Technology and the City

The Tenderloin - The Next Sunnyvale?

2011-04-06T07:58:00.000-04:00

Just about any visitor to San Francisco who walks down Market Street past the Westfield Mall notices how the neighborhood progressively worsens. Tourists are sometimes shocked to find so many seedy neighborhoods not far from the expensive hotel/corporate office tower areas they stay in closer to downtown and Union Square. The city is hoping to fix up the neighborhoods just west of downtown by offering a tax exemption to companies that locate there.

San Francisco has an increasingly well-known 1.5% tax on corporate payrolls. This tax has done little to stop startups from increasingly favoring the city over distant Valley suburbs many employees don't want to commute to. Zynga, Yelp, and many A round Internet service firms have all chosen to stay in the city rather than trot out to Mountain View or Sunnyvale like most web startups did in the 90s. But with Twitter threatening to move just south of the city line, the city felt unusual pressure to retain a corporate tenant.

The tax isn't going away, but it is being temporarily lifted for companies that locate in the Tenderloin/Mid Market areas. I've visited San Francisco probably more than any U.S. city I've never actually lived in, and walked through these areas during daylight and had no problems. They're not atrocious ghettos, but they stand out because of their proximity to downtown. Not unlike how South of Market used to be before it began gentrifying in 2000 after the completion of Pac Bell/AT&T Park.

While I doubt the Tenderloin will be transformed like South of Market was, there is an opportunity here to take San Francisco's increasing ability to draw startups away from Silicon Valley, and use it to improve some dreary parts of the city.

Did People in Atlanta Forget to Send in Their Census Forms?

2010-12-22T07:33:00.000-05:00

I've been growing through the Census data that came out yesterday, and the final figure of 308,745,538 was surprisingly low considering the '09 estimate was 307,006,550. 1.7 million new Americans in 9 months works out to an annual growth rate of just 2.26 million. (The Census is as of April 1, annual population estimates July 1)

The very slow 09-10 growth wasn't just from the recession, but was the result of some downward revisions. Georgia, for example, had 9.829 million in the '09 estimate, but just 9.687 million in the official '10 count. It trailed Michigan by 140,000 in '09 for 8th largest, but that gap grew to 204,000 in the final Census count. So while I thought for sure Michigan would drop to 9th this year, but it now looks like that will happen in '12 or '13. Georgia also had a 449,000 person lead on North Carolina, which is #10 in population, in 2009, but came out ahead by just 152,000 in the final '10 count. Not sure what was going on with the Georgia population estimates over the last 10 years, but the state still gained a Congressional seat even with the surprisingly low final total it posted for 2010.

California Has 33 NASDAQ 100 Technology Companies, Texas Has 2

2010-11-18T08:13:00.000-05:00

I enjoyed reading Joel Kotkin's recent article on how Texas is trumping California in economic development, taxes, and other items important to growing a state economy.   And for any state planning a typical retail, education, health care type of economy, everything he said is right.   However, when it comes to developing a regional technology industry, taxes and government dysfunction have little to do with economic development.

California, the model of high taxes, union ownership of state legislators, and bossy government run by inept bureaucrats, is home to 33 of the 62 technology companies in the NASDAQ 100, according to a recent analysis I put together.   Texas is home to 2 - Dell and BMC Software. My business-friendly home state of Virginia is home to just 1- the holding company spun out of the Sprint/Nextel merger.    No other state has more than 4, and the one state with 4 is Massachusetts, 3 of which are biotech companies HQ'd in Cambridge, a city with one hell of a pinko legacy.

Building a technology economy first requires a technology community. All the garage startups of legend didn't choose their location because of tax incentives, but through collaboration between people with common interests in uncommon topics. Few places outside of Silicon Valley have this.    Still, every region/state/city/jursidiction with an econ dev budget is still wasting taxpayer dollars trying to promote itself as a technology hub.   But if that's what they really want, then the model isn't Texas, but California.

