Where’s Next: November May Determine Regional Winners


As the recovery begins, albeit fitfully, where can we expect growth in jobs, incomes and, most importantly, middle class opportunities? In the US there are two emerging “new” economies, one largely promoted by the Administration and the other more grounded in longer-term market and demographic forces.

The November election and its subsequent massive expansion of federal power may have determined which regions win the post-bust economy, but the stakes in November are particularly acute for some prime beneficiaries of what could be called the Obama economy: the education lobby, Silicon Valley venture firms, Wall Street, urban land interests and the public sector. All backers of his 2008 campaign, these groups have either reaped significant benefits from the stimulus or have used it to bolster themselves from the worst impact of the recession.

In a sense the Obama policies are designed to overturn the pattern of economic dispersion –towards the exurbs, the south, the intermountain West, and more recently the Plains – that has defined the last half century. The biggest winner, in regional terms, is the Washington area. Even as local governments cut back, the federal establishment continues to swell. Federal employment, excluding the postal service, remains roughly 200,000 larger than in 2008.

It is not surprising then that the capital district enjoys the highest job growth since December 2009 of any region. Indeed, the Great Recession barely even hit the imperial center. Given its current trajectory, it’s likely to remain the primary boom town along the east coast.

There are other less obvious regional winners from Obamanomics. Wall Street, despite its recent wailing, has fattened itself on the Fed’s cheap money. It may benefit further from highly complex new financial regulations that will drive smaller, regional competitors either out of business or into mergers with the megabanks.

Manhattan – a liberal bastion dependent on arguably the greediest, most venal purveyors of capitalism – enjoyed a revived high end consumer economy of high fashion, fancy restaurants and art galleries. Silicon Valley’s financial community also is seeing a surfeit of grants and subsidies for the latest venture schemes, keeping Palo Alto and its environs relatively prosperous. Perhaps this is the positive “change” that Time recently credited in its paen to the stimulus.

Other regional winners from the Obama economy generally can be found in state capitals and University towns, particularly those with the Ivy or elite college pedigrees that resonate with this most academic Administration. One illustration can be seen in the relatively strong recovery of Massachusetts – home to many prestigious Universities and hospitals – which has seen jobs grow by 2.2 percent since the Obama ascension.

Similar, albeit less dramatic recoveries can be found in Columbus, Madison and Minneapolis-St.Paul, with their large university communities and regional federal employment centers. Yet the political benefits of this growth may be limited. Many other parts of these same states, including the outer boroughs of New York are not doing well; aside from Columbus, Ohio has continued to skid as its industrial and corporate base dwindles, often moving to more business friendly states.

At the same time, the strongest growth clusters in those regions that stick to the basics: relatively low taxes, pro-business regulations and continued infrastructure investment. Some regions – particularly in Texas, Alaska, Wyoming and the Great Plains – also have benefited from the growth in such basic industries as agriculture, oil and mining.

Like resource-producing Canada and Australia, which barely felt the great recession, these economies have been boosted by continued growth in demand from countries like India and China. The current rise in food commodity prices, in part due to poor conditions in Russia and other former Soviet Republics, may further intensify this trend. Beyond the current food crisis, changing consumer tastes in boom markets like China seem certain to boost demand for such products as corn, used to help meet that country’s soaring demand for pork and other meat products.

But perhaps even more important, once the economy recovers these areas – with their business friendly regimes and lower costs – may continue to siphon much of the next wave of industrial and even tech growth from the more expensive, largely Obama-friendly regions. Caterpillar, for example, one of the likely beneficiaries of expanded exports, recently announced plans to open a new assembly plant not in its Midwestern base but in Victoria, outside Houston.

This trend has been building for at least a generation and seems likely to intensify under today’s highly competitive global business environment. If we start seeing a recovery in such things as auto sales, one can expect much of the new demand to be meant in efficient, largely foreign owned factories that have been gearing up across the Southeast. Unless powerful federal intervention forces Americans to buy General Motors products like the Volt, consumer preference is likely to be strongest for smart, fuel efficient brands built largely in towns from southern Ohio down to Texas.

Perhaps even more significantly, these areas are also challenging the Obama regions in such fields as high-technology. Tech hiring has picked up in places like Silicon Valley, New York and DC, but consistently the fastest growth in science, engineering and technical jobs has been in low-cost states such as North Dakota, Virginia, New Mexico, Utah and Texas. Just recently, several major Silicon Valley powerhouses – Adobe, Twitter, Electronic Arts and eBay – announced major new expansions in Utah, a state that is among a brood seeking to move prized businesses, including even entertainment, from the Golden State.

