Joel Kotkin

Small Cities Are Becoming a New Engine Of Economic Growth

Joel Kotkin — Tue, 08 May 2012 16:59:35 +0000

Appearing in:

Forbes.com

The conventional wisdom is that the world’s largest cities are going to be the primary drivers of economic growth and innovation. Even slums, according to a fawning article in National Geographic, represent “examples of urban vitality, not blight.” In America, it is commonly maintained by pundits that “megaregions” anchored by dense urban cores will dominate the future.

Such conceits are, not surprisingly, popular among big city developers and the media in places like New York, which command the national debate by blaring the biggest horn. However, a less fevered analysis of recent trends suggests a very different reality: When it comes to growth, economic and demographic, opportunity increasingly is to be found in smaller, and often remote, places.

Read about how we selected the 2012 Best Cities for Job Growth

This year’s edition of Forbes’ Best Cities For Jobs survey, compiled with Pepperdine University’s Michael Shires, found that small and midsized metropolitan areas, with populations of 1 million or less, accounted for 27 of the 30 urban regions in the country that are adding jobs at the fastest rate. The three largest metropolitan statistical areas that made the top 30 — Austin, Houston and Salt Lake City — are themselves highly dispersed with sprawling employment sheds.

Rather than the products of “smart growth” and intense densification, almost all of the fastest-growing metropolitan areas — including larger ones like Silicon Valley and Raleigh — tend to be dominated by suburban-style, single-family homes and utterly dependent on the greatest scourge of the urbanist creed: the private car. But many of the smaller areas also punch above their weight in myriad ways, spanning a host of industries.

Among the 398 MSAs we ranked for the list, energy towns dominate the top of the table: Odessa, Texas (100,000), took first place; followed by Midland, Texas (population: 111,000), in second place; Lafayette, La. (fourth, 114,000); Corpus Christi, Texas (sixth, 287,000); San Angelo, Texas (seventh, 92,000); Casper, Wyo. (10th, 54,000); and Bismarck, N.D. (21st, 61,000). These cities’ economies have expanded steadily over the last few years, beneficiaries of a great boom in fossil fuels that, unless derailed by regulators, will continue for the foreseeable future.

But some of the other best cities for jobs make their livings in different ways, such as No. 12 Glens Falls, N.Y., riding growth in business services and tourism; and No. 15 Columbia, Mo., which is primarily a college and government town. Several smaller communities have bounced back strongly with the recovery of manufacturing, including No. 3 Columbus Ind., No. 11 Williamsport, Pa., and No. 19 Holland-Grand Haven, Mich.

This shift in opportunity also parallels some compelling demographic trends. In the 1990s, the rate of population growth of areas over 1 million and those below was essentially similar. In contrast, in the subsequent decade, urban areas with fewer than a million people expanded by 15%, compared to barely 9% for larger urban areas, notes demographer Wendell Cox. In those 10 years, areas with fewer than a million people accounted for more than 60% of urban growth. Essentially more Americans are now moving to smaller regions than to larger ones.

We see is a very different reality than that often promoted by big city boosters. Large, dense urban regions clearly possess some great advantages: hub airports, big labor markets, concentrations of hospitals, schools, cultural amenities and specific industrial expertise. Yet despite these advantages, they still lag in the job creation race to unheralded, smaller communities.

Why are the stronger smaller cities growing faster than most larger ones? The keys may lie in many mundane factors that are often too prosaic for urban theorists. They include things such as strong community institutions like churches and shorter commutes than can be had in New York, L.A., Boston or the Bay Area (except for those willing to pay sky-high prices to live in a box near downtown). Young families might be attracted to better schools in some areas — notably the Great Plains — and the access to natural amenities common in many of these smaller communities.

Perhaps another underappreciated factor is Americans’ overwhelming preference for a single-family home, particularly young families. A recent survey from the National Association of Realtors found that 80 percent preferred a detached, single-family home; only a small sliver, roughly 7 percent, wanted to live in a dense urban area “close to it all.” Some 87 percent expressed a strong desire for greater privacy, something that generally comes with lower-density housing.

This trend towards smaller communities — unthinkable among big city planners and urban land speculators — is likely to continue for several reasons. For one thing, new telecommunications technology serves to even the playing field for companies in smaller cities. You can now operate a sophisticated global business from Fargo, N.D., or Shreveport, La., in ways inconceivable a decade or two ago.

Another key element is the predilections of two key expanding demographic groups: boomers and their offspring, the millennials. Aging boomers are not, in large part, hankering for dense city life, as is often asserted. If anything, if they choose to move, they tend toward less dense and even rural areas. Young families and many better-educated workers also seem to be moving generally to less dense and affordable places.

Perhaps even more surprising, this tendency toward decentralization can be seen around the world: much of the new growth is in smaller cities, with India as a prime example. A recent McKinsey study found that “middle-weight” cities, many of them well under a million, have already started taking a larger percentage of the world’s urban growth.

McKinsey suggests that the notion that megacities will dominate the urban future constitutes “a common misconception.” Instead surging smaller cities will constitute well over half of the world’s urban growth, gaining ever more share from the megacities over time. This is particularly true in the U.S. which constitutes the epicenter for the new smaller city economy. Of the world’s 600 hundred “middleweight” cities, the U.S. is home to 257. Together they generate 70% of U.S. GDP.

What does this mean for investors, companies and individuals in the coming decades? For one thing, Wall Street, which tends to obsess over a handful of high-cost, dense, urban markets, may seek out new opportunities in faster-growing smaller cities. Prices tend to be lower and competition for prime space less intense, and the demographic wind is at their backs. Companies looking to expand may find not only a welcome mat from the locals, but also an expanding workforce in these generally more affordable places.

Finally, particularly for the next generation, the shift to smaller cities provides a whole realm of new options for sinking roots, starting business or a family and owning a home. Smaller city life certainly does not appeal to everyone, or every business, but their growing dynamism provides a welcome option for people who want to get a leg up in the next decade.

Read about how we selected the 2012 Best Cities for Job Growth

This piece originally appeared in Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo: Glens Falls, NY

The Best Cities for Jobs 2012

Joel Kotkin and Michael Shires — Wed, 02 May 2012 14:15:25 +0000

Appearing in:

Forbes.com

Throughout the brutal recession, one metropolitan area floated serenely above the carnage: Washington, D.C. Buoyed by government spending, the local economy expanded 17% from 2007 to 2012. But for the first time in four years, the capital region has fallen out of the top 15 big cities in our annual survey of the best places for jobs, dropping to 16th place from fifth last year.

It’s a symptom of a significant and welcome shift in the weak U.S. economic recovery: employment growth has moved away from the public sector to private businesses. In 2011, for the first time since before the recession, growth in private-sector employment outstripped the public sector. More than half (231) of the 398 metro areas we surveyed for our annual study of employment trends registered declines in government jobs, with public-sector employment dropping 0.9 percent overall. Meanwhile, private-sector employment expanded 1.4 percent.

Read about how we selected the 2012 Best Cities for Job Growth

Instead of government, the big drivers of growth now appear to be three basic sectors: energy, technology and, most welcome all, manufacturing. Energy-rich Texas cities dominate our list — the state has added some 200,000 generally high-paying oil and gas jobs over the past decade — but Texas is also leading in industrial job growth, technology and services. In first place in our ranking of the 65 largest metropolitan areas is Austin, which has logged strong growth in manufacturing, technology-related employment and business services. Houston places second, Ft. Worth fourth, and Dallas-Plano-Irving sixth. Another energy capital, Oklahoma City, ranks 10th, while resurgent New Orleans-Metairie places 13th among the largest metro areas.

To determine the best cities for jobs, we ranked all 398 current metropolitan statistical areas based on employment data from the Bureau of Labor Statistics covering November 2000 through January 2012. Rankings are based on recent growth trends, mid-term growth, long-term growth and the region’s momentum. (Here is a detailed description of our methodology.) We also broke down rankings by size — small, medium and large — since regional economies differ markedly due to their scale.

The strong growth of the energy sector, and Texas, is even more evident in our overall ranking, which includes many small and medium-sized metropolitan areas. The top 10 fastest growers overall include such energy-centric places as No. 1 Odessa, Texas; second-place Midland, Texas; Lafayette, La. (fourth place); Corpus Christi, Texas (sixth), San Angelo, Texas (seventh); and Casper, Wyo. (10th).

The shift from public to private can be seen in the falling rankings of many of the most government-dependent economies. Outside of Washington, D.C. (where federal employment actually has continued to grow), Bethesda-Rockville-Frederick, Md., took an even more dramatic tumble in our big city table, dropping 34 places to No. 46.There were sizable relative declines in the rankings of many state capitals such as Springfield, Ill. and Madison, Wisc. College towns, which had previously done well in the face of the recession, have also moved sharply lower in our rankings, due to a combination of state budget cuts and better performance elsewhere. College Station, Texas, plummeted from fourth last year on our overall list to 167th; Fairbanks, Alaska, slid from 15th place to 165th, Corvallis, Ore., tumbled from 40th place to 203rd place; and Cedar Rapids, Iowa, dropped from 81st to 246th.

Budget constraints have also hurt military towns, which previously had been largely immune to the recession. Last year’s overall No. 1, Killeen-Ft. Hood, Texas, slid to 43rd place; Jacksonville, N.C., home to Camp Lejeune, fell to 102nd from 19th last year; and Lawton, Okla., home to Fort Sill, slipped to 274th from No. 20 last year.

In addition to energy, the technology sector has been on a tear. After a decade of tepid growth and some years of job losses, Silicon Valley has blown itself another huge tech bubble, this time driven by the social media craze and a surge in private-equity investment. In the San Jose-Sunnyvale-Santa Clara metro area, the number of information sector jobs is up 36 percent over the past five years; this year the epicenter of Silicon Valley jumped 22 places to No. 5 among the 65 biggest metro areas. The social media boom has also been very good for the San Francisco-San Mateo-Redwood City area, which rocketed 16 places to a solid 17th this year.

But much of the tech growth in the country has continued to flow to more affordable regions less dependent on venture investment. At the head of the pack is Austin, where Apple recently announced a large expansion, and Salt Lake City, No. 2 on our big cities list, which is a major destination for expansion for Silicon Valley firms such as Adobe, Twitter and Electronic Arts. Other big players benefiting from the tech boom include seventh-place Raleigh-Cary, N.C., which has been a consistent top 15 performer for the past seven years; Seattle, which rose 18 places to 14th, and Denver at No. 15.

Perhaps most encouraging of all has been the expansion of the manufacturing sector. In 2011 manufacturing expanded at three time the rate of overall GDP, according to Mark Perry of the University of Michigan-Flint, and the sector added 425,000 jobs, also outpacing the national average.

As a result, the fortunes of some of America’s hardest-hit manufacturing regions are improving. Columbus, Ind., rose from 235th overall last year to No. 3 on our list this year. Michigan is beginning to see some signs of new life: perennial cellar dweller Holland-Grand Haven rose a remarkable 202 places to 19th on the overall list. A slew of other Michigan cities rose more than 100 places, including Grand Rapids (64th place), Bay City (136th), Warren-Troy-Farmington Hills (199th), Muskegon-Norton Shores (219th), and Jackson (233th). It is a glimmer of hope in a region that has lurked near the bottom of our Best Places rankings for as long as we have published it.

Another group of big cities that may be seeing light at the end of the tunnel are some of the metro areas hit hardest by the bursting of the housing bubble. Miami, Fla., which ranks 21st among the 65 largest metros, Tampa-St.Petersburg-Clearwater, Fla. (33rd), Phoenix (45th), Riverside-San Bernardino, Calif. (50th), and even Las Vegas (56th) began to show some signs of new life this past year.

So amidst all the good news, which big cities are still doing badly, or even relatively worse? Sadly, many of the places still declining are located in our home state of California, including Los Angeles (59th place among the biggest metro areas), Sacramento (60th), and, and just across the Bay from Silicon Valley, Oakland (63rd). Only the old, and to date still not recovering, industrial towns of Providence, R.I. (64th), and Birmingham-Hoover, Ala. (dead last at No. 65), did worse. And the glad tidings in manufacturing have not touched all the Rust Belt cities: Camden, N.J. (57th), Newark, N.J. (58th), Cleveland, Ohio (61st), and Detroit (62nd) still feature prominently near the bottom.

Read about how we selected the 2012 Best Cities for Job Growth

The New Class Warfare

Joel Kotkin — Mon, 30 Apr 2012 15:25:04 +0000

Appearing in:

The City Journal

Few states have offered the class warriors of Occupy Wall Street more enthusiastic support than California has. Before they overstayed their welcome and police began dispersing their camps, the Occupiers won official endorsements from city councils and mayors in Los Angeles, San Francisco, Oakland, Richmond, Irvine, Santa Rosa, and Santa Ana. Such is the extent to which modern-day “progressives” control the state’s politics.

But if those progressives really wanted to find the culprits responsible for the state’s widening class divide, they should have looked in a mirror. Over the past decade, as California consolidated itself as a bastion of modern progressivism, the state’s class chasm has widened considerably. To close the gap, California needs to embrace pro-growth policies, especially in the critical energy and industrial sectors—but it’s exactly those policies that the progressives most strongly oppose.

Even before the economic downturn, California was moving toward greater class inequality, but the Great Recession exacerbated the trend. From 2007 to 2010, according to a recent study by the liberal-leaning Public Policy Institute of California, income among families in the 10th percentile of earners plunged 21 percent. Nationwide, the figure was 14 percent. In the much wealthier 90th percentile of California earners, income fell far less sharply: 5 percent, only slightly more than the national 4 percent drop. Further, by 2010, the families in the 90th percentile had incomes 12 times higher than the incomes of families in the 10th—the highest ratio ever recorded in the state, and significantly higher than the national ratio.