First Solar, Inc.	FSLR	Tempe	Phoenix	Arizona
Microchip Technology Incorporated	MCHP	Chandler	Phoenix	Arizona
Activision Blizzard, Inc	ATVI	Santa Monica	LA	California
Adobe Systems Incorporated	ADBE	San Jose	SF Bay Area	California
Altera Corporation	ALTR	San Jose	SF Bay Area	California
Amgen Inc.	AMGN	Thousand Oaks	LA	California
Apple Inc.	AAPL	Cupertino	SF Bay Area	California
Applied Materials, Inc.	AMAT	Santa Clara	SF Bay Area	California
Autodesk, Inc.	ADSK	San Rafael	SF Bay Area	California
Broadcom Corporation	BRCM	Irvine	LA	California
Cisco Systems, Inc.	CSCO	San Jose	SF Bay Area	California
DIRECTV	DTV	El Segundo	LA	California
eBay Inc.	EBAY	San Jose	SF Bay Area	California
Electronic Arts Inc.	ERTS	Redwood City	SF Bay Area	California
Google Inc.	GOOG	Mountain View	SF Bay Area	California
Illumina, Inc.	ILMN	San Diego	San Diego	California
Intel Corporation	INTC	Santa Clara	SF Bay Area	California
Intuit Inc.	INTU	Mountain View	SF Bay Area	California
Intuitive Surgical, Inc.	ISRG	Sunnyvale	SF Bay Area	California
KLA-Tencor Corporation	KLAC	Milpitas	SF Bay Area	California
Lam Research Corporation	LRCX	Fremont	SF Bay Area	California
Life Technologies Corporation	LIFE	Carlsbad	San Diego	California
Linear Technology Corporation	LLTC	Milpitas	SF Bay Area	California
Logitech International S.A.	LOGI	Fremont	SF Bay Area	California
Marvell Technology Group, Ltd.	MRVL	Santa Clara	SF Bay Area	California
Maxim Integrated Products, Inc.	MXIM	Sunnyvale	SF Bay Area	California
NetApp, Inc.	NTAP	Sunnyvale	SF Bay Area	California
NVIDIA Corporation	NVDA	Santa Clara	SF Bay Area	California
Oracle Corporation	ORCL	Redwood City	SF Bay Area	California
QUALCOMM Incorporated	QCOM	San Diego	San Diego	California
SanDisk Corporation	SNDK	Milpitas	SF Bay Area	California
Symantec Corporation	SYMC	Mountain View	SF Bay Area	California
VeriSign, Inc.	VRSN	Mountain View	SF Bay Area	California
Xilinx, Inc.	XLNX	San Jose	SF Bay Area	California
Yahoo! Inc.	YHOO	Sunnyvale	SF Bay Area	California
DISH Network Corporation	DISH	Englewood	Denver	Colorado
Liberty Media Corporation	LINTA	Englewood	Denver	Colorado
priceline.com Incorporated	PCLN	Norwalk	NY Tri-State	Connecticut
Citrix Systems, Inc.	CTXS	Fort Lauderdale	Miami/Ft. Lauderdale	Florida
Garmin Ltd.	GRMN	Olathe	Kansas City	Kansas
Biogen Idec Inc	BIIB	Cambridge	Boston	Massachusetts
Genzyme Corporation	GENZ	Cambridge	Boston	Massachusetts
Hologic, Inc.	HOLX	Bedford	Boston	Massachusetts
Vertex Pharmaceuticals Incorporated	VRTX	Cambridge	Boston	Massachusetts
Cerner Corporation	CERN	North Kansas City	Kansas City	Missouri
Sigma-Aldrich Corporation	SIAL	St. Louis	St. Louis	Missouri
Automatic Data Processing, Inc.	ADP	Roseland	NY Tri-State	New Jersey
Celgene Corporation	CELG	Summit	NY Tri-State	New Jersey
Cognizant Technology Solutions Corporation	CTSH	Teaneck	NY Tri-State	New Jersey
CA Inc.	CA	Islandia	NY Tri-State	New York
Paychex, Inc.	PAYX	Rochester	Rochester	New York
Virgin Media Inc.	VMED	New York	NY Tri-State	New York
FLIR Systems, Inc.	FLIR	Wilsonville	Portland	Oregon
Cephalon, Inc.	CEPH	Frazer	Philadelphia	Pennsylvania
Comcast Corporation	CMCSA	Philadelphia	Philadelphia	Pennsylvania
DENTSPLY International Inc.	XRAY	York	York	Pennsylvania
BMC Software, Inc.	BMC	Houston	Houston	Texas
Dell Inc.	DELL	Round Rock	Austin	Texas
NII Holdings, Inc.	NIHD	Reston	Washington DC	Virginia
Amazon.com, Inc.	AMZN	Seattle	Seattle	Washington State
Expedia, Inc.	EXPE	Bellevue	Seattle	Washington State
Microsoft Corporation	MSFT	Redmond	Seattle	Washington State

What Will be the Economic Impact of Jennifer Granholm Leaving Office?

2010-10-19T01:27:00.000-04:00

Who will hold the "creating cool" conferences?   Who will launch embarrassing economic development campaigns centered on telling everyone that Lansing is a "cool city"?   Who will give tax credits to convicted felons while raising taxes on everyday citizens?

Jenny did me a favor, though.   I was driving home the other day, and got to listen to her speech at the Brookings Institution. Honestly, can't remember if it was C-SPAN radio or NPR, but she was as entertaining as ever.   She was pressed about creating jobs, and after ummingg and uhhhing her way through five minutes of Q&A, she started breaking out her old "attract young workers", "make cities places young people want to live" line that's served her terribly since she took office.   Guess she had to break it out one last time for tradition's sake.