To a distressingly large extent, the fate of these two distinct economies may hinge on the outcome in November. If the Republicans gain an effective blocking majority – perhaps with a handful of centrist Democrats from growth-oriented states – many favored programs of the Obama economy may be cut or eliminated entirely. These include high-speed rail, increased subsidies for new light rail lines, massive investments in University research and investment breaks for renewable fuels.

On the other hand, if the Democratic majority persists the tilt towards the Obama economy may even become stronger, as the Democrats will be the ones primarily losing their seats in many growth states. Many policies inimical to the growth states – support for government satrapies like General Motors, tougher restrictions on domestic fossil fuel development and policies designed to curb suburban single family housing – might even intensify.

In this sense, we need to see November as much as a conflict between growth economies as an ideological contest. The results could determine what regions are next to boom, and whose economy will slow or even decline. What might be best – a compromise recognizing the need to boost growth in all regions – may be a too far a stretch of logic in this political climate.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. 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 by bcbeatty

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Joel, I've heard the debate

I've heard the debate about electric cars- the fact that they use coal-generated electricity- for a few years now. I actually had the privilege of seeing the Volt in person for a special GM event and some of those same questions came up. I've also done some studying of my own and came to a few conclusions.

First of all, its a matter of energy supply. We have something like 300-350 years worth of coal left in the US. It is for the most part a dirt-cheap fuel. Is it dirty? That depends on the plant. One of the plants near us is gigantic and uses a series of scrubbers which removes about 80% of the particulate matter. That's about what you'd get from a modern clean diesel engine. Some older plants might be dirtier but there are plenty of plants that burn coal somewhat cleanly. But the bottom line is that there is a HUGE amount of coal out there and its all from domestic sources.

As far as the cars themselves, the battery is key and in the last 5 years the technology in them has increased drastically. A few years ago nobody in their right mind would stick Lithium Ion batteries in a car. Now Nissan, Ford, and GM all have cars coming out using these as the primary battery. GM's EV1 had a battery that was twice as large and had a fraction of the energy density of today's batteries. In due time the technology will only get better. They are essentially today's equivalent of the microprocessor circa 1990's.

A lot has been made about the strain these could put on the grid. But according to GM the Volt will use about the same amount of power as a deep freezer. So in other words- not much. The other thing to consider is that not everyone is going to run out and buy these immediately. The buildup of electric cars will be very gradual. At the same time a lot of the things we use in our homes have actually gotten more efficient. Like PCs for example. So while an electric car might add to the typical household's roster of "appliances", other appliances use less than they used to. So I suspect they won't really make that much of an impact.

I think where people make a mistake in viewing these cars is that they think the cars will solve the overall problem of energy consumption. The issue to me is less about energy and more about the source of the energy.

A few comments, especially

A few comments, especially pertaining to the commentary about the Southeast and the Chevy Volt. As a native Southerner living in California with likely plans to move back to the South at some point, I can definitely concur that my home region has benefited enormously from economic developments, especially in manufacturing. Nissan, Toyota, BMW, Mercedes, and various other big and small manufacturing industries have setup shop there. The primary reasons are simple enough: The entire region was economically depressed for the better part of 120 years, land, labor, and housing was dirt-cheap.It was basically ripe for development. In many cases Southern states have given huge tax incentives to both foreign and domestic companies in efforts to lure them in. Its been a largely successful strategy. If anything I'd say you could call it a Renaissance.

But one could also compare the robust economic expansion of the Southeast to that of the economic expansion in countries like India and China. The US is like a miniature version of the global economy, with the tired old former glory areas like the Coasts and the Midwest losing out to newer, cheaper, fresher areas in the Southeast. This trend will likely continue for another decade at least.

As far as the Volt, well yes, the car is expensive for what it is: $40,000. But that said, there is a huge amount of interest in the car and the initial production numbers are tiny compared to that of other models: Around 10,000 to start with. The interest has been so huge that GM decided to ramp-up production for the following year. Early adopters are willing to shell out the cash on such items- just like those who paid $700 to have the first iPhones.

good point

your analysis of us a a global country is right on - not just in terms of economic development but differing cultures as well.

as for the volt, well, i am a bit skeptical on the market although perhaps they can force-feed them to governments.

what strikes me as odd is why we would focus on electricity - most of which is produced with coal or oil - instead of natural gas cars.


Why not a Cadillac Volt

After all people are willing to spend more on a Cadillac than a Chevy, yet basically both get you where you are going, with today basically the same comfort. GM is missing a bet by not putting a volt in Cadillac clothing, since it could charge more and get the consuming class to buy it.
As to why electricity and not natural gas. Natural gas is the ideal foil for renewable s, a gas turbine combined cycle plant runs 60% efficient, and can start at short notice. So it is the idea fuel for a backup to solar and wind.