It’s also worth noting that in 2010, the California 10th-percentile families were earning less than their counterparts in the rest of the United States—$15,000 versus $16,300—even though California’s cost of living was substantially higher. A more familiar statistic signaling California’s problems is its unemployment rate, which is now the nation’s second-highest, right after Nevada’s. Of the eight American metropolitan areas where the joblessness rate exceeds 15 percent, seven are in California, and most of them have substantial minority and working-class populations.

When California’s housing bubble popped, real-estate prices fell far more steeply than in less regulated markets, such as Texas. The drop hurt the working class in two ways: it took away a major part of their assets; and it destroyed the construction jobs important to many working-class, particularly Latino, families. The reliably left-leaning Center for the Continuing Study of the California Economy found that between 2005 and 2009, the state lost fully one-third of its construction jobs, compared with a 24 percent drop nationwide. California has also suffered disproportionate losses in its most productive blue-collar industries. Over the past ten years, more than 125,000 industrial jobs have evaporated, even as industrial growth has helped spark a recovery in many other states. The San Francisco metropolitan area lost 40 percent of its industrial positions during this period, the worst record of any large metro area in the country. In 2011, while the country was gaining 227,000 industrial jobs, California’s manufacturers were still stuck in reverse, losing 4,000.

Yet while the working and middle classes struggle, California’s most elite entrepreneurs and venture capitalists are thriving as never before. “We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” Google CEO Eric Schmidt recently told the San Francisco Chronicle. “And what a world it is. Companies can’t hire people fast enough. Young people can work hard and make a fortune. Homes hold their value.” Meanwhile, in nearby Oakland, the metropolitan region ranks dead last in job growth among the nation’s largest metro areas, according to a recent Forbes survey, and one in three children lives in poverty.

One reason for California’s widening class divide is that, for a decade or longer, the state’s progressives have fostered a tax environment that slows job creation, particularly for the middle and working classes. In 1994, California placed 35th in the Tax Foundation’s ranking of states with the lightest tax burdens on business; today, it has plummeted to 48th. Only New York and New Jersey have more onerous business-tax burdens. Local taxes and fees have made five California cities—San Francisco, Los Angeles, Beverly Hills, Santa Monica, and Culver City—among the nation’s 20 most expensive business environments, according to the Kosmont–Rose Institute Cost of Doing Business Survey.

Still more troubling to California employers is the state’s regulatory environment. California labor laws, a recent U.S. Chamber of Commerce study revealed, are among the most complex in the nation. The state has strict rules against noncompetition agreements, as well as an overtime regime that reduces flexibility: unlike other states, where overtime kicks in after 40 hours in a given week, California requires businesses to pay overtime to employees who have clocked more than eight hours a day. Rules for record-keeping and rest breaks are likewise more stringent than in other states. The labor code contains tough provisions on everything from discrimination to employee screening, the Chamber of Commerce study notes, and has created “a cottage industry of class actions” in the state. California’s legal climate is the fifth-worst in the nation, according to the Institute for Legal Reform; firms face far higher risks of nuisance and other lawsuits from employees than in most other places. In addition to these measures, California has imposed some of the most draconian environmental laws in the country, as we will see in a moment.

The impact of these regulations is not lost on business executives, including those considering new investments or expansions in California. A survey of 500 top CEOs by Chief Executive found that California had the worst business climate in the country, and the U.S. Chamber of Commerce calls California “a difficult environment for job creation.” Small wonder, then, that since 2001, California has accounted for just 1.9 percent of the country’s new investment in industrial facilities; in better times, between 1977 and 2000, it had grabbed 5.6 percent.

Officials, including Governor Jerry Brown, argue that California’s economy is so huge that it can afford to lose companies to other states. But for the local economy to be hurt, firms don’t have to leave entirely. Business consultant Joe Vranich, who maintains a website that tracks businesses that leave the state, points out that when California companies decide to expand, often they do so in other parts of the U.S. and abroad, not in their home environment. Further, Brown is too cavalier about the effects of businesses’ departure. As Vranich notes, many businesses leave California “quietly in the night,” generating few headlines but real job losses. He cites the low-key departure in 2010 of Thomas Brothers Maps, a century-old California firm, which transferred dozens of employees from its Irvine headquarters to Skokie, Illinois, and outsourced the rest of its jobs to Bangalore.

The list of companies leaving the state or shifting jobs elsewhere is extensive. It includes low-tech companies, such as Dunn Edwards Paints and fast-food operator CKE Restaurants, and high-tech ones, such as Acacia Research, Biocentric Energy Holdings, and eBay, which plans to create 1,000 new positions in Austin, Texas. Computer-security giant McAfee estimates that it saves 30 to 40 percent every time it hires outside California. Only 14 percent of the firm’s 6,500 employees remain in Silicon Valley, says CEO David DeWalt. The state’s small businesses, which account for the majority of employment, are harder to track, but a recent survey found that one in five didn’t expect to remain in business in California within the next three years.

Apologists for the current regime also claim that the state’s venture capitalists will fund and create new companies that will boost employment. It’s certainly true that in the past, California firms funded by venture capital tended to expand largely in California. But as Jack Stewart, president of the California Manufacturing and Technology Association, points out, a different dynamic is at work today: once a company’s start-up phase is over, it tends to move its middle-class jobs elsewhere, as the state’s shrinking fraction of the nation’s industrial investment indicates. “Sure, we are getting half of all the venture capital investment, but in the end, we have relatively small research and development firms only,” Stewart argues. “Once they have a product or go to scale, the firms move [employment] elsewhere. The other states end up getting most of the middle-class jobs.”

Radical environmentalism has been particularly responsible for driving wedges between California’s classes. Until fairly recently, as historian Kevin Starr says, California’s brand of progressivism involved spurring economic growth—particularly by building infrastructure—and encouraging broad social advancement. “What the progressives created,” Starr says, “was California as a middle-class utopia. The idea was if you wanted to be a nuclear physicist, a carpenter, or a cosmetologist, we would create the conditions to get you there.” By contrast, he says, today’s progressives regard with suspicion any growth that requires the use of land and natural resources. Where old-fashioned progressives embraced both conservation and the expansion of public parks, the new green movement advocates a reduced human “footprint” and opposes cars, “sprawl,” and even human reproduction.

The Bay Area has served as the incubator for the new green progressivism. The militant Friends of the Earth was founded in 1969 in San Francisco. Malthusian Paul Ehrlich, author of the sensationalist 1968 jeremiad The Population Bomb and mentor of President Obama’s current science advisor, John Holdren, built his career at Stanford. Today, more than 130 environmental activist groups make their headquarters in San Francisco, Berkeley, Oakland, and surrounding cities.

The environmentalist agenda emerged in full flower under nominally Republican governor Arnold Schwarzenegger, who initially cast himself as a Milton Friedman–loving neo-Reaganite. On his watch, California’s legislature in 2006 passed Assembly Bill 32, which, in order to cut greenhouse-gas emissions, imposes heavy fees on using carbon-based energy and severely restricts planning and development. One analysis of small-business impacts prepared by Sacramento State University economists indicates that AB 32 could strip about $181 billion per year, or nearly 10 percent, from the state’s economy. At the same time, land-use regulations connected to the climate-change legislation hinder expansion for firms.

Another business-hobbling mandate is the law requiring that 30 percent of California’s electricity be generated by “renewable” sources by 2020. The state’s electricity costs are already 50 percent above the national average and the fifth-highest in the nation—yet state policies make the construction of new oil- or gas-fired power plants all but impossible and offer massive subsidies for expensive, often unreliable, “renewable” energy. The renewable-fuel laws will simply boost electricity costs further. The cost of electricity from the new NRG solar-energy facility in central California, for instance, will be 50 percent higher than the cost of power from a newly built gas-powered facility, according to state officials. For providing this expensive service, NRG will pay no property taxes on its facilities. By some estimates, green mandates could force electricity prices to rise 5 to 7 percent annually through 2020.

The renewable-fuel regulations are driving even green jobs out of the state. Cereplast, a thriving El Segundo–based manufacturer of compostable plastic, last year moved its manufacturing operations to Indiana, where electricity costs are 70 percent lower. Fuel-cell firm Bing Energy cited cost and regulatory factors when announcing its move from California to Florida. “I just can’t imagine any corporation in their right mind would decide to set up in California right now,” the firm’s CFO, Dean Minardi, told the Inland Valley Daily Bulletin. Still more rules, aimed at improving water quality and protecting endangered species, could have a devastating effect on the construction and expansion of port facilities, which tend to sustain high-wage blue- and white-collar jobs.

The political class largely ignores the economic consequences of these policies. Indeed, Governor Brown and others insist that they will create jobs—upward of 500,000 of them—while establishing California as a green-energy leader. To turn Brown’s green dreams into reality, the state has approved enormous subsidies and tax breaks for solar and other renewable-energy producers to supplement those dispensed by the Obama administration. Yet for all this, California has barely 300,000 “green jobs,” many of which are low-wage positions, such as weather-stripping installers. And the solar industry, in California and abroad, is imploding.

Bill Watkins, head of the economic forecasting unit at California Lutheran University, notes that California’s green policies affect the very industries—manufacturing, home construction, warehousing, and agribusiness—that have traditionally employed middle- and working-class residents. “The middle-class economy is suffering since there is no real opposition to the environmental community,” says Watkins. “You see the Democrats, who should worry about blue-collar and middle-income jobs, give in every time.”

Progressives and many Occupy protesters mourned the death of high-tech innovator and multibillionaire Steve Jobs. They also tend to view social-networking firms like Facebook more as allies than as class enemies. This embrace of Silicon Valley is nearly as strange as the Occupy movement’s decision to target the ports of Los Angeles and Oakland—large employers of well-paid blue-collar workers. Activists portrayed the attempted port shutdowns as attempts to “disrupt the profits of the 1 percent,” but union workers largely saw them as impositions on their livelihood. As former San Francisco mayor and state assembly speaker Willie Brown wrote in the San Francisco Chronicle: “If the Occupy people really want to make a point about the 1 percent, then lay off Oakland and go for the real money down in Silicon Valley. The folks who work on the docks in Oakland or drive the trucks in and out of the port are all part of the 99 percent.”

The explanation for the progressives’ hypocritical friendliness to Silicon Valley is simple: money and politics. Venture capitalists and highly profitable, oligopolistic firms like Google (with its fleet of eight private jets) invest heavily in green companies; they were also among the primary bankrollers of the successful opposition to a 2010 ballot initiative aimed at reversing AB 32. The digital elite has become more and more involved in local politics, with executives from Facebook, Twitter, and gaming website Zynga contributing heavily to the recent campaign of San Francisco mayor Ed Lee, for example. Lee has, in turn, been extremely kind to the digerati, extending a payroll-tax break to Twitter and a stock-option break to Zynga and other firms that may soon go public.

Hollywood manages to outdo even Silicon Valley in its class hypocrisy. Former actor Schwarzenegger doesn’t let his green zealotry stop him from owning oversize houses and driving fuel-gorging cars. Canadian-born director James Cameron, who contents himself with a six-bedroom, $3.5 million, 8,300-square-foot Malibu mansion, talks about the need to “stop industrial growth” and applauds the idea of a permanent recession. “It’s so heretical to everybody trying to recover from a recession economy—‘we have to stimulate growth!’ ” says Cameron. “Well, yeah. Except that’s what’s gonna kill this planet.”

According to the Tax Foundation, California residents already pay the nation’s sixth-highest state tax rates, and they are likely to keep rising. Three tax-raising measures have already been proposed for the November 2012 ballot. Governor Brown’s proposal, which would boost both income and sales taxes, stands a good chance of passage. Hedge-fund manager Tom Steyer, an investor in environmental firms, has floated a measure that would raise taxes on out-of-state companies that conduct any operations in California and use some of the revenue to subsidize green-friendly building projects. And Molly Munger, a civil rights attorney and daughter of Warren Buffett’s longtime business partner, is pressing a measure to raise income taxes to fund schools. The so-called Think Long proposal, financed by nomadic French billionaire Nicolas Berggruen and overseen by a committee including Google’s Schmidt and billionaire philanthropist Eli Broad, proposes a mild cut in income-tax rates for the highest earners (like themselves) but new taxes on services provided by architects, accountants, business consultants, plumbers, gardeners, and others—the sole proprietors and microbusinesses that represent the one growing element in the state’s beleaguered private-sector middle class.

More money for social services or education might help alleviate some of the recession’s impact, but it cannot break the vicious cycle from which California currently suffers: weak growth leading to low tax revenues, government boosting taxes to make up the shortfall, and those higher taxes driving businesses and jobs away, resulting in continued weak growth. What California’s middle and working classes need above all is broad, private-sector job growth—and that, fortunately, is a goal still well within reach. The Golden State may be run stupidly, but it retains enormous assets: its position on the Pacific Rim, large numbers of aspiring immigrants, unparalleled creative industries, fertile land, and a treasure trove of natural resources.

The most promising opportunity is in the contentious area of fossil-fuel energy, a mainstay of the state’s economy since the turn of the twentieth century. California still ranks as the nation’s fourth-largest oil-producing state. Traditional energy has long provided good jobs; nationally, the industry pays an average annual salary of $100,000. And elsewhere, from the Great Plains to eastern Ohio, an oil and gas boom is driving growth.