Now the interesting thing to see will be the benefit to Michigan of not having her there next year.   Perhaps the new governor will understand that ribbon cutting ceremonies for 100 new jobs mean little when you've lost 10,000 in the past six weeks. Perhaps businesses will be less terrified of actually moving to a state where the governor wants to tax you to death for making an actual product that can be sold in a store, but will offer you a tax credit if you hire three 25 year old Javascript developers to help build your website.

She'll be gone soon, which should bring hope to Detroit, Michigan, and anyone who appreciates common sense economic growth.

Married 25-34 Year Olds Now a Minority

2010-09-29T15:58:00.001-04:00

Just ten years ago, 55% of 25-34 year old Americans were married, by 2009 that number had dropped to 46%, according to data just released by the Population Reference Bureau, and based on the Census Department's American Community Survey.

Living in the Washington, DC area, I feel this every week, especially when I get a break from my marriage to go out with single friends, and see other people my age (which is above 34) hanging out at bars, making grand plans for the weekend that don't involve mowing the lawn or baseball practice. (And yes, my kid plays baseball, no American child should be playing that silly English sport with a black-spotted ball)

While the trend is not surprising, the rate of change is, essentially dropping a percentage point a year. Now, before any economic development exec or urban planner thinks this means their city needs more douchebag bars or four-letter loft neighborhoods to accommodate overeducated workers, here's an interesting excerpt:

Between 2000 and 2010, the proportion of young adults who are married dropped 10 percentage points (to 44 percent) for those with a high school diploma or less. For those with at least a bachelor's degree, the percent married dropped only 4 percentage points, to 52 percent.

...and many of the cities earning high praise from pundits who think we still have a 1990s creativity-based economy aren't following the trend, the report notes that:

Seattle was the only large city where the proportion of young adults who are married increased slightly since 2000.

The article goes on to point out that there's been a flip - high school grads with no college used to more likely to get married, now the opposite is happening. And here's my favorite line:

Another factor contributing to the decline in marriage rates, especially for less educated groups, is the rise in women's earnings relative to men.

This is kind of what I've been talking about with face-to-face contact now the defining scarce resource of the economy. The jobs that aren't getting automated or outsourced, and showing the best growth prospects - from skin care technicians to social workers to nurses - are mostly done by women and don't have exceptionally high educational requirements.

Ultimately, we are adjusting to a new world where most middle-class workers, from teachers to nurses, are women, while men are pushed to the top or bottom by productivity gains. The decline of marriage rates is just one implication of this trend. I'm sure some of you have spotted others.

The End of Big Infrastructure Projects, Part 1

2010-09-22T15:58:00.001-04:00

Last week, it was announced that phase 2 of the Dulles Rail project, which includes the actual airport, will now cost $3.8 billion, or about $350 million per route mile, excluding interest. This blew away previous estimates that had the project coming in at $2.5 billion, and is a huge increase from the $1 billion and change it was supposed to cost five years ago.

The DC area media, including those astute microeconomists at the Washington Post, are chiming in cost saving ideas, particularly relocating the airport station above ground. But these do little to address what's pushing the cost up - labor and health benefits.

In our 2010s economy, where face-to-face contact, not creativity, is the defining scarce resource, big capital projects are becoming more costly at a rate faster than inflation. And it's not an issue of corruption or politicians, but the simple fact that labor costs, including benefits, are rising faster than inflation. Moreover, cap labor productivity is barely advancing, while operating labor is practically being automated out of existence. This means any major infrastructure project - road, rail, or building, is being forced into a tough financing situation.

Maryland's financing $1.2 billion of its 18 mile, $2.6 billion inter-county connector with revenue bonds supported by 25 cent/mile tolls that are expected to rise in the future. Drivers on the Dulles Toll Road will face even more significant increases to pay off the revenue bonds funding the rail line going down its median. While transit advocates might like this arrangement, the same construction firms working on rail work on roads, and the forces increasing costs are the same - it's not like philosophy or politicians can do anything about the underlying economics.

The result of all this that we will soon reach a point where most infrastructure is just maintenance and "construction" mostly applies to existing roads and rails. This will also be seen in sports stadiums, which are subject to similar economic constraints and also likely to be built in far lower numbers in the future, regardless of who gets elected.

Let's Hope Minneapolis Doesn't Tell Us It's "Cool" Now

2010-09-17T15:34:00.001-04:00

Few top 30 metros have withstood the bad economy of the last few years as well as Minneapolis-St. Paul. Unemployment there is just 6.8%, it's on the verge of becoming the second largest metro economy after Chicago, surpassing Detroit, and a new baseball stadium is bringing 3 million pedestrians downtown every year. Moreover, its economy is rooted in an industry, agribusiness, which is a net exporter and not in the process of being crushed by outsourcing.

