeast Michigan Council of Governments on the idea of bringing bus-rapid transit to Detroit:
"The stations with BRT are much more than just a bus stop. There’s example after example of economic development," he says.
The precise wording may vary, but what such quotes suggest that the economic effects of BRT and streetcars are well-known. Transport scholar and Transportationist blogger David Levinson isn't so sure that's the case. In two recent posts reviewing the evidence, he found that we know a lot about what BRT is worth to a city but very little about the value of streetcars.
First the BRT literature. Levinson scrounged up a good deal of it from around the world. In Seoul, Korea, for instance, BRT led to residential developers to convert single-family homes into multi-family apartments, created land premiums of 10 percent for residences and 25 percent for retail near stops, and increased employment density by 54 percent. In Bogota, Colombia, rental prices drop 7 to 9 percent for every five more minutes a person must walk to reach a BRT station.
There are some encouraging findings from the United States, too, despite the country's slow adoption of BRT. A study of the Pittsburgh busway found that properties a thousand feet from BRT stations were worth about $10,000 less than those a hundred feet away [PDF]. In Boston, recent condo sales showed a 7.6 percent premium along the BRT Silver Line, whereas no such premium existed in the corridor before the bus [PDF].
Now for the streetcar literature. Unfortunately, Levinson was able to find far less of it. A 2010 survey of 13 U.S. streetcar systems, sponsored by the Federal Transit Administration, concluded that the economic impact of streetcars remains largely unknown. System representatives "believed" that streetcars enhance development but didn't actually "seek information" about this economic impact — perhaps because there's not much to seek [PDF]:
The literature regarding empirical measurement of actual changes in economic activity, such as changes in retail sales, visitors, or job growth, is almost nonexistent for streetcars.
The glaring exception is Portland, Oregon, where one study found that streetcars did contribute $778 million in local development against a project cost of $95 million [PDF]. But while the Portland streetcar was the anchor or at least the featured element of this growth, it wasn't responsible for this boom by itself. Rather, it was part of a broader development plan in which zoning, public-private investment, street upgrades, and other renewal efforts also played considerable roles.
So for now, the research advantage clearly goes to BRT.
That's not to say streetcars don't give cities an economic boost — promoting walkability for residents and suggesting permanence to developments must carry some value — but it is to say that this boost isn't well-understood. The modern U.S. streetcar craze is a relatively new one, and isolating its economic impact will take time. This knowledge gap is a particular problem for streetcars, however, because their benefit to pure urban mobility is already questioned.
There's every reason to believe that strong public transit is worth loads to a city. In its simplest form: mobility creates access, access gathers people, people produce things. But the limits of transport funding make it important to distinguish weak transit from strong, and strong transit from stronger. Poor information won't stop public officials from making promises, but good information at least gives them a chance to spend your money in wiser ways.
By: Simon Johnson
Via: The New York Times – Economix
Entrepreneurship seems like the quintessential private sector activity. An individual or a small group of colleagues decide to set up a business and raise some capital. If things go well, sales grow and they can hire more people. The business grows based on retained profits – or they may be able to attract funding from venture capital or some other risk-taking investors. Success brings legitimate big rewards to the people who are willing to risk an equity investment, which could rise in value or become worthless, and to those who work hard to make the business growth possible.
What does any of this have to do with the government?
According to an authoritative series of reports on entrepreneurship around the world, the government has a key impact not just on how many new businesses are created, but also – and perhaps more importantly – on the nature of these firms and their ability to grow.
The reports in question are the Global Entrepreneurship Monitor series, which has been running since 1999. I’ll focus here on the 2012 Global Report (from which the quotes below are taken).
Tracking, monitoring and measuring entrepreneurship is not easy, and the Global Entrepreneurship Monitor team deserves a lot of credit for developing a sensible methodology and sticking to it. They survey around 2,000 adults in a random representative sample, and they talk with at least 36 experts in each country. Their goal is ambitious: “GEM provides a comprehensive view of entrepreneurship across the globe by measuring the attitudes of a population, and the activities and characteristics of individuals involved in various phases and types of entrepreneurial activity.”