But California has thus far excluded itself from the party. Even as production surges in other parts of the country, California companies like Occidental Petroleum report diminishing oil production. The drop-off proves, some environmentalists say, that “peak oil” has been reached, but the evidence shows otherwise: the last few years have seen a fourfold increase in applications for drilling permits in California, largely because of the discovery of the massive Monterey shale deposits—containing a potential 15 billion barrels of oil—and of an estimated 10 billion barrels near Bakersfield. The real reason for the reduced production is that California has rejected most of the drilling applications since 2008. “I asked Jerry Brown about why California cannot come to grips with its huge hydrocarbon reserves,” recalls John Hofmeister, former president of Shell Oil’s U.S. operations. “After all, this could turn around the state. He answered that this is not logic, it’s California. This is simply not going to happen here.”

The anti-fossil-fuel stance, according to the Los Angeles County Economic Development Corporation, has placed some $1 billion in investment and 6,000 jobs on hold. The sense of wasted opportunity can be palpable. If you travel to Santa Maria, a hardscrabble town near the Monterey formation, you pass empty industrial parks and small, decaying shopping centers. As economist Watkins put it at a recent conference there: “If you guys were in Texas, you’d all be rich.”

California doesn’t even need to abandon its progressive tradition to narrow the class divide. Homebuilding, manufacturing, and warehousing could expand if regulatory burdens other than those associated with fighting climate change were merely modified—not repealed, but relaxed sufficiently to make it possible to do business, put people to work, and make a profit. New energy production could take place under strict regulatory oversight. Future industrial and middle-class suburban development could be tied to practical energy-conservation measures, such as promoting home-based businesses and better building standards. California’s agriculture industry—currently thriving, thanks to exports—could be less burdened by the constant threat of water cutbacks and new groundwater regulations.

Even from an environmental perspective, increased industrial growth in California might be a good thing. The state’s benign climate allows it to consume fossil-fuel energy far more efficiently than most states do, to say nothing of developing countries such as China. Keeping industry and middle-class jobs here may constitute a more intelligent ecological position than the prevailing green absolutism.

More important still is that a pro-growth strategy could help reverse California’s current feudalization. The same Public Policy Institute of California study shows that during the last broad-based economic boom, between 1993 and 2001, the 10th percentile of earners enjoyed stronger income growth than earners in the higher percentiles did. The lesson, which progressives once understood, is that upward mobility is best served by a growing economy. If they fail to remember that all-important fact, the greens and their progressive allies may soon have to place the California dream on their list of endangered species.

This piece originally appeared in The City Journal.

As California Collapses, Obama Follows Its Lead

Joel Kotkin — Fri, 27 Apr 2012 17:21:20 +0000

Appearing in:

The Daily Beast

Barack Obama learned the rough sport of politics in Chicago, but his domestic policies have been shaped by California’s progressive creed. As the Golden State crumbles, its troubles point to those America may confront in a second Obama term.

From his first days in office, the president has held up California as a model state. In 2009, he praised its green-tinged energy policies as a blueprint for the nation. He staffed his administration with Californians like Energy Secretary Steve Chu—an open advocate of high energy prices who’s lavished government funding on “green” dodos like solar-panel maker Solyndra, and luxury electric carmaker Fisker—and Commerce Secretary John Bryson, who thrived as CEO of a regulated utility which raised energy costs for millions of consumers, sometimes to finance “green” ideals.

Obama regularly asserts that green jobs will play a crucial role in the future of the American economy, but California, a trend-setter in the field, has yet to reap such benefits. Green jobs, broadly defined, make up only about 2 percent of jobs in the state—about the same proportion as in Texas. In Silicon Valley, the number of green jobs actually declined between 2003 and 2010. Meanwhile, California’s unemployment rate of 10.9 percent is the nation’s third highest, behind only Nevada and Rhode Island.

When Governor Jerry Brown predicted a half-million green jobs by the end of the decade, even The New York Times deemed it “a pipe dream.”

Obama’s push to nationalize many of California’s economy-stifling green policies has been slowed down, first by the Republican resurgence in 2010 and then by his reelection considerations. But California’s politicians, living in what’s become essentially a one-party state, have doubled down on green orthodoxy. As the president at least tries to cover his flank by claiming to support an “all-in” energy policy, California has simply refused to exploit much of its massive oil and gas resources.

Does this matter? Well, Texas has created 200,000 oil and gas jobs over the past decade; California has barely added 20,000. The state’s remaining energy producers have been slowing down as the regulatory environment becomes ever more hostile even as producers elsewhere, including in rustbelt states like Ohio and Pennsylvania, ramp up. The oil and gas jobs the Golden State political class shuns pay around $100,000 a year on average.

Instead, California has forged ahead with ever-more extreme renewable energy mandates that have resulted in energy costs roughly 50 percent above the national average and expected to rise substantially from there. This tends to drive out manufacturing and other largely blue-collar energy users.

Over the past decade the Golden State has grown its middle-skilled jobs (those that require two years or more of post-secondary education) by a mere 2 percent compared to a 5.3 percent increase nationwide, and almost 15 percent in Texas. Even in the science-technology-engineering and mathematics field, where California has long been a national leader, the state has lost its edge, growing just 1.7 percent over the past 10 years compared to 5.4 percent nationally and 14 percent in Texas.

A recent Public Policy of California study shows that since the recession, the gap between rich and poor has widened more in California than in the rest of the nation. Lower-income workers have seen their wages drop more precipitously than those of the affluent. And the middle class is proportionately smaller and has shrunk more than elsewhere. Adjusted for cost of living, it stands at 47.9 percent in California compared to nearly 55 percent for the rest of the country.

Meantime, many Californians have been departing for more affordable states, with a net loss of four million residents to other states over the past 20 years (while continuing, of course, to attract immigrants.) Of those who remain, nearly two-in-five Californians pay no income tax, and one in four receive Medicaid.

There are some people are prospering in California, including many of the affluent supporters who Obama courts on his frequent fundraising forays here. Tenure-protected academics from the University of California constitute his third-largest donor base, while Google ranks fifth and Stanford twelfth, according to Open Secrets.

Silicon Valley may emerge as the biggest source of campaign cash for Obama and the Democrats in the years ahead. After losing 18 percent of its jobs earlier in the decade, the Valley has resurged, along with Wall Street, aided by the cheap-money-for-the-rich policies of Federal Reserve Chairman Ben Bernanke. But while California’s high-tech job growth, largely in software, has been significant, the rate of increase has been less than half that of key competitors such as Utah, Washington, and Michigan.

The IPO-lottery, Hollywood, and inherited-wealth crowds can afford the state’s sky-high costs, especially along the coast, but most California businesses can’t. Under Brown and his even less well-informed predecessor, Arnold Schwarzenegger, the official mantra has been that the state’s “creative” entrepreneurs would trigger a state revival. This is very much the hope of the administration, which trots out companies like Facebook, Apple, and Google as exemplars of the American future. “No part of America better represents America than here,” the president told a crowd at the Computer History Museum in Mountain View last fall.

Yet Silicon Valley represents just a relatively small part of the state’s economic base. Although the Valley—particularly the Cupertino to San Francisco strip—has recovered from the 2008 market meltdown, unemployment in the blue-collar city of San Jose hovers around 10 percent. The Oakland area, just across the Bay, ranked 63rd out of 65 major metropolitan in terms of employment trends, trailing even Detroit according to a recent analysis done by Pepperdine University economist Michael Shires. Other major California metros, including Los Angeles, Orange County, Riverside-San Bernardino, and Sacramento all ranked near the bottom.

The newer companies that can afford the sky-high costs of coastal California, and can pay their employees adequately to do the same—places like Google, Apple, Facebook, and Twitter—employ relatively few people compared to older, manufacturing-oriented technology firms such as Hewlett-Packard and Intel. While cherry picking highly educated professionals, the new firms create few local support positions that would spread some of the wealth. What middle-income jobs they do create tend to be located in lower-cost, more business-friendly American cities like Salt Lake City or Austin, or, increasingly, overseas.

Elite institutions like Stanford still thrive, but the state’s once-great educational system is creaking under reduced funding, massive bureaucracy, and skyrocketing pensions. Once among the best-educated Americans, Californians are rapidly becoming less so. Among people over 64, California stands second in percentage of people with an associate degree or higher; among those aged 25 to 34, it ranks 30th.

For devoted Californians, accustomed to seeing their state as a national and global exemplar, these trends are deeply disturbing. Yet the key power groups in the state—greens, public employees, and rent-seeking developers—seem intent on imposing ever more draconian regulations on energy and land use, seeking for example, to ban construction of the single-family houses preferred by the vast majority of Californians.

The increasingly delusional nature of the state’s politics is best captured by the urgent political push to build a fantastically expensive—potentially costing as much as $100 billion—high-speed rail line that would eventually connect the Bay Area, Los Angeles and the largely rural places in between. Obama has aggressively promoted high-speed rail nationally, but has been pushed back by mounting Republican opposition. Yet in one-party California, Jerry Brown mindlessly pushes the project despite the state’s huge structural deficits, soaring pension obligations, and decaying general infrastructure. He’s continued doing so even as the plan loses support among the beleaguered California electorate.

It’s hard to see how these policies, coupled with a massive income tax increase on the so-called rich (families, as well as many small businesses, making over $250,000), can do anything other than widen the state’s already gaping class divide. Yet given the power of Californian ideas over Obama, one can expect more such policies from him in an electorally unencumbered second term. California’s slow-motion tragedy could end up as a national one.

As Filmmaking Surges, New Orleans Challenges Los Angeles

Joel Kotkin — Fri, 20 Apr 2012 15:10:41 +0000

Appearing in:

Forbes.com

For generations New Orleans‘ appeal to artists, musicians and writers did little to dispel the city’s image as a poor, albeit fun-loving, bohemian tourism haven. As was made all too evident by Katrina, the city was plagued by enormous class and racial divisions, corruption and some of the lowest average wages in the country.

Yet recently, the Big Easy and the state of Louisiana have managed to turn the region’s creative energy into something of an economic driver. Aided by generous production incentives, the state has enjoyed among the biggest increases in new film production anywhere in the nation. At a time when production nationally has been down, the number of TV and film productions shot in Louisiana tripled from 33 per year in 2002-2007 to an average of 92 annually in 2008-2010, according to a study by BaxStarr Consulting. Movies starring Leonardo DiCaprio, Morgan Freeman, Harrison Ford are being made in the state this year.

Of course many states and cities have thrown money at the film industry, hoping to establish themselves as cultural centers. Texas, Georgia, British Columbia, Toronto and Michigan all wagered millions in tax dollars to lure producers away from Hollywood and the industry’s secondary hub of New York. There were 279 movies shot in New York State in 2009 and 2010. For all its gains, Louisiana still trails far behind the Empire State with 95 film productions in that period.

Yet New Orleans and Louisiana possess unique assets which make its challenge far more serious than that of other places. A Detroit, Atlanta or Dallas might be a convenient and cost-efficient place to make a film or television show, but they lack the essential cultural richness that can lure creative people to stay. The Big Easy is attracting that type, plus post-production startups, and animation and videogame outfits, giving a broader foundation to the nascent local entertainment industry.

“This is different,” notes Los Angeles native and longtime Hollywood costumer Wingate Jones, who started Southern Costume Co. last year to cash in on the growth in production in the state. “It’s the combination of the food and the culture that appeals to people. It must have been a lot like what Hollywood was like in the ’20s and ’30s. It’s entrepreneurial and growing like mad.”

Critically, Jones adds, Louisiana’s unique culture comes without the fancy New York or Malibu price tag. This is a place where small roadside cafes serve up bowls of gumbo, crayfish and shrimp that would cost three to five times as much in New York, the Bay Area or Los Angeles. Excellent music — from rap to jazz to blues and gospel — can be found simply by walking into a bar and paying the price of a couple of beers. And then there are housing costs, roughly half as high, adjusted for income, than the big media centers.

This mixture of affordability and culture is attracting young people — the raw material of the creative economy — as well as industry veterans like Jones. In 2011, we examined migration patterns of the college-educated and found, to our surprise, that New Orleans was the country’s leading brain magnet. New Orleans was growing its educated base, on a per capita basis, at a far faster rate than much-ballyhooed, self-celebrated places like New York or San Francisco. In fact, its most intense competition was coming from other Southern cities such as Raleigh, Austin and Nashville, the last two of which also share a strong, and unique, regional culture.

Another sure sign of the city’s growing appeal has been a torrent of applications to Tulane University, the city’s premier institution of higher education. In 2010 the school received 44,000 applications, more than any other private university in the country. The largest group, more than even those from Louisiana, came from California, with New York and Texas not far behind.

Increasingly, the Big Easy merits comparison not only to the Hollywood of the 1920s but also Greenwich Village of the ’50s, Haight-Ashbury in the ’60s and “grunge” Seattle in the mid-’80s. These, too, were once appealing places that were less expensive, less predictable and more open to cultural outsiders. Now they’re increasingly too pricey and yuppified for creative people bereft of large trust funds.

Ironically, Katrina provided the critical spark for this transformation. It devastated the torpid, corrupt political and business culture that viewed the arts as quaint and fit only as a selling point for tourists. In its place came more business-minded administrations in New Orleans and in Baton Rouge, the state capital. In both places, economic developers seized on motion pictures, television, commercials and videogames as potential growth industries that fit well with the state’s expanding appeal to this generation’s creators.

The Myth of the Republican Party’s Inevitable Decline

Joel Kotkin — Tue, 17 Apr 2012 13:57:11 +0000

Appearing in:

The Daily Beast

The map is shifting, and Democrats see the nation’s rapidly changing demography putting ever more states in play—Barack Obama is hoping to compete in Arizona this year, to go along with his map-changing North Carolina and Indiana wins in 2008—and eventually ensure the party’s dominance in a more diverse America, as Republicans quite literally die out.