Yet somehow a consultant's report is claiming the region isn't on many relocation short lists, and that a regional economic development group will somehow fix this. In DC, we've had regional efforts, most notably the Greater Washington Initiative, that really do little other than provide a way for members to network. Moreover, exactly who do the consultants want to bring to Minneapolis? Another software company with 35 people but 50 press stories about its relocation? Another solar manufacturer who will stay for nine months before heading off to the Philippines? More pictures of lab coat techs staring at test tubes?

All I ask is if this thing gets created, they spare us the "cool city" crap we've gotten from Michigan and that Louisville has picked up on. Rather than attracting new businesses, that's the sort of thing that tells people it's time to leave.

Stockton, CA Homicide Rate Almost as High as Washington, DC's

2010-08-23T21:08:00.000-04:00

The recession has done little to stop the declining homicide rate in Washington, DC. In 1991, the city recorded 479 homicides, a rate of over 80 per 100,000. This year it's recorded 75, is on pace for about 115, a rate of just under 20 per 100,000. The city's murder rate is very likely to come in at a 47 year low for all of 2010.

But on the other side of the country, where there are few Federal jobs to prop up the economy, Stockton, CA is seeing a surge in homicides, reporting 33 this year, nearly double the total of last year. With 290,000 people, Stockton's year-to-date homicide rate of 11.5 per 100,000 is almost as high as the 12.5 per 100,000 in the city formerly known as the nation's murder capital.

Stockton was crushed by the housing bust, and now relies on the usual local government/hospital jobs seen in other cities. Interestingly, larger, out-of-state, cities that were also hurt badly by the housing crash, notably Phoenix, are still seeing declines in violent crime. Meanwhile, Fresno also saw a large increase in homicides earlier this year. While I can't say exactly why Stockton's crime is so bad, Phoenix, Reno, and Las Vegas don't have to deal with the high tax burdens and huge pension liabilities Stockton shares with the rest of California. And without the tech or movie industries to prop it up, Stockton and Fresno don't have the non-health, non-government employment base of San Francisco or LA. Essentially, working class Central Valley residents are being forced to subsidize pensions for public workers who live in LA and San Francisco. That's no way to build a foundation for an economic recovery.

Caterpillar Coming to North Carolina, But Nearly $1 Million Capex Per Job

2010-08-14T06:48:00.000-04:00

Caterpillar is expanding production capacity across the world right now. And it's bypassing its usual midwestern locations for the south and Texas. However, like many other manufacturers, it is now spending close to a million dollars for every new job created.

Its new axle facility in Winston-Salem, NC will require $426 million of capex, and is expected to produce 500 jobs across the 850,000 square foot site. Average wages are expected to be $40,500 plus benefits once the facility opens in 2012. This means about $22 million in new non-benefit wages a year. Therefore, with inflation it will likely take at least 15 years until the company's outlays for manufacturing wages match what it will spend building the plant.

Michigan Factory Employment Down 450,000 Over the Last 10 Years

2010-08-04T07:46:00.000-04:00

While Obama, Biden, and the Queen of Economic Disaster Jennifer Granholm attend ribbon cutting ceremonies for factories that will employ a few hundred, Michigan has lost manufacturing jobs by the hundreds of thousands. An interesting article at MLive.com highlights how many of the new "advanced manufacturing" jobs are simply coming in a too slow a pace to dent the unemployment rate. Rick Haglund, the author of the story, writes:

While advanced manufacturing is important to Michigan's economy, it's not likely to produce more than about 10 percent of the state's total jobs.

This is tied to the challenge I've written about here of capex per job created rising faster than inflation. It wasn't in Michigan, but when Toyota built its Princeton, Indiana plant in 1998, it needed $350,000 in up front capital outlays per operating job created. But it's new Prius plant in Blue Springs, Mississippi will need $650,000 of capital investment per job created.

The solution is not some clever educational program or to attract "creative" workers. But rather to cultivate industries, like wind turbine production, where manufacturing is far more labor-intensive, and requires less than $200,000 in capex per operating job created.

It's Time for Open Source Economic Development

2010-07-29T21:18:00.000-04:00

There are few things as repetitive as watching economic development presentations from different cities, counties, and states. Everyone's got an educated workforce, everyone's got a top ranked symphony, everyone's got a website with pictures of lab coat techs starting at test tubes. And just about everyone still has high unemployment.

The me-too wastefulness of the economic development industry is best seen in the billions poured into convention centers over the last decade. For some reason, sports stadiums make a lot of academics angry, but convention centers can actually be far more wasteful. Here in DC, there was all kinds of moaning about the $611 million stadium the city built for the Nationals, which is generating more than enough revenue to cover its debt service. But there was barely a peep over the me-too $800 million convention center that the city is struggling to fill.