The focus is on “the incidence of start-up businesses (nascent entrepreneurs) and new firms (up to 3.5 years old) in the adult population (i.e. individuals aged 18–64 years)” (see Page 14).
No measure is perfect, but the strength of this approach provides insight into some fascinating questions. Where do people want to create new businesses? And when do entrepreneurs seek to make these businesses grow, rather than lurk under the regulatory radar?
These are important questions not just for the United States, where we pride ourselves on new enterprises being created, but also in all countries. All societies want jobs and preferably good jobs at high wages. Ideally also, there is a process of productivity improvement, meaning the amount that people can produce goes up every year. (This can be consistent with maintaining a sustainable environment or even using fewer resources, although I will readily concede that is not the path most of the world is currently on.)
The reports are rich in detail, but three points jump off the page regarding the role of government.
First, when the overall environment for business is bad, there are many entrepreneurs. For example, while there is a great deal of variation shown by the data within Africa, it is also clear that this is a difficult place to do business, because, for example, regulation is unpredictable and property rights can be hard to defend against powerful people.
Lack of human capital is also a weakness. You need capable engineers, managers and many others to help companies grow. The education system in many African countries is not in good shape.
Yet, there are plenty of potential entrepreneurs in the study: “Sub-Saharan Africa reported the highest intentions of any geographic region (53 percent), which is consistent with their positive perceptions about opportunities and their belief in their capabilities” (Table 2.2).
The explanation is simple. In such economies, entrepreneurship is a fallback option, when it is not possible to get a decent job in larger business.
“As per capita income increases, larger established firms play an increasingly important role in the economy,” the report says. “This provides an option for stable employment for a growing number of people, serving as a viable alternative to starting a business.”
Second, the negative effects of macroeconomic policy can crush new business creation even in places with plenty of human capital and good perceived opportunities.
For example, the prolonged recession in Southern Europe has reduced the perceived opportunities for potential entrepreneurs: “The Southern European countries show not only a consistently lower level of opportunity perceptions compared with the Nordic countries, but they have mostly showed declines,” the study finds.
Perhaps this will turn around – entrepreneurs are good at dealing with adversity (and that’s the point from Africa). But it’s hard to break into a market when customers are squeezed and investors are cautious.
The Global Entrepreneurship Monitor reports make a fine but appealing distinction: do you see opportunities, and do you plan to do anything about it? These are separate issues. If your current job is good enough, you will stick with it. Or perhaps you don’t have the skills necessary, in your own mind, to make the leap to start a company.
It would not be a surprise if entrepreneurs help countries like Portugal to recover from the euro crisis. But this is going to take awhile.
Third, the most difficult question is for what the report calls the innovation-driven economies, most of which are already among the richest countries in the world. What, if anything, should the government do to promote entrepreneurship?
Perhaps the answer is: not too much. All kinds of plausible schemes are put forward to help entrepreneurs at various stages of their development. No doubt some of these are effective, particularly when they involve private sector mentors and building networks of contacts. Also, helping companies at an early stage reach foreign customers can be helpful, so, for example, a business in Portugal does not have to worry so much about local or even regional macroeconomic conditions.
But what strikes me from the report is its data on the fear of failure. Part of what drives these numbers may be cultural, but there must also be economic incentives at work here, like the consequences of going bankrupt for a company or an individual. Compared with other countries, the fear of failure is high in Japan and also in South Korea. This fits with other evidence from those places. (For further thinking on why this matters, I recommend “Entrepreneurship and the Stigma of Failure,” a paper by Augustin Landier.)
The fear of failure is even higher in Italy and Greece. Although we should worry about how precisely we can compare such attitudes across countries, the United States has one of the lowest fears of failure among rich countries.
Reducing the fear of failure for potential entrepreneurs is not any kind of panacea for economic development. Malawi, a poor country, has a very low fear of failure.