Ruy Teixeira and others have pointed to the growing number of voters in key groups that have tilted Democratic: Hispanics, single-member households, and well-educated millennials. Speaking privately at a closed-door Palm Beach fundraiser Sunday, Mitt Romney said that polls showing Obama with a huge lead among Hispanic voters “spell doom for us.”

But, as the fine print says, past results do not guarantee future performance—and there are some surprising countervailing factors that could upset the conventional wisdom of Republican decline.

Let’s start with Hispanics. Straight-line projections suggest an ever-increasing base, as the Latino population shot up (PDF) from 35 million in 2000 to more than 50 million in 2010, accounting for half of all national population growth over the decade. Exit polls showed Democrats winning the vote in each election cycle over that stretch, with Republicans never gaining more than 40 percent of the vote. And the problem is getting worse: a recent Fox News Latino poll showed Obama trouncing Romney, 70–14, among Hispanic voters—even leading among Latinos who backed John McCain in 2008.

But longer term, Hispanic population growth is likely to slow or even recede, and Republicans are likely to do better with the group (in part because it would be hard to do much worse), as assimilation increases and immigration becomes less volatile an issue.

Rates of Hispanic immigration, particularly from Mexico, are down and are likely to continue declining. In the 1990s, 2.76 million Mexicans obtained legal permanent-resident status. That number fell by more than a million in the 2000s, to 1.7 million, according to the Department of Homeland Security. A key reason, little acknowledged by either nativists or multiculturalists, lies in the plummeting birth rate in Mexico, which is mirrored in other Latin American countries. Mexico’s birth rate has declined from 6.8 children per woman in 1970 to about 2 children per woman in 2011.

Plummeting birth rates suggest there will be fewer economic migrants from south of the border in coming decades. In the 1990s Mexico was adding about a million people annually to its labor force. By 2007 this number declined to about 800,000 annually, and it is projected to drop to 300,000 by 2030.

These changes impacted immigration well before the 2008 financial crisis. The number of Mexicans legally coming to the United States plunged from more than 1 million in 2006 to just over 400,000 in 2010, in part because of the 2008 financial crisis here. Illegal immigration has also been falling. Between 2000 and 2004, an estimated 3 million undocumented immigrants entered the country; that number fell by more than two thirds over the next five years, to under 1 million between 2005 and 2009.

Increasingly, our Latino population—almost one in five Americans between 18 and 29—will be made up of people from second- and third-generation families. Between 2000 and 2010, 7.2 million Mexican-Americans were born in the U.S., while just 4.2 million immigrated here.

This shift could spur the faster integration of Latinos into mainstream society, leaving them less distinct from other groups of voters, like the Germans or the Irish, whose ethnicity once seemed politically determinative. A solid majority of Latinos, 54 percent, consider themselves white, according to a recent Pew study, while 40 percent do not identify with any race. Most reject the umbrella term “Latino.” Equally important, those born here tend to use English as their primary language (while just 23 percent of immigrants are fluent in English, that number shoots up to 90 percent among their children).

To be sure, most Latinos these days vote Democratic. But they also tend to be somewhat culturally conservative. Almost all are at least nominally Christian, and roughly one in four is a member of an evangelical church. They also have been moving to the suburbs for the past decade or more—a trend that is of great concern to city-centric Democratic planners.

A more integrated, suburban, and predominantly English-speaking Latino community could benefit a GOP (assuming it eschews stridently nativist platform). After all, it wasn’t so long ago that upward of 40 percent of Latinos voted for the likes of George W. Bush, who won a majority of Latino Protestants.

More than race, family orientation may prove the real dividing line in American politics. Single, never-married women have emerged as one of the groups most devoted to the Democratic party, trailing only black voters, according to Gallup. Some 70 percent of single women voted Democratic in 2008, including 60 percent of white single women.

While the gender gap has been exaggerated, a chasm is emerging between traditional families, on the one hand, and singles and nontraditional families on the other. Married women, for example, still lean Republican. But Democrats dominate in places like Manhattan, where the majority of households are single, along with Washington, D.C., San Francisco, and Seattle.

In recent years Republican gains, according to Gallup, have taken place primarily among white families. Not surprisingly, Republicans generally do best where the traditional nuclear family is most common, such as in the largely suburban (and fairly affordable) expanses around Houston, Dallas, and Salt Lake City.

To be sure, Democrats can take some solace, at least in the short run, from the rise in the number of singletons. Over the past 30 years the proportion of women in their 40s who have never had children has doubled, to nearly one in five. Singles now number more than 31 million, up from 27 million in 2000—a growth rate nearly twice that of the overall population. And only one in five millennials is married, half that of their parents’ generation.

Yet as with Latino immigration, the trend toward singlehood is unlikely to continue unabated. Demographic analyst Neil Howe notes that living alone has been more pronounced among boomers (born 46–64) than millennials (born after 1980) at similar ages. Assuming marriage is delayed rather than dropped, it remains to be seen if the former singletons will maintain their liberal allegiance.

Varying birth rates also suggest that the Democrat-dominated future may be a pipe dream. Since progressives and secularists tend to have fewer children than more religiously oriented voters, who tend to vote Republican, the future America will see a greater share of people raised from fecund groups such as Mormons and Orthodox Jews. Needless to say, there won’t be as many offspring from the hip, urban singles crowd so critical to Democratic calculations.

And millennials are already more nuanced in their politics than is widely appreciated. They favor social progressivism, according to Pew, but not when it contradicts community values. Diversity is largely accepted and encouraged, but lacks the totemic significance assigned to it by boomer activists. They are environmentally sensitive but, contrary to new urbanist assertions, are more likely than their boomer parents to aspire to suburbia as their “ideal place” to live.

Some economic trends favor Republicans. Households, for example, are increasingly more dependent on self-employment, and the number relying on a government job is dropping as deficits and ballooning pension obligations force cuts in government payrolls. Republicans would do well to focus on these predominately suburban, private-sector-dependent families.

All this suggests that if they can achieve sentience, Republicans could still compete in a changing America continues changing. But first the party must move away from the hard-core nativist, authoritarian conservatism so evident in the primaries. Rather than looking backward to the 1950s, the GOP needs to reinvent itself as the party of contemporary families, including minority, mixed-race, gay, and blended ones.

'Protestant Ethic' 2.0: The New Ways Religion Is Driving Economic Outperformance

Joel Kotkin — Thu, 05 Apr 2012 20:55:31 +0000

Appearing in:

Forbes.com

In this season when most Americans are more concerned than usual with spiritual matters, it may be time to ask whether religion still matters. Certainly religiosity’s worst side has been amply on display in recent years, from the fanaticism of Islamic terrorists to the annoying sanctimoniousness of Rick Santorum.

On the surface, religion appears to be losing some of its historic influence. For the first time in a decade, according to a survey by the Pew Research Center, more Americans — excepting the Santorum base — want their politicians to talk less about faith as opposed to more.

Organized religion in particular may be losing its appeal, particularly among the young. According to recent surveys, religious affiliation in the United States appears to be declining somewhat and secularism is on the rise; over the past 40 years the percentage professing no religious affiliation has grown over 140 percent while the percentage of the deeply faithful dropped 15%. The share of the population who claim “no religion” has risen to 15% overall and 22% of those between 18 and 29, notes a 2009 study by researchers at Trinity College. If these trends continue, the non-affiliated could represent a larger part of our population than the largest denomination, the Catholic Church.

In large parts of the high-income world, notably Europe and parts of East Asia, the decline of religion is even more pronounced. Half of all Europeans, for example, have never attended a religious service, compared to just 20% of Americans. Roughly 60% of Americans, notes the Pew survey, consider religion important, twice the rate of Koreans, Japanese, Britons or even Canadians.

Given that some of these countries have performed about as well or better than the U.S. in recent years, one might conclude that the historic link between religious faith and material progress — so central to the work of Max Weber – has been irretrievably broken. Yet in reality, the religious connection with economic growth may be still far more important than is commonly supposed.

Many in the pundit class identify religion as something of a regressive tendency, embraced by the less enlightened, the less skilled, intelligent and educated. Yet some scholars, such as Charles Murray, point out that religious affiliation is weakening most not among the middle and upper classes but among the poorer and less educated who traditionally looked to churches for succor and moral instruction. Secularism may have not hurt the uber-rich or the academic overclass so far, but it appears to have helped expand our lumpenproleteriat.

Some might be surprised to learn that religious affiliation grows with education levels. A new University of Nebraska study finds that with each additional year of education, the odds of attending religious services increased by 15%. The educated, the study found, may not be eschewing religion, as social science has long maintained, even if their spiritual views tend to be less narrow, and less overtly tied to politics, than among the less schooled.

Overall the most cohesive religious groups — such as Mormons and Jews — still outperform their religious counterparts both in educational achievement and income. Both Jews and Mormons focus on helping their co-religionists, providing a leg up on those who depend solely on the charity of others or the state. In countries with a substantial historical Protestant influence such as Germany, Denmark, Sweden and the Netherlands continue to outperform economic the heavily Catholic nations like Italy, Ireland and Spain, according to a recent European study. The difference, they speculate, may be in Protestant traditions of self-help, frugality and emphasis on education. None of this, of course, would have been surprising to Max Weber.

Religious people also tend to live longer and suffer less disabilities with old age, as author Murray notes. Researchers at Harvard, looking at dozens of countries over the past 40 years, demonstrated that religion reinforces the patterns of personal virtue, social trust and willingness to defer gratification long associated with business success.

But perhaps the most important difference over time may be the impact of religion on family formation, with weighty fiscal implications. In virtually every part of the world, religious people tend to have more children than those who are unaffiliated. In Europe, this often means Islamic families as opposed to increasingly post-Christian natives. Decline in religious affiliation — not just Christian but also Buddhist and Confucian — seems to correlate with the perilously low birthrates in both Europe and many East Asian countries.

Singapore-based pastor Andrew Ong sees a direct connection between low birthrates and weakened religious ties in advanced Asian countries. As religious ideas about the primacy of family fade, including those rooted in Confucianism, they are generally supplanted by more materialist, individualistic values. “People don’t value family like they used to,” he suggests. “The values are not there. The old values suggested that you grow up. The media today encourages people not to grow up and take responsibility. They don’t want to stop being cool. When you have kids, you usually are less cool.”

Religious people, prepared to be seen as uncool, are more likely to seek to produce more offspring. In the United States 47% of people who attend church regularly see the ideal family size as three or more children compared to barely one quarter of the less observant. Mormons have many more children than non-Mormons; observant Jews more than secular. “Faith,” the demographer Phil Longman concludes, “is increasingly necessary as a motive to have children.”

This pattern is reflected in the geography of childbearing. Where churches are closing down, most particularly in core urban areas such as Boston or Manhattan, as well as their metropolitan regions, singletons and childless couples are increasing. In more religiously oriented metropolitan areas like Houston, Dallas-Fort Worth, Salt Lake City and Phoenix, the propensity to have children is 15% to nearly 30% higher (as measured by the number of children under the age of 5 per woman of child bearing age– 15-49).

In the future, many high-income societies, whether in East Asia, Europe or North America, may find that religious people’s fecundity is a necessary counterforce to rapid aging and eventual depopulation of the more secular population . The increasingly perilous shape of public finance in almost all advanced countries — largely the result of rapid aging and diminished workforces — can be ascribed at least in part to secularization’s role in falling birthrates.

There may be other positive fiscal effects of religiosity. Religious people donate on average far more to charities than their secular counterparts, including those unaffiliated with a religion. Nearly 15% of the religious volunteer every week compared to just 10% among the secular.

Social networks, much celebrated among the single, might provide people with voices, but religious organizations actually do something about meeting real human needs. Organized religion provides a counterweight to the European notion that we must rely on government for everything. Poor people educated or fed by the charities of mosques, churches, and synagogues relieves some of the burden faced by our variously tottering states and shredding social welfare nets. Aging baby boomers, notes author Ted Fishman, may be forced to rely more on the “kindness of strangers” from religious backgrounds to take care of them in their old age.

Sadly few prominent religious leaders deliver this message effectively, often preferring to scold non-believers. This is unfortunate since what the faithful do in the real world, at home and in their communities, may prove ever more crucial to the viability of our societies in the future.

How A Baby Bust Will Turn Asia's Tigers Toothless

Joel Kotkin — Thu, 29 Mar 2012 19:47:24 +0000

Appearing in:

Forbes.com

For the last two decades, America’s pundit class has been looking for models to correct our numerous national deficiencies. Some of the more deluded have settled on Europe, which, given its persistent low economic growth over the past 20 years and minuscule birth rates, amounts to something like looking for love in all the wrong places.

More rational and understandable have been those who have looked for role models instead in East Asia. After all, East Asia has been the world’s ascendant power for the better part of past 30 years. It is home to both China and Japan, the world’s second and third largest economies, as well as the dynamic “tiger” economies of Korea, Taiwan, Hong Kong and Singapore.

Thomas Friedman, long enamored by authoritarian leviathan China, recently praised the tiger countries as exemplars of forward thinking. He traces their strong emphasis on “highly effective teachers, involved parents and committed students” as keys to turning their resource-poor countries into first world successes.

Yet for all their laudably good school test scores, these tigers could turn somewhat toothless in the future. Already Japan, which fashioned the first great Asian model, is beset by a series of massive challenges including a lack of technological competitiveness and disastrously declining demographics. They also face competition from places like China and India, behemoths which may not equal the Tigers’ spectacular per-capita education numbers, but which can marshal overwhelming numbers of ambitious, educated and skilled people.

Many in the tiger nations recognize this competitive plight far more than their western cheerleaders. Some even wonder if they may even have been too rational and credential-obsessed for their own good. Like Japan after the Second World War, they invested heavily in educating their young people to excel on tests and work long hours . But this also fostered high levels of stress and hyper-competition that discourages both family formation and child bearing .