But instead of wasting taxpayer dollars on copycat slogans and convention centers, it's time for economic development to draw on taxpayers' unique knowledge of their hometowns. Residents are already altering perceptions of cities and states with YouTube clips, from the Arlington Rap to the Hastily Made Cleveland Tourism Video to Minnesota Gurls, all of which get far more hits than any of the vapid symphony, science, and art videos put up by economic development authorities.

Rather than get surprised by some 18 year old's YouTube clip, it makes more sense for recruitment campaigns to incorporate more input from residents. Some cities will hold charettes and go through all kinds of planning debates over a 10 acre parcel of land. But economic development strategies are more important to these cities' futures than the position of the parking garage next to the new "lifestyle center". Moreover, many people developing those strategies are cautious government employees who do not want to venture too far away from conventional themes with predictably mediocre results. So why not involve citizens more?

Big Economic Development Win for Greenville/Spartanburg Region

2010-07-26T05:25:00.000-04:00

Big win for Laurens County, SC, which is about 30 minutes south of Greenville, SC, with the ZF Group announcing a $350 million plant where the German manufacturer will produce auto transmissions. One of the company's largest customers, BMW, has a facility nearby in Spartanburg.

One of the most interesting aspects of this new plant is the level of employment it will support per capital dollar invested. It's expected to create 900 jobs once it's fully up and running, or one job for every $390,000 of capital invested. This is fairly labor-intensive for modern manufacturing, and quite a bit lower than the $650,000 of capital Toyota will spend for every job it creates at its new Corolla and Prius plant in Blue Springs, Mississippi. It's also far more jobs per capital dollar than the Dow Kokam battery plant in Midland, Michigan, which Joe Biden and Jennifer Granholm have been treating like an economic savior, yet will only create one operational job for every $1 million of capital invested. The ZF plant will need more than 2.5x as many workers per dollar invested than that heavily publicized battery plant.

South Carolina, which has struggled during the recession, has also stayed focused. There haven't been any silly "cool cities" campaigns in Columbia, Greenville, or Charleston, and it's continued to recruit manufacturers, and not fallen for any of the creative city Richard Florida hype. In addition, it's now putting together supply chains of one producer selling to another, which is far more sustainable economically than creating yet another "urban artists neighborhood".

Los Angeles Celebrating Metro Rail's 20th Birthday

2010-07-23T11:02:00.000-04:00

If you're in LA, you can attend the big bash at the Staples Center today for the MTA rail system. Now carrying 327,000 people a day, the system carries as many people as the Bay Area's regional BART rail, although total Bay Area light rail/heavy rail ridership is right at 500,000 when you factor in Muni.

The LA Times story noting the anniversary breaks down into a debate over whether the initial blue line should have been a bus instead. I often think bus service is underrated, because it serves the very important role of getting low wage workers, many of whom don't own cars, to work. But in this case, the rail line hooked up with others that go into some fairly wealthy areas in the Valley as well as with future lines that will run between downtown and Santa Monica. Additionally, with close to 8,000 people per square mile, LA not only had the people to support rail, it had the population density, something we don't see with toy trains that get proposed in smaller cities.

Wind Power is Much Better than Solar for Manufacturing Jobs

2010-07-21T14:55:00.002-04:00

Solar manufacturing is incredibly capital-intensive. For new solar fabs, like the Amonix plant near Las Vegas, and the Solexant plant near Portland, capital outlays are coming out to just over $500,000 per job created. Solexant, for example, will create about 200 jobs on a $107 million capital investment. Contrast that to the new Vestas wind turbine plant in Brighton, Colorado (a few miles northwest of Denver Int'l Airport), where 850 permanent jobs will be created with just $100 million of capital investment, or about $120,000 of capital outlay per job. So for less capital investment, the wind turbine plant is creating over four times as many new jobs as the solar fabs.

Unlike solar manufacturing, which requires heavily filtrated clean rooms and expensive printing and cutting equipment, much like a semiconductor fab, wind turbine manufacturing requires a lot of people. And if you're the sort who spends more time thinking about microeconomics than microbikinis, you'd say wind turbine manufacturing is labor-intensive.

The diameter of the largest turbine rotors has surpassed 400 feet, so the economics of production are very old-school, dependent on a lot of people converting raw materials into a large item. This is very different than manufacturing a 4 inch solar cell using machinery from semiconductor plants. Building the wind turbine takes a lot of people, building the solar cell a lot of capital equipment.

In addition to differences in manufacturing costs, wind turbines are expensive to ship. While Vestas has imported turbines here from its native Denmark, moving 400 foot wind turbines around is no small effort, and makes outsourcing manufacturing to Asia a very costly effort. Meanwhile, two of America's largest solar manufacturers, First Solar and SunPower, are building new facilities in Malaysia and the Philippines.

Now what's even more impressive about the wind turbine plant is how it compares to factories where other centralized, alternating current technologies are built. I posted a few weeks ago about the new steam turbine plant going up in Chattanooga that will cost $300 million to build, and produce all of 325 jobs. The Brighton wind turbine factory will produce about seven times as many jobs per capital dollar invested as the Chattanooga steam turbine plant.