Government is responsible for the overall infrastructure in a country, and this includes access to education, decent roads and other transportation links. There is also a case for supporting basic technology development, like at the university level, for example, because of the spillovers or externalities throughout the economy. (I work at M.I.T., which benefits greatly from such support and which has had a major impact on new business creation.)
In innovation-based economies (as the Global Entrepreneurship Monitor classifies them), what governments really need to do is to encourage people – entrepreneurs and the equity investors who back them – to take risk and ensure that failure is seen in a positive light, rather than as some kind of stigma.
The message should be: Go out and start a business, based on your best idea. Find a technology with a new application or develop a different way to make customers happy. If it doesn’t work out, you have still developed important skills and made a major contribution to society.
By: Ariel Schwartz
Via: Fast Company
Far from the jaded, disconnected image you might have of them, 18- to 30-year-olds have a bright view of the future, and are willing to work to make the world better.
Young people in the U.S. care less about the environment and are more optimistic than their counterparts in other countries. They’re more concerned about the economy than anything else, but they still believe their quality of life is better than their parents’ generation. And through it all, the vast majority believe they can make a difference in their local communities.
This is all according to a survey of 12,000 millennials in 27 countries (ages 18 to 30) from Telefónica that probed respondents on their feelings about technology, education, personal freedom, and more. The overarching message: this generation has a lot of hope, in spite of the many global crises staring them down.
“I have this image of people between 18 and 30 years old as isolated from the world, not having relationships with each other. I was surprised to see how they see themselves as really integrated in the world, in their own communities,” says Alfredo Timermans, CEO of Telefónica International, U.S.A.
The study looked in detail at millennials all over the world: North America, Latin America, Europe, Asia, and the Middle East and Africa. Here are some of the highlights.
• American millennials are worried about the effects of globalization; 58% believe that globalization only generates opportunities for select individuals. And 76% think outsourcing is bad for the U.S. economy.
• Millennials all over the world can agree on the value of technology: 83% think technology has made it easier to get a job, and 87% say that technology has made it easier to overcome barriers. At the same time, however, 62% think technology has widened the gap between rich and poor.
• In most of the world, millennials are more concerned about the economy than all other issues. But in the U.S. they’re the most concerned: 46% of respondents think the economy is the most pressing issue, while 12% think education is the biggest problem. In Western Europe, people are concerned about the economy (34%) and social inequality (15%). In the Middle East and Africa, respondents are most worried about terrorism (19%) and political unrest (13%).
• Here’s something else millennials can agree on: problems with government. In every region surveyed, most respondents said that the government doesn’t reflect their values and beliefs.
• Overall, millennials believe the best way to make a difference in the world is to improve education, followed by protecting the environment and eliminating poverty.
• An impressive 62% of respondents believe they can make a local difference, and 40% think they can make a global difference. But in most of the world–outside parts of Europe and Asia–the majority of millennials believe they can make a global difference.
“There’s a sense of optimism about this young generation. We are really optimistic about the values of society in the future, the ability to be making a difference in the rest of the world,” says Timermans.
Check out the full survey here.
By: Shan Carter and Kevin Quealy
Via: The New York Times & Flowing Data
Shan Carter and Kevin Quealy for The New York Times updated their housing prices graphic from a couple of years ago.
Behind the data
The Standard & Poor’s Case-Shiller Home Price Index for 20 major metropolitan areas is one of the most closely watched gauges of the housing market. The figures for April were released June 25. Figures shown here are not seasonally adjusted or adjusted for inflation.
By: Jonathan Rothwell
Workers in STEM (science, technology, engineering, and math) fields play a direct role in driving economic growth. Yet, because of how the STEM economy has been defined, policymakers have mainly focused on supporting workers with at least a bachelor’s (BA) degree, overlooking a strong potential workforce of those with less than a BA. A new report from the Brookings Metropolitan Policy Program presents a new and more rigorous way to define STEM occupations, and in doing so presents a new portrait of the STEM economy.
Graphics by Christopher Ingraham
Sources: Based on Brookings analysis of data from the Department of Labor’s O*NET program, the Bureau of Labor Statistics, the American Community Survey and the Strumsky Patents Database.