Singapore (where I serve as Senior Visiting Fellow at the Civil Service College) is arguably the best planned and most cleverly conceived of all the Tigers. Singaporeans live well — their per-capita incomes surpass those of Americans — but this edge is largely blunted by extremely high costs. As in all the Tiger countries, consumer goods like cars are extraordinarily expensive (a modest Korean model can run upwards of $75,000 or more in Singapore) and housing costs far higher than experienced by most Americans. In Hong Kong, notes researcher Wendell Cox, an average apartment, usually quite small, costs roughly twice as much as one in New York or San Francisco, two most elite metro U.S. markets, relative to income.

These conditions, observes Vatsala Pant, a former Nielsen executive and long-time Singapore resident, create what amounts to an accounting-like mentality about their lives. “Singaporeans seem to be born with a calculator in their heads,” she notes. “Every decision seems to weighed in a cost and benefit analysis, including such things as family. If it’s not perfect, they don’t want it.”

This turn from family represents a sharp break in these countries. All the “tiger” economies flourished based on a Confucian culture that places kinship at the top of the value pyramid. Parents are still widely revered, but Li Lin Chang, an associate director of the Lee Kuan Yew School of Public Policy, suggests that Singapore’s “Confucian roots may not be as evident and some may argue that it may have disappeared.”

Certainly increasing number of Singaporeans and others from Tiger countries are opting out of marriage. In 2000, 14% of women between age 30-39 chose to remain childless, according to demographer Gavin Jones of the National University of Singapore. By 2009, this figure has gone up to 20%. Jones estimates in some east Asian societies up to a third of all women will remain childless.

Japan, the original model for all these countries, is now leading the way off the demographic cliff. In Japan, notes researcher Mika Toyota, 20% of 50-year-old males have never married, up from 12 percent just a decade ago. By 2030, she estimates nearly 30% of 50-year-old males will have never wedded. And unlike the U.S. and Europe, very few people have children out of wedlock in East Asia, so no marriage means no children.

This plunge in marriage and family formation is not entirely voluntary. Few of the 40 or more Singaporean younger adults I have interviewed in recent months celebrated singleness like some of their Western counterparts. Most still wanted children and linked their reluctance to wed or to have babies on the high cost of living, intense competition in their workplace and even increasingly crowded mass transit.

“Most of my friends are not married,” one 35-year-old female civil servant told me. “They don’t want to be single but they are too busy with their work commitment. My friends are consumed by work. Money, status, prestige, climbing the ladder. You expect things to change when you get older but it doesn’t. The calculation just doesn’t work out”

For many of these people, not having offspring makes sense in terms of concentrating on career goals and reducing financial pressure. But it could prove a social disaster in the long run. All Tiger nations now suffer fertility rates roughly half the 2.1 children per household needed to replace the current population. By 2030 these countries could have fewer people under 15 than over 60.

Not surprisingly, many Tiger country policymakers place a priority on producing more cubs. Most offer highly generous packages of support offered to those willing to take the nativity plunge. Some who have children cope with entrenched male reluctance to share in child-raising by relying on low-cost maids, often from the Philippines and other poorer countries. A recent move by the Singapore government to require giving maids the day off elicited howls of protests from female professionals, who, as authors Teo You Yenn and Vivienne Wee put it, regard “care of one’s own offspring as tedious, beneath oneself and rightfully the responsibility of a hired woman.”

Some professionals who desire children consider taking their finely honed skills elsewhere. A recent survey by the MRI China Group showed that a majority of professionals surveyed in Taiwan and some forty percent in Singapore, as well as roughly one-third of those in Hong Kong, were actively looking to relocate to another city. Most covet a move to less high-pressure, lower-density Australia or New Zealand. Others, particularly from Taiwan, are attracted to greater opportunities in China.

There may not be too much the bureaucracies can do immediately to address these problems. Clearly adding more degrees per capita or bringing in more foreign expertise, as is common in Singapore and Hong Kong, has not addressed looming baby shortage. Instead, as one one young University researcher put it, “we need a new mindset.”

Most particularly, these countries need to change the incentives that, albeit unintentionally, create unsustainable levels of singleness, childlessness and the prospect of massive, rapid aging of their societies. They may have to consider more flexible work-styles, the promotion of home based business and better use of their limited space. Individual entrepreneurship, more rooted in each country and able to meld with family life, could be stressed as a counterbalance to employment in often fickle multinational corporations who can always move to greener, or at least cheaper, locales.

More difficult still will be shaping attitudes that restore the primacy of family that propelled these societies in the first place. This is an existential challenge that would have seemed unimaginable 40 years ago when these countries fretted about overpopulation and widespread poverty. But success in the future can not be purchased by simply continuing what has worked so well for a generation. To avoid a toothless future, the Tigers need to unlearn some of the secrets of their past success.

The Expanding Wealth Of Washington

Joel Kotkin — Mon, 19 Mar 2012 16:28:00 +0000

Appearing in:

Forbes.com

Throughout the brutal and agonizingly long recession, only one large metropolitan area escaped largely unscathed: Washington, D.C. The city that wreaked economic disasters under two administration last year grew faster in population than any major region in the country, up a remarkable 2.7 percent. The continued steady growth of the Texas cities, which dominated the growth charts over the past decade, pales by comparison.

Boom times in the capital — particularly amidst a weak recovery elsewhere — are driving this growth. Since 2007, notes Stephen Fuller at George Mason University, the D.C. region’s economy has expanded 14 percent compared to a mere 3 percent for the rest of the country. Washington’s unemployment never scaled over 7 percent, well below the national average, and is now down to around 5.5 percent, about the lowest of any major metropolitan area. Unemployment of course is much higher, reaching 25 percent, in some of the district’s poorer neighborhoods.

This prosperity is rooted largely in the steady growth of the federal workforce, as federal spending accounts for one-third of the region’s economy. Over the past decade 50,000 bureaucratic jobs have been added in the area while local federal spending grew 166 percent. The D.C. region, with but 5 percent of the nation’s population, garners more than three times that percentage in payroll and more than four times that percentage in procurement dollars.

This debt-financed gusher has helped expand the economy beyond simply federal workers. You think California is the biggest beneficiary of the current tech boom? Think again. Washington’s tech sector employment , according to an analysis by Economic Modeling Systems Inc., has expanded by over 5 percent since 2009, more than twice the national and California average of barely 2 percent. California may have Facebook, Google and Apple, but Washington tech has federal agencies, the defense establishment, a growing media sector and the lobbying industry to feed upon.

Washington also ranks fourth in middle-income job growth, with employment in that category expanding at four times the national average over the past two years. The relatively higher salaries — and far better benefits — propel even modestly educated workers into middle incomes. The recession may have been brutal for the middle class, but not those who work for Uncle Sam. Not surprisingly, according to Gallup, Washingtonians are the most optimistic in the country about the improvements in the economy.

This, of course, did not start with the Obama administration’s relentless expansion of federal power. The Washington region has been growing steadily — well ahead of all major eastern regions — for a generation. The expansion of defense spending under President Ronald Reagan and then again under George W. Bush helped create wealthy suburbs around the city; four of the nation’s five wealthiest counties (the other is in suburban New Jersey) and nine of the top 15 are located in the Virginia and Maryland suburbs around the capital. These counties all enjoy median house incomes over $100,000, twice the national average.

But the biggest change has occurred in the district itself, which last led the nation in population growth in the early 1940s. The hopelessly dysfunctional, crime-ridden city of the era of four-term Mayor Marion Barry in the 1970s and ‘80s has been left behind like the much-maligned 19th century swamp town that aspired to be the next Paris but was widely regarded by diplomats as a hardship posting. Barely three decades after its founding, the city had “not a single great mercantile house,” a foreign dignitary observed in 1811-12, according to “The Age of Federalism,” by Stanley Elkins and Eric McKittrick, and had “a total absence of all sights, smells, or smells of commerce.”

Washington may still not be a great center of real commerce, where people make things or risk their livelihoods on ideas. But it thrives as the marketplace for the collusional capitalist state that has been growing for decades and may now be at its apex. Offices fill with well-paid lobbyists and lawyers, and their service help, as they protect the interests of investment banks, real estate interests and unions that are increasingly influenced by Washington. The central area has been revived by new condo, hotel and office developments. It may still not be Paris, or even Chicago’s Gold Coast, but it’s a fair bit better than the drab, dangerous place of 30 years ago.

No one should ever disparage the success of a region, but there is something disturbing in D.C.’s recent rise. Most expansions of the federal region came to meet a perceived national challenge: the Depression, the Second World War, the Cold War, the Space Race and the Civil Rights movement. Since the Depression, Washington’s “good times” usually have paralleled that of the rest of the country. Only now do we see a “new normal” where Washingtonians, like the pigs in Orwell’s Animal Farm, seem “a bit more equal” than the rest of us.

Will this trend continue? The outcome of the election may prove determinative. In a second Obama term – which should bolster the power of agencies such as the EPA, Energy and Justice – the federal grip on daily life will expand. This could greatly expand the appeal of being close to the capital. When everything from zoning and the location of industrial plants and healthcare is under Washington’s control, the capital could conceivably even emerge as a challenger to New York’s two century reign as the country’s most important city.

Yet as the Washington Post’s Steve Pearlstein points out, this ascendency could be curtailed. Even under a second Obama administration, he notes, “the federal gravy train” could be derailed, with inevitable cuts in spending. Steve Cochrane at Moody Analytics suggests that the Washington as “the leader in terms of job growth and economic strength are really over.”

The election certainly will determine which part of the Washington ox get gored. If Democrats rule, one can expect these cuts to come in large part at the expense of defense firms, which, after all, now tilt to the Republicans. This could be particularly tough on the suburbs, where many military contractors reside.

More dangerous still would be a Republican sweep, which would bring a budget-cutting mentality back to the White House, particularly on the social spending and regulatory apparatus dear to many Democrats . These jobs tend to be in the district. Even a renewal of the current balance of power threatens federal expansion since the House still holds the appropriation purse strings. The oxygen that sustains Washington seems likely to be cutback in any case.

None of this, however, means that D.C. is about to slip back to its dystopian past, much less its swampy roots. The region boasts the nation’s wealthiest and best-educated population. This could give it a leg up on other areas in the tech and business service job markets. Many millennials may find a steady career in the bureaucracy safer, and even more satisfying, than finding places in a slow-growing, hyper-regulated private sector economy.

Yet the key lies to Washington’s future may lie with the fate of the national economy. Eighty years of relentless federal expansion has created a relentless parasite that knows how to feed on its host. But if that host weakens, so too will the federal state. To sneak an early pick for this scenario, hop a flight to Madrid, Rome or Athens, where being tied to the bureaucracy no longer provides exemption from the vicissitudes of economic struggle.

Rick Santorum’s Ugly Appeal to Rural Voters

Joel Kotkin — Fri, 16 Mar 2012 20:22:43 +0000

Appearing in:

The Daily Beast

Not all of them are “clinging to guns and religion,” as Barack Obama famously said in 2008, but Rick Santorum has catapulted to the top of the Republican field by connecting with a bitter streak among rural voters. This is bad news for the Republican party and for rural America, which in fact has some pretty good reasons to be optimistic.

Urbanites, Santorum told South Carolinians in January, have “a whole different value structure…They’re not going to be participating in small-town life. They’re not going to be connected to mainstream America or to God and his creation.”

Those voters have returned the contempt, with Mitt Romney consistently winning in larger metropolitan areas. Rick Santorum, by contrast, has from his campaign’s modest beginnings in the small towns of Iowa drawn the bulk of his support from the least-populated counties.

“I kept saying, you just stick with us, you go out and vote for your values and trust what you know,” Santorum said after his victory in the Kansas caucuses in March. “Because you don’t live in New York City. You don’t live in Los Angeles. You live like most Americans in between those two cities, and you know the values you believe in.”

Santorum—who last I checked lived in swank, suburban Washington—has become the candidate of rural and small-town inertia, representing the isolated, aging, often modestly educated and overwhelming white residents nostalgic for a fading past. The Santorum worldview, following a tradition that well precedes Sarah Palin, portrays a wholesome, small-town middle America fighting a desperate battle against corrupt coastal big-city “elites.”

The problem for the party if he somehow emerges as the Republican nominee is that most voters live in metropolitan areas. Just 16 percent of Americans live on farms, small hamlets, and villages. The problem for those rural Americans is that Santorum’s campaign of complaint appeals to and reinforces the worst stereotypes of rural life, while overlooking the brighter future already emerging in much of the hinterland.

Rural America, particularly the vast region known as the Great Plains, appears to be on the verge of an economic and cultural renaissance. I live in Los Angeles, but have witnessed a remarkable change in both on the ground reality and mood during numerous visits to and studies of rural areas over the past decade. When I first starting going to Fargo, North Dakota, it seemed just a listless prairie town; today it is full of high-tech firms and boasts a downtown bustling with a vibrant, youthful population of attractive, largely Nordic revelers.

To be sure, many small towns in the Plains and elsewhere are shrinking and some will disappear entirely in the coming decades. But larger towns like Fargo, Bismarck, Sioux Falls, Omaha, as well as many smaller ones, now boast the strongest economies in the country—with low unemployment and strong job and income growth. Most of these cities enjoy positive in-migration not only from the rural hinterland, but from the densely packed coastal areas. The Plains’ population growth is already outpacing the national average, and is even further ahead of the urban core cities so celebrated in the media.

Santorum seems to have missed something in his travels back in time. He may appeal to an imagined, largely self-contained rural Eden—but he’s mostly ignored the global economics that have fueled the rural resurgence.