While most economic development professionals, as well as politicians, are eager to pounce on anything that remotely looks like a "green job", it's becoming very clear that some green jobs are far more sustainable than others. While wind farms produce very few jobs, and are models of efficiency and productivity, a wind turbine plant is hard to outsource, and creates far more jobs per capital dollar invested than just about any electricity generation technology.

Air Travel's Coming Back

2010-07-20T04:00:00.000-04:00

Delta Airlines just completed an incredible quarter, with passenger revenue increasing 19%, and cargo revenue increasing 22% from year ago levels. Additionally, airports across the country are seeing increased traffic, with Charlotte reporting 9% more passenger enplanements in May than it saw in 2009, and even Pittsburgh attracting more passengers than it did this time last year.

Delta flew 1.7% more passengers in the second quarter of this year than it did in 2009. And it was able to charge a lot more, with passenger yields increasing 17% to over 14 cents of revenue per mile flown.

Cities and states waiting around for a recovery need to look beyond the headline data coming out of the Federal Government, because the passenger and cargo figures coming out of ports and carriers are looking very strong.

Office Buildings Are So 1997

2010-07-19T04:00:00.000-04:00

Last week, I posted a link to a story showing Port of LA cargo traffic is at record highs. At the same time, the office market is still getting worse, with vacancies in the LA-Orange-Inland Empire region pushing 20%.

The Los Angeles CSA (LA, Orange, Inland Empire), has lost 1.7% of its jobs over the last 12 months, but 3% of its office space has been vacated over that same period. Moreover, in Orange County, vacancies are still rising while employment in business and professional services has actually started going up again. Office space leases aren't just lagging, they're contracting at a time when data centers, hospitals, schools, and other workplaces of the 21st century are expanding.

I cover the data center industry in my consulting business, and the industry is adding new capacity as we speak. Unlike the office REITs, data center REITs are seeing double digit annual growth in rent revenue.

Few offices are likely to be needed this decade in the massive Southern California market. Vacancies fell 10 points in the 90s economic expansion, and 7 points in the 2000s expansion. Even in the most optimistic scenario, it is very hard to see overall vacancies in the market dropping below 10% this decade. But this does not mean jobs will not be created, just that they won't be done in the 20th century workplace known as an office building.

Port of Los Angeles Breaks Monthly Record for Cargo Volume

2010-07-15T19:08:00.000-04:00

Over half a million containers came through the Port of Los Angeles in June, a new record. Traffic was also strong as the neighboring Port of Long Beach. There is still a disturbing trade imbalance at both ports, but according to the LA Times, the logistics jobs tied to the ports are the leading source of stable blue collar jobs in Southern California.

Cities Should Focus on Creating Wealth, not Jobs

2010-07-13T06:00:00.000-04:00

There's a lot of debate going on these days about Macroeconomics. One the one hand, there are people like Paul Krugman, who basically thinks it's still 1933, and that we should deficit spend our way back to prosperity. On the other side are people like Larry Kudlow, who thinks we need to tax cut our way to prosperity. But I think they're both wrong, especially in the context of urban economic development, because creating jobs has a lot more to do with microeconomic reality than macroeconomic policy.

Problem with macroeconomists is that they fall in love with theories the way teenage girls fall in love with quarterbacks. But at least the teeny boppers are fickle, macroeconomists can hold onto their crushes for decades. Krugman likely fell in love with Keynes in college, and has had hearts in his eyes ever since.

Back in the 30s when Keynes was coming up with the ideas Krugman and other disciples now cling to religiously, it was much easier for government to create jobs. This wasn't because FDR was some clever guy, but because capital labor costs were much lower. Hoover Dam, for example, cost $9,400 per construction worker to build. Adjusted for inflation, this works out to about $132,000 of capital expenditures per construction job. Yet today, a modern power plant costs about $2-$4 million per construction job. Cap labor costs have gone up about 7-8% a year since the 30s, while inflation's only gone up about 2-3%. As a result, it's gotten much harder for any government to create jobs, regardless of whether policymakers listen to Krugman, Ron Paul, Larry Kudlow, or Larry the Cable Guy.

In recent articles, I've pointed out the $1 million capital-invested-per-job steam turbine plant in Chattanooga, the $4 million capital-invested-per-job data center in Iowa, and the $25 million capital-invested-per-job wind farm in Oregon. It simply requires too much capital now to create a job, and this figure is not going to stop rising faster than inflation, especially when all the workers need health benefits. If it only cost $132,000 in capital investment to create a new job like it would if cap labor costs had stayed at the same level as broader inflation, then there'd be no issue, we could just have a 1930s economic policy, and Krugman would be a hero. But we don't, so the answer is to shift regional economic development away from just creating jobs, and focusing more on recirculating wealth.

Perhaps one of the best examples of recirculating wealth is the Lowell, Mass Venture Development Fund, which doesn't try to recruit massive factories that only need 300 workers, but rather locally owned shops and restaurants, which don't need tremendous amounts of capital to justify hiring someone. Additionally, the owners live locally, so the profits don't get sent to Toronto, Toledo, or Tokyo. Increasingly, regional economic development will have to focus more on building local businesses like this, because workers are simply too productive to be hired by the thousands anymore.

The Workplace of the Future

2010-07-09T06:28:00.001-04:00

Been reading a lot lately about changing workplaces. It seems a lot of urban pundits, especially the BS artist whose last name is also a coastal state, have just woken up to the world those of us in the tech industry have been living in since 1995. Actually funny to read all the stories about "results-oriented work environments", working from coffee shops, and casual dress. When I see these, I feel like I should be able to click on the Top Stories link, and get the latest breaking news on the President's affair with Monica Lewinski.

While urban pundits only have something to write about if things are changing, one thing that's not changing is simple economics. And one of the most fundamental economic principles for cities, employers, and employees, is that you're usually better off owning a scarce resource than an abundant one. And there is no shortage of nonsense being published today about 1990s-style work arrangements that aging pundits have just picked up on. And as I've written many times, Jennifer Granholm and many in the econ development industry are very impressed, and are preparing their cities and states for the economy we had in 1997.

The workplace of the future is still a place, not an Internet connection. Because for every new T-1 that gets installed, face-to-face becomes an even scarcer commodity, especially where that human interaction does not depend on any sort of connection to the Internet. Nurses, part of an incredibly fast growing profession, aren't meeting their clients at Starbucks, 3rd grade teachers are not turning their classroom into "ROWEs" where students only have to show up if they have a meeting with another kid. And health care and education are now a quarter of the economy and growing.

The workplace of the future exists today, and anyone who's smart isn't moving to Portland or some other slacker city urban pundits can't stop fawning over, but is looking for a job where they will have to interact physically with the people paying the bills, whether they're clients, patients, or students. Face-to-face is only going to become scarcer, not unlike Javascript skills were in 1998, except it's not going to be outsourced to Bangalore, unless you decide to visit India. So smart people today are not planning a tech startup, but rather thinking about how they will build on the scarce resource of face-to-face contact.

Not all face-to-face jobs will pay well, but at least working face-to-face can prepare you for future jobs that require that skill. Sitting in Starbucks writing a blog won't.

The workplace of the future doesn't look that exciting from a let's-hype-some-trend perspective. Restaurants, hospitals, and schools are far too mundane for the chattering class to start talking about. But the foosball playing, cappuccino machine-in-the-office companies we read about now are just implementing the workplaces of today. Trying to recruit such companies does little to prepare a city for the future.

Why City Branding Fails

2010-07-07T06:00:00.001-04:00

The National League of Cities put up an interesting post recently about city branding campaigns. These have been tried for years, but they often don't work, mostly because few cities are willing to be known for something, and would rather be known for everything.

The all-things-to-all-people craze right now is tied to biotech and greentech, in the late 90s, it was just “tech”. But whatever the flavor of the month is in economic development, developing distinctive messages is not an industry strength. The NLC article mentions Milwaukee's “Freshwater Hub of the World” slogan, which is an unusually focused message, and also promotes the idea that the city is a place for trade. This is the sort of point that does not come across well when you try to sell yourself as a “Cool City” and your governor holds a “Creating Cool” conference.

Connecticut is also promoting a trade corridor around Bradley Airport, with tax incentives for companies that can prove they need to ship goods out of the airport. What's smart about this is the defining trait of successful regions right now is not how many Bachelor's degrees citizens have, or how much money their state's forked over to high priced speakers and consultants, but their presence in industries where America is a net exporter.

As I pointed out a few weeks ago in the Seattle vs. Portland post, Seattle's done much better in the recession than its neighbor to the south, largely because it has two large exporting industries based locally. Portland, on the other hand, has won more praise from urban pundits than just about anyplace in the country, yet has above average unemployment. It has plenty of overeducated slackers who are the envy of Jennifer Granholm, and according to Richard Florida, attracting such people should be the focus of economic development, even if they spend all day pouring coffee and skateboarding.

I'm curious to see what the NLC comes up with next in their discussion, because it would be a major advancement in economic development if cities and states started talking up the products they can export, and stopped pandering to people they're trying to import.

What Makes a City Cool? Not Telling Everyone You're Cool

2010-07-05T07:15:00.004-04:00

Grand Rapids should really benefit from Jennifer Granholm's departure. Another "are we cool enough?" debate has broken out on the Grand Rapids Press website, after an article in its horribly named "Michigan 10.0" series started pondering Western Michigan's ability to be cool. It was followed with a story about ArtPrize, a local arts event, written in the context of making Grand Rapids a destination for the "creative class". It has also re-ignited debate on the website's message boards about how to build the local economy.