Start with the basics: the production of food and fiber, which is fundamental not only to the Plains but to the Midwest, central California and the cotton-growing regions of the Southeast, Arizona, and west Texas. It’s the global demand for these products that has created good times in small towns. In 2011, the U.S. exported a record $135 billion in food and fiber, with a net positive balance of $47 billion, the highest in nominal dollars since the 1980s. Santorum as a senator opposed NAFTA and now talks about engaging in a trade “war” with China. Yet developing countries constitute rural America’s fastest-growing market. Many nations lack the water and land resources to feed themselves at a higher per-capita level of consumption; Beijing has acknowledged this by effectively dropping the old Maoist goal of self-sufficiency.

Foreign investment flows have also benefited rural communities, particularly in the Southeast and the Plains. Firms are investing in critical sectors such as manufacturing and energy that benefit rural communities. Industrial investment rose $30 billion just between 2009 and 2010, while investment in the energy sector more than tripled to $20 billion.

Japanese, German, and Korean manufacturers are primary players laying the foundation for a rural and small-town resurgence across the long-suffering rural Southeast. Last year, Mercedes, whose largest U.S. plant is in Tuscaloosa, Ala., invested $350 million in the facility. Arch competitor Volkswagen last year announced it will build a new assembly plant in Chattanooga, Tenn. Nissan, Toyota and Kia have all announced major new plant openings or expansions in the region, mostly in small rural towns (and, it’s worth mentioning, in “right-to-work” states that don’t allow closed union shops). When Toyota recently announced plans to establish a plant for the Prius near Tupelo, Mississippi (the birthplace of Elvis), they received 35,000 applications for 1,300 positions.

At the same time, increased fossil-fuel demand in global markets has sparked energy giants from China, France, and Spain to take up stakes in fields in Ohio, Mississippi, Colorado, and Michigan. A smart, globally minded Republican would be pushing these investments, which are already creating boom from North Dakota to south Texas. President Obama’s urbane academician’s obsession with subsidizing renewable energy and barely disguised disdain for fossil fuels represents a threat to the continued prosperity of many rural communities and small towns.

Critically, Santorum’s regressive social views—his tone of resentment as much as the particulars—belies the kind of openness needed for a full-scale rural revival. In the real world, rural America is becoming increasing diverse and dependent on immigrant labor.

Plains towns like Grand Island, Nebraska, are filling up with Mexican or Honduran restaurants. The percentage of foreign-born Nebraskans has more than tripled since 1990. The GOP electorate in the Cornhusker State may be overwhelmingly white, but the demographic trends suggest this won’t always be the case—so long as the party can avoid alienating these new arrivals.

In many places Hispanics constitute the major counterforce to wholesale depopulation. Every county except one in the western half of Kansas suffered depopulation of non-Hispanic whites during the past decade, while Hispanics have offset or even exceeded the decline in white population—filling schools and opening businesses in the process. Hispanic residents have pushed from hubs like nearby Dodge City, Garden City, and Liberal into ever smaller communities, buying property on the cheap, enticed, many say, by the opportunity to live quiet lives in communities more similar to those in which they were raised.

Of course many people—notably some of the older white voters flocking to Santorum—are hostile to these realities. And in the short run, appealing to anti-immigrant sentiments may pay off in the Republican primary. But over time, if they are to survive, many rural communities will either adjust to diversity or simply disappear.

But perhaps the worst betrayal of rural America lies in denying the aspirations of these places to shed off the historic isolation and overdependence on natural resources that have long dogged them. Santorum may consider a college education “elitist,” and see public schools as akin to “factories,” but in many parts of the Great Plains and elsewhere excellent public schools are cherished by Republicans and Democrats alike. A core competitive advantage of many rural states lies in their surplus of highly educated young people. Students in Nebraska, the Dakotas, Montana, and Idaho tend to perform better in school than those in more metropolitan ones (as measured by graduation rates, college attendance, and enrollment in upper-level science and education programs).

These educational advantages are being bolstered by in-migration now tilted toward younger families seeking opportunity, affordable housing, greater social cohesion and better schools. And with generally stronger fiscal balance sheets, due largely to the booming agriculture and energy sectors fueled by international demand, many rural states are expanding their public university systems even as states like California are cutting theirs.

By appealing to perceived deficiencies in rural communities, Rick Santorum downplays all these positive forces. Much of rural America is already booming, and, connected by the Internet, investment, and trade, can play an important role in the American future. Appealing to nostalgia about a past fading into history is not the way to get there.

The Republican Party's Fatal Attraction To Rural America

Joel Kotkin — Wed, 14 Mar 2012 21:30:19 +0000

Appearing in:

Forbes.com

Rick Santorum’s big wins in Alabama and Mississippi places the Republican Party in ever greater danger of becoming hostage to what has become its predominate geographic base: rural and small town America. This base, not so much conservatives per se, has kept Santorum’s unlikely campaign alive, from his early win in Iowa to triumphs in predominately rural and small-town dominated Kansas, Mississippi, North Dakota and Oklahoma. The small towns and rural communities of states such as Michigan and Ohio also sheltered the former Pennsylvania senator from total wipeouts in races he would otherwise have lost in a blowout.

If America was an exclusively urban or metropolitan country, Mitt Romney would be already ensconced as the GOP nominee and perhaps on his way towards a real shot at the White House. In virtually every major urban region — which means predominately suburbs — Romney has generally won easily. Mike Barone, arguably America’s most knowledgeable political analyst, observes that the cool, collected, educated Mitt does very well in affluent suburbs, confronting President Obama with a serious challenge in one of his electoral sweet spots.

Outside the Mormon belt from Arizona to Wyoming, however, sophisticated Mitt has been a consistent loser in the countryside. This divergence between rural and suburban/metro America, poses a fundamental challenge to the modern Republican Party. Rural America constitutes barely 16 percent of the country, down from 72 percent a century ago, but still constitutes the party’s most reliable geographic base. It resembles the small-town America of the 19th century, particularly in the South and West, that propelled Democratic Party of Nebraska’s William Jennings Bryan to three presidential nominations.

Yet like Bryan, who also lost all three times, what makes Santorum so appealing in the hinterlands may prove disastrous in the metropolitan regions which now dominate the country. Much of this is not so much particular positions beyond abortion, gay rights, women’s issues, now de rigueur in the GOP, but a kind of generalized sanctimoniousness that does not play well with the national electorate.

We can see this in the extraordinary difference in the religiosity between more rural states, particularly in the South, and the rest of country. Roughly half of all Protestants in Mississippi, Alabama and Oklahoma, according to the Pew Center on Religion and Public Life, are evangelicals, not including historically black churches. In contrast, evangelicals make up a quarter or less of Protestants nationally and less still in key upcoming primary states such as Pennsylvania, New York, California and Connecticut, where the percentages average closer to 10 percent.

Let me be clear: Urbanity is not the key issue here. Cities have become so lock-step Democratic as to be essentially irrelevant to the Republican Party. Instead it’s the suburbs — home to a record 51 percent of the population and growing overall more than 10 times as fast as urban areas — that matter the most. Much of the recent suburban growth has taken place in exurbs, where many formerly rural counties have been swallowed, essentially metropolitanizing the countryside.

What accounts for the divergence between the suburban areas and rural areas? A lot may turn on culture. Small towns and villages may be far from the isolated “idiocy of rural life” that Marx referred to, but rural areas still remain someone more isolated and still somewhat less “wired” in terms of broadband use than the rest of the country.

Despite the popularity of country music, rural residents do not have much influence on mainstream culture. Most Hollywood executives and many in New York still commute from leafy ‘burbs. Few of our cultural shapers and pundits actually live predominately in the countryside, even if they spend time in bucolic retreats such as Napa, Aspen or Jackson Hole.

Until the recent commodity boom, much of rural America was suffering. And even today, poverty tends to be higher overall in rural areas than in urban and especially suburban countries. Some areas, notably in North Dakota and much of the Plains, are doing very well, but rural poverty remains entrenched in a belt from Appalachia and the deep South to parts of west Texas, New Mexico and California’s Central Valley.

Rural areas generally do not have strong ties to the high-tech economy now leading much of metro growth. This remains a largely suburban phenomenon, urban only if you allow core cities to include their hinterlands. All the nation’s strongest tech clusters — Silicon Valley, Route 128, Austin, north Dallas, Redmond/Bellevue in Washington, Raleigh-Durham — are primarily suburban in form. High tech tends to nurture a consciousness among conservatives more libertarian than socially conservative and populist. Not surprisingly, libertarian Ron Paul often does best in these areas and among younger Republican voters.

Another key difference: a lack of ethnic diversity. There are now many Hispanics living in rural areas, but they are largely not citizens and most are recent arrivals, attracted by jobs in the oil fields, slaughterhouses and farms. Many small towns, unlike suburbs, remain more homogeneous than suburbs, emerging as the most heterogeneous of all American geographies. Ethnic cultural cross-pollination occurs regularly in metropolitan suburbs; this is not so common in rural America.

Equally important, environmental issues spin differently in rural areas than in suburbs. Energy development and agriculture drive many rural economies. In some areas, like Ohio and western Pennsylvania, shale oil and gas is bringing long moribund regions back to life. In the Dakotas, parts of Louisiana, Texas and Wyoming, it is ushering in a potentially long-term boom. In contrast, there aren’t many oil and gas wells located next to malls and big housing tracks.

This does not mean that suburban voters share the anti-fossil fuel green faith of the urban core. But for them “drill baby drill” represents more a matter of price at the pump than a life and death issue for the local economy. Suburbanites feel the energy issue, but do not live it the way more rural communities do. One of the great ironies of American life is that those who live closest to nature are often less ideologically “green” than those, particularly urbanites, residing in an environment of concrete, glass and steel.

Rural America, of course, is changing, with many areas, particularly in the Plains, getting richer and better educated. These areas are growing faster than the national average and attracting immigrants from abroad and people from other U.S. regions. Yet the influence of newcomers, new wealth and new technology is still nascent. The political pace in rural America today still is being set by an aging, overwhelmingly white and modestly educated demographic.

Until the Republican nomination fight is settled, the party’s pandering to the sensibilities of such conservatives in rural areas could prove fatal to its long-term prospects. A Santorum nomination almost guarantees a replay of the Bryan phenomena; no matter how many times he runs, he will prove unlikely to win, even against a vulnerable opponent. Even in losing, his preachy, divisive tone — on contraception, prayer, the separation of church and state — has opened a gap among suburban voters that Obama will no doubt exploit.

The suburbs, with its preponderance of white, middle income independent voters, gave the 2008 election to Obama, and that’s where the next contest will be decided. The countryside will rally to a GOP standard bearer like Romney, albeit somewhat reluctantly, for both economic and social reasons. The battle will then shift to the suburbs, including those urban areas, common in the vast cities of the South and West, that are predominately suburban in form.

Most of the urban core, meanwhile, will vote lockstep for Obama. But the president, as thoroughly a creature of urban tastes and prejudice as to ever sit in the White House, could prove vulnerable in the suburbs, if the Republicans can deliver a message that is palatable to that geography’s denizens.

Foreign Industrial Investment Is Reshaping America

Joel Kotkin — Wed, 07 Mar 2012 04:11:11 +0000

Appearing in:

Forbes.com

Declinism may be all the rage in intellectual salons from Beijing to Barcelona and Boston, but decisions being made in corporate boardrooms suggest that the United States is emerging the world’s biggest winner. Long the world leader as a destination for overseas investment, the U.S. is extending its lead as the favored land of overseas capital.

Since 2008, foreign direct investment to Germany, France, Japan and South Korea has stagnated; in 2009, overall investment in the E.U. dropped 36%. In contrast, in 2010 foreign investment in the U.S. rose 49%, mostly coming from Canada, Europe and Japan. The total was $194 billion, the fourth highest amount on record.

Foreign investment is already reshaping the American economic landscape, shifting wealth and income from differing regions. The transformative role is nothing new. After all, the country started as a colony of England, and for much of the 19th century remained dependent on European investors for everything from building canals to railroads. Without European capital, the settlement of the West and the rise of cities such as New York would have been far slower.

Today this pattern is re-asserting itself as foreign countries rediscover America’s intrinsic advantages: a huge landmass, vast natural resources, a large, expanding consumer market and a relatively predictable legal system. Our relatively vibrant demographics — at least before the Great Recession depressed birthrates and immigration — marks a strong contrast with such key countries as Japan, South Korea and Germany, all of which are aging far more rapidly than the United States. China’s authoritarian political system leaves many investors reluctant to expose themselves too much to the regime’s often less than tender mercies.

The investment boom is concentrated not so much in the most celebrated sectors, such as tech or trophy real estate, but in the more basic industries that are best suited to our large, resource-rich country. Investment in the burgeoning energy sector more than tripled to $20 billion between 2009 and 2010. Some of this investment has come into the renewable industry, where Europe and China also have heavily subsidized companies, but the vast bulk has been devoted to the country’s expanding production of oil and gas.

The shale revolution in particular has attracted foreign interest. Energy firms from China, France and Spain have all placed major investments in the shale fields of Ohio, Colorado and Michigan. French giant Total recently paid $2.3 billion for minority stakes in the vast oil and gas holdings of Chesapeake Energy.

Perhaps even more important has been a surge in industrial investment, which rose $30 billion just between 2009 and 2010. Much of this growth is concentrated in the chemical industry as well as automobile, steel and other transportation sectors. It is also heavily focused on the southeastern states and Texas — the very places that most surveys reveal have the most hospitable business climates. According to a recent study by Site Selection magazine, the five states with the best business climates and 10 of the top 12 are from the old Confederacy.

Foreigners, particularly from large global corporations, are not stupid. They also are not burdened as much as domestic firms with legacy costs or romantic attachments to traditional industrial bailiwicks. “At the end of the day, a company looks at a whole nation and looks at the factors that matter most, like ease of doing business,” notes Bill Taylor, who for 17 years headed up Mercedes’ U.S. operations. “The Southeast has that and has a workforce willing to be engaged. They have found the area to be very fertile ground.”

This has certainly been true for companies such as Mercedes, whose largest U.S. plant is in Tuscaloosa, Ala. Last year the company invested $350 million in the facility.

Nor is Mercedes alone. Arch competitor Volkswagen last year announced it will build a new assembly plant in Chattanooga, Tenn. Nissan, Toyota and Kia have all announced major new plant openings or expansions over the past three years throughout the region.

These are not inconsequential investments. With the average cost of building these facilities at over $1 billion, and the higher-paying manufacturing jobs they represent, such plants represent major employment generators. They also bring with them parts suppliers and other industries related to auto manufacturing. Alabama, for example, has seen major steel mill investments, including $4.6 billion from Germany’s Thyssen Krupp.

Over the next decade, these investments could transform the nation’s industrial structure. Alabama and Kentucky already produce almost as many cars as Michigan. According to the U.S. Dept. of Labor, Michigan still leads the country in auto employment with 181,000 jobs, followed by Indiana. But the next three states are Kentucky, Tennessee and Alabama.

Why is this happening? Managers in foreign firms, suggests Taylor, who previously worked for Ford and Toyota, believe Southern workers have not picked up the bad habits and work rules common among their unionized Midwestern brethren. Unions certainly are much less of an issue in the Southeast. Though Alabama has seen a huge jump in the number of its auto workers in recent years, according to its state department of labor, only 7,100 are unionized. Nationwide, according to the Bureau of Labor Statistics, around 12 percent of workers belong to unions, compared to just over 10 percent in Alabama. Less than 5 percent of workers in Georgia, Texas, South Carolina, Virginia and North Carolina belong to them.

Unions are not the only issue. The South also enjoys a strong network of rail and highway lines that make transport to key markets easy and affordable. Energy costs tend to be lower. Furthermore, many Southeastern port cities — notably Houston, Charleston, Mobile, Hampton Roads — have made big infrastructure investments in recent years.

The Southeast also plans to become a research hub for the auto industry. The Clemson University International Automotive Research Center is the nation’s only school to offer a Ph.D. in automotive engineering and has secured $200 million in commitments. Additionally, the South Carolina center has created partnerships beyond auto manufacturers with other universities in the area: Auburn, Mississippi State, Alabama, Alabama-Birmingham, Kentucky and Tennessee.

The overall impact of the Southeast’s auto industry may not be fully felt for a few years. But long-term prospects are excellent. U.S. manufacturers, notably GM and Chrysler, make most of their money on fuel-guzzling trucks and SUVs. GM’s Volt, its much-hyped fuel-efficient car, has so far proved an expensive dud. In contrast, the major foreign manufacturers — particularly Volkswagen, Honda, Toyota, and Kia — have long experience in building reliable, fuel-efficient cars. Demographically the high-end makers, notably BMW and Mercedes, increasingly dominate the luxury market, particularly among younger customers.

Battle tested in world markets, these firms — and their counterparts in steel and other metals-related industries — are successful competitors and reliable employers. Overall, according to the U.S. Department of Commerce, foreign manufacturing firms, in autos and elsewhere, have proven far less susceptible to layoffs than their domestic competitors. They also tend to offer higher salaries on average than U.S.-based firms.

Some observers, such as the American Prospect’s Harold Meyerson, decry these investments. He believes foreign firms, particularly from Europe, come to “slum.” America, as he puts it, is where Europeans now go “to get the job done cheap.”

Meyerson points out, correctly, that these companies generally invest in mostly Southern “right to work” states in order to avoid entanglements with unions. They also avoid stricter environment controls in green-dominated juristictions such as California. Not surpsingly these plants are often seen as regressive at Berkeley salons or at AFL-CIO headquarters. But they may seem far more congenial in the historically poor backwaters of the Southeast , long lacking in steady, relatively well-paid and skilled work.

When Toyota recently announced plans to establish a plant for the Prius near Tupelo, Miss., (birthplace of Elvis), one imagines few locals were singing the blues. Instead the new plant received 35,000 applications for 1,300 available spots.

To be sure, these new jobs may not pay as well as top-grade UAW contracts, and a lack of unions could expose workers to undue management pressure. But in an economy where $8 hour jobs are king, an entry level job that involves learning technical skills and starts at $14 may appear akin to manna from heaven .

Of course, some will denounce this “foreign” influence as pernicious or even neo-colonialist. But the overseas investment surge might also be seen as confirming, once again, that at least some places in the country remain fields of opportunity for people other than geeks, corporate rent-seekers or investment bankers.

Is Energy the Last Good Issue for Republicans?

Joel Kotkin — Tue, 06 Mar 2012 01:51:20 +0000

Appearing in:

The Daily Beast

With gas prices beginning their summer spike to what could be record highs, President Obama in recent days has gone out of his way to sound reassuring on energy, seeming to approve an oil pipeline to Oklahoma this week after earlier approving leases for drilling in Alaska. Yet few in the energy industry trust the administration’s commitment to expanding the nation’s conventional energy supplies given his strong ties to the powerful green movement, which opposes the fossil-fuel industry in a split that’s increasingly dividing the country by region, class, and culture.

But Republicans, other than the increasingly irrelevant Newt Gingrich, have failed to capitalize on the potent issue, instead lending the president an unwitting assist by focusing the primary fight on vague economic plans and sex-related side issues like abortion, gay marriage, and contraception. The GOP may be winning over the College of Cardinals, but it is squandering its chance of gaining a majority in the Electoral College, holding the House, and taking the Senate.

No single sector affects more people and industries than energy, and none is more deeply affected by the disposition of government. Energy divides the nation into two camps. On one side there are the regions and industries dependent on the development and use of energy. They include the increasingly expansive energy-producing region stretching from the Gulf Coast and the Great Plains to parts of Ohio, Pennsylvania, and the Appalachian range.

The centers of energy growth, including areas stretching from the Gulf Coast through the Great Plains to the Canadian border, have generated the highest levels of job and income growth over the past decade (along with parasitic Washington, D.C.).

Nine of the 11 fastest-growing job categories are related to energy production, according to an analysis by Economic Modeling Systems Inc. Energy jobs pay an average of $100,000 annually, about the same as software engineers earn in Silicon Valley.

Perhaps more important politically, this bonanza is now spreading to historical battleground states Ohio, Pennsylvania, and Michigan. Long-depressed areas like western Pennsylvania are reversing decades of decline as new finds and advances in natural-gas drilling have opened up vast new stores of domestic energy. The new energy wealth has created new jobs, enriched property owners, and provided states with potential huge new sources of revenue.

On the other side of the energy divide stand a handful of dense, mostly coastal metropolitan areas with either little in the way of energy resources or, in the case of California’s most affluent urban pockets, little interest in exploiting them. With a shrinking industrial base and less dependence on automobiles, these areas now constitute the political base for the both the Democratic Party and the growing green-industrial complex, which boasts strong ties to Silicon Valley’s well-heeled venture-capital “community” and their less celebrated, but even wealthier, Wall Street allies.

In these places, the current fossil-energy boom is regarded less as a boon than as an environmental disaster in the making, a view captured in the unrelenting attack on shale development in the news pages of The New York Times and other outlets in broad sympathy with the Obama administration. New production of low-cost, low-emission natural gas also threatens the viability of politically preferred renewables such as solar and wind. But unlike fossil fuels, such “green” initiatives have created very few jobs; overall, the promise of “green jobs,” as even The New York Times has noted, has failed to live up to its hype.

Given the success in the other energy states, California—with double-digit unemployment—might reconsider its policies, but this is unlikely. “I asked [Gov.] Jerry Brown about why California cannot come to grips with its huge hydrocarbon reserves,” John Hofmeister, a former president of Shell Oil’s American operations and a member of the U.S. Department of Energy’s Hydrogen and Fuel Cell Technical Advisory Committee, told me recently. “After all, this could turn around the state."

Brown’s answer, according to Hofmeister: “This is not logic, it’s California. This is simply not going to happen here.’”

But elsewhere in the U.S., new technologies such as hydraulic fracking and vertical drilling have vastly increased estimates of North America’s energy resources, particularly natural gas. By 2020, the United States, according to the consultancy PFC Energy, will surpass Russia and Saudi Arabia as the world’s leading oil and gas producer.

As President Obama has acknowledged, this surge of production boasts some great economic benefits. American imports of raw petroleum have fallen from a high of 60 percent of the total to less than 46 percent. Overall, according to Rice University’s Amy Myers Jaffe, U.S. oil reserves now stand at more than 2 trillion barrels; Canada has slightly more. She pegs North America’s combined reserves at more than three times the total estimated reserves of the Middle East and North Africa.

At the same time, energy exploration is sparking something of an industrial revival. The demand for new rigs, pipelines, and a series of new petrochemical facilities has created a burst of industrial production across much of the country. Steel mills, makers of earth-moving equipment, and construction suppliers all have benefited. A recent study by PricewaterhouseCoopers suggests shale gas could lead to the development of 1 million industrial jobs. Not surprisingly, some of the biggest backers of shale-gas exploration are prominent CEOs from industrial firms.

Energy policy may also be critical for the future of the Great Lakes–based American auto industry. Despite expensive PR ventures like the electric Chevy Volt, the Big Three depend for profits largely on SUVs and trucks. High oil prices will only help their competitors from Japan, South Korea, and Germany, all of which are ramping up in the emerging Southeastern auto corridor. Rising oil prices could also raise the costs of food production, which relies heavily on energy-intensive fertilizers and machinery.

Aware of the negative consequences for a still-weak recovery, President Obama has started to mount a defense for his energy policies. Last month he launched several preemptive strikes, claiming credit for rising U.S. production while ridiculing Republicans for their “drill, baby, drill” response to rising energy prices.

Obama is correct in asserting that increases in domestic production will not solve the energy price issue overnight, or even in the near future. But it was disingenuous for him to then take credit for the current energy boom, which resulted largely from policies adopted during the Bush years, while Obama’s policies have, if anything, slowed exploration and development.

It’s fairly clear that the president and his team—notably Energy Secretary Steven Chu and Interior Secretary Ken Salazar—are at best ambivalent about greater fossil-fuel development. Obama, for example, recently proposed cutting tax breaks and subsidies for the oil industry, which he estimated at $4 billion annually—a new expense for the companies that would in large part be passed on to consumers at the pump.

This is not necessarily a bad thing in its own right, but along with the effective tax hike, Obama proposed doubling down on the much larger and, to date, far less productive giveaways to the green-industrial complex, which received $80 billion in loans and subsidies in the 2009 stimulus. According to various studies, including the Energy Information Agency, solar firms enjoy rates of subsidization per kilowatt hour at least five times those gained by fossil-fuel firms.

If all energy subsidies were removed, the fossil-fuel industry likely could shrug off the hit, while the heavily subsidized green-industrial complex would markedly diminish. Yet even if Congress refuses to continue the green subsidies, it’s probable that administration regulators would find ways to slow fossil-fuel expansion in a second Obama term. Responding largely to the Democratic environmental lobby, they have already overruled the State Department to delay the Keystone XL pipeline from Canada. Plans for new multibillion-dollar petrochemical plants on the Gulf will make easy pickings for federal regulators from agencies now controlled by environmental zealots.

“The energy states feel they are being persecuted for their good deeds,” says Eric Smith, director of the Tulane Energy Institute in New Orleans. “There is a sense there are people in the administration who would like this whole industry to go away.”

In the short run, Obama’s political exposure in the energy wars is somewhat limited. Most of the big-producing states—Oklahoma, Wyoming, Utah, Texas, Louisiana, Alaska, and North Dakota—are unlikely to vote for him anyway. Nor does he have to worry about too much pressure from inside his party; Democratic ranks in Congress from energy-producing states have thinned considerably in recent years, removing contrary voices inside the party.

A more dicey issue relates to contestable states like Ohio, Pennsylvania, and Michigan, where many see the energy boom as a source of economic recovery. To make their case in these and other swing states, Republicans first have to make energy the overall revival of the American economy—the key issue for this November’s election. If they insist on campaigning primarily as stolid defenders of rigid social values and election-year promises of painless tax cuts, they will have themselves to blame for their drubbing in November.

Don’t Bet Against The (Single-Family) House

Joel Kotkin — Wed, 29 Feb 2012 14:55:33 +0000

Appearing in:

Forbes.com

Nothing more characterizes the current conventional wisdom than the demise of the single-family house. From pundits like Richard Florida to Wall Street investors, the thinking is that the future of America will be characterized increasingly by renters huddling together in small apartments, living the lifestyle of the hip and cool — just like they do in New York, San Francisco and other enlightened places.

Many advising the housing industry now envisage a “radically different and high-rise” future, even though the volume of new multi-unit construction permits remains less than half the level of 2006. Yet with new permits at historically low levels as well for single-family houses, real estate investors, like the lemmings they so often resemble, are traipsing into the multi-family market with sometimes reckless abandon.

Today the argument about the future of housing reminds me of the immortal line from Groucho Marx:Who are you going to believe, me or your lyin’ eyes? Start with the strong preference of the vast majority of Americans to live in detached houses rather than crowd into apartments. “Many things — government policies, tax structures, financing methods, home-ownership patterns, and availability of land — account for how people choose to live, but the most important factor is culture,” notes urban historian Witold Rybczynski.

Homeownership and the single-family house, Rybczynski notes, rests on many fairly mundane things — desire for privacy, need to accommodate children and increasingly the needs of aging parents and underemployed adult children. Such considerations rarely enter the consciousness of urban planning professors, “smart growth” advocates and architectural aesthetes swooning over a high-density rental future.