I say at this point, Grand Rapids is descending from sounding like a foolish place that actually listens to Richard Florida's bullshit, to one that sounds like a wannabe Jeff Spicoli. When you can't showcase local art without wondering if that makes you a cool city, you might as well just have the mayor skateboard around town asking 18-29 year olds if they're 420 friendly.

Grand Rapids, please stop. I've never advocated book burning, but if that's what it takes, create a bonfire with all the copies of "The Creative Class" you should be torching. Other industrial cities are looking at ways to rebuild their economies, and in spite of tremendous challenges, you don't see Youngstown acting like a 15 year old who can't make the cheerleading squad.

Microsoft Opening Data Center near Des Moines - $4 Million Capital Outlay Per Job

2010-07-02T06:00:00.001-04:00

Microsoft is moving forward now with a $100 million data center near Des Moines, which will create 25 ongoing jobs. Data centers are known to be very light on new job creation outside of construction.

At $4 million per permanent job, this is about a quarter of most modern manufacturing plants, which are coming in around $1 million of capital expenditures per recurring job. But it's also about ten times more labor-intensive than a wind farm, where it typically takes about $30-$40 million in capital to produce a single job.

A Success Story - 20 Miles Away from the Massachusetts Mishap

2010-07-01T06:00:00.003-04:00

Yesterday, I wrote about Massachusetts misguided attempt to recruit solar manufacturing jobs, and how $58 million in incentives and credits are about to end up in China.

But just 20 miles away from the Evergreen Solar plant in Devens, MA, the former industrial city of Lowell is transforming itself into an urban suburb of Boston. The city launched a Downtown Venture Fund, which in spite of the term "venture" is financing local retail, not tech start-ups.

The fund has offered low interest loan packages to 31 restaurants, bars, and coffee shops, of which three quarters have survived. Moreover, local ownership means the profits are being recirculated locally, not sent to a distant headquarters or scattered shareholders.

The program has become a victim of its own success to some extent, with some Lowellites (is that what you call them?) saying it needs to put more emphasis on retail, and less on places to eat. While Lowell's proximity to Boston means its success would be hard for many declining manufacturing centers to replicate. It nonetheless has important lessons for small business creation.

With few VC funds being invested outside a handful of regions, and most new manufacturing facilities requiring tremendous capital investment per new job created (anywhere from $600,000 to $1 million per job), an increasing number of communities will need to do more to create and grow their own small businesses, rather than give away tens of millions of credits and incentives for some "cool jobs" that will be gone in nine months.

Why Recruiting Solar Panel Manufacturers is a Bad Idea

2010-06-30T06:00:00.003-04:00

When Evergreen Solar (ESLR) announced plans to build a 160 Megawatt solar panel factory in Devens, MA, the state bent over and handed over $58 million in incentives and credits. The facility required $430 million in capital construction costs, and produced about 580 full-time jobs, or about $800,000 in capital outlay per operating job, a level of spending per job created that's common in modern manufacturing across all industries

But 18 months after opening the facility, the company announced it was sending some of those jobs to China. And with competitors First Solar (FSLR) and SunPower (SPWRA) expanding in Malaysia and the Philippines, reducing labor costs was a business requirement for Evergreen. But it brings the value of the incentives into question.

I've covered alternative energy manufacturing in my consulting business, and strongly believe that no sensible region should be offering large recruitment packages to solar manufacturers. In spite of all the green jobs hype they can generate for your city, they cannot compete with coal and natural gas prices without lowering labor costs and increasing productivity. This means any job they create domestically is setup to last six months. Moreover, they hire fewer finance, marketing, and managerial staff than most software or computer hardware companies. Hopefully, other states will learn from Massachusetts' mistake with Evergreen Solar.

Denver Office Owners Offering Up to 10 Months Free Rent

2010-06-29T13:00:00.000-04:00

Denver has been one of the healthier regions during the recessions. Its metro unemployment rate of 7.9% is two points below the national average, and that's excluding the college-fueled employment in nearby Boulder. Additionally, over 25,000 of its jobs come from non-health, non-retail locally headquartered companies like Level 3, Echostar, Qwest, and Coors.

But its office market is slumping like any other, with office landlords offering major concessions, including nearly a year's worth of free rent. And according to a PriceWaterhouseCoopers report, cap rates (building operating income/price paid to buy the building) rose 6/10ths of percent to 8.4%, meaning prices for office properties are still dropping relative to the income they produce.

With a healthy market like Denver struggling to fill its space, it's likely going to be a buyer's market for office space for years. It's also a good chance for downtowns to entice tenants who might otherwise head to the suburbs for cheap rents.