Just look at the numbers. Over the last decade— even as urban density has been embraced breathlessly by a largely uncritical media — close to 80% of all new households, according to the American Community Survey, chose to settle in single-family houses.

Now, of course, we are told, it’s different. Yet over the past decade, vacancy rates rose the most in multi-unit housing, with an increase of 61%, rising from 10.7% in 2000 to 17.1% in 2010. The vacancy rate in detached housing also rose but at a slower rate, from 7.3% in 2000 to 10.7% in 2010, an increase of 48%. Attached housing – such as townhouses – posted the slightest increase in vacancies, from 8.4% in 2000 to 11.0% in 2010, an increase of 32%.

The attractiveness of rental apartments may soon be peaking just in time for late investors to take a nice haircut. Rising rents, a byproduct of speculative buying of apartments, already are making mortgage payments a more affordable option in such key markets as Atlanta, Chicago, Miami, Phoenix and Las Vegas.

Urbanist pundits often insist the rush to rental apartments will be sustained by demographic trends. One tired cliché suggest that empty nesters are chafing to leave their suburban homes to move into urban apartments. Yet, notes longtime senior housing consultant Joe Verdoon, both market analysis and the Census tells us the opposite: most older folks are either staying put, or, if they relocate, are moving further out from the urban core.

The two other major drivers of demographic change — the millennial generation and immigrants — also seem to prefer suburban, single-family houses. Immigrants have been heading to the suburbs for a generation, so much so that the most diverse neighborhoods in the country now tend to be not in the urban core but the periphery. This is particularly true in Sunbelt cities, where immigrant enclaves tend to be in suburban areas away from the core.

Millennials, the generation born between 1983 and 2003, are often described by urban boosters as unwilling to live in their parent’s suburban “McMansions.” Yet according to a survey by Frank Magid and Associates, a large plurality define their “ideal place to live” when they get older to be in the suburbs, even more than their boomer parents.

Ninety-five million millennials will be entering the housing market in the next decade, and they will do much to shape the contours of the future housing market. Right now many millennials lack the wherewithal to either buy a house or pay the rent. But that doesn’t mean they will be anxious to stay tenants in small places as they gain some income, marry, start a family and simply begin to yearn for a somewhat more private, less harried life.

In the meantime, many across the demographic spectrum are moving not away from but back to the house. One driver here is the shifting nature of households, which, for the first time in a century are actually getting larger. This is reflected in part by the growth of multi-generational households.

This is widely believed to be a temporary blip caused by the recession, which clearly is contributing to the trend. But the move toward multigenerational housing has been going on for almost three decades. After having fallen from 24 percent in 1940 to barely 12 percent in 1980, the percentage topped over 16 percent before the 2008 recession took hold. In 2009, according to Pew Research Center, a record 51.4 million Americans live in this kind of household.

Instead of fading into irrelevance, the single-family house seems to be accommodating more people than before. It is becoming, if you will, the modern equivalent of the farm homestead for the extended family, particularly in expensive markets such as California. This may be one of the reasons why suburbs — where more than half of owner-occupied homes are located — actually increased their share of growth in almost all American metropolitan areas through the last decade.

Some companies, such as Pulte Homes and Lennar, are betting that the multi-generational home — not the rental apartment — may well be the next big thing in housing. These firms report that demand for this kind of product is particularly strong among immigrants and their children.

Lennar has already developed models — complete with separate entrances and kitchens for kids or grandparents — in Phoenix, Bakersfield, the Inland Empire area east of Los Angeles and San Diego, and is planning to extend the concept to other markets. “This kind of housing solves a lot of problems,” suggests Jeff Roos, Lennar’s regional president for the western U.S. “People are looking at ways to pool their resources, provide independent living for seniors and keeping the family together.”

But much of the growth for multigenerational homes will come from an already aging base of over 130 million existing homes. An increasing number of these appear to being expanded to accommodate additional family members as well as home offices. Home improvement companies like Lowe’s and Home Depot already report a surge of sales servicing this market.

A top Home Depot manager in California traced the rising sales in part to the decision of people to invest their money in an asset that at least they and their family members can live in. “We are having a great year ,” said the executive, who didn’t have permission to speak for attribution. “ I think people have decided that they cannot move so let’s fix up what we have.”

These trends suggest that the widely predicted demise of the American single family home may be widely overstated. Instead, particularly as the economy improves, we may be witnessing its resurgence, albeit in a somewhat different form. Rather than listen to the pundits, perhaps it would be better to follow what’s before your eyes. Don’t give up the house.

President Obama Courts Silicon Valley’s New Digital Aristocracy

Joel Kotkin — Thu, 16 Feb 2012 14:50:05 +0000

Appearing in:

The Daily Beast

President Obama’s San Francisco fundraiser with the tech elites today, along with the upcoming IPO for Facebook, marks the emergence of a new, potentially dominant political force well on its way to surpassing Hollywood and even Wall Street as the business bulwark of the Obama Democratic Party.

In 2008 the industry gave Obama more than $9 million, three times what it raised for any other politician; it was the first time the digerati outspent Hollywood. The numbers will surely go up this year.

“The Facebook instant millionaires and billionaires are about all Democrats,” said Morley Winograd, a longtime California Democratic activist and chronicler of information-age politics. “There’s an enormous amount of power residing there—and it will only get greater.”

Even when they’ve competed with and acted like more established power brokers, the digital ruling class are treated with kid gloves compared to other wealthy elites, rarely suffering the disdain aimed at amoral bankers and at Hollywood’s general venality. Instead, the creators of our iPhones, social networks and Twitter accounts are held up as tool makers and business titans. That esteem is most pronounced among millenials, 75 percent of whom use social media, more than twice the percentage for boomers, according to Pew. When asked what makes their generation “unique,” the most common answer to the open-ended question is technology.

Those who will benefit most from Facebook and other IPOs resemble the “one percent” about as much as Wall Street. , Marcio Jose Sanchez / AP Photo

In effect, it’s OK to be in the “1 percent”—or even the .0001 percent—if you develop nifty devices and invest in green companies. "We live in a bubble, and I don't mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world," Google chairman Eric Schmidt recently told the San Francisco Chronicle. "And what a world it is: companies can't hire people fast enough. Young people can work hard and make a fortune. Homes hold their value. Occupy Wall Street isn't really something that comes up in daily discussion, because their issues are not our daily reality."

For their part, the “Occupiers” who struggled mightily to shut down the blue-collar Port of Oakland seem to never have considered an action against the pampered techies at Facebook’s lavish campus.

The new plutocrats are unburdened by the obligations that come with existing large institutions; with no union presence, they don’t have to worry about anxious retirees or redundant older workers. Green pet causes that align with their financial interests buy more cover from the left, while conservatives, who rarely see anything wrong with extreme wealth, seem somewhat unconscious about the political orientation of the emerging new elite. Ninety-two percent of Facebook executive donations so far this year went to Democrats. This exceeds even the rock-solid support the Democrats enjoy among more established firms like Google and Apple, where support for Democrats runs to the high 80s. Although its former CEO, Meg Whitman, ran as the Republican candidate for governor in 2010, 96 percent of eBay-associated donations went to Democrats. The Seattle area’s two top digital firms, Amazon and Microsoft make two thirds or more of their donations to Democrats.

The Obama administration’s opposition to the anti-piracy bills SOPA and PIPA came despite intense lobbying for the bill by his party’s long-time allies in Hollywood. Whatever the bills’ failings, their defeat also formally introduced the new power of the digerati moguls and their millions of followers. The presence of Steve Jobs's wife, Lauren, as Michelle Obama’s guest at the State of the Union speech further cemented the ever-closer ties between the valley’s upper echelon and the president’s party.

In California, the alliance between progressive Democrats and high tech is palpable. The digital elite has been a consistent backer of Gov. Jerry Brown’s jihad on greenhouse gases, helping finance the campaign against a 2010 measure intended to reform state’s draconian and likely job-killing energy and land-use laws. Google has emerged both as a key backer of the state’s climate-change politics and sought to profit by investing nearly a billion dollars in renewable-energy companies. These firms in turn depend on the state’s strict mandates on utilities to use “green” electricity for their revenues. It’s no coincidence that prominent valley VCs have been particularly active in alternative-energy firms such as Solyndra.

Brown and the Democratic Party increasingly have come to regard these companies as a potential source of fiscal salvation for the perennial cash-short state. As the Golden State has banked on the valley, the tech firms have become ever more indispensable and now are even dipping their toes in the grubby waters of municipal politics, helping finance the campaign of San Francisco Mayor Ed Lee—who generously concocted new tax breaks for local firms such as Twitter and Zynga.

The leftward shift by tech firms is a fairly recent development. In the 1970s and 1980s, the formative period for Silicon Valley, the area was politically contested. Valley constituencies routinely sent to Congress moderate Republicans like Pete McCloskey, Ed Zschau, and Tom Campbell. Today the GOP is virtually absent from the valley at all levels of government.

Some old-line companies, like Hewlett-Packard and Intel, still tend to be fairly evenhanded in their political donations, but they are increasingly rare. Long-time valley maven Leslie Parks explains that the shift came as the Valley’s economy changed. In the 1980s and 1990s—the area’s greatest period of growth—its roots stood solidly in high-tech manufacturing. Now it focuses almost exclusively on product design and information: software, search, and social media. Over the past decade the San Jose area lost one third of its industrial workforce while the neighboring San Francisco region lost some 40 percent—the largest consistent loser among the nation’s 51 metropolitan areas.

High-tech firms once concerned themselves with many of the same things as other manufacturing companies. They worried about electricity rates, obtrusive environmental legislation, high housing prices, and dysfunctional public education. Many naturally supported Republicans, or business-oriented Democrats.

But as tech separated from industry, the valley moved leftward.

Today’s digital aristocrats manufacture virtually nothing here; anything made in volume is produced outside California and usually out of the country. Software-based firms don’t worry about energy costs, since they can simply place their heavy user server farms in places like the Pacific Northwest with low electricity rates. They do not use much in the way of toxic chemicals or groundwater, making it easier to avoid scrutiny and harassment from California’s hyper-aggressive environmental regulators. Because they rely on an increasingly narrow band of highly educated employees from elite schools, the secular decline of the state’s higher education system hardly impacts them. And as many of their employees are young and tend to buy houses after collecting the spoils of an IPO, even high housing costs and poor public K-12 education don’t matter much.

The growing diversity of the valley has also helped the Democrats. Although relatively few Latinos or African-Americans work in the new companies, new immigrants from Asia and the Middle East and their offspring abound. “You had a big change in diversity, and let’s face it the Republicans do not do well with diversity,” said Parks, who is Japanese-American. “The Democrats, particularly Obama, recognized appealing to these people was a necessity.”

Many who celebrate this emerging power elite are still slow to recognize that they are in these company’s sights. As we become more dependent on internet based news and entertainment, cultural power is migrating away from New York publishers and Los Angeles studios towards Palo Alto and Menlo Park. Old-line media firms such as newspapers, book companies and the major networks may find themselves overmatched.

This growing power may do more to concentrate economic power than any development since the Second World War. With their stockpile of personal data on their hundreds of millions of users, firms like Google and Facebook could prove the biggest threat to privacy since Big Brother. As Jason Lanier, a scholar-at-large at Microsoft Research, noted in a recent New York Times op-ed piece, the same companies that led the fight to keep the Internet “free” want to sell hundreds of billions of dollars in advertising built from that free, user-provided information.

While the old valley empowered people by supplying technology, says Chicago law professor Lori Andrews, social-media firms instead leverage our personal information into fodder for not just advertisers but people reviewing job applications, medical records, and more.

What’s more, the dominant firms are rapidly becoming oligopolies. In the old days, valley companies battled over everything from semiconductor chips and disk drives to servers and operating systems. In contrast, today’s digital industry tends to gravitate to the best-financed (usually by venture capital) and most well-connected companies. Microsoft, for example, still controls 90 percent of the operating-system-software industry; Facebook is likely to continue with a 60 percent to 70 percent share of the social-media marketplace. Google enjoys a higher than 80 percent share in search.

This is a degree of control that exists in few older industries. Like the railroads of the old robber barons, those few firms who control the limited number of digital platforms can limit the profitability of smaller would-be competitors—and could end up slowing the rate of innovation in order to maintain their own positions. They may wear T-shirts to work, but the tycoons of Silicon Valley are, in some respects, J.P. Morgan’s true heirs.

Populism may now be de rigeur inside of the Democratic Party, but the world being created by the new digital haute bourgeoise is anything but social democratic. Parks notes that the lower end of the valley economy, like janitors or food-service workers, generally labor for flinty-eyed outside contractors so they share as little as possible of the wealth collected by higher-skilled employees.

Even Silicon Valley’s geography is increasingly unfriendly to the mass middle class, much less the aspiring working class. Due largely to strict land-use regulations, median housing costs, even adjusted for income, are among the highest in the nation, more than twice as high as those in places like Raleigh, Salt Lake City, Houston. or Dallas. With a 2,300-square-foot home in Palo Alto going for nearly $1.8 million, the digital heartland is largely off limits for most of us.

Those who will benefit most from Facebook and other IPOs resemble the “1 percent” about as much as Wall Street. They may see themselves as “progressive,” but they create few broad-based opportunities for members of the middle and working class. A bit of their wealth may trickle down to Democratic politicians, but the rest of us, as dependent as we have become on their technology, have reaped little financial benefit from them. Whatever the value of their creative efforts, the new digital aristocracy’s political ascendency threatens both the populist roots of the Democratic Party and perhaps the delicate social balance of our Republic